As filed with the Securities and Exchange Commission on July
27, 2005
Registration
No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HENRY BIRKS & SONS INC.
(Exact name of registrant as specified in its charter)
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CANADA
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5944
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Not Applicable
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employee
Identification Number)
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1240 Square Phillips, Montreal, Quebec, Canada, H3B 3H4,
(514) 397-2511
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
CT Corporation System
111 Eighth Avenue,
13
th
Floor
New York, NY 10011
(212) 590-9331
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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Sabine Bruckert, Esq.
Vice President, General Counsel
and Corporate Secretary
Henry Birks & Sons Inc.
1240 Square Phillips
Montreal, Quebec, Canada, H3B 3H4
(514) 397-2511
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Brice T. Voran, Esq.
Shearman & Sterling LLP
Commerce Court West
199 Bay Street, Suite 4405,
Toronto, ON, Canada M5L 1E8
(416) 360-8484
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Rodney H. Bell, Esq.
Holland & Knight LLP
701 Brickell Avenue
Suite 3000
Miami, Florida 33131
(305) 374-8500
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C. William Baxley, Esq.
King & Spalding LLP
191 Peachtree Street
Atlanta, Georgia 30303
(404) 572-4600
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Approximate date of commencement of proposed sale to the
public:
As soon as practicable after the effective date of
this Registration Statement and the date on which all other
conditions to the merger described herein have been satisfied or
waived.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering Price
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Aggregate
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Registration
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Securities to be Registered
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Registered(1)
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per Share(2)
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Offering Price(3)
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Fee
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Class A voting shares
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1,859,738
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$6.56
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$12,191,499.15
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$1,434.94
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(1)
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Represents the estimated maximum number of Class A voting
shares that may be issued to the holders of common stock, par
value $0.0001 per share, of Mayor’s Jewelers, Inc.
based on the product of (a) 21,388,595, the number of
shares of common stock of Mayor’s Jewelers, Inc. to be
exchanged pursuant to the merger as described herein and
(b) the exchange ratio of 0.08695 Class A voting
shares of the Registrant that may be exchanged for each share of
Mayor’s Jewelers, Inc. common stock.
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(2)
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Represents the estimated maximum offering price of a
Class A voting share based on (a) $0.57, the average of the
high and low sale prices for shares of Mayor’s Jewelers,
Inc. common stock as reported on the American Stock Exchange on
July 25, 2005, divided by (b) the exchange ratio of
0.08695 Class A voting shares of the Registrant that may be
exchanged for each share of Mayor’s Jewelers, Inc. common
stock.
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(3)
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The proposed maximum aggregate offering price has been computed
pursuant to Rule 457(c) and Rule 457(f)(1) under the
Securities Act of 1933 as amended, solely for the purpose of
calculating the registration fee and is based on the product of
(a) $0.57, the average of the high and low sale prices for
shares of Mayor’s Jewelers, Inc. common stock as reported
on the American Stock Exchange on July 25, 2005, and
(b) 21,388,595, the number of such shares that may be
exchanged for the Class A voting shares of the Registrant
being registered hereby.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
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The information in
this proxy statement/ prospectusm is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This 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.
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SUBJECT TO COMPLETION, DATED JULY 27,
2005
MAYOR’S JEWELERS, INC.
14051 N.W.
14
th
Street,
Suite 200
Sunrise, Florida 33323
,
2005
To the Stockholders of Mayor’s Jewelers, Inc.:
The board of directors of Mayor’s Jewelers, Inc., based on
the unanimous recommendation of a special committee of its
independent directors, has approved a merger agreement that will
have the effect of combining the businesses and stockholders of
Henry Birks & Sons Inc. and Mayor’s. Mayor’s
is currently a majority-owned subsidiary of Birks. In the
proposed merger, Mayor’s will become a wholly-owned
subsidiary of Birks. Mayor’s believes that the merger will
benefit its stockholders and asks for your support in voting in
favor of the merger at a special and annual meeting of
Mayor’s stockholders to be held at 10:00 a.m., local
time,
on ,
2005 at the Renaissance Hotel, 1230 South Pine Island Road,
Plantation, Florida 33324. At the special and annual meeting you
will also be asked to elect one director to Mayor’s board,
to ratify the appointment of KPMG LLP as Mayor’s
independent registered public accounting firm for the fiscal
year ending March 25, 2006 and to transact such other
business as may properly come before the special and annual
meeting or any adjournment or postponements thereof.
In the merger, you will receive 0.08695 Class A voting
shares of Birks for each share of Mayor’s common stock that
you own. Fractional shares will not be issued, but a cash
payment will be made for those fractional shares. The merger
will generally be a tax-free transaction for Mayor’s
U.S. stockholders except to the extent that such
stockholders receive cash instead of fractional shares. As of
the date of this proxy statement/ prospectus, the shares of
Mayor’s common stock and preferred stock held by Birks
represented 75.8% of Mayor’s total outstanding voting
power. Upon consummation of the merger, Mayor’s existing
public stockholders, which currently own approximately 24.2% of
the equity and voting power in Mayor’s, will own
approximately 53.3% of the outstanding Birks Class A voting
shares, representing 16.6% of the equity in Birks and 2.3% of
the voting power, in each case based on the number of Birks
voting shares expected to be outstanding immediately after the
merger. Birks will own 100% of the outstanding common stock of
Mayor’s. Current Mayor’s stockholders will continue to
have an indirect equity interest in Mayor’s through their
equity interest in Birks.
A special committee comprised of independent members of your
board of directors was formed to consider and evaluate the
proposed merger. The special committee believes the merger is a
strategic opportunity to fully integrate two strong regional
luxury brands into a single, integrated, company whose scale is
expected to create greater potential for short and long-term
growth and stockholder value. The special committee believes
that the combined company will have improved operating
efficiencies, more diversified revenue, more diversified
products, greater distribution capabilities and a leading
position in its core geographic markets, Florida, metropolitan
Atlanta and Canada.
The board of directors of Mayor’s recommends that the
stockholders of Mayor’s vote “FOR” the approval
and adoption of the merger agreement, “FOR” the
election of the director nominee and “FOR” the
ratification of the appointment of KPMG LLP as Mayor’s
independent registered public accounting firm for the fiscal
year ending March 25, 2006.
Approval and adoption of the merger agreement requires the
affirmative vote of (1) the holders of at least a majority
of Mayor’s outstanding stock entitled to vote thereon and
(2) the majority of Mayor’s disinterested
stockholders, which excludes Birks and each person that is an
affiliate or associate of Birks, that cast a vote, in person or
by proxy, at the special and annual meeting. Directors of
Mayor’s who are not affiliates or associates of Birks are
considered disinterested stockholders for purposes of voting on
the merger agreement. These directors (Emily Berlin, Elizabeth
M. Eveillard, Massimo Ferragamo, Stephen M. Knopik, Judith
MacDonald and Ann Spector Lieff) collectively, together with
their associates and affiliates, beneficially own approximately
1.9 million shares, or 5.0% of Mayor’s common stock.
These directors have indicated that they plan to vote their
shares in favor of the merger agreement, and their votes will
count in determining whether a majority of Mayor’s
disinterested stockholders has approved the merger.
Attached to this letter is an important document providing
detailed information concerning Birks, Mayor’s and the
merger and containing a more thorough explanation of the special
committee’s view of the merger, as well as other matters
related to the special and annual meeting.
PLEASE READ THIS
DOCUMENT CAREFULLY, INCLUDING THE SECTION DESCRIBING RISK
FACTORS BEGINNING ON PAGE 17.
Whether or not you plan to attend the special and annual
meeting, please submit your proxy promptly by completing, dating
and returning your proxy card in the enclosed envelope.
Returning the proxy card does not deprive you of your right to
attend the special and annual meeting and vote in person.
Neither the Securities and Exchange Commission nor any state
or Canadian provincial or territorial securities regulatory
authority has approved or disapproved the securities to be
issued in connection with the merger or determined if this proxy
statement/ prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This proxy statement/ prospectus is
dated ,
2005 and is expected to be first mailed to stockholders of
Mayor’s on or
about ,
2005.
We look forward to your support.
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Sincerely,
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Marc Weinstein
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Senior Vice President, Chief Administrative Officer, and
Secretary
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Mayor’s Jewelers, Inc.
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MAYOR’S JEWELERS, INC.
NOTICE OF SPECIAL AND ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
ON ,
2005
NOTICE IS HEREBY GIVEN that a special and annual meeting of
stockholders of Mayor’s Jewelers, Inc. will be held at
10:00 a.m., local time,
on ,
2005 at the Renaissance Hotel, 1230 South Pine Island Road,
Plantation, Florida 33324, for the following purposes:
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To approve and adopt the Agreement and Plan of Merger and
Reorganization, dated as of April 18, 2005, as amended as
of July 27, 2005, among Henry Birks & Sons Inc.,
Mayor’s and Birks Merger Corporation, a wholly-owned
subsidiary of Henry Birks & Sons Inc., a copy of which
is attached as Appendix A to the enclosed proxy statement/
prospectus;
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To elect one director of Mayor’s;
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To ratify the appointment of KPMG LLP as Mayor’s
independent registered public accounting firm for the fiscal
year ending March 25, 2006; and
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To transact such other business as may properly come before the
special and annual meeting.
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The board of directors of Mayor’s has fixed the close of
business
on ,
2005 as the record date for the special and annual meeting. Only
stockholders of record at the close of business on the record
date will be entitled to vote at the special and annual meeting.
Approval of the matters to be voted on at the special and annual
meeting other than to approve and adopt the merger agreement are
not a condition to the merger. If the merger is completed, the
other matters voted on at the special and annual meeting will,
as a result, be superseded.
MAYOR’S BOARD OF DIRECTORS, UPON THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE COMPRISED OF INDEPENDENT
MEMBERS OF THE BOARD OF DIRECTORS, RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENT.
Please do not send any stock certificate you may have at this
time.
You should read carefully and in its entirety the attached
proxy statement/ prospectus which includes a copy of the merger
agreement.
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By Order of the Board of Directors,
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Marc Weinstein
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Secretary
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,
2005
It is important that your shares be represented at the
special and annual meeting. Whether or not you plan to attend
the special and annual meeting, please submit your proxy
promptly by completing, dating and returning your proxy card in
the enclosed envelope. You may revoke your proxy at any time
until it is voted by a later dated proxy or by attending the
special and annual meeting and voting in person.
TABLE OF CONTENTS
You should rely only on the information contained in this
document to vote on the merger. Neither Birks nor Mayor’s
has authorized anyone to provide you with information that is
different from what is contained in this document.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
The consolidated financial statements of Henry Birks &
Sons Inc. and Mayor’s Jewelers, Inc. contained in this
proxy statement/ prospectus are reported in United States
dollars and have been prepared in accordance with accounting
principles generally accepted in the United States, or
U.S. GAAP. Unless otherwise indicated, all monetary
references herein are denominated in U.S. dollars;
references to “dollars” or “$” are to
U.S. dollars and references to “Cdn$” or
“Canadian dollars” are to Canadian dollars.
Throughout this proxy statement/ prospectus, Birks refers to its
fiscal years ended March 29, 2003, March 27, 2004 and
March 26, 2005 as fiscal years 2002, 2003 and 2004,
respectively. Birks’ fiscal year consists of 52 or
53 weeks, reported in four 13-week periods, and ends on the
last Saturday in March of each year. Fiscal years 2002, 2003 and
2004 included 52 weeks.
The following tables set forth certain exchange rates based on
the noon buying rate in the city of New York for cable
transfers in Canadian dollars as certified for customs purposes
by the Federal Reserve Bank of New York. Such rates are set
forth as U.S. dollars per Cdn$1.00 and are the inverse of
rates quoted by the Federal Reserve Bank of New York for
Canadian dollars per $1.00. On July 27, 2005, the inverse
of the noon buying rate was Cdn$1.00 equals $0.8136.
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Fiscal Year Ended
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March 31,
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March 30,
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March 29,
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March 27,
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March 26,
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2001
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2002
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2003
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2004
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2005
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Average
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$
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0.6648
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$
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0.6390
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$
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0.6450
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$
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0.7377
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$
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0.7810
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Month
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Jan. 2005
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Feb. 2005
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March 2005
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April 2005
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May 2005
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June 2005
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High
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$
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0.8346
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$
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0.8134
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$
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0.8322
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$
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0.8233
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$
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0.8082
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$
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0.8159
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Low
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$
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0.8050
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$
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0.7961
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$
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0.8024
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$
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0.7957
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$
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0.7872
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$
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0.7950
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NOTICE TO READERS
References in this proxy statement/ prospectus to
“Mayor’s” refer to Mayor’s Jewelers, Inc., a
Delaware corporation, and its subsidiaries. References in this
proxy statement/ prospectus to “Birks” refer to Henry
Birks & Sons Inc. and its subsidiaries, including
Mayor’s, which is a 75.8% owned subsidiary of Birks. Birks
acquired control of Mayor’s on August 20, 2002. As a
result, Birks’ results of operations for the periods after
the acquisition of Mayor’s include Mayor’s revenues
and expenses, while Mayor’s net losses (income) have been
allocated between Birks and the minority stockholders of
Mayor’s based on their respective ownership of Mayor’s
common stock as such ownership exists or changes from time to
time during each period covered by the financial statements.
1
QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address
briefly some commonly asked questions regarding the special and
annual meeting and the merger. These questions and answers may
not address all questions that may be important to you as a
Mayor’s stockholder. Please refer to the more detailed
information contained elsewhere in this proxy statement/
prospectus and the appendixes attached to this proxy statement/
prospectus.
When used in this section, as in the other sections of
this proxy statement/ prospectus, “Birks” refers to
Henry Birks & Sons Inc. and its subsidiaries, including
Mayor’s.
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Q1:
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What am I being asked to vote on?
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A1:
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You are being asked to vote to approve and adopt the Agreement
and Plan of Merger and Reorganization dated as of April 18,
2005, as amended as of July 27, 2005, which is referred to
in this proxy statement/ prospectus as the merger agreement,
among Birks, Mayor’s and Birks Merger Corporation, a
newly-formed, wholly-owned subsidiary of Birks. In this proxy
statement/ prospectus, Birks Merger Corporation is referred to
as Merger Co. As a result of the merger, Mayor’s will
become a wholly-owned subsidiary of Birks. Additionally, upon
consummation of the merger, Birks intends to change its name to
“Birks & Mayors Inc.”
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Q2:
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What will I receive in the merger?
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A2:
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In the merger, each share of your Mayor’s common stock will
be converted into the right to receive 0.08695 Class A
voting shares of Birks, which is referred to in this proxy
statement/ prospectus as the exchange ratio. The special
committee and Mayor’s board of directors received an
opinion from the financial advisor to the special committee,
Houlihan Lokey Howard & Zukin, which is referred to in
this proxy statement/ prospectus as Houlihan Lokey, that the
exchange ratio was, as of the date of the opinion, fair from a
financial point of view to Mayor’s stockholders.
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You will not receive any fractional Class A voting shares
of Birks in the merger. Instead, Birks will pay you cash for any
fractional Birks Class A voting shares you would have
otherwise received.
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For example, if you own 100 shares of Mayor’s common
stock, you will receive 8 Birks Class A voting shares plus
a cash payment equal to 0.695, the remaining fractional interest
in Birks Class A voting shares you would otherwise have
received, multiplied by the average closing price of Birks
Class A voting shares as reported by the American Stock
Exchange in the 20 consecutive trading days beginning on and
including the trading day immediately following the date of the
effective time of the merger, which if the average trading price
is $6.25 per share, would equal $4.34 in cash.
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Q3:
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How does Mayor’s board of directors recommend that I
vote?
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A3:
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Because several of the members of Mayor’s board of
directors are affiliates of Birks, a special committee comprised
of independent members of Mayor’s board of directors, which
is referred to in this proxy statement/ prospectus as the
special committee, was formed to consider and evaluate the
proposed merger. The special committee unanimously recommended
that Mayor’s board of directors approve and adopt the
merger agreement and that the board of directors recommend that
you vote “FOR” approval and adoption of the merger
agreement. Based on this recommendation, Mayor’s board of
directors recommends that you vote “FOR” approval and
adoption of the merger agreement.
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Q4:
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Why did the special committee recommend that Mayor’s
board of directors vote for approval and adoption of the merger
agreement?
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A4:
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The special committee believes the merger is a strategic
opportunity to fully integrate two strong regional luxury brands
into a single, integrated, company whose scale is expected to
create greater potential for short and long-term growth and
stockholder value. The special committee believes that the
combined company will have improved operating efficiencies, more
diversified revenue, more diversified products, greater
distribution capabilities and a leading position in its core
geographic markets: Florida, metropolitan Atlanta and Canada.
For a more detailed explanation of the beliefs of the
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special committee, see “The Merger — Mayor’s
Reasons for the Merger and Negative Factors Considered”
beginning on page 43.
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Q5:
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What vote of Mayor’s stockholders and what vote of Birks
shareholders is required in connection with the merger?
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A5:
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Approval and adoption of the merger agreement requires the
affirmative vote of (1) the holders of at least a majority
of Mayor’s outstanding stock entitled to vote on approval
and adoption of the merger agreement and (2) the majority
of Mayor’s disinterested stockholders, which excludes Birks
and each person that is an affiliate or associate of Birks, that
cast a vote, in person or by proxy, at the special and annual
meeting. Directors of Mayor’s who are not affiliates or
associates of Birks are considered disinterested stockholders
for purposes of voting on the merger agreement. These directors
(Emily Berlin, Elizabeth M. Eveillard, Massimo Ferragamo,
Stephen M. Knopik, Judith MacDonald and Ann Spector Lieff)
collectively, together with their associates and affiliates,
beneficially own approximately 1.9 million shares, or 5.0%
of Mayor’s common stock. These directors have indicated
that they plan to vote their shares in favor of the merger
agreement, and their votes will count in determining whether a
majority of Mayor’s disinterested stockholders has approved
the merger. All actions necessary for Birks’ approval and
adoption of the merger agreement have been taken.
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Q6:
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What happens if I do not vote?
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A6:
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Because Birks controls a majority of Mayor’s outstanding
voting stock, Birks will be able to ensure that holders of a
majority of Mayor’s voting stock approve the merger.
Nevertheless, approval and adoption of the merger requires the
affirmative vote of disinterested stockholders who vote their
shares at the special and annual meeting. Therefore, as a
disinterested stockholder, your vote is important and a failure
to vote will reduce the number of votes of disinterested
stockholders required to approve or reject the merger.
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Q7:
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Can the number of Birks Class A voting shares to be
issued in the merger for each share of Mayor’s common stock
change between now and the time the merger is completed?
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A7:
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No. The exchange ratio is a fixed ratio, which means that
it will not change even if the trading price of Mayor’s
common stock changes between now and the time the merger is
completed. See “Risk Factors” beginning on
page 17.
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Q8:
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What is the structure of the merger?
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A8:
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In the merger, Merger Co. will be merged with and into
Mayor’s. After the merger, Mayor’s will be the
surviving corporation and a wholly-owned subsidiary of Birks.
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Q9:
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Is Birks’ capital stock similar to Mayor’s?
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A9:
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No. Birks has a dual-class voting structure and will have
two classes of common shares outstanding: (1) Birks
Class B multiple voting shares, which are held by
Birks’ controlling shareholder group, and (2) Birks
Class A voting shares, which are held by all other Birks
shareholders and which Birks proposes to exchange for your
shares of Mayor’s common stock in connection with the
merger. The Birks Class B multiple voting shares have ten
votes per share whereas the Birks Class A voting shares
have one vote per share, which means that the holders of the
Birks Class B multiple voting shares will be able to
control Birks even if the economic value of their holdings in
Birks is less than that of the holders of Birks Class A
voting shares. After the merger, Birks will have no preferred
shares outstanding but its board of directors will have the
ability to issue different series of preferred shares with terms
and conditions established by the board and subject to
limitations. See “Description of Birks’ Capital
Stock,” beginning on page 138.
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Q10:
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After the merger, how much of the combined company will
Mayor’s stockholders own?
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A10:
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After the merger and the exchange of Mayor’s common stock
for Birks Class A voting shares, Mayor’s existing
stockholders other than Birks will own approximately 53.3% of
Birks Class A voting shares, representing 16.6% of the
equity in Birks and 2.3% of the voting power. After the merger
and the
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exchange of Mayor’s common stock for Birks Class A
voting shares, the current holders of Birks Class A voting
shares and the holders of Birks Class B multiple voting
shares will own approximately 83.4% of the equity in Birks and
control 97.7% of the voting power. See “The Merger
Agreement — Structure of the Merger.”
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PRE-MERGER STRUCTURE
(percentages represent equity ownership)
POST-MERGER STRUCTURE
(percentages represent equity ownership)
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Q11:
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What are the tax consequences of the merger to Mayor’s
stockholders?
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A11:
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The conversion of shares of Mayor’s common stock into the
right to receive Birks Class A voting shares in the merger
will be a tax-free reorganization for U.S. federal income
tax purposes and will not result in the recognition of gain
under Section 367 of the U.S. Internal Revenue Code
(except, under certain circumstances, in the case of a person
who owns, actually or constructively, 5% or more of the voting
power or value of the outstanding stock of Birks following the
merger). Accordingly, U.S. holders of Mayor’s common
stock generally will not recognize any gain or loss for
U.S. federal income tax purposes on the conversion of their
Mayor’s common stock into Birks Class A voting shares
in the merger. U.S. holders of Mayor’s common stock
may, however, recognize gain or loss for U.S. federal
income tax purposes with respect to any cash received instead of
a fractional Birks Class A voting share. See “The
Merger — Material U.S. Federal Income Tax
Consequences of the Merger.”
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In addition, the conversion of shares of Mayor’s common
stock into the right to receive Birks Class A voting shares
in the merger will not, in general, give rise to Canadian tax
for holders of Mayor’s common stock who are not and who are
not deemed to be resident in Canada. See “The
Merger — Material Canadian Federal Income Tax
Consequences of the Merger.”
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Q12:
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When do you expect the merger to be completed?
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A12:
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We expect to complete the merger as promptly as practicable
after we receive Mayor’s stockholder approval at the
special and annual meeting. We currently anticipate closing the
transaction in the fourth calendar quarter of 2005.
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Q13:
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What do I need to do now?
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A13:
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After carefully reading and considering the information
contained in this 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 and annual meeting.
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Q14:
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If my shares are held in “street name” by my
broker, will my broker vote my shares for me?
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A14:
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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.
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Q15:
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May I change my vote after I have mailed my signed proxy
card?
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A15:
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Yes. You may change your vote at any time before your proxy is
voted at the special and annual 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:
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Georgeson Shareholder Communications Inc.
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17 State St.,
28
th
Floor
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New York, New York 10004
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(212) 404-9800
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Attention: James Gill
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You can also attend the special and annual meeting and vote in
person. Simply attending the special and annual meeting,
however, will not revoke your proxy; you must vote at the
special and annual meeting.
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If you have instructed a broker to vote your shares, you must
follow the voting procedures received from your broker to change
your vote.
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Q16:
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If I want to attend the special and annual meeting, what do I
do?
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A16:
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You must come to the Renaissance Hotel, 1230 South Pine Island
Road, Plantation, Florida 33324 at 10:00 a.m., local time,
on ,
2005.
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Q17:
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Should I send in my stock certificates now?
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A17:
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No. If the merger is completed and you hold any
Mayor’s stock certificates, you will receive written
instructions from Birks for exchanging those Mayor’s stock
certificates for certificates representing Birks Class A
voting shares. You may not have received any stock certificates
because your shares of Mayor’s common stock were directly
registered. The written instructions you will receive will
advise you what to do if your shares were directly registered.
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Q18:
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What if I cannot find my stock certificate?
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A18:
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There will be a procedure for you to receive Birks Class A
voting shares in the merger even if you lost one or more of your
Mayor’s stock certificates. This procedure, however, may
take time to complete. In order to ensure that you will be able
to receive your Birks Class A voting shares promptly after
the merger is completed, if you cannot locate your Mayor’s
stock certificates after looking for them carefully, we urge you
to contact Mayor’s transfer agent, SunTrust Bank, as soon
as possible and follow the procedure for replacing your
Mayor’s stock certificates. Letitia Radford, Mayor’s
SunTrust Bank representative, can be reached at 404-588-7817, or
you can write to SunTrust Bank at the following address:
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SunTrust Bank
58 Edgewood Avenue, Suite 225
Atlanta, GA 30303
Attention: Ms. Letitia Radford
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Q19:
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Can I dissent and require appraisal of my shares?
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A19:
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No. Under the Delaware General Corporation Law,
Mayor’s stockholders are not entitled to appraisal rights
in connection with the merger. See “The Merger —
No Appraisal Rights.”
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Q20:
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Are there risks I should consider in deciding whether to vote
for the merger?
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A20:
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Yes. We have set forth in the section entitled “Risk
Factors” beginning on page 17 of this proxy statement/
prospectus a number of risk factors that you should consider
carefully in connection with the merger.
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Q21:
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Who can help answer my additional questions about the
merger?
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A21:
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If you have questions about the merger, you should contact:
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Georgeson Shareholder Communications Inc.
17 State St.,
28
th
Floor
New York, New York 10004
(212) 404-9800
Attention: James Gill
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or
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Marc Weinstein
Senior Vice President, Chief Administrative Officer, and
Secretary
Mayor’s Jewelers, Inc.
14051 N.W.
14
th
Street,
Suite 200
Sunrise, Florida 33323
(954) 846-2701
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6
SUMMARY
This summary highlights selected information from this proxy
statement/ prospectus. It does not contain all of the
information that may be important to you. You should carefully
read this entire proxy statement/ prospectus and the other
documents to which this document refers, for a more complete
understanding of the matter being considered at the special and
annual meeting. See “Where You Can Find More
Information” on page 187.
Unless we have otherwise stated or the context otherwise
requires, all references in this proxy statement/ prospectus to
“Birks” are to Henry Birks & Sons Inc. and
its subsidiaries, which includes Mayor’s Jewelers, Inc. and
its subsidiaries; all references to “Mayor’s” are
to Mayor’s Jewelers, Inc. and its subsidiaries; all
references to “Merger Co.” are to Birks’
wholly-owned subsidiary Birks Merger Corporation; all references
to “dollars” or “$” or “US$” are
to U.S. dollars; all references to “Cdn$” are to
Canadian dollars; all references to the “merger
agreement” are to the Agreement and Plan of Merger and
Reorganization, dated as of April 18, 2005, as amended as
of July 27, 2005, attached to this proxy statement/
prospectus as Appendix A; all references to “Birks
Class A voting shares” are to Birks Class A
Voting Shares; all references to “Birks Class B
multiple voting shares” are to Birks Class B Multiple
Voting Shares; all references to “Mayor’s common
stock” are to Mayor’s common stock, par value
$0.0001 per share; all references to “Mayor’s
preferred stock” are to Mayor’s Series A-1
Convertible Preferred Stock; and all references to
“Mayor’s voting stock” are to Mayor’s common
stock and Mayor’s preferred stock combined.
The Companies
Birks is a leading North American luxury retail jeweler. As of
March 26, 2005, Birks operated 66 luxury jewelry stores, 38
stores under the “Henry Birks & Sons” brand,
referred to in this proxy statement/ prospectus as the
“Birks brand”, located in all major cities across
Canada, and 28 stores under the “Mayors Jewelers”
brand, referred to in this proxy statement/ prospectus as the
“Mayors brand”, located in Florida and metropolitan
Atlanta, Georgia. Birks’ stores operating under the Mayors
brand are operated through Mayor’s. As a luxury jeweler,
most of Birks’ jewelry products are constructed of 18 karat
gold, platinum or sterling silver, with or without precious
gemstones, with significant emphasis on quality craftsmanship
and design. For the fiscal year ended March 26, 2005, Birks
had net sales of approximately $239.3 million.
Birks’ predecessor was founded in Montreal in 1879 and
developed over the years into Canada’s premier retailer,
designer and manufacturer of fine jewelry, timepieces, sterling
and plated silverware and gifts. In addition to being a
nationwide retailer with a strong brand identity, Birks is also
highly regarded in Canada as a jewelry manufacturer and provider
of recognition programs, service awards and business gifts. In
August 2002, Birks acquired approximately 72% of the voting
control in Mayor’s for an investment of
$15.05 million. Since then, the operations of Birks and
Mayor’s have been progressively integrated. Birks is a
Canadian corporation. Its corporate headquarters are located at
1240 Square Phillips, Montreal, Quebec, Canada H3B 3H4.
Birks’ telephone number is (514) 397-2511.
Merger Co. is a Delaware corporation and a wholly-owned
subsidiary of Birks. Merger Co. was organized on April 7,
2005 solely for the purpose of effecting the merger with
Mayor’s. It has not carried on any activities other than in
connection with the merger agreement.
Mayor’s is a leading luxury retail jeweler of fine quality
jewelry, watches and giftware, and Mayor’s business,
through its predecessor has been operating since 1910. Since
August 20, 2002, Mayor’s has been a majority-owned
subsidiary of Birks. As of March 26, 2005, Mayor’s
operated 28 stores in Florida and metropolitan Atlanta, Georgia.
Mayor’s has a long-established reputation in its core
market areas as a leading luxury jeweler offering fine quality
merchandise in an elegant environment conducive to the purchase
of
7
luxury items. Mayor’s is a Delaware corporation. Its
corporate headquarters are located at 14051 N.W.
14th Street, Suite 200, Sunrise, Florida 33323.
Mayor’s telephone number is (954) 846-8000.
Recent Developments
During the financial reporting process associated with
Mayor’s third fiscal quarter 2004, Mayor’s determined
that errors had occurred in its accounting treatment of warrants
that were issued by Mayor’s to Birks in connection with
Birks’ acquisition of a controlling interest in
Mayor’s, some of which were later assigned by Birks to
certain individuals affiliated with Birks who were or later
became employees of or provided services to Mayor’s.
Mayor’s also determined that it should reconsider certain
conclusions regarding the allocation of the fair value of the
equity investment between its preferred stock and the warrants
issued to Birks in connection with the transaction.
Mayor’s senior management team conducted a thorough review
of the accounting treatment of the warrants and the allocation
of the fair value of the equity investment by Birks.
Mayor’s determined that as a result of the assignment of
the warrants to those recipients, Mayor’s should have
reflected a non-cash compensation adjustment to its earnings
relating to the increase or decrease in the intrinsic value of
the common stock underlying the warrants that could be
attributed to the services provided by the recipients to
Mayor’s based on the vesting schedule of the warrants. The
increase or decrease in value of these warrants is required to
be reflected in Mayor’s financial statements as calculated
at the end of each reporting period to the extent the warrants
are vested each period and until the warrants are exercised or
settled. Mayor’s also concluded that a fair value of
approximately $3.5 million should have been allocated to
the warrants rather than the original allocation of
approximately $1.0 million and recognized a beneficial
conversion feature for the preferred stock as a result of the
valuation of the warrants. After becoming aware of these
accounting issues, the audit committee of the Mayor’s board
of directors initiated a review with the assistance of
independent legal counsel of the circumstances surrounding the
assignment of the warrants.
As a result of the foregoing, on January 7, 2005,
Mayor’s restated its financial statements for the fiscal
quarters ended November 2, 2002, December 27, 2003,
and June 26, 2004, the fiscal years ended March 29,
2003 and March 27, 2004, and the selected quarterly
financial data for the fiscal year ended March 27, 2004.
On December 1, 2004, Mayor’s was notified that the
Securities and Exchange Commission (“SEC”) was
conducting an informal inquiry regarding Mayor’s. The SEC
has requested documents related primarily to the warrants that
Mayor’s issued to Birks in connection with Birks’
equity investment in Mayor’s in August 2002. The SEC
subsequently made a similar request of Birks. Birks, including
Mayor’s, is fully cooperating with the SEC inquiry.
On March 21, 2005, Mayor’s received a comment letter
from the SEC with regard to its financial statements for the
fiscal year ended March 27, 2004 and the periods ended
September 25, 2004, June 26, 2004 and
December 25, 2004. In connection with its response to this
letter, Mayor’s discovered that an additional restatement
for a beneficial conversion was required for the fiscal year
ended March 29, 2003.
On June 24, 2005, Mayor’s filed its Annual Report on
Form 10-K for the fiscal year ended March 26, 2005,
referred to in this proxy statement/ prospectus as the fiscal
2004 10-K, which further restated financial statements included
in Mayor’s Annual Report on Form 10-K/ A for the
fiscal year ended March 27, 2004, filed with the Securities
and Exchange Commission on January 7, 2005. Specifically,
the fiscal 2004 10-K (1) restated the loss per share
amounts as presented in Mayor’s consolidated statement of
operations and certain items included in Mayor’s
consolidated statement of stockholders’ equity for the
fiscal year ended March 29, 2003 resulting from a
correction in Mayor’s accounting for convertible preferred
stock and common stock warrants and (2) reclassified the
net proceeds received from the sale of private label credit card
receivables from financing activities to operating activities in
the consolidated statement of cash flows for the fiscal year
ended March 29, 2003. See “Risk Factors.”
8
On July 5, 2005, Mayor’s received a letter from the
SEC stating that it had completed its review of Mayor’s
Forms 10-K and related filings and that it had no further
comments at that time with respect to its review of those
filings.
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Appointment of Chief Financial Officer
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Effective August 1, 2005, Michael Rabinovitch will become
Birks’ Senior Vice President and Chief Financial Officer,
succeeding Interim Chief Financial Officer Larry Litowitz.
Mr. Litowitz will remain with Birks for a transition period
as Birks’ Principal Accounting Officer.
Comparative Per-Share Market Price (Page 16)
Mayor’s common stock is listed on the American Stock
Exchange under the trading symbol “MYR”. On
July 30, 2004, April 18, 2005
and ,
2005, the last trading days prior to (1) the public
announcement that Birks had proposed a business combination with
Mayor’s, (2) the public announcement that Birks and
Mayor’s had executed the merger agreement and (3) the
date of this proxy statement/ prospectus, the closing sale price
of Mayor’s common stock on the American Stock Exchange was
$0.78, $0.56 and
$ ,
respectively.
Upon consummation of the merger, Mayor’s common stock will
no longer be listed for trading on the American Stock Exchange.
Birks Class A voting shares are not listed on any
U.S. or foreign stock exchange. Birks has applied to list
its Class A voting shares for trading on the American Stock
Exchange and has reserved the symbol “BMJ”.
The Special and Annual Meeting
When and Where.
The special and annual meeting will be
held at 10:00 a.m. local time,
on ,
2005 at the Renaissance Hotel, 1230 South Pine Island Road,
Plantation, Florida 33324.
Purposes of the Special and Annual Meeting.
The purposes
of the special and annual meeting are (1) to approve and
adopt the merger agreement, (2) to elect one director to
Mayor’s board, (3) to ratify the appointment of KPMG
LLP as Mayor’s independent registered public accounting
firm for the fiscal year ending March 25, 2006 and
(4) to transact such other business as may properly come
before the special and annual meeting. Approval of the matters
to be voted on at the special and annual meeting other than to
approve and adopt the merger agreement are not a condition to
the merger. If the merger is completed, the other matters voted
on at the special and annual meeting will, as a result, be
superseded.
Who Can Vote at the Special and Annual Meeting
Record Date; Voting Power.
Only holders of Mayor’s
common stock and Mayor’s preferred stock, as of the close
of business
on ,
2005, the record date, are entitled to vote at the special and
annual meeting or any adjournment or postponement of the special
and annual meeting. Each share of Mayor’s common stock is
entitled to one vote and each share of Mayor’s preferred
stock is entitled to 3,421.90 votes.
As of the date of this proxy statement/ prospectus,
36,991,592 shares of Mayor’s common stock and
15,050 shares of Mayor’s preferred stock were
outstanding. As of the date of this proxy statement/ prospectus,
15,602,997 shares of Mayor’s common stock,
representing approximately 42% of the outstanding shares of
Mayor’s common stock, and 15,050 shares of
Mayor’s preferred stock, representing 100% of the
outstanding shares of Mayor’s preferred stock, were held
directly by Birks. As of the date of this proxy statement/
prospectus, the shares of Mayor’s common stock and
preferred stock held by Birks represented approximately 75.8% of
Mayor’s total outstanding voting power.
As of the date of this proxy statement/ prospectus,
approximately 1.9 million shares of Mayor’s common
stock, representing 5.0% of the outstanding shares of
Mayor’s common stock, were beneficially held, directly or
indirectly, by directors and executive officers of Mayor’s
who are not affiliates of Birks, and approximately
9
5.7 million shares of Mayor’s common stock,
representing 13.4% of the outstanding shares of Mayor’s
common stock, were beneficially held by directors and executive
officers of Mayor’s who are affiliates of Birks (excluding
Mayor’s common stock held directly by Birks). Approximately
0.3 million of those shares beneficially held by directors
and executive officers of Mayor’s who are not affiliates of
Birks and approximately 5.6 million of those shares
beneficially held by directors and executive officers of
Mayor’s who are affiliates of Birks are beneficially held
in the form of options or warrants to purchase shares of
Mayor’s common stock.
Birks and all of the directors and executive officers of
Mayor’s and Birks have indicated that they intend to vote
their Mayor’s shares in favor of approval and adoption of
the merger agreement.
Required Vote for Matters at the Special and Annual
Meeting
Merger Agreement.
The affirmative vote of (1) the
holders of a majority of Mayor’s outstanding stock entitled
to vote at the special and annual meeting and (2) the
majority of Mayor’s disinterested stockholders, which
excludes Birks and each person that is an affiliate or associate
of Birks, that cast a vote, in person or by proxy, at the
special and annual meeting is required to approve and adopt the
merger agreement. Votes may be cast by mailing a signed proxy
card or by voting in person at the special and annual meeting.
Election of Director.
The affirmative vote of a plurality
of the votes cast by the shares of Mayor’s common stock,
not including the shares of Mayor’s common stock that would
be represented by the Mayor’s preferred stock if converted,
represented in person or by proxy at the special and annual
meeting is required to elect a director for the term specified
herein.
Ratify the Appointment of KPMG LLP.
The affirmative vote
of the holders of a majority of the shares of Mayor’s
common stock, including the shares of Mayor’s common stock
that would be represented by the Mayor’s preferred stock if
converted, represented in person or by proxy at the special and
annual meeting is required to ratify the audit committee’s
appointment of KPMG LLP as Mayor’s independent registered
public accounting firm for the fiscal year ending March 25,
2006.
Because Birks controls a majority of Mayor’s voting stock,
Birks will be able to ensure that holders of a majority of
Mayor’s outstanding stock approve the merger. Nevertheless,
approval and adoption of the merger requires the affirmative
vote of disinterested stockholders who vote their shares at the
special and annual meeting. Therefore, as a disinterested
stockholder, your vote is important and a failure to vote will
reduce the number of votes of disinterested stockholders
required to approve or reject the merger. Directors of
Mayor’s who are not affiliates or associates of Birks are
considered disinterested stockholders for purposes of voting on
the merger agreement. These directors (Emily Berlin, Elizabeth
M. Eveillard, Massimo Ferragamo, Stephen M. Knopik, Judith
MacDonald and Ann Spector Lieff) collectively, together with
their associates and affiliates, beneficially own approximately
1.9 million shares, or 5.0% of Mayor’s common stock.
These directors have indicated that they plan to vote their
shares in favor of the merger agreement, and their votes will
count in determining whether a majority of Mayor’s
disinterested stockholders has approved the merger.
The Merger (Page 36)
The merger agreement provides for the merger of Merger Co. with
and into Mayor’s. Following completion of the merger,
Mayor’s will continue as the surviving corporation of the
merger and will become a wholly-owned subsidiary of Birks. The
surviving corporation will be named “Mayor’s Jewelers,
Inc.” Additionally, upon consummation of the merger, Birks
will change its name to “Birks & Mayors Inc.”
In the merger, each share of your Mayor’s common stock will
be converted into the right to receive 0.08695 Birks
Class A voting shares. You will not receive any fractional
Birks Class A voting shares in the merger. Instead of
fractional shares, you will be paid cash in an amount equal to
the product obtained by multiplying such fractional interest by
the average closing price for Birks Class A voting shares
as reported on the American Stock Exchange on the 20 consecutive
trading days beginning on and including the trading day
immediately following the date of the effective time of the
merger.
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For example, assuming the average closing price of Birks
Class A voting shares on the 20 consecutive trading days
beginning on and including the trading day immediately following
the date of the effective time of the merger is $6.25, a
Mayor’s stockholder owning 100 shares of Mayor’s
common stock would receive 8 Birks Class A voting
shares plus $4.34 in cash in lieu of fractional shares.
Risk Factors (Page 17)
For a discussion of the principal risk factors involved please
read the section describing the risk factors beginning on
page 17.
Recommendation of the Special Committee and Mayor’s
Board of Directors (Page 42)
Because several of the members of Mayor’s board of
directors are affiliates of Birks, a special committee comprised
of independent members of Mayor’s board of directors, which
is referred to in this proxy statement/ prospectus as the
special committee, was formed to consider and evaluate the
proposed merger. The special committee unanimously determined
that the merger agreement and the merger are consistent with and
in furtherance of the long-term business strategy of
Mayor’s and advisable and fair to, and in the best
interests of, Mayor’s stockholders (other than Birks and
its affiliates and associates). The special committee
recommended that Mayor’s board of directors approve the
merger agreement, the merger and the other transactions
contemplated by the merger agreement. Mayor’s board of
directors adopted the reasons of the special committee and
determined that the merger agreement and the merger are
consistent with and in furtherance of the long-term business
strategy of Mayor’s and advisable and fair to, and in the
best interests of, Mayor’s stockholders (other than Birks
and its affiliates and associates) and recommends the approval
and adoption of the merger agreement by all Mayor’s
stockholders.
MAYOR’S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
“FOR” APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Mayor’s has agreed that neither Mayor’s board of
directors nor the special committee will withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Birks, its
approval and recommendation of the merger agreement and the
merger unless the board of directors or special committee
determines in its good faith judgment and after consultation
with outside legal counsel that the failure to so withdraw or
modify its approval and recommendation of the merger agreement
and the merger would be inconsistent with its fiduciary duties.
Opinion of the Financial Advisor to the Special Committee
(Page 45)
In deciding to approve the merger agreement and the merger, the
special committee and Mayor’s board of directors received
an opinion from the special committee’s financial advisor,
Houlihan Lokey, that the exchange ratio was, as of the date of
the opinion, fair from a financial point of view to Mayor’s
stockholders (other than Birks and its affiliates and
associates). The full text of Houlihan Lokey’s written
opinion dated as of April 18, 2005 is attached to this
proxy statement/ prospectus as Appendix B. You are
encouraged to read this opinion carefully in its entirety for a
description of the assumptions made, procedures followed,
matters considered and limitations on the reviews undertaken by
Houlihan Lokey.
Interests of Mayor’s Executive Officers and Directors in
the Merger (Page 52)
You should be aware that some of Mayor’s executive officers
and directors may have interests in the merger that may be
different from, or in addition to, the interests of the other
Mayor’s stockholders. Specifically, several of Mayor’s
directors and officers are also directors and officers of Birks.
In recognition of the conflict of interest, Mayor’s board
of directors formed the special committee to consider and
evaluate the merger agreement and the merger and make its
recommendation to the board of directors.
11
Material U.S. Federal Income Tax Consequences of the
Merger and of Owning Birks Class A Voting Shares
(Page 54)
The merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes and the obligations of the
parties to consummate the merger are subject to the receipt by
Mayor’s of the opinion of Holland & Knight LLP,
Mayor’s legal counsel, dated as of the effective time of
the merger, that (i) the merger will qualify as a
reorganization within the meaning of Section 368(a) of the
U.S. Internal Revenue Code of 1986, referred to in this
proxy statement/ prospectus as the Code, and each of Birks and
Mayor’s will be a party to the reorganization, and
(ii) the conversion of Mayor’s common stock into Birks
Class A voting shares in the merger will not result in the
recognition of gain under Section 367 of the Code (except,
under certain circumstances, in the case of a person who owns,
actually or constructively, 5% or more of the voting power or
value of the outstanding stock of Birks following the merger).
If Holland & Knight LLP is unable to deliver such
opinion, this condition will be satisfied if King &
Spalding LLP, legal counsel to the special committee, provides
such opinion to Mayor’s. Accordingly, U.S. holders of
Mayor’s common stock generally will not recognize any gain
or loss for U.S. federal income tax purposes on the
conversion of their Mayor’s common stock into Birks
Class A voting shares in the merger. U.S. holders of
Mayor’s common stock may, however, recognize gain or loss
for U.S. federal income tax purposes with respect to any
cash received instead of fractional Birks Class A voting
shares.
Following the merger, the gross amount of dividends paid by
Birks to certain U.S. holders of Birks Class A voting
shares (including amounts withheld to reflect Canadian
withholding taxes), if any, will be treated as dividend income
to such holders, to the extent paid out of Birks’ current
or accumulated earnings and profits, as determined under
U.S. federal income tax principles. This income will be
includable in the gross income of a U.S. holder on the day
actually or constructively received by the U.S. holder.
These dividends generally will not be eligible for the
dividends-received deduction allowed to corporations under the
Code. Subject to certain conditions and limitations,
non-resident Canadian withholding taxes on dividends may be
treated as foreign taxes eligible for credit against a
U.S. holder’s U.S. federal income tax liability.
Material Canadian Federal Income Tax Consequences of the
Merger (Page 58)
The conversion of Mayor’s common stock into the right to
receive Birks Class A voting shares (and cash instead of
fractional Birks Class A voting shares) pursuant to the
merger will not, in general, give rise to Canadian tax for
holders of Mayor’s common stock who are not and who are not
deemed to be resident in Canada. Dividends paid or credited to
holders of Birks Class A voting shares who are not and who
are not deemed to be resident in Canada are subject to a
Canadian withholding tax of 25%. Under the Canada-United States
Income Tax Convention (1980), the rate of that withholding tax
is generally reduced to 15% for holders resident in the United
States. Assuming that Birks Class A voting shares are not
“taxable Canadian property,” any capital gain realized
by holders who are not and who are not deemed to be resident in
Canada on a disposition of those shares will not be subject to
tax in Canada. In general, Birks Class A voting shares are
not expected to constitute “taxable Canadian property.”
Accounting Treatment
The merger will be accounted for as the acquisition of a
minority interest by Birks, using the purchase method of
accounting.
The Merger Agreement (Page 61)
The merger agreement is described beginning on page 61. The
merger agreement is also attached as Appendix A to this
document. We urge you to read the merger agreement in its
entirety because it is the legal document governing the merger.
12
Conditions to the Merger (Page 66)
The respective obligations of each of Birks and Mayor’s to
effect the merger are conditioned upon the satisfaction (or
waiver) of the following conditions:
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the registration statement, of which this proxy statement/
prospectus is a part, having been declared effective under the
Securities Act of 1933, and no stop order or proceeding seeking
a stop order being pending by or before the Securities and
Exchange Commission, which is referred to in this
proxy statement/ prospectus as the SEC;
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Mayor’s disinterested stockholders having affirmatively
voted to approve and adopt the merger agreement by the requisite
vote;
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no injunction, order or other legal restraint or prohibition
preventing the consummation of the merger being in effect;
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Birks Class A voting shares having been authorized for
listing on the American Stock Exchange; and
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the fairness opinion obtained from the special committee’s
financial advisor not having been withdrawn, revoked, annulled
or materially modified.
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The obligation of each of Birks and Mayor’s to effect the
merger is further subject to the satisfaction (or waiver)
of the following additional conditions:
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the other party having performed in all material respects its
obligations under the merger agreement, the other party’s
representations and warranties in the merger agreement being
true and correct in all material respects as of the closing of
the merger and the delivery of officers’ certificates of
Mayor’s and Birks, respectively, certifying satisfaction of
such conditions; and
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any regulatory and third-party approvals that are required to
consummate the merger having been obtained.
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The obligation of Birks and Merger Co. to effect the merger is
further subject to the satisfaction (or waiver) of the
following additional conditions:
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Mayor’s not being subject to a material adverse effect as
defined in the merger agreement; and
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additional warrants to purchase Mayor’s common stock having
been issued to Joseph A. Keifer, Marco Pasteris and Carlo
Coda-Nunziante.
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The obligation of Mayor’s to effect the merger is further
subject to the satisfaction (or waiver) of the following
additional conditions:
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Mayor’s having received an opinion from Holland &
Knight LLP or, if Holland & Knight LLP is not able to
render such opinion, from King & Spalding LLP, that
(i) the merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code and each of Birks and
Mayor’s will be a party to the reorganization, and
(ii) the conversion of Mayor’s common stock into Birks
Class A voting shares in the merger will not result in the
recognition of gain under Section 367 of the Code (except,
under certain circumstances, in the case of a person who owns,
actually or constructively, 5% or more of the voting power or
value of the outstanding stock of Birks following the merger);
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Mayor’s having obtained the affirmative vote of the
required majority of Mayor’s voting stock in favor of the
merger at Mayor’s stockholders’ meeting;
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Birks’ Articles of Amalgamation and Birks’ By-laws
being amended as specified in the merger agreement, each
document, as amended, being referred to in this proxy statement/
prospectus as Birks’ amended charter and Birks’
amended by-laws, respectively;
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Birks not being subject to a material adverse effect, as defined
in the merger agreement;
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13
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all of the issued and outstanding Series A preferred shares
of Birks and $5,000,000 aggregate principal amount of secured
convertible notes of Birks having been converted into Birks
Class A voting shares and Birks Class B multiple
voting shares;
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warrants to purchase Mayor’s common stock having been
amended to eliminate the application of anti-dilution
provisions; and
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the employment agreement or other documents between Birks and
Thomas A. Andruskevich having been amended to eliminate the
application of certain anti-dilution provisions to the future
issuance of stock-based compensation after the merger is
consummated.
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Any waiver or determination to be made by Mayor’s with
respect to these conditions requires the approval of the special
committee.
Termination (Page 68)
Birks and Mayor’s can mutually agree to terminate the
merger agreement prior to the effective time of the merger.
Also, either party may terminate the merger agreement without
the consent of the other if:
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the merger is not consummated by December 31, 2005, unless
the party seeking to terminate the merger agreement has failed
to comply with the merger agreement and that failure has been
the cause of, or resulted in, the failure of the merger to occur
on or before December 31, 2005;
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any governmental entity issues an order or injunction or other
legal restraint or prohibition preventing consummation of the
merger;
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Mayor’s stockholders fail to approve and adopt the merger
agreement at the special and annual meeting (or any adjournment
or postponement of the special and annual meeting); or
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the other party breaches the merger agreement, the breach would
prevent satisfaction of a closing condition and the breach is
not reasonably capable of being cured or is not cured prior to
15 days after receipt of written notice of the breach.
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Additionally, Birks or Mayor’s may terminate the merger
agreement if:
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Mayor’s board of directors or the special committee
withdraws, modifies or changes, in any manner adverse to Birks,
its recommendation that the stockholders of Mayor’s vote in
favor of the approval and adoption of the merger agreement, or
resolved to do so; or
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the special committee’s financial advisor withdraws or
materially modifies its fairness opinion.
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Any determination or action to be made by Mayor’s with
respect to a termination of the merger agreement requires the
approval of the special committee.
Comparison of Stockholder Rights (Page 70)
The conversion of your shares of Mayor’s common stock into
the right to receive Birks Class A voting shares in the
merger will result in differences between your rights as a Birks
shareholder, governed by the Canada Business Corporations Act,
and your rights as a Mayor’s stockholder, governed by the
Delaware General Corporation Law.
14
COMPARATIVE PER SHARE DATA
The following table presents selected comparative historical and
pro forma per share data for Birks common shares, which includes
Birks Class A voting shares and Birks Class B multiple
voting shares, Mayor’s common stock and Mayor’s
preferred stock for the fiscal year ended March 26, 2005.
The pro forma amounts give effect to the merger as if it had
occurred March 28, 2004, have been prepared in accordance
with U.S. GAAP and are based on the purchase method of
accounting.
You should read this information in conjunction with, and the
information is qualified in its entirety by, the consolidated
financial statements and accompanying notes of Birks and
Mayor’s included elsewhere in this proxy statement/
prospectus. The pro forma amounts are presented for
informational purposes only. You should not rely on the pro
forma amounts as being indicative of the financial position or
results of operations of the combined company that would have
actually occurred had that the merger been effective during the
periods presented or the future financial position or future
results of operations of the combined company. The combined
financial information presented as of and for the year ended
March 26, 2005 may have been different had the companies
actually been fully integrated as at and during those periods.
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As of and for the
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Fiscal Year Ended
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March 26, 2005
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Book Value Per Share at Period End
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Birks historical
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$
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5.41
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Birks pro forma(1)
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$
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5.80
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Mayor’s common share historical(2)
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$
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0.52
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Mayor’s common share pro forma equivalent(3)
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$
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0.50
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Mayor’s preferred share historical(4)
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$
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1,000
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Dividends Per Share
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Birks historical(5)
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—
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Birks pro forma(1)
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—
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Mayor’s common share historical(6)
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—
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Mayor’s common share pro forma equivalent(2)
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—
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Mayor’s preferred share historical
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$
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6.67
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Basic Net Income Per Share from Continuing Operations
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Birks historical
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$
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0.16
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Birks pro forma(1)
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$
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0.13
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Mayor’s common share historical
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$
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0.02
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Mayor’s common share pro forma equivalent(2)
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$
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0.01
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Diluted Net Income Per Share from Continuing Operations
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Birks historical
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$
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0.13
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Birks pro forma(1)
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$
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0.12
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Mayor’s common share historical
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$
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0.01
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Mayor’s common share pro forma equivalent(2)
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$
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0.01
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(1)
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The Birks pro forma per share amounts were determined after
giving effect to the appropriate pro forma adjustments. See
“Unaudited Pro Forma Condensed Consolidated Financial
Information of Birks.”
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(2)
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Excludes the liquidation value of the Series A-1
Convertible Preferred Stock.
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(3)
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The Mayor’s pro forma equivalent per share amounts are
calculated by multiplying the Birks pro forma per share amounts
by the exchange ratio of 0.08695.
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(4)
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Based on the liquidation value of the Series A-1
Convertible Preferred Stock.
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(5)
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Historically, Birks has not paid a cash dividend on its common
shares.
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(6)
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Historically, Mayor’s has not paid a cash dividend on its
common stock.
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15
MAYOR’S STOCK PRICES
Mayor’s common stock is listed and traded on the American
Stock Exchange under the symbol “MYR”. Mayor’s
common stock has been listed on the American Stock Exchange
since Mayor’s initial public offering in August 1987. On
the record date the number of holders of record of Mayor’s
common stock
was .
The following table sets forth, for the periods indicated, the
high and low sale prices of Mayor’s common stock on the
American Stock Exchange.
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High
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Low
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Thirteen Weeks Ended September 24, 2005 (through
July 26, 2005)
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$0.58
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$0.52
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Thirteen Weeks Ended June 25, 2005
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0.66
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0.53
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Year Ended March 26, 2005
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Thirteen Weeks Ended March 26, 2005
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$0.77
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$0.58
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Thirteen Weeks Ended December 25, 2004
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0.72
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0.55
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Thirteen Weeks Ended September 25, 2004
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0.88
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0.61
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Thirteen Weeks Ended June 26, 2004
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0.84
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0.54
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Year Ended March 27, 2004
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Thirteen Weeks Ended March 27, 2004
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$0.95
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$0.66
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Thirteen Weeks Ended December 27, 2003
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0.85
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0.60
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Thirteen Weeks Ended September 27, 2003
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0.98
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0.21
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Thirteen Weeks Ended June 28, 2003
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0.35
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0.18
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Year Ended March 29, 2003
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Thirteen Weeks Ended March 29, 2003
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$0.31
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$0.21
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Thirteen Weeks Ended January 4, 2003
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0.40
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0.28
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Thirteen Weeks Ended October 5, 2002
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0.50
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0.20
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Thirteen Weeks Ended July 6, 2002
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1.42
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0.13
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On July 30, 2004, April 18, 2005
and ,
2005, the last trading days prior to (1) Birks’ public
announcement that it had proposed a business combination with
Mayor’s, (2) the public announcement that Birks and
Mayor’s had executed the merger agreement and (3) the
date of this proxy statement/ prospectus, the closing sale price
of Mayor’s common stock on the American Stock Exchange was
$0.78, $0.56 and
$ ,
respectively.
Birks has no established public trading market for its
Class A voting shares. Birks Class A voting shares are
not listed on any U.S. or foreign stock exchange. Birks has
applied to list its Class A voting shares for trading on
the American Stock Exchange and has reserved the symbol
“BMJ”. As of the date of this proxy statement/
prospectus, the number of holders of record of Birks
Class A voting shares was fourteen.
DIVIDENDS
Mayor’s has never paid dividends on its common stock. On
February 20, 2004 and June 21, 2005, Mayor’s paid
dividends of $2,185,755 and $150,500, respectively, to Birks, as
holder of Mayor’s preferred stock. See “Description of
Mayor’s Business — Related Party
Transactions.”
Birks has not paid dividends since 1998 and does not currently
intend to pay dividends on its Class A voting shares or
Class B multiple voting shares in the foreseeable future.
Birks’ ability to pay dividends on its Class A voting
shares, and the ability of Mayor’s to pay dividends to
Birks, are restricted by Birks’ credit agreements. See
“Management’s Discussion and Analysis of the Financial
Condition and Results of Operations of Birks —
Liquidity and Capital Resources.” If dividends were
declared by Birks’ board of directors, you would receive a
dividend equal to the per share dividend Birks would pay to
holders of Birks Class A voting shares or holders of
Class B multiple voting shares. Dividends paid by Birks to
U.S. holders would generally be subject to withholding tax.
See “Material Canadian Federal Income Tax Consequences of
the Merger.”
16
RISK FACTORS
In addition to the other information included in this proxy
statement/ prospectus, including the matters addressed under the
caption “Cautionary Statement Concerning Forward-Looking
Statements” on page 30, you should carefully consider
the matters described below.
When used in this section, as in the other sections of
this proxy statement/ prospectus, “Birks” refers to
Henry Birks & Sons Inc. and its subsidiaries, including
Mayor’s.
Risks Related to the Terms of the Merger
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Because (1) the exchange ratio is fixed, (2) the
market price of Mayor’s common stock will fluctuate and
(3) Birks Class A voting shares are not publicly
traded, you cannot be certain of the dollar value of the merger
consideration that you, as a Mayor’s stockholder, will
receive in the merger.
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If the merger is completed, it will not be completed until the
date of the special and annual meeting and the satisfaction or
waiver of all conditions to the merger. Upon completion of the
merger, each share of Mayor’s common stock issued and
outstanding immediately prior to the effective time of the
merger (other than treasury stock of Mayor’s and
Mayor’s common stock owned by Birks) will be converted into
the right to receive 0.08695 Birks Class A voting shares.
Birks Class A voting shares are not currently publicly
traded. As a result, the value of the Birks Class A voting
shares to be received by Mayor’s stockholders following the
merger cannot be determined. Instead, because the exchange ratio
of 0.08695 is fixed, the dollar value of the Birks Class A
voting shares issued in the merger will depend on the price of
Birks Class A voting shares on the American Stock Exchange
after the merger is effective. Therefore, at the time of the
special and annual meeting you will not know the precise dollar
value of the merger consideration you will become entitled to
receive at the effective time of the merger.
In addition, the price of Mayor’s common stock immediately
prior to the effective time of the merger may vary from its
price on the date the merger agreement was executed, on the date
of this proxy statement/ prospectus and on the date of the
special and annual meeting. Variations in the prices of
Mayor’s common stock prior to the effective time of the
merger and of Birks Class A voting shares after the
effective time may be the result of various factors, including:
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changes in the business, operations or prospects of Birks or
Mayor’s;
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economic conditions and the outlook for economic
conditions; and
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the timing of the consummation of the merger.
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The fairness opinion provided by Houlihan Lokey was given
as of the date the merger agreement was approved by the special
committee and does not reflect subsequent changes in
circumstances.
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The opinion of Houlihan Lokey, financial advisor to the special
committee, addresses the fairness of the consideration to be
received by Mayor’s stockholders (other than Birks and its
associates and affiliates) from a financial point of view based
on the financial, economic, market and other conditions as they
existed on April 18, 2005 and not at any later time.
Significant time has elapsed since the date of the fairness
opinion, and changes in conditions, which are beyond the control
of Mayor’s, Birks and Houlihan Lokey, and on which the
opinions are based, may have altered the value of Mayor’s
common stock or Birks Class A voting shares.
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The fairness opinion provided by Houlihan Lokey is based
on various assumptions and is subject to various
limitations.
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In its review and analysis and in formulating its opinion,
Houlihan Lokey assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts and analyses
provided to it by the respective management of Mayor’s and
Birks and assumed that these projections, forecasts and analyses
were reasonably prepared in good faith and on bases reflecting
the best currently available judgments and estimates of
Mayor’s and Birks’ management. Houlihan Lokey did not
review any of the books and records of Mayor’s
17
and Birks, or assume any responsibility for conducting a
physical inspection of the properties or facilities of
Mayor’s or Birks, or for making or obtaining an independent
valuation or appraisal of the assets or liabilities of
Mayor’s or Birks, and no such independent valuation or
appraisal was provided to Houlihan Lokey.
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Birks and Mayor’s may experience difficulties in
completing the integration of Mayor’s business with the
existing Birks businesses and will incur significant transaction
expenses in connection with the merger.
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Though Birks and Mayor’s have been partially integrated
since Birks investment in Mayor’s in August 2002, achieving
all of the anticipated benefits of the merger will depend in
part upon whether Birks and Mayor’s can fully integrate
their businesses in an efficient and effective manner. The
parties collectively expect to incur significant one-time
transaction expenses of approximately $4 million in
connection with the merger and the related integration. The
costs and liabilities actually incurred in that process may
exceed those anticipated. In addition, Birks may not accomplish
the merger integration process promptly or successfully, and the
successful combination of the two business enterprises may
result in a diversion of management attention for a period of
time. If management is unable to promptly and successfully
integrate the operations of the two companies, the anticipated
benefits of the merger may not be realized.
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Birks and Mayor’s may not achieve the cost savings
and increased net sales they have anticipated for the combined
company.
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Birks’ and Mayor’s rationales for the merger are, in
part, predicated on their ability to realize further cost
savings and increased net sales by completing the integration of
the two companies. Achieving these cost savings and net sales
increases are dependent upon a number of factors. For example,
the parties may not be able to achieve the anticipated
cross-selling opportunities, the development and marketing of
more comprehensive product offerings, co-branding, net sales
growth and the consistent use of the best practices of Birks and
Mayor’s. An inability to realize the full extent of, or any
of, the anticipated benefits of the merger, as well as any
delays encountered in the transition process, could have an
adverse effect upon the net sales, level of expenses, gross
profits, operating results and financial condition of the
combined company, which may affect the value of Birks
Class A voting shares after the effective time of the
merger. See “The Merger — Mayor’s Reasons
for the Merger; Recommendation of the Special Committee”
and “The Merger — Birks’ Reasons for the
Merger.”
Risks Related to Birks Class A Voting Shares
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Birks’ share price could be adversely affected if a
large number of Birks Class A voting shares are offered for
sale or sold.
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Some stockholders of Mayor’s may not wish to hold Birks
Class A voting shares, and sales may occur following the
consummation of the merger. If the supply of Birks Class A
voting shares is significantly greater than the associated
demand, the market price of Birks Class A voting shares may
significantly decline and may not recover.
In addition, future issuances or sales of a substantial number
of Birks Class A voting shares by Birks, Dr. Lorenzo
Rossi di Montelera, or another significant shareholder in the
public market could adversely affect the price of Birks
Class A voting shares, which may impair Birks’ ability
to raise capital through future issuances of its equity
securities. Upon completion of the merger, Birks will have
approximately 3,491,474 Birks Class A voting shares issued
and outstanding. All of the approximately 1,859,738 Birks
Class A voting shares issued to the minority shareholders
of Mayor’s pursuant to the merger will be freely tradeable
without restriction under the Securities Act, unless issued to
Birks or Mayor’s affiliates. Upon completion of the merger,
some previously issued Birks Class A voting shares will be
restricted securities within the meaning of Rule 144. Sales
of restricted securities in the public market, or the
availability of these Birks Class A voting shares for sale,
could adversely affect the market price of Birks Class A
voting shares.
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Birks Class A voting shares have no prior trading
history, which may adversely affect the liquidity and value of
such shares.
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Birks Class A voting shares are not listed on any
U.S. or foreign stock exchange or quoted in any
U.S. or foreign quotation system. Accordingly, prior to the
merger, there has been no public market for Birks Class A
voting shares in the United States or elsewhere, and an active
trading market may not develop or be sustained after the merger.
If an active trading market does not develop, holders of Birks
Class A voting shares will have limited liquidity, which
could adversely affect the value of such shares.
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As a retail jeweler with a limited public float, the price
of Birks Class A voting shares may fluctuate substantially,
which could negatively affect the value of Birks Class A
voting shares and could result in securities class action claims
against Birks.
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The price of Birks Class A voting shares may fluctuate
substantially due to, among other things, the following factors:
(1) fluctuations in the price of the shares of the small
number of public companies in the retail jewelry business;
(2) additions or departures of key personnel;
(3) announcements of legal proceedings or regulatory
matters; and (4) the general volatility in the stock
market. The market price of Birks Class A voting shares
could also fluctuate substantially if Birks fails to meet or
exceed expectations for Birks’ financial results or if
there is a change in financial estimates or securities
analysts’ recommendations.
Significant price and value fluctuations have occurred in the
past with respect to the securities of retail jewelry and
related companies. In addition, because the public float of
Birks Class A voting shares will be relatively small, the
market price of Birks Class A voting shares is likely to be
volatile. Indeed, as is the case for Mayor’s common stock,
it is expected that there may be limited trading volume in Birks
Class A voting shares, rendering them subject to
significant price volatility. For example, during the fiscal
year ended March 26, 2005, the price of Mayor’s common
stock on the American Stock Exchange fluctuated from a high of
$0.88 to a low of $0.54. In addition, the stock market has
experienced volatility that has affected the market prices of
equity securities of many companies, and that has often been
unrelated to the operating performance of such companies. A
number of other factors, many of which are beyond Birks’
control, could also cause the market price of Birks Class A
voting shares to fluctuate substantially. As a result, you may
not be able to resell Birks Class A voting shares at or
above the associated value of Mayor’s shares on the date of
the merger, if at all.
In the past, following periods of downward volatility in the
market price of a company’s securities, class action
litigation has often been pursued against the respective
company. If Birks Class A voting shares were similarly
volatile and similar litigation were pursued against Birks, it
could result in substantial costs and a diversion of Birks
management’s attention and resources.
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Birks is governed by the laws of Canada, and, as a result,
it may not be possible for shareholders to enforce civil
liability provisions of the securities laws of the United
States.
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Birks is governed by the laws of Canada. A substantial portion
of Birks’ assets are located outside the United States, and
some of Birks’ directors and officers and the experts named
in this proxy statement/ prospectus are residents outside of the
United States. As a result, it may be difficult for investors to
effect service within the United States upon Birks and those
directors, officers and experts, or to realize in the United
States upon judgments of courts of the United States predicated
upon civil liability of Birks and such directors, officers or
experts under the United States federal securities laws. There
is doubt as to the enforceability in Canada by a court in
original actions, or in actions to enforce judgments of United
States courts, of the civil liabilities predicated upon the
United States federal securities laws.
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Birks 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
Exchange Act and will be permitted to file less information with
the SEC than a company incorporated in the U.S.
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As a “foreign private issuer” Birks is exempt from
rules under the Exchange Act that impose certain disclosure and
procedural requirements for proxy solicitations under
Section 14 of the Exchange Act. In
19
addition, Birks’ officers, directors and principal
shareholders will be exempt from the reporting and
“short-swing” profit recovery provisions of
Section 16 of the Exchange Act and the rules under the
Exchange Act with respect to their purchases and sales of Birks
Class A voting shares. Moreover, Birks will not be required
to file periodic reports and financial statements with the SEC
as frequently or as promptly as U.S. companies whose
securities are registered under the Exchange Act; nor will it be
required to comply with Regulation FD, which restricts the
selective disclosure of material information. Accordingly, there
may be less publicly available information concerning Birks than
there is for U.S. public companies such as Mayor’s.
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Options to purchase Birks Class A voting shares held
by Birks’ Chief Executive Officer contain anti-dilution
provisions which could adversely affect the value of Birks
Class A voting shares.
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Thomas A. Andruskevich, Chief Executive Officer of Birks, is
party to an agreement with Birks which gives him the right to
purchase Birks Class A voting shares representing up to 2%
of the total outstanding equity of Birks. This option is fully
anti-dilutive, except with respect to issuances of stock-based
compensation, which means that the number of Class A voting
shares underlying the option will increase upon issuance by
Birks of additional equity. For example, the number of Birks
Class A voting shares underlying
Mr. Andruskevich’s option will increase from 439,532
to 476,727, an increase of 8.5%, as a result of the merger.
These provisions could provide significant compensation to
Mr. Andruskevich in the event of a large acquisition or
public offering by Birks, which compensation would be dilutive
to other shareholders. Accordingly, these provisions could be
viewed in certain circumstances as potentially misaligning the
interests of Mr. Andruskevich with the interests of the
other shareholders and Birks. Further, these provisions
complicate Birks’ capital structure and may be difficult
for investors to understand and may impair Birks’ ability
to raise new equity capital. All of these factors relating to
the anti-dilution provisions could adversely affect the value of
Birks Class A voting shares.
Risks Related to the Combined Company
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Birks is controlled by a single shareholder whose
interests may be different from yours.
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Upon completion of the merger, Dr. Rossi will beneficially
own or control 70.3% of all classes of Birks outstanding voting
shares while controlling 95.7% of the voting power associated
with such shares. Under Birks’ amended charter,
Dr. Rossi, as holder of Class B multiple voting
shares, will have the ability to control most actions requiring
shareholder approval, including electing the members of
Birks’ board of directors and the issuance of new equity.
Dr. Rossi may have different interests than you have and
may make decisions that do not correspond to your interests. In
addition, the fact that Birks is controlled by one shareholder
may have the effect of delaying or preventing a change in the
management or voting control of Birks.
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If Birks is unable to implement its business strategy,
Birks’ net sales and profitability may be adversely
affected.
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Birks’ future financial performance and success are
dependent on its ability to implement its business strategy
successfully. Birks’ present business strategy is to
leverage its merchandising, marketing and sales expertise to
increase net sales, raise additional capital, utilize its
manufacturing capabilities to lower cost of sales and make
selective acquisitions to grow its revenue base and increase its
gross margin. Birks may not successfully implement its business
strategy. Furthermore, implementing its business strategy may
not sustain or improve Birks’ results of operations.
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Birks may pursue strategic acquisitions which may divert
the attention of management and which may not be successfully
integrated into Birks’ existing business.
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Birks may seek to enhance its market penetration and increase
and diversify its revenue base through selective acquisitions.
However, Birks may not identify suitable acquisition candidates,
complete acquisitions on acceptable terms or successfully
integrate the operations of any acquired business into its
existing business. Such acquisitions could be of significant
size and involve either domestic or international parties. To
20
acquire and integrate a separate organization would divert
management attention from other business activities. Such a
diversion, together with other difficulties Birks may encounter
in integrating an acquired business, could have a material
adverse effect on its results of operations. In addition, Birks
may borrow money to finance acquisitions. Even though funds
might be available on terms favorable to Birks, such borrowing
would increase Birks’ leveraged position and limits its
liquidity.
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If Birks is unable to introduce innovative products,
Birks’ sales and market share may suffer.
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Birks believes that its future success will depend, in part,
upon its ability to continue to source, develop, introduce and
market innovative new products on an exclusive basis and to
design, manufacture and market its own new products. If Birks
fails to successfully source, introduce and market new products
on an exclusive basis, its ability to maintain or grow its
market share may be adversely affected, which in turn could
materially adversely affect its overall business, financial
condition or results of operations. If Birks’ competitors
are able to acquire exclusive rights to new enhanced products
Birks may be unable to compete. The fact that Birks’
principal competitors have substantially greater resources than
it increases this risk. In addition, Birks has made and
continues to make significant investments in its development,
design and manufacturing capabilities. Such efforts may be
unsuccessful, which could further challenge Birks’ ability
to grow or even maintain its market share or profitability.
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Birks’ business could be adversely affected if its
relationships with any of its primary vendors are
terminated.
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Birks competes with other jewelry retailers for access to
vendors that will provide it with the quality and quantity of
merchandise necessary to operate its business, and Birks’
merchandising strategy depends upon its ability to maintain good
relations with its significant vendors. Certain brand name watch
manufacturers, including Rolex, have distribution agreements
with Birks’ subsidiary Mayor’s that, among other
things, provide for specific sales locations, yearly renewal
terms and early termination provisions at the
manufacturer’s discretion. In the fiscal year ended
March 26, 2005, merchandise supplied by Rolex and sold
through Birks’ stores operating under the Mayors brand
accounted for approximately 23% of Birks’ total net sales.
Birks’ relationships with its primary suppliers, like
Rolex, are generally not pursuant to long-term agreements. The
abrupt loss of any significant vendor, especially Rolex, or a
decline in the quality or quantity of merchandise supplied by a
significant vendor could cause a material adverse effect on
Birks’ business, financial condition and operating results.
It is possible that a vendor could terminate its distribution
agreement with Birks as a result of the merger. Rolex, for
example, only does business with Birks through Mayor’s, and
may elect to terminate its relationship as a result of the
merger.
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Birks has experienced material weaknesses in its internal
control over financial reporting. If Birks fails to maintain an
effective system of internal controls, it may not be able to
accurately report its financial results and its management may
not be able to provide management’s report on the
effectiveness of Birks’ internal control over financial
reporting as required by the Sarbanes-Oxley Act for the year
ending March 25, 2007.
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As a private company, Birks has not been subject to reporting
and other requirements of the Exchange Act, but will become
subject to such reporting obligations in connection with the
merger. These reporting and other obligations, together with the
impact of the integration of Birks and Mayor’s, have
placed, and will continue to place, significant demands on
Birks’ management, administrative and operational
resources, including accounting resources.
In June 2004, the Public Company Accounting Oversight Board, or
PCAOB, adopted rules for purposes of implementing
Section 404 of the Sarbanes-Oxley Act of 2002, which
include revised definitions of material weaknesses and
significant deficiencies in internal control over financial
reporting. The PCAOB defines a material weakness as “a
significant deficiency, or a combination of significant
deficiencies, that results in more than a remote likelihood that
a material misstatement of the annual or interim financial
statements will not be prevented or detected.” Although
Birks is not currently subject to Section 404, it has
examined the definitions contained in the PCAOB pronouncement.
The new rules describe certain
21
circumstances as being both significant deficiencies and strong
indicators that a material weakness in internal control over
financial reporting exists.
During the past year, in preparing Birks’ financial
statements included in this proxy statement/ prospectus,
Birks’ management and its independent registered public
accounting firm identified two “material weaknesses”
in its internal controls over financial reporting. As of
March 26, 2005:
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Birks internal control policies and procedures over automated
reporting systems and compensating manual processes are
ineffective. The reconciliation of the accounts payable and
inventory accounting sub-systems to the general ledger fails to
appropriately capture all of the reconciling items. Furthermore,
Birks does not perform a regular reconciliation of the
intra-division accounts related to its jewelry factory, which
results in a failure to properly capture, control, process and
record adjustments.
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Birks internal control policies and procedures over accounting
for certain transactions and events in accordance with
U.S. GAAP are ineffective, due to a lack of accounting
personnel with adequate U.S. accounting knowledge and
experience.
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In connection with the same financial reporting process, a
significant deficiency in Birks’ internal control over
financial reporting was identified. Birks’ internal control
policies and procedures over the estimation of the warranty
reserves do not provide an effective process to evaluate
warranty reserves and the current systems are not configured to
provide the necessary data to prepare a timely estimate of
warranty costs relating to recorded sales.
Birks’ public subsidiary Mayor’s has also identified
material weaknesses with respect to its internal control over
financial reporting. During the financial reporting process
associated with Mayor’s financial results for the fourth
quarter ended March 26, 2005 and the fiscal year ended
March 26, 2005, Mayor’s identified three material
weaknesses in its internal control over financial reporting. As
of March 26, 2005:
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Mayor’s internal control policies and procedures over
adjustments to inventory to the lower of cost or market do not
ensure that adjustments were made in accordance with
U.S. GAAP and, specifically, do not prevent the adjustment
of certain aged inventory to below current book value without
adequate documentation and support.
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Mayor’s internal control policies and procedures over the
proper accounting for accrued legal expenses do not prevent the
accrual of legal expenses (litigation costs, judgments and
settlements) without adequate documentation and support.
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Mayor’s internal control policies and procedures over the
proper accounting for related party transactions fail to
capture, control, process and record expenses related to such
transactions prior to the closing of the consolidated financial
statements and issuance of a press release, and do not provide
for the proper accounting of related party transactions in
accordance with U.S. GAAP.
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In connection with the same financial reporting process,
Mayor’s also identified a significant deficiency in its
internal control over financial reporting. Mayor’s internal
control policies and procedures over the estimation of the
allowance for doubtful accounts, which do not include an
effective process to document support for increases in the
reserve for accounts aged less than 60 days delinquent.
Mayor’s also identified a material weakness in its internal
control over financial reporting in the third fiscal quarter of
fiscal 2004 related to its internal control policies and
procedures for the review of affiliate agreements and contracts,
which do not ensure that such agreements and contracts, where
applicable, are properly disclosed and reflected in Mayor’s
consolidated financial statements.
Birks has taken and continues to take steps to correct these
internal control deficiencies. The effectiveness of the steps it
has taken to date and the steps it is still in the process of
taking to improve the reliability of its financial reporting are
subject to continued management review supported by confirmation
and testing by its internal auditors, as well as audit committee
oversight. However, such remedial measures may not succeed in
implementing and maintaining adequate controls over Birks’
financial processes and
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reporting. In the future, Birks may identify additional material
weaknesses or significant deficiencies in its internal control
over financial reporting. Any failure to implement required new
or improved controls, or difficulties encountered in their
implementation, could cause Birks to fail to meet its reporting
obligations.
In addition, beginning with the year ending March 25, 2007,
pursuant to Section 404 of the Sarbanes-Oxley Act,
Birks’ management will be required to deliver a report that
assesses the effectiveness of its internal control over
financial reporting, and will be required to deliver an
attestation report of its independent registered public
accounting firm on management’s assessment of, and the
effectiveness of Birks’ internal control over financial
reporting. Birks expects that it will incur substantial effort
and costs to complete documentation of its internal control
system and financial processes, information systems, assessment
of their design, remediation of control deficiencies identified
in these efforts and management testing of the design and
operation of internal control. Further, Birks may not be able to
complete the required management assessment by its reporting
deadline.
Birks may be adversely affected if it cannot achieve and
maintain effective internal controls under the appropriate
deadlines. Birks’ management may not be able to complete
its assessment by its reporting deadline. If management
completes its assessment but identifies a material weakness with
respect to Birks’ internal control over financial
reporting, Birks’ would not be able to conclude that its
internal control over financial reporting were effective, which
would result in the inability of its external auditors to
deliver a report that Birks’ internal control over
financial reporting are effective. Ineffective internal controls
could also cause investors to lose confidence in Birks’
reported financial information, which could cause the value of
Birks Class A voting shares to suffer and adversely affect
Birks’ access to capital. In addition, if Birks is unable
to deliver an attestation report of its independent registered
public accounting firm on management’s assessment of, and
the effectiveness of Birks’ internal control over financial
reporting, the American Stock Exchange may delist Birks
Class A voting shares.
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Birks is exposed to currency exchange risk that could have
a material adverse effect on its results of operations and
financial condition.
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While Birks reports its financial results in U.S. dollars,
a substantial portion of Birks’ sales are earned in
Canadian dollars. For Birks’ operations located in Canada,
non-Canadian currency transactions and assets and liabilities
subject Birks to foreign currency risk. Conversely, for the
operations located in the United States, non-U.S. currency
transactions and assets and liabilities subject Birks to foreign
currency risk. For purposes of Birks’ financial reporting,
Birks’ financial statements are reported in
U.S. dollars by translating, where necessary, net sales and
expenses from Canadian dollars at the average exchange rates
prevailing during the period, while assets and liabilities are
translated at year-end exchange rates, with the effect of such
translation recorded in accumulated other comprehensive income.
As a result, for purposes of Birks’ financial reporting,
foreign exchange gains or losses recorded in earnings relate to
non-Canadian dollar transactions of the operations located in
Canada and non-U.S. dollar transactions of the operations
located in the United States. Birks expects to continue to
report its financial results in U.S. dollars in accordance
with U.S. GAAP. Consequently, Birks’ reported earnings
could fluctuate materially as a result of foreign exchange
translation gains or losses. To mitigate the impact of foreign
exchange volatility on its earnings, from time to time Birks may
enter into agreements to fix the exchange rate of
U.S. dollars to Canadian dollars. For example, Birks may
enter into agreements to fix the exchange rate to protect the
principal and interest payments on its Canadian dollar
denominated debt and other liabilities. If it does so, Birks
will not benefit from any increase in the value of the Canadian
dollar compared to the U.S. dollar when these payments
become due. There were no significant contracts outstanding at
the end of fiscal 2004 and fiscal 2003.
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Birks’ commodity price hedging activities could
result in losses.
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The nature of Birks’ operations results in exposure to
fluctuations in commodity prices, specifically gold. Birks
monitors and, when appropriate, utilizes derivative financial
instruments and physical delivery contracts to hedge its
exposure to risks related to the change in gold price. For
accounting purposes, the hedging agreements do not qualify to be
treated as pure hedges and, accordingly, are marked to market at
the end of every quarter. At March 26, 2005 and
March 27, 2004, Birks’ hedging had resulted in an
unrealized gain
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from outstanding contracts of approximately Cdn$27,500 and
Cdn$57,000, respectively, due to strong gold prices. However,
such gains may not be realized in future periods and Birks’
hedging activities may result in losses, which could be
material. If gold prices decrease below those levels specified
in Birks’ various hedging agreements, Birks would lose the
benefit it would otherwise receive from a decline in the price
of gold.
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Birks is subject to risks and costs associated with
non-compliance with environmental regulations.
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Birks, and in particular its manufacturing operations, is
subject to federal, state, provincial, territorial and local
laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage,
transportation treatment and disposal of waste and other
materials. Birks believes that its operations and facilities
have been and are being operated in compliance, in all material
respects, with applicable environmental and health and safety
laws and regulations, many of which provide for substantial
fines and criminal sanctions for violations. The operation of
jewelry manufacturing facilities entails risks in these areas,
however, and Birks may incur material costs or liabilities
related to environmental liabilities. In addition, potentially
significant expenditures could be required in order to comply
with evolving environmental and health and safety laws,
regulations or requirements that may be adopted or imposed in
the future.
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Birks’ manufacturing operations are dependent upon
third-party suppliers, making Birks vulnerable to supply
shortages.
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Birks obtains materials and manufactured items from third-party
suppliers. A significant number of Birks’ suppliers are the
sole source for a particular supply item. Any delay in
Birks’ suppliers’ abilities to provide Birks with
necessary materials and components may affect Birks’
manufacturing capabilities or may require Birks to seek
alternative supply sources. Delays in obtaining supplies may
result from a number of factors affecting Birks’ suppliers,
such as capacity constraints, labor disputes, the impaired
financial condition of a particular supplier, suppliers’
allocations to other purchasers, weather emergencies or acts of
war or terrorism. Any delay in receiving supplies could impair
Birks’ ability to supply products to its stores and,
accordingly, could have a material adverse effect on its
business, results of operations and financial condition.
Additionally, Birks is dependent on maintaining good relations
with these third-party suppliers. The abrupt loss of any of its
third-party suppliers, or a decline in the quality or quantity
of materials supplied by any of its third-party suppliers could
cause significant disruption in Birks’ business.
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Fluctuations in the availability and prices of Birks’
merchandise may adversely affect its results of
operations.
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Birks offers a large selection of distinctive high quality
merchandise, including diamond, gemstone and precious metal
jewelry, rings, wedding bands, earrings, bracelets, necklaces,
charms, and its own private label jewelry. Accordingly,
significant changes in availability or prices of diamonds,
gemstones, and precious metals required by Birks for its
products could adversely affect Birks’ earnings. Further,
both the supply and price of diamonds are significantly
influenced by a single entity, Diamond Trading Corporation.
Birks does not maintain long-term inventories or otherwise
currently hedge against fluctuations in the cost of the majority
of these materials. A significant increase in the price of these
materials could adversely affect Birks’ net sales and gross
margins.
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A significant disruption at Birks’ jewelry
manufacturing facilities could have a material adverse effect on
its results.
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Birks’ manufacturing facilities could be damaged or
disrupted by, among other things, a natural disaster, war,
terrorism, fire, or mechanical failure. Although Birks has
obtained property damage and business interruption insurance, a
major event could result in a prolonged interruption. Any
significant disruption could cause significant delays.
Similarly, unexpected downtime at Birks’ manufacturing
facilities as a result of unanticipated failures or scheduled
maintenance may lead to production curtailments and leave Birks
in short supply of certain products. In addition, Birks’
manufacturing processes are dependent on critical skilled
workers. The loss of such workers by Birks without adequate
replacements could result in material
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curtailment of production. Such shutdowns or curtailments may
materially reduce production and impair Birks’ ability to
supply its stores, which could adversely affect Birks’
productivity and results of operations.
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Birks’ business is subject to many operational risks
for which Birks may not be adequately insured.
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Birks’ business is subject to the risks of operating retail
stores and jewelry manufacturing facilities, such as floods,
power failures, robbery, fires, severe weather, environmental
issues, unforeseen equipment breakdowns or any other event, that
could result in a temporary or prolonged shutdown of any of
Birks’ operations. For example, Birks stores were robbed on
four occasions during the fiscal year ended March 26, 2005,
and the losses related to such robberies were not fully
reimbursed by insurance coverage. A shutdown at any Birks stores
or manufacturing facilities could materially adversely affect
Birks’ business, financial condition, results of operations
and cash flows. Although Birks maintains insurance, including
business interruption insurance, it may incur losses beyond the
limits of, or outside the coverage of, such insurance. In
addition, Birks may be unable to maintain existing coverage at
commercially acceptable terms, which could expose Birks to
additional risks of loss or cause it to curtail its operations.
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Hurricanes could cause a disruption in Birks’
U.S. operations, which could have an adverse impact on
Birks’ results of operations.
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Birks’ U.S. operations are located in Georgia and
South and Central Florida, regions which are susceptible to
hurricanes. In the fiscal quarter ended September 25, 2004,
hurricanes Charley, Frances and Jeanne forced the closure of 24
Birks stores under the Mayors brand at various dates, resulting
in a reduction in net sales during such period. Birks maintains
hurricane insurance, but some risks may not be adequately
insured. Additionally, hurricanes may result in reduced tourism
and customer traffic in the areas in which Birks operates stores
under the Mayors brand. Future hurricanes could significantly
disrupt Birks’ U.S. operations and could have a
material adverse effect on its overall results of operations.
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Birks may not be able to adequately protect its
intellectual property and may be required to engage in costly
litigation as a protective measure.
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To establish and protect its intellectual property rights, Birks
relies upon a combination of trademark and trade secret laws,
together with licenses, exclusivity agreements and other
contractual covenants. In particular, the “Henry
Birks & Sons” and “Mayors” trademarks
are of significant value to Birks’ retail operations. The
measures Birks takes to protect its intellectual property rights
may prove inadequate to prevent misappropriation of its
intellectual property. Monitoring the unauthorized use of
Birks’ intellectual property is difficult. Litigation may
be necessary to enforce Birks’ intellectual property rights
or to determine the validity and scope of the proprietary rights
of others. Litigation of this type could result in substantial
costs and diversion of resources, may result in counterclaims or
other claims against Birks and could significantly harm its
results of operations.
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Birks may not successfully manage its inventory, which
could have an adverse effect on its net sales, profitability and
liquidity.
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As a retail business, Birks’ results of operations are
dependent on its ability to manage its inventory. To properly
manage its inventory, Birks must be able to accurately estimate
customer demand and supply requirements and purchase new
inventory accordingly. If Birks fails to appropriately
manufacture or purchase inventory, it may be required to
write-down its inventory, which would have an adverse impact on
earnings. Additionally, a substantial portion of the merchandise
Birks sells is carried on a consignment basis prior to sale or
is otherwise financed by vendors, which reduces Birks’
required capital investment in inventory. The willingness of
vendors to enter into such arrangements may vary substantially
from time to time based on a number of factors, including the
merchandise involved, the financial resources of vendors,
interest rates, availability of financing, fluctuations in gem
and gold prices, inflation, Birks’ financial condition and
a number of economic or competitive conditions in the jewelry
business or the economy. Any significant change in these
consignment relationships could have a material adverse effect
on Birks’ net sales and cash flows.
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The retail jewelry industry is highly competitive and
Birks may not be able to grow or maintain its market
share.
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The retail jewelry business is mature and highly competitive in
the United States and Canada. Birks competes with foreign and
domestic guild and leading luxury jewelers, specialty stores,
national and regional jewelry chains, department stores,
warehouse clubs and, to a lesser extent, catalog showrooms,
discounters, direct mail suppliers, television home shopping
networks and jewelry retailers who make sales through Internet
sites. Birks believes that competition in its markets is based
primarily on trust, quality craftsmanship, product design and
exclusivity, product selection, service excellence, and, to a
certain extent, price. Many competitors are substantially larger
than Birks and have greater financial resources than Birks.
Birks may not be able to compete successfully with such
competitors. Competition could cause Birks to lose customers,
increase expenditures or reduce pricing, any of which could have
a material adverse effect on Birks’ earnings and stock
price.
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Birks’ quarterly operations results will fluctuate
due to seasonality and other factors, and variation in quarterly
results could cause the price of Birks Class A voting
shares to decline.
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As a retailer, Birks’ business is highly seasonal, with a
significant portion of Birks’ sales generated during the
third fiscal quarter, which includes the holiday shopping
season. The seasonal fluctuations may also vary between Birks
branded stores located in Canada and Mayors branded stores
located in the southeastern United States. Birks’ sales in
the third quarter of the fiscal years ended March 26, 2005
and March 27, 2004 including sales from stores operating
under both the Birks brand and the Mayors brand, accounted for
40% and 39% of annual net sales for such fiscal years. Birks has
historically experienced lower net sales and net losses in the
other fiscal quarters, and Birks expects this trend to continue
for the foreseeable future. A significant shortfall in results
for the third quarter of any fiscal year could have a material
adverse effect on Birks’ annual results of operations.
Birks’ quarterly results of operations also may fluctuate
significantly as a result of a variety of factors, including the
timing of new store openings, net sales contributed by new
stores, increases or decreases in comparable store sales, timing
of holidays, changes in merchandise, general economic
conditions, industry and weather conditions that affect consumer
spending, and actions of competitors. Such seasonal fluctuations
could cause the price of Birks Class A voting shares to
decline.
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As a luxury retail jeweler, Birks’ business is
particularly susceptible to adverse economic conditions.
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Jewelry purchases are discretionary for consumers and may be
particularly and disproportionately affected by adverse trends
in the general economy. The success of Birks’ operations
depends to a significant extent upon a number of factors
relating to discretionary consumer spending within the economy
as a whole and in regional and local markets where Birks
operates, including economic conditions (and perceptions of such
conditions) affecting disposable consumer income such as
employment wages and salaries, the performance of the stock
market, business conditions, interest rates, availability and
cost of credit and taxation. In addition, Birks’ stores
operating under the Mayors brand are dependent upon tourism, and
many of Birks’ stores are dependent on the continued
popularity of malls as a shopping destination and the ability of
malls or tenants and other attractions to generate customer
traffic for such stores.
A substantial portion of Birks’ customers use credit,
either from Birks’ proprietary credit cards or another
consumer credit source, to purchase jewelry. When there is a
downturn in the general economy or increases in interest rates,
fewer people use credit. A downturn in the general economy could
also adversely affect Birks’ ability to collect outstanding
credit accounts receivable, which could have a material adverse
affect on Birks’ financial condition.
26
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Birks has significant indebtedness, which could adversely
affect its operations and financial condition.
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Birks currently has, and after the merger will continue to have,
a significant amount of indebtedness and significant debt
service obligations. Birks’ debt levels fluctuate from time
to time based on seasonal working capital needs. The following
table sets forth Birks’ estimated total indebtedness, total
shareholders’ equity, total capitalization and ratio of
total indebtedness to total capitalization as of March 26,
2005, on a pro forma basis after giving effect to the merger:
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Total indebtedness
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$
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107,147,000
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Total shareholders’ equity
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$
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65,730,000
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Total capitalization
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$
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172,877,000
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Ratio of total indebtedness to total capitalization
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61.9
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%
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This high degree of leverage could adversely affect Birks’
results of operations and financial condition. For example, it
could:
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•
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make it more difficult for Birks to satisfy its obligations with
respect to its indebtedness;
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•
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increase its vulnerability to adverse economic and industry
conditions;
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•
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require Birks to dedicate a substantial portion of cash from
operations to the payment of debt service, thereby reducing the
availability of cash to fund working capital, capital
expenditures and other general corporate purposes;
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•
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limit Birks’ ability to obtain financing for working
capital, capital expenditures, general corporate purposes or
acquisitions;
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•
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place Birks at a disadvantage compared to Birks’
competitors that have a lower degree of leverage; and
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•
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limit Birks’ flexibility in planning for, or reacting to,
changes in its business and in the retail jewelry industry.
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The majority of Birks’ indebtedness bears interest at
fluctuating rates, and changes in interest rates could adversely
affect Birks’ results of operations or financial condition.
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Birks will require a significant amount of cash to service
its indebtedness. Birks’ ability to generate cash depends
on many factors beyond its control.
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Birks’ ability to make payments on and to refinance its
indebtedness and to fund planned capital expenditures will
depend on its ability to generate cash in the future. This
ability is subject to general economic, financial, competitive,
legislative, regulatory and other factors that may be beyond
Birks’ control. Birks’ business may not generate
sufficient cash flow from operations, and borrowings may not be
available to Birks in an amount sufficient to enable Birks to
pay its debt or to fund Birks’ other liquidity needs. Birks
may need to refinance all or a portion of its debt on or before
maturity. In addition, Birks has approximately
$74.3 million of demand loans as of March 26, 2005
that can be called by the lenders at any time. Birks may be
unable to refinance any of its debt, including its demand loan,
on commercially reasonable terms or at all.
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Birks’ credit business may be adversely affected by
changes in laws and regulations governing its business.
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The operation of Birks’ credit business subjects it to
substantial regulation relating to disclosure and other
requirements upon origination, servicing, debt collection and
particularly upon the amount of finance charges it can impose.
Any adverse change in the regulation of consumer credit could
adversely affect Birks’ earnings. For example, new laws or
regulations could limit the amount of interest or fees Birks
could charge on consumer loan accounts, or restrict Birks’
ability to collect on account balances, which could have a
material adverse effect on Birks’ earnings. Compliance with
existing and future laws or regulations could
27
require material expenditures or otherwise adversely affect
Birks’ business or financial results. Failure to comply
with these laws or regulations, even if inadvertent, could
result in negative publicity, and fines, either of which could
have a material adverse effect on Birks’ results of
operations.
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Birks may not be able to retain key personnel or replace
them if they leave.
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Birks’ success is largely dependent on the personal efforts
of Thomas A. Andruskevich, Birks’ President and Chief
Executive Officer, and other key members of the senior
management team. Although Birks has entered into employment
agreements with Mr. Andruskevich and other key members of
the senior management team, the loss of any of their services
could cause Birks’ business to suffer.
Mr. Andruskevich currently has a work permit allowing him
to work in Canada. If Mr. Andruskevich is unable to retain
or renew his permit in the future, his future ability to
effectively manage Birks’ Canadian operations may be
compromised. Birks’ success is also dependent upon its
ability to continue to hire and retain qualified operations,
development and other personnel. Competition for qualified
personnel in the retail industry is intense, and Birks may not
be able to hire or retain the personnel necessary for its
planned operations.
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Birks’ business could be adversely affected if it is
unable to successfully negotiate favorable lease terms.
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As of March 26, 2005, Birks had 66 leased stores, which
includes the capital lease of the Birks Canadian headquarters
and Montreal flagship store. The leases are generally for a term
of five to ten years, with rent being a fixed minimum base plus,
for a majority of the stores, a percentage of the store’s
sale volume (subject to some adjustments) over a specified
threshold. Birks has generally been successful in negotiating
leases for new stores and lease renewals as its current leases
near expiration. However, Birks’ business, financial
condition, and operating results could be adversely affected if
Birks is unable to continue to negotiate profitable lease and
renewal terms.
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Birks’ predecessor filed for bankruptcy protection in
1993, which could have an adverse effect on Birks’
relationships with certain creditors and vendors.
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In 1993, Birks’ predecessor filed for bankruptcy protection
in Canada and thereafter went bankrupt. Although Birks today is
a new and distinct legal entity with no relationship to its
predecessor, the fact that Birks’ predecessor went bankrupt
could affect Birks’ relationships with certain vendors and
its ability to negotiate favorable trade terms with
manufacturers and other vendors. Certain vendors, including
Rolex, will not permit Birks to carry their products in stores
operating under the Birks brand due to the bankruptcy of
Birks’ predecessor.
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Mayor’s is the subject of an informal SEC inquiry,
which could have a material adverse effect on Birks.
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On December 1, 2004, Birks was notified that the SEC is
conducting an informal inquiry regarding Mayor’s. The SEC
has requested documents primarily relating to the warrants that
Mayor’s issued to Birks in connection with Birks’
equity investment in Mayor’s in August 2002. In January,
2005, as a result of a review of the accounting treatment of
warrants, Mayor’s restated its financial statements for the
fiscal quarters ended November 2, 2002, December 27,
2003, and June 26, 2004, the fiscal years ended
March 29, 2003 and March 27, 2004, and the selected
quarterly financial data for the fiscal quarter ended
March 27, 2004. Subsequently, the SEC requested further
documents related to Mayor’s restated financial statements
and other matters. Birks is fully cooperating with the SEC
inquiry. Responding to the informal inquiry may require
significant attention and resources of management. If the SEC
elects to pursue a formal investigation or an enforcement
action, the additional response to or defense of such an action
could be costly and require additional management resources. If
Birks is unsuccessful in resolving this or other investigations
or proceedings, it could face civil or criminal penalties that
could have a material adverse effect on Birks, and the price of
Birks Class A voting shares could suffer.
28
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Terrorist acts or other catastrophic events could have a
material adverse effect on Birks.
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Additional terrorist acts, acts of war or hostility, natural
disasters or other catastrophic events could have an immediate
disproportionate impact on discretionary spending on luxury
goods upon which Birks’ operations are dependent. For
example, in the aftermath of the terrorist attacks carried out
on September 11, 2001, tourism was significantly reduced in
all of Birks’ markets, which had an adverse impact on net
sales. Similarly, the SARS epidemic in Toronto, Canada in the
spring of 2003 had an adverse impact on net sales in Birks
stores in that region. Similar future events could have a
material adverse impact on Birks’ business and results of
operations.
29
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this proxy statement/
prospectus, including those relating to Birks’ strategies
and other statements that are predictive in nature, that depend
upon or refer to future events or conditions, or that include
words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,”
“estimates” or similar expressions, are
forward-looking statements. Forward-looking statements include,
without limitation, the information concerning possible or
assumed future results of operations of Birks and Mayor’s
as set forth under “The Merger — Birks’
Reasons for the Merger,” “The Merger —
Recommendations of the Special Committee,” “The
Merger — Mayor’s Reasons for the Merger” and
“The Merger — Opinion of the Financial Advisor to
the Special Committee.” These statements are not historical
facts but instead represent only Birks’ and/or Mayor’s
expectations, estimates and projections regarding future events.
Many factors could cause the actual results, performance or
achievements of Birks, Mayor’s or the combined company to
be materially different from any future results, performance, or
achievements that may be expressed or implied by such
forward-looking statements, including, among others:
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•
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future results of operations, liquidity and financial position;
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•
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fluctuation in the market price of Mayor’s common stock or
Birks Class A voting shares;
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•
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difficulties in integrating Birks and Mayor’s and in
achieving anticipated cost savings;
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•
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difficulties in implementing Birks’ business strategy,
including with respect to the merger;
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•
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future litigation or regulatory action;
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•
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fluctuation in interest rates, exchange rates and prices of
commodities;
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•
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changes in the competitive landscape;
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•
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Birks’ ability to effectively source and manufacture
merchandise for its stores;
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•
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interruption in the supply chain;
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•
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relationships with Birks’ vendors;
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•
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protection of intellectual property;
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•
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ability to properly manage inventory;
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•
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ability to renew leases;
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•
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ability to withstand seasonal fluctuations;
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•
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ability to effectively identify and remedy deficiencies in
Birks’ internal control over financial reporting; and
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•
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the impact of adverse economic conditions and future
catastrophic events.
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Should one or more of these risks or uncertainties materialize,
or should assumptions underlying the forward-looking statements
prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected.
The forward-looking statements contained in this proxy
statement/ prospectus are not guarantees of future performance
and involve risks and uncertainties that are difficult to
predict. The future results and stockholder values of Birks may
differ materially from those expressed in the forward-looking
statements contained in this proxy statement/ prospectus due to,
among other factors, the matters set forth under “Risk
Factors.” Neither Birks nor Mayor’s undertakes any
obligation to update or release any revisions to these
forward-looking statements to reflect events or circumstances
after the date of this proxy statement/ prospectus or to reflect
the occurrence of unanticipated events, except as required by
law.
30
THE SPECIAL AND ANNUAL MEETING
General; Date; Time and Place
This proxy statement/ prospectus is being provided by, and the
enclosed proxy is solicited by and on behalf of, Mayor’s
board of directors for use at a special and annual meeting of
Mayor’s stockholders.
The special and annual meeting is scheduled to be held at
10:00 a.m., local time,
on ,
2005 at the Renaissance Hotel, 1230 South Pine Island Road,
Plantation, Florida 33324, unless it is postponed or adjourned.
Purposes of the Special and Annual Meeting
The purposes of the special and annual meeting are:
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•
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To approve and adopt the merger agreement;
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•
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To elect one director of Mayor’s;
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•
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To ratify the appointment of KPMG LLP as Mayor’s
independent registered public accounting firm for the fiscal
year ending March 25, 2006; and
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•
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To transact such other business as may properly come before the
special and annual meeting.
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Approval of the matters to be voted on at the special and annual
meeting other than to approve and adopt the merger agreement are
not a condition to the merger. If the merger is completed, the
other matters voted on at the special and annual meeting will,
as a result, be superseded.
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Proposal 1:
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Approval and Adoption of the Merger Agreement
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You are being asked to vote on the proposed merger of
Mayor’s and Birks. In the proposed merger, Mayor’s
will become a wholly-owned subsidiary of Birks. You will receive
0.08695 Class A voting shares of Birks for each share of
Mayor’s common stock that you own. Fractional shares will
not be issued, but a cash payment will be made for those
fractional shares. After the merger, Mayor’s existing
public stockholders, which excludes Birks, will own
approximately 53.3% of Birks outstanding Class A voting
shares, representing 16.6% of the equity in Birks and 2.3% of
the voting power, in each case based on the number of Birks
Class A voting shares and Birks Class B multiple
voting shares expected to be outstanding immediately prior to
the merger.
A special committee comprised of independent members of your
board of directors was formed to consider and evaluate the
proposed merger. The special committee believes that the
combined company would have improved operating efficiencies,
more diversified revenue, more diversified products and
distribution capabilities and a leading position in its core
geographic markets, South and Central Florida, metropolitan
Atlanta and Canada.
Approval and adoption of the merger agreement requires the
affirmative vote of (1) the holders of at least a majority
of Mayor’s outstanding stock entitled to vote thereon and
(2) the majority of Mayor’s disinterested
stockholders, which excludes Birks and each person that is an
affiliate or associate of Birks, that cast a vote, in person or
by proxy, at the special and annual meeting. Directors of
Mayor’s who are not affiliates or associates of Birks are
considered disinterested stockholders for purposes of voting on
the merger agreement. These directors (Emily Berlin, Elizabeth
M. Eveillard, Massimo Ferragamo, Stephen M. Knopik, Judith
MacDonald and Ann Spector Lieff) collectively, together with
their associates and affiliates, beneficially own approximately
1.9 million shares, or 5.0% of Mayor’s common stock.
These directors have indicated that they plan to vote their
shares in favor of the merger agreement, and their votes will
count in determining whether a majority of Mayor’s
disinterested stockholders has approved the merger.
Mayor’s board of directors, upon the unanimous
recommendation of the special committee, has approved the merger
agreement and the merger.
31
The Mayor’s board of directors recommends that the
stockholders of Mayor’s vote “FOR” the approval
and adoption of the merger agreement.
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Proposal 2:
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Election Of Directors
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Mayor’s board of directors currently consists of eight
members. Birks, as the holder of 15,050 shares of
Mayor’s preferred stock, convertible into
51,499,525 shares of Mayor’s common stock, is entitled
to elect seven of the nine members of the board of directors
pursuant to Section 5(a) of the Certificate of Designation
of Series A-1 Convertible Preferred Stock of Mayor’s.
Birks has elected six members to the board of directors, as
discussed in the section “Management of Mayor’s.”
The directors elected by the common stockholders of Mayor’s
are classified into separate classes with each class holding
office for a three-year period. The two directors elected by the
common stockholders of Mayor’s were Judith R. MacDonald,
whose term expires in 2007, and Stephen M. Knopik, whose term
expires in 2005. Mr. Knopik has informed the board of
directors that he will not seek re-election to the board of
directors.
Accordingly, at the special and annual meeting, one director is
to be elected to hold office for the term indicated below in the
event that the Mayor’s stockholders do not approve and
adopt the merger agreement. The nominee for election by the
common stockholders as director is
[ ].
[ ]
is nominated for a term expiring in 2008. Information concerning
the nominee is set forth in the section “Management of
Mayor’s.” The persons named in the enclosed proxy card
have advised that, unless otherwise directed on the proxy card,
they intend to vote FOR the election of the nominee. Should
the nominee become unable or unwilling to accept nomination or
election for any reason, votes will be cast for a substitute
nominee designated by the board of directors, which has no
reason to believe the nominee named will be unable or unwilling
to serve if elected.
The board of directors recommends a vote “FOR” the
nominee as director to serve for the term specified above and
until his successor is duly elected and qualified.
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Proposal 3:
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Ratify the Appointment of Mayor’s Independent Registered
Public Accounting Firm
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The firm of KPMG LLP served as Mayor’s independent
registered public accounting firm for the fiscal year ended
March 26, 2005. KPMG LLP has advised Mayor’s that the
firm does not have any direct or indirect financial interest in
Mayor’s or its subsidiaries, nor has such firm had any such
interest in connection with Mayor’s or its subsidiaries
during the past year, other than in its capacity as Mayor’s
or its subsidiaries independent registered public accounting
firm. The audit committee of the Mayor’s board of directors
has appointed KPMG LLP as Mayor’s independent registered
public accounting firm for the fiscal year ending March 25,
2006. Although the audit committee is not required to do so, it
is submitting its selection of Mayor’s independent
registered public accounting firm for ratification at the
special and annual meeting in order to ascertain the views of
Mayor’s stockholders. The audit committee will not be bound
by the vote of the stockholders. However, if the selection is
not ratified, the audit committee would reconsider its
selection. Representatives of KPMG LLP may be present at the
special and annual meeting. These representatives will have the
opportunity to make a statement if they desire to do so and will
be available to respond to appropriate questions from
stockholders.
The board of directors recommends that Mayor’s stockholders
vote “FOR” ratification of the appointment of KPMG LLP
as Mayor’s independent registered public accounting firm.
Record Date; Voting Power
Only holders of shares of Mayor’s common stock and
Mayor’s preferred stock as of the close of business
on ,
2005, which is the record date for the special and annual
meeting, will be entitled to receive notice of and to vote at
the special and annual meeting and any adjournments or
postponements of the special and annual meeting. Each share of
Mayor’s common stock is entitled to one vote and each share
of Mayor’s preferred stock is entitled to 3,421.90 votes at
the special and annual meeting.
32
As of the date of this proxy statement/ prospectus,
36,991,592 shares of Mayor’s common stock and
15,050 shares of Mayor’s preferred stock were
outstanding. As of the date of this proxy statement/ prospectus,
15,602,997 shares of Mayor’s common stock, representing
42.2% of the outstanding shares of Mayor’s common stock,
and 15,050 shares of Mayor’s preferred stock,
representing 100% of the outstanding shares of Mayor’s
preferred stock, were held directly by Birks. As of the date of
this proxy statement/ prospectus, the shares of Mayor’s
common stock and preferred stock held by Birks represented 75.8%
of Mayor’s total outstanding voting power.
As of the date of this proxy statement/ prospectus,
approximately 1.9 million shares of Mayor’s common
stock, representing 5.0% of the outstanding shares of
Mayor’s common stock, were beneficially held, directly or
indirectly, by directors and executive officers of Mayor’s
who are not affiliates of Birks, and approximately
5.7 million shares of Mayor’s common stock,
representing 13.4% of the outstanding shares of Mayor’s
common stock, were beneficially held by directors and executive
officers of Mayor’s who are affiliates of Birks (excluding
Mayor’s common stock held directly by Birks). Approximately
0.3 million of those shares beneficially held by directors
and executive officers of Mayor’s who are not affiliates of
Birks and approximately 5.6 million of those shares
beneficially held by directors and executive officers of
Mayor’s who are affiliates of Birks are beneficially held
in the form of options or warrants to purchase shares of
Mayor’s common stock.
Birks and all of the directors and executive officers of
Mayor’s and Birks have indicated that they intend to vote
their Mayor’s shares in favor of approval and adoption of
the merger agreement.
Required Vote
Approval of Merger Agreement.
The affirmative vote of
(1) the holders of a majority of the voting power
represented by Mayor’s outstanding stock entitled to vote
at the special and annual meeting as of the record date and
(2) the majority of the voting power represented by the
stock held by Mayor’s disinterested stockholders, which
excludes Birks and each person that is an affiliate or associate
of Birks, that cast a vote, in person or by proxy, at the
special and annual meeting is required to adopt the merger
agreement.
Election of Director.
The affirmative vote of a plurality
of the votes cast by the shares of Mayor’s common stock,
not including the shares of Mayor’s common stock that would
be represented by the Mayor’s preferred stock if converted,
represented in person or by proxy at the special and annual
meeting is required to elect a director for the term specified
herein.
Ratify the Appointment of KPMG LLP.
The affirmative vote
of the holders of a majority of the shares of Mayor’s
common stock, including the shares of Mayor’s common stock
that would be represented by the Mayor’s preferred stock if
converted, represented in person or by proxy at the special and
annual meeting is required to ratify the audit committee’s
appointment of KPMG LLP as Mayor’s independent registered
public accounting firm for the fiscal year ending March 25,
2006.
Because Birks controls a majority of Mayor’s voting stock,
Birks will be able to ensure that a majority of the voting stock
approves the merger. Nevertheless, approval and adoption of the
merger requires the affirmative vote of disinterested
stockholders who vote their shares at the special and annual
meeting. Therefore, as a disinterested stockholder, your vote is
important and a failure to vote will reduce the number of votes
of disinterested stockholders required to approve or reject the
merger.
Directors of Mayor’s who are not affiliates or associates
of Birks are considered disinterested stockholders for purposes
of voting on the merger agreement. These directors (Emily
Berlin, Elizabeth M. Eveillard, Massimo Ferragamo,
Stephen M. Knopik, Judith MacDonald and Ann Spector Lieff)
collectively, together with their associates and affiliates,
beneficially own approximately 1.9 million shares, or 5.0%
of Mayor’s common stock. These directors have indicated
that they plan to vote their shares in favor of the merger
agreement, and their votes will count in determining whether a
majority of Mayor’s disinterested stockholders has approved
the merger.
33
Brokers holding shares of Mayor’s common stock as nominees
will not have discretionary authority to vote those shares in
the absence of instructions from the beneficial owners of those
shares, so the failure to provide voting instructions to your
broker will also have the same effect as a vote against the
merger.
The obligation of Mayor’s and Birks to consummate the
merger is subject to, among other things, the condition that the
Mayor’s stockholders adopt the merger agreement. If
Mayor’s stockholders fail to approve the merger agreement
at the special and annual meeting, each of Mayor’s and
Birks will have the right to terminate the merger agreement. See
“The Merger Agreement — Termination.”
Quorum
The holders of not less than a majority of the shares of
Mayor’s voting stock outstanding on the record date must be
present, either in person or by proxy, at the special and annual
meeting to constitute a quorum. Abstentions and broker non-votes
are counted as present or represented at the special and annual
meeting for the purpose of determining a quorum for the special
and annual meeting.
How to Vote
A stockholder may vote in person at the special and annual
meeting or by proxy without attending the special and annual
meeting. To vote by proxy, a stockholder will have to complete
the enclosed proxy card, sign and date it and return it in the
enclosed postage prepaid envelope or mail to Georgeson
Shareholder Communications Inc., 17 State Street,
28
th
Floor, New York, New York 10004, Attention: James Gill.
If you are a stockholder holding shares as of the record date,
you may vote by proxy by using the accompanying proxy card. When
you return a proxy card that is properly signed and completed,
the shares of Mayor’s common stock represented by the proxy
will be voted as you specify in the proxy card. If you hold
shares in “street name”, your broker or other nominee
will advise you whether you may submit your voting instruction
by telephone or through the Internet.
All properly executed proxies that are not revoked will be voted
at the special and annual meeting as instructed on those
proxies. Executed proxies containing no instructions will be
voted in favor of Mayor’s nominee for director, in favor of
ratification of the appointment of Mayor’s independent
registered public accounting firm and in favor of adoption of
the merger agreement.
Revocation of Proxy
A stockholder who executes and returns a proxy may revoke it in
person at the special and annual meeting or at any time before
it is voted by sending a written notice to Georgeson Shareholder
Communications Inc., 17 State Street,
28
th
Floor, New York, New York 10004, stating that the earlier proxy
is revoked or by returning a proxy bearing a later date (using a
new proxy card, following the instructions provided on the proxy
card). If your shares are held in “street name” and
you would like to revoke an earlier vote, please check with your
broker and follow the voting procedures your broker provides.
Expenses of Solicitation
Mayor’s and Birks have agreed to each pay one-half of the
costs of filing, printing and mailing this proxy statement/
prospectus. In addition to soliciting proxies by mail,
directors, officers and employees of Mayor’s or Birks,
without receiving additional compensation, may solicit proxies
by telephone, by facsimile or in person. Arrangements may also
be made with brokerage firms and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial
owners of shares of Mayor’s common stock held of record by
these persons, and Mayor’s will reimburse these brokerage
firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
In addition, Georgeson Shareholder Communications Inc. (referred
to in this proxy statement/ prospectus as Georgeson) has been
retained by Mayor’s to assist in the solicitation of
proxies. Georgeson may contact holders of shares of Mayor’s
common stock by mail, telephone, facsimile, telegraph and
personal interviews and may request brokers, dealers and other
nominee stockholders to forward materials to beneficial owners
of shares of
34
Mayor’s common stock. Georgeson will receive reasonable and
customary compensation for its services, estimated at $15,000,
and will be reimbursed for certain customary out-of-pocket
expenses.
Questions About Voting Your Shares
If you have any questions about how to vote or direct a vote in
respect of your Mayor’s common stock, you may call
Georgeson, at 1-800-257-5508.
Miscellaneous
For 10 days prior to the special and annual meeting, a list
of all stockholders entitled to vote at the special and annual
meeting will be available for examination at Mayor’s
offices, which will be located at 14051 N.W.
14
th
Street,
Suite 200, Sunrise, Florida 33323 until August 31,
2005, and at 5870 Hiatus Road, Tamarac, Florida 33321
thereafter. If you would like to view the stockholder list in
advance of the meeting, please call Mayor’s Chief
Administrative Officer or its Chief Financial Officer at
(954) 846-8000 to schedule an appointment. The stockholder
list will also be available for inspection at the special and
annual meeting.
Prior to the special and annual meeting, Mayor’s will
select one or more inspectors of election for the special and
annual meeting. Such inspector(s) shall determine the number of
shares of common stock (including shares of preferred stock
convertible into common stock) represented at the special and
annual meeting, and the validity and effect of proxies, and
shall receive, count, and tabulate ballots and votes, and
determine the results thereof. Abstentions will be considered as
shares present and entitled to vote at the special and annual
meeting, but will not be counted as votes cast at the special
and annual meeting or as votes for or against the merger.
35
THE MERGER
Background of the Merger
In August 2002, Birks acquired approximately 72% of the voting
control of Mayor’s. Since that time, the two companies have
progressively integrated their operations. However, some aspects
of the operations of the two companies have continued to operate
separately. Beginning in late 2003 Birks’ management began
to explore different methods to reorganize and fully integrate
Birks and Mayor’s. In Birks’ view, such an integration
would (1) provide liquidity to Birks’ shareholders,
(2) eliminate confusion for Birks’ shareholders as to
the value of their holdings given Birks’ stake in
Mayor’s, (3) eliminate any misalignment of interests
from having two shareholder bases and (4) eliminate any
misalignment of management focus and interests. In addition,
Birks believed that Mayor’s stockholders would benefit from
such a proposed transaction because the transaction would
(1) result in increased scale to allow the combined company
to compete more effectively in the North American luxury retail
jewelry market, (2) eliminate confusion for Mayor’s
stockholders as to Birks’ intentions for its stake in
Mayor’s, (3) provide for further geographic and
customer diversification and (4) provide Mayor’s with
greater access to Birks’ existing manufacturing and design
capabilities. Birks also believed that such a transaction might
enhance the combined company’s prospects with respect to
future financing and capital raising activities, and allow for
the creation of a potentially more attractive acquisition
currency.
After much internal discussion and consultation with its legal,
tax and financial advisors, Birks notified the members of
Mayor’s board of directors on July 29, 2004 that Birks
was interested in pursuing a possible business combination of
Birks and Mayor’s. No specific terms were proposed at that
time. Due to potential conflicts of interest of members of
Birks’ management serving on Mayor’s board of
directors, on August 2, 2004, Mayor’s board of
directors formed a special committee of independent directors
comprised of Emily Berlin, Stephen M. Knopik, Ann Spector Lieff
and Judith MacDonald to determine whether to proceed with the
transaction. At that time, the Mayor’s board of directors
delegated to the special committee the authority to investigate
and negotiate a potential transaction with Birks, and to take
all other actions it deemed necessary to pursue such mandate,
including the hiring of independent legal and financial advisors.
The special committee held a meeting on August 5, 2004 to
discuss potential legal and financial advisors to assist the
special committee in fulfilling its duties and evaluating any
proposal that might be submitted by Birks. After interviewing
several investment banking and law firms, the special committee,
at a meeting held August 16, 2004, elected to retain
Houlihan Lokey as its independent financial advisor and
King & Spalding LLP as its independent legal
counsel. The special committee selected Houlihan Lokey and
King & Spalding based on each firm’s reputation
and experience in representing special committees in similar
types of transactions.
The special committee and its financial and legal advisors met
on August 30, 2004. At this meeting, the special committee
received a presentation from King & Spalding regarding
the special committee’s fiduciary duties in evaluating a
proposal from Birks. In addition, Houlihan Lokey discussed with
the special committee Houlihan Lokey’s work to date and
Houlihan Lokey’s proposed process to evaluate the proposal
expected to be received from Birks. At the August 30
meeting, the special committee also discussed with Houlihan
Lokey and King & Spalding the expected agenda for a
scheduled meeting the next day at Birks’ headquarters in
Montreal.
On August 31, 2004, the special committee and its financial
and legal advisors attended a meeting at Birks’
headquarters in Montreal, which was also attended by
Mr. Thomas A. Andruskevich, who is the Chief Executive
Officer of Birks and Mayor’s, several other members of
Birks’ management team, the financial advisor to Birks
(Bear Stearns & Co. Inc.), the legal advisor to Birks
(Shearman & Sterling LLP) and the legal advisor to
Mayor’s (Holland & Knight LLP). During the
meeting, Birks made a presentation to the special committee with
respect to a proposed merger of Birks and Mayor’s. At the
meeting, Birks submitted a term sheet for the special
committee’s review outlining the material terms of the
proposal. The term sheet provided that Birks would first be
recapitalized to have two classes of common stock, Class A
voting shares and Class B multiple voting shares. Following
this recapitalization, Birks would acquire all of the publicly
36
held shares of Mayor’s in exchange for Class A voting
shares of Birks at an exchange ratio of one Birks Class A
voting share for every 13.5 shares of Mayor’s common
stock (which is the same as 0.07407 Birks Class A voting
shares for every share of Mayor’s common stock). As a
result of the proposed transaction, Mayor’s would become a
wholly-owned subsidiary of Birks, which would then be a publicly
held corporation traded on the American Stock Exchange. The
terms also provided certain protective measures for the public
stockholders of Mayor’s, including approval of the
transaction by the special committee and a “majority of the
minority” vote requirement that would mandate a vote of
Mayor’s disinterested stockholders.
While in Montreal, the special committee also (1) conducted
a site visit of Birks’ flagship store and Montreal
manufacturing facility, (2) received further financial,
strategic, business, operational and historical information
regarding Birks and (3) received an explanation from
Birks’ management regarding the rationale and structure of
the proposed transaction. Birks noted that it had considered a
transaction structure in which Birks would become a wholly-owned
subsidiary of Mayor’s, but that based on the guidance of
its legal, financial and tax advisors, Birks concluded that the
structure being proposed by Birks was the most effective
structure. In addition, during the meeting in Montreal, Houlihan
Lokey generally discussed with Birks and Bear Stearns the
diligence process that Houlihan Lokey intended to undertake in
connection with its examination of the proposed transaction from
a financial point of view, and King & Spalding and
Holland & Knight discussed with Shearman &
Sterling their plans regarding the legal due diligence process
to be undertaken in connection with the transaction. Birks and
its financial and legal advisors indicated their intention to
fully cooperate with the special committee and its financial and
legal advisors in connection with the due diligence process.
During September and October 2004, Birks provided the special
committee’s financial and legal advisors with financial and
other information, and Mayor’s and the special
committee’s advisors conducted a number of due diligence
and management meetings in Montreal and by telephone. The
special committee’s financial and legal advisors also
conducted financial and legal due diligence on Mayor’s,
including visits by the special committee’s financial
advisors to Mayor’s headquarters in Sunrise, Florida.
During this period, Houlihan Lokey conducted a financial review
of Mayor’s and Birks, including investigations of
Birks’ liquidity and credit availability and the financial
statements, projections and other relevant data regarding both
Mayor’s and Birks.
On September 17, 2004, on behalf of Birks,
Shearman & Sterling presented the special committee
with a draft merger agreement.
On September 21, 2004, the special committee met with its
financial and legal advisors to review and discuss the status of
the proposed merger, including the financial and legal due
diligence conducted to date, the terms of the proposed draft
merger agreement, the structure of the proposed merger,
alternative business combination structures and the terms of the
proposed corporate governance arrangements. At these meetings,
the special committee also discussed with its advisors the
strategic implications and potential benefits and risks of the
proposed merger to the stockholders of Mayor’s other than
Birks and its affiliates. The special committee specifically
discussed with its advisors the tax implications of the proposed
transaction and the issues related to Birks being a Canadian
corporation, including the key differences between Delaware
corporate law and Canadian corporate law. The special committee
instructed King & Spalding to negotiate appropriate
protections for the minority stockholders in the charter
documents and bylaws of Birks.
During the September 21, 2004 meeting, Houlihan Lokey
informed the special committee that it had been contacted by
another investment banker. That investment banker had indicated
to Houlihan Lokey that one of its clients, a competitor of
Mayor’s, had inquired as to whether Mayor’s would be
interested in being acquired. Following receipt of this
information, the special committee and its legal counsel advised
the boards of directors of Birks and Mayor’s of the inquiry
and requested that Birks advise the special committee as to
whether Birks would be willing to sell its majority interest in
Mayor’s. By letter dated September 23, 2004,
Mr. Andruskevich informed the special committee that the
controlling shareholders of Birks were not interested in selling
their shares in Mayor’s or Birks.
On September 24, 2004, Holland & Knight, legal
advisors to Mayor’s, presented the special committee with a
preliminary legal due diligence report with respect to Birks,
which was reviewed by the special
37
committee and its financial and legal advisors. The due
diligence report was subsequently updated, as needed, as the due
diligence process continued.
On October 1, 2004, King & Spalding delivered the
special committee’s initial comments to the merger
agreement to Birks’ counsel, Shearman & Sterling.
On October 6, 2004, Birks provided the special committee
with a draft of Birks’ amended Articles of Amalgamation,
referred to in this proxy statement/ prospectus as Birks’
amended charter, and a draft of Birks’ amended By-laws,
referred to in this proxy statement/ prospectus as Birks’
amended by-laws.
The special committee met again on October 7, 2004. At this
meeting, Houlihan Lokey provided the special committee with an
update regarding its financial analysis in connection with the
proposal, and the special committee raised several questions
with Houlihan Lokey, including questions about the impact of
upcoming holiday season sales on Houlihan Lokey’s financial
analysis. In addition, the special committee received a report
from King & Spalding regarding the status of the
discussions relating to the merger agreement and the corporate
governance documents, and the special committee received a
report from Holland & Knight regarding the legal due
diligence. Ms. Lieff also reported to the special committee
at the October 7, 2004 meeting on her discussions with
Mr. Andruskevich regarding the special committee’s
request that Birks reimburse Mayor’s for the expenses
incurred by Mayor’s if the transaction is not completed.
Ms. Lieff indicated that Birks was unwilling to enter into
such an agreement unless and until a definitive merger agreement
was signed, but that Birks appeared willing to reimburse
Mayor’s for its expenses in certain circumstances if a
definitive merger agreement were signed.
During the October 7, 2004 meeting, the special committee
was informed by Houlihan Lokey that it had been contacted again
by an investment banker which reiterated that its client might
have a potential interest in acquiring Mayor’s. Based on
the response that the special committee had received from Birks
and the fact that pursuing such a possible transaction would be
futile in light of such response, the special committee
instructed Houlihan Lokey to advise the investment banker of
Birks’ response and to direct the investment banker to
contact Birks directly regarding any further inquiries.
During October 2004, representatives of King & Spalding
and Shearman & Sterling had several negotiating
sessions regarding the terms of the merger agreement and
exchanged revised drafts. In connection with the negotiations,
Birks agreed, among other things, to provide more expanded
representations and warranties in the merger agreement and
agreed to more covenants regarding its operations between
signing and closing. On November 1, 2004, King &
Spalding delivered the special committee’s initial comments
to the governance documents to Shearman & Sterling. In
these comments, the special committee requested a number of
protections for the minority shareholders of the combined
company, including requiring that the Class A voting shares
receive the same consideration (on a per share basis) as the
Class B multiple voting shares in a business combination
and requiring disinterested director and shareholder approval in
the event of certain related party transactions. Following
November 1, 2004, representatives of King &
Spalding and Shearman & Sterling had discussions
regarding the terms of the proposed governance documents and
attempted to negotiate the open points, subject to approval of
their respective principals.
On October 22 and November 2, 2004, the special committee
met again to discuss the potential merger. Houlihan Lokey and
King & Spalding updated the special committee on the
status of the due diligence review and the current terms of the
draft merger agreement. In addition, the draft governance
documents were reviewed and discussed with the special
committee. During these meetings, King & Spalding
explained that a technical issue had arisen with regard to
whether the proposed transaction with Birks would be treated as
a “tax-free” reorganization for purposes of
U.S. tax law. The issue related to the fact that Birks was
a non-U.S. company and that it had acquired its interest in
Mayor’s within the preceding three years. King &
Spalding advised the special committee that the proposed
transaction still should be treated as a tax-free
reorganization, but that none of the parties’ advisors
would be able to provide an opinion that the transaction
“will” be treated as a tax-free reorganization if it
is consummated prior to the third anniversary of Birks’
investment in Mayor’s.
38
During the October 22 and November 2, 2004 meetings,
Houlihan Lokey also advised the special committee as to Houlihan
Lokey’s perspectives regarding the rationale for the
proposed transaction and the results of its financial due
diligence review of Birks. Houlihan Lokey presented the special
committee with its preliminary views regarding the proposed
transaction. The special committee also discussed the benefits
to Mayor’s stockholders that would be derived from the
integration of the two companies, including cost reductions, and
the benefits to Mayor’s of having access to the
manufacturing and production capabilities of Birks. Following
consideration of these presentations, discussions and questions,
the special committee directed Houlihan Lokey to begin
negotiations with respect to the exchange ratio with Birks’
financial advisors.
On November 9, 2004, Mayor’s announced that it was
delaying the filing of its quarterly report on Form 10-Q
for the thirteen weeks ended September 25, 2004 and that it
anticipated that it would have to restate certain prior
financial statements as a result of an error in the accounting
treatment of certain warrants that were issued by Mayor’s
to Birks in 2002 and later assigned in part to certain
individuals affiliated with Birks. On December 1, 2004,
Mayor’s was notified that the SEC was conducting an
informal inquiry regarding Mayor’s. The SEC requested
documents relating primarily to the warrants that were the
subject of the accounting restatement issues.
The special committee held meetings on November 10 and
December 14, 2004, to receive updates on the accounting
restatement issues. At the December 14, 2004 meeting, the
special committee determined that, in light of the work being
conducted to file restated financial statements and the search
for an interim chief financial officer, it was appropriate to
delay further consideration of the proposed transaction with
Birks until the accounting issues were resolved. On
December 15, 2004, Mayor’s board of directors
appointed a new Interim Chief Financial Officer, and reassigned
the officer then performing such duties.
On January 7, 2005, Mayor’s filed the required
financial statements and restatements with the SEC. At a meeting
held January 25, 2005, the special committee determined it
was appropriate to resume consideration of the proposed
transaction with Birks.
At the January 25, 2005 meeting, at the request of the
special committee, King & Spalding made a presentation
to the special committee regarding different structuring
alternatives to the proposed transaction, which alternatives
would allow the Mayor’s stockholders to continue to own
shares in a Delaware corporation rather than a Canadian
corporation. Based on the presentation and other relevant
information considered at the meeting, however, the special
committee determined that the structure proposed by Birks
involving a merger of Mayor’s with and into a subsidiary of
Birks was the most appropriate structure for the Mayor’s
stockholders, particularly after taking into account the
complexities and disadvantages of the alternative structures, as
well as the provisions being negotiated in the corporate
governance documents to provide protections for the minority
shareholders of Birks following the transaction.
Following the January 25, 2005 meeting, Houlihan Lokey
contacted Birks and Mayor’s to receive updated financial
information, including information relating to the 2004 holiday
season results. Houlihan Lokey performed an updated financial
review of both companies and visited with Birks’ management
and financial advisors in Montreal to discuss the updated
information. Houlihan Lokey continued its financial review
throughout February 2005.
On January 30 and January 31, 2005, Shearman &
Sterling provided the special committee with revised drafts of
the merger agreement and the corporate governance documents,
which incorporated the previous discussions between the
respective legal advisors prior to the occurrence of the
accounting restatement issues. In addition, Birks proposed that
the merger would not be effective prior to August 21, 2005
(the third anniversary of Birks’ investment in
Mayor’s) in order to address the technical tax issue
discussed the previous fall.
At a meeting held on February 9, 2005, King &
Spalding advised the special committee of the remaining open
issues on the merger agreement and the corporate governance
documents. Following this meeting, representatives of
King & Spalding and Shearman & Sterling had
several discussions in an effort to resolve the outstanding
issues and identify items that needed to be discussed by the
respective principals.
39
Over the next several weeks, members of the special committee,
its legal counsel, Mr. Andruskevich and Birks’ legal
counsel had discussions regarding the key unresolved issues with
respect to the merger agreement. These issues included the
payment of expenses under certain circumstances, the composition
of the disinterested stockholder vote, whether Birks’
shareholders would indemnify Mayor’s in the event of a
breach of a representation, warranty or covenant in the merger
agreement by Birks and whether Mayor’s would have the right
to terminate the merger agreement if the special committee
changed its recommendation. The special committee and its
advisors also focused on the anti-dilution provisions in certain
Birks options granted to the CEO of Birks and similar provisions
in Mayor’s existing common stock warrants issued to Birks
in 2002 and later assigned to members of Birks’ management
and its affiliates.
On March 3, 2005, Houlihan Lokey presented the special
committee with its updated financial analysis of both companies
and the proposed merger. The special committee then directed
Houlihan Lokey to contact Bear Stearns to recommence
negotiations with respect to the exchange ratio. Following the
March 3, 2005 meeting, Houlihan Lokey engaged in
discussions with Birks’ financial advisor regarding the
exchange ratio. Houlihan Lokey proposed an exchange ratio in the
range of one Birks Class A voting share for every eleven
shares of Mayor’s common stock, or 0.90909.
Following the March 3, 2005 meeting, King &
Spalding and Shearman & Sterling continued to discuss
the unresolved issues in the merger agreement. At the direction
of the special committee, King & Spalding presented
Shearman & Sterling with a proposed resolution of
certain of the key unresolved issues in the merger agreement.
The special committee agreed to Birks’ proposed composition
of the disinterested stockholder vote (which would include all
directors of Mayor’s who are not affiliates or associates
of Birks) and, in addition, agreed not to require
indemnification from Birks’ shareholders in light of the
remedies available to the Mayor’s public stockholders under
the federal securities laws in the event of material
misstatements or omissions in this proxy statement/ prospectus.
In exchange for these concessions, the special committee
required that Birks agree to pay Mayor’s expenses in
connection with the transaction in the event of a termination of
the merger agreement arising out of the failure of Birks to
become listed on the American Stock Exchange (should such
failure be unrelated to Mayor’s) or Birks’ inability
to have this proxy statement/ prospectus declared effective by
the SEC (should such inability be unrelated to Mayor’s).
The special committee also insisted on Mayor’s having the
right to terminate the merger agreement in the event the special
committee changed its recommendation. Birks indicated that the
foregoing resolution of these issues was acceptable, except that
Birks wanted Mayor’s to be responsible for Birks’
transaction expenses if Mayor’s terminated the merger
agreement as a result of a change in recommendation. Thus, at
this point, the key unresolved issues were the exchange ratio,
the anti-dilution provisions and the expense reimbursement issue.
On March 15, 2005, Houlihan Lokey reported to the special
committee on its discussions with Bear Stearns regarding the
exchange ratio. Houlihan Lokey advised the special committee
that, following several discussions between Houlihan Lokey and
Bear Stearns, Birks had offered an exchange ratio in the range
of 1:11.7 (or 0.08547) to 1:11.6 (or 0.08620). Houlihan Lokey
noted that this offer represented a significant improvement from
the original proposal of 1:13.5 (or 0.07407). Houlihan Lokey
advised the special committee that it expected that it would be
in a position to render a fairness opinion with respect to a
1:11.6 (or 0.08620) exchange ratio.
King & Spalding also reviewed with the special
committee the key terms of the anti-dilution provisions in
certain warrants and options held by members of management of
Birks and, in certain cases, Mayor’s, that provide that the
number of shares subject to the warrants and options would
automatically increase (and, in the case of the warrants, the
per share exercise price would automatically decrease) in the
event of additional issuances of capital stock so that the
holder’s percentage of the issuing company’s
fully-diluted equity is unchanged as a result of such additional
issuances. King & Spalding and Houlihan Lokey advised
the special committee that these were unusual provisions,
particularly for a public company. King & Spalding also
advised the special committee that Birks’ existing
preferred stock in Mayor’s, representing approximately 58%
of the fully diluted equity contained a similar provision and
that, if the proposed merger was consummated, the preferred
stock would be removed from the combined company’s capital
structure. Similarly, King & Spalding noted that the
anti-dilution provisions contained in the Mayor’s warrants
were
40
currently part of Mayor’s capital structure. Lastly,
King & Spalding advised the special committee that
Birks had indicated that the holders of the warrants and options
were not amenable to yielding these provisions without receiving
significant consideration. The special committee decided to
schedule a meeting with Dr. Lorenzo Rossi di Montelera,
Birks’ controlling shareholder, to discuss the
anti-dilution provisions.
On March 20, 2005, the special committee discussed the
anti-dilution provisions with Dr. Rossi. The special
committee and Dr. Rossi agreed that it would be in the best
interests of the combined company to determine whether an
appropriate agreement could be reached with the holders to
eliminate these provisions. They agreed to have their respective
advisors consider a resolution which would involve the issuance
of additional equity to the holders as consideration for the
elimination of these provisions.
Over the next week, the parties’ respective advisors and
principals and some of the holders of the warrants and options
met several times to discuss the appropriate form and amount of
any additional equity to be granted in exchange for the
elimination of the anti-dilution provisions. After several
discussions, Houlihan Lokey reported to the special committee
that, primarily due to the wide disparity in the parties’
assumptions regarding future equity issuances, it was unlikely
that a mutually acceptable agreement could be reached with the
holders of the options and warrants with respect to an
elimination of the anti-dilution provisions.
Based on the apparent unlikelihood of reaching an agreement with
respect to elimination of the anti-dilution provisions, the
special committee proposed that (1) the anti-dilution
provisions would be amended to provide that the issuance of
additional employee stock options or restricted stock would not
trigger an anti-dilution adjustment, (2) the warrants would
be amended to eliminate the downward adjustment of the exercise
price upon an additional issuance, (3) the warrants would
be amended to eliminate the “cashless exercise”
feature, (4) Birks would agree that Mayor’s would not
be responsible for Birks’ transaction expenses if
Mayor’s terminated the merger agreement as a result of a
change in recommendation, and (5) Birks would agree to a
further favorable adjustment to the exchange ratio.
On April 1, 2005, Birks, through its financial and legal
advisors, advised the special committee and its advisors that
the individual holders of the warrants and options were not
willing to agree to the special committee’s latest proposal
with respect to the changes to the warrants and options. Birks
proposed that (1) the anti-dilution provisions would be
amended to provide that the issuance of additional employee
stock options or restricted stock would not trigger an
anti-dilution adjustment, (2) the warrants would be amended
to eliminate the “cashless exercise” feature, and
(3) Birks would agree to an exchange ratio of 1:11.5
(or 0.08695).
Over the next few days, the special committee discussed the
latest proposal with its legal and financial advisors. Houlihan
Lokey advised the special committee that Birks had indicated
that it was not willing to concede any further adjustment to the
exchange ratio. On April 4, 2005, the special
committee’s advisors informed Birks’ advisors that the
special committee would be willing to accept Birks’ latest
proposal if Birks also agreed that Mayor’s would not be
responsible for Birks’ transaction expenses if Mayor’s
terminated the merger agreement as a result of a change in
recommendation. The special committee’s advisors noted that
any acceptance by the special committee was subject to
finalization of Houlihan Lokey’s review and to finalization
of the terms and conditions of the merger agreement, including
completion of the disclosure schedules to the merger agreement.
Birks’ advisors informed the special committee’s
advisors that Birks would agree that Mayor’s would not be
responsible for Birks’ transaction expenses if Mayor’s
terminated the merger agreement as a result of a change in
recommendation.
On April 10, 2005, the special committee met with its legal
and financial advisors. A copy of the proposed final drafts of
the merger agreement and governance documents and materials
outlining Houlihan Lokey’s analysis of the merger had been
delivered to the special committee prior to the meeting. The
special committee discussed with its advisors the proposed final
drafts of the merger agreement and governance documents.
King & Spalding also reviewed the applicable fiduciary
duty standards with the special committee. Houlihan Lokey then
presented its analysis of the exchange ratio and confirmed that
it was in a position to render its fairness opinion. The special
committee noted that the audit report for Birks’
U.S. GAAP financial statements had not been issued and
determined not to make any determination with
41
respect to the transaction until the audit report had been
received and the final results of the audit were satisfactory.
On April 18, 2005, the special committee met again with its
legal and financial advisors after the audit report had been
received with no material changes in the financial statements
previously provided to the special committee. Houlihan Lokey
confirmed its prior presentation of its analysis of the exchange
ratio and provided its written fairness opinion dated as of
April 18, 2005 that the exchange ratio was, as of that
date, fair, from a financial point of view, to the holders of
Mayor’s common stock, other than Birks and its affiliates
and associates. After discussions and deliberations, the special
committee unanimously agreed to recommend that Mayor’s
board of directors approve and adopt the merger agreement.
On April 18, 2005, following the special committee meeting,
Mayor’s board of directors met to consider the merger, with
Messrs. Andruskevich, Recami and Rossi, each an affiliate
of Birks, abstaining. Ms. Lieff advised the Mayor’s
board of directors that the special committee recommended that
Mayor’s board of directors approve and adopt the merger
agreement. After additional discussions and deliberations,
Mayor’s board, with Messrs. Andruskevich, Recami and
Rossi abstaining, unanimously approved the merger agreement and
the transactions contemplated by the merger agreement and
recommended that Mayor’s stockholders approve and adopt the
merger agreement.
The merger agreement was thereafter entered into in the evening
of April 18, 2005 and publicly announced in the morning of
April 19, 2005.
Subsequent to the execution of the merger agreement, the board
of directors of Birks initiated a further review of the
anti-dilution provisions in the Mayor’s warrants.
Birks’ board of directors determined that it would be in
the best interests of the combined company to eliminate the
anti-dilution provisions if an appropriate agreement could be
reached with the holders. Working in conjunction with the
special committee and its advisors, Birks’ board of
directors reached an understanding with the holders of the
warrants to eliminate certain anti-dilution provisions, but
retain the cashless exercise provision, in all of the warrants
in exchange for the issuance to certain of the holders of an
aggregate of 125,752 additional warrants with an exercise price
equal to fair market value on the date of issuance. On
July 27, 2005, Birks and Mayor’s entered into an
amendment to the merger agreement to:
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agree that Mayor’s will grant 125,752 additional warrants
to purchase Mayor’s common stock to Joseph A. Keifer, Marco
Pasteris and Carlo Coda-Nunziante;
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eliminate certain anti-dilutive provisions in the warrants to
purchase Mayor’s common stock;
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revise Birks’ amended by-laws to provide that a quorum
shall be based on voting power; and
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revise Birks’ amended charter to require approval of the
holders of Birks Class B multiple voting shares for future
equity issuances.
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Recommendation of Mayor’s Board of Directors
MAYOR’S BOARD OF DIRECTORS, HAVING ADOPTED THE UNANIMOUS
RECOMMENDATION AND REASONS OF THE SPECIAL COMMITTEE, HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER ARE FAIR TO,
AND IN THE BEST INTERESTS OF, MAYOR’S AND ITS STOCKHOLDERS,
OTHER THAN BIRKS AND ITS AFFILIATES AND ASSOCIATES, AND HAS
APPROVED AND DECLARED ADVISABLE THE MERGER AGREEMENT, THE MERGER
AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT,
AND RECOMMENDS THAT YOU VOTE IN FAVOR OF APPROVING AND ADOPTING
THE MERGER AGREEMENT.
In considering the recommendation of Mayor’s board with
respect to the merger agreement, you should be aware that some
directors and officers of Mayor’s may have interests in the
merger that are different from, or are in addition to, the
interests of Mayor’s stockholders. See
“— Interests of Mayor’s Executive Officers
and Directors in the Merger.”
42
Mayor’s Reasons for the Merger and Negative Factors
Considered
In reaching its decision to recommend that Mayor’s
stockholders vote for approval and adoption of the merger
agreement, Mayor’s board adopted the reasons of the special
committee, which unanimously concluded that the merger is
advisable, fair to, and in the best interests of the
stockholders of Mayor’s (other than Birks and its
affiliates and associates). Mayor’s special committee
believes that the disinterested stockholders would benefit from
a combined company that should have a stronger capital base,
improved operating efficiencies and diversity and depth of its
products and distribution capabilities with a leading position
in its core geographic regions which should result in earnings
and prospects superior to Mayor’s earnings and prospects on
a stand-alone basis. In addition, the special committee
considered, among other things, the following positive factors:
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Houlihan Lokey rendered its opinion in writing on April 18,
2005 that the exchange ratio was, as of that date, fair from a
financial point of view to holders of shares of Mayor’s
common stock, other than Birks and its affiliates and associates.
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The terms of the transaction were determined through
arm’s-length negotiations between the special committee and
Birks and their respective legal and financial advisors.
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Greater geographic diversification should reduce impact of
regional issues (e.g., hurricanes) on the combined
company’s results of operations.
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It is a condition to closing that the merger agreement be
approved by a majority of Mayor’s disinterested
stockholders, which excludes Birks and each person that is an
affiliate or associate of Birks, that cast a vote, in person or
by proxy, at the special and annual meeting. Directors of
Mayor’s who are not affiliates or associates of Birks are
considered disinterested stockholders for purposes of voting on
the merger agreement. These directors (Emily Berlin, Elizabeth
M. Eveillard, Massimo Ferragamo, Stephen M. Knopik, Judith
MacDonald and Ann Spector Lieff) collectively, together with
their associates and affiliates, beneficially own approximately
1.9 million shares, or 5.0% of Mayor’s common stock.
These directors have indicated that they plan to vote their
shares in favor of the merger agreement, and their votes will
count in determining whether a majority of Mayor’s
disinterested stockholders has approved the merger.
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The merger should simplify the corporate ownership structure of
Mayor’s and increase transparency for investors.
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The Mayor’s preferred stock currently owned by Birks will
no longer be senior to the common shareholders in the combined
company’s capital structure and the anti-dilution
provisions of the preferred stock will be eliminated.
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The merger should eliminate management and board of directors
inefficiencies associated with managing current intercompany
issues.
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The merger may result in potentially greater shareholder
liquidity due to increased size of company, higher share price
and potential to attract research coverage.
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The merger will allow Mayor’s stockholders to continue to
participate in any potential growth of the combined company.
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Mayor’s business should benefit from being able to more
effectively take advantage of Birks’ manufacturing
capabilities.
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The merger will be tax free to U.S. holders of Mayor’s
common stock under U.S. tax laws.
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Birks has agreed that within twelve months of consummation of
the merger its board of directors will be comprised of a
majority of independent directors under the applicable
definitions of the SEC and the American Stock Exchange.
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Mayor’s has the right to terminate the merger agreement if,
among other reasons, the special committee or the board of
directors changes its recommendation in favor of the merger
agreement.
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Birks is obligated to reimburse Mayor’s for expenses in
connection with the transaction in the event of a termination of
the merger agreement arising out of the failure of Birks to
become listed on the American Stock Exchange (should such
failure be unrelated to Mayor’s) or Birks’ inability
to have this proxy statement/ prospectus declared effective by
the SEC (should such inability be unrelated to Mayor’s).
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Birks’ post-merger corporate governance documents will
offer minority shareholders certain protections, including:
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Birks will not be permitted to consummate a business combination
unless holders of the Class A voting shares receive the
same consideration (on a per share basis) as holders of the
Class B multiple voting shares; and
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Certain related party transactions will require the approval of
both a committee of independent directors of Birks and, in
certain cases, the disinterested shareholders of Birks.
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The special committee believes that the above factors generally
supported its determination. The special committee did, however,
consider the potential adverse effects of other factors in
connection with the merger. These included the following:
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Mayor’s stockholders will be owners of a Canadian company
rather than a U.S. company. There may be certain
disadvantages related to this change, including:
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the requirement to pay withholding taxes on any dividends paid
by Birks and the possible unavailability of foreign tax credits
to offset these taxes;
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Birks will be a “foreign private issuer” for
U.S. securities law purposes and, thus, will not be
required to file periodic reports and financial statements with
the SEC as frequently or as promptly as U.S. companies
whose securities are registered under the Exchange Act, and it
will be exempt from a number of U.S. securities rules
including short-swing profit rules and
Regulation F-D; and
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Mayor’s stockholders will have different rights as
shareholders of a Canadian company. See “Comparison of
Stockholder Rights.”
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The exchange ratio is fixed and Birks is not currently a
publicly traded company. For each of these reasons, Mayor’s
stockholders cannot be certain of the dollar value of the merger
consideration to be received in the merger.
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The cost savings and revenue increases anticipated for Birks and
Mayor’s as a combined company may not be achieved.
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The growth rate of Mayor’s core market (the Southeastern
United States) is expected to outpace the growth rate of
Birks’ core market (Canada).
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Certain Birks options granted to the CEO of Birks contain
anti-dilution provisions which increases the number of his
options in the event of additional issuances of capital stock of
Birks. Mayor’s existing common stock warrants issued to
Birks in 2002 (and later assigned to members of Birks’
management) contain similar provisions which would continue to
apply following the merger (the anti-dilutive provisions
contained in the warrants have since been eliminated). Among
other issues, the special committee considered that these
anti-dilution provisions could, in certain circumstances,
potentially misalign the interests of management with the
interests of the other shareholders.
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The Class B multiple voting shares held by Birks’
controlling shareholders carry greater voting rights per share
than the Class A voting shares to be received by the
Mayor’s stockholders.
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Although each member of the special committee individually
considered these and other factors, the special committee did
not collectively assign any specific or relative weights to the
factors considered and did not make any determination with
respect to any individual factor. The special committee
collectively made its determination with respect to the merger
based on the conclusion reached by its members, in light of the
44
factors that each of them considered appropriate, that the
merger is in the best interests of Mayor’s and its
stockholders.
THE SPECIAL COMMITTEE UNANIMOUSLY RECOMMENDED THAT
MAYOR’S BOARD OF DIRECTORS APPROVE THE MERGER AGREEMENT. AS
A RESULT, MAYOR’S BOARD OF DIRECTORS RECOMMENDS THAT
STOCKHOLDERS OF MAYOR’S VOTE “FOR” APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
Opinion of the Financial Advisor to the Special Committee
THE COMPLETE TEXT OF HOULIHAN LOKEY’S OPINION IS ATTACHED
HERETO AS APPENDIX B, AND THE SUMMARY OF THE OPINION SET FORTH
BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH OPINION.
STOCKHOLDERS ARE URGED TO READ THE OPINION CAREFULLY IN ITS
ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, THE
LIMITATIONS ON THE REVIEW MADE, THE FACTORS CONSIDERED AND THE
ASSUMPTIONS MADE BY HOULIHAN LOKEY. THE OPINION WAS PROVIDED FOR
THE INFORMATION AND ASSISTANCE OF THE SPECIAL COMMITTEE AND
MAYOR’S BOARD OF DIRECTORS IN CONNECTION WITH THEIR
CONSIDERATION OF THE MERGER PROPOSAL AND DOES NOT
CONSTITUTE A RECOMMENDATION AS TO HOW MAYOR’S STOCKHOLDERS
SHOULD VOTE ON THE MERGER PROPOSAL.
In this section, “Opinion of Financial Advisor to Special
Committee,” references to “Birks” are to Henry
Birks & Sons Inc. on a stand-alone basis, excluding
Mayor’s and its subsidiaries, and references to
“Mayor’s” are to Mayor’s Jewelers, Inc. and
its subsidiaries.
Houlihan Lokey’s opinion was only one of many factors
considered by the special committee and Mayor’s board of
directors in their evaluation of the transaction and should not
be viewed as determinative of the views of the special committee
or the board of directors with respect to the transaction. The
special committee retained Houlihan Lokey based upon Houlihan
Lokey’s experience in the valuation of businesses and their
securities. Houlihan Lokey is an internationally recognized
investment banking firm that is continually engaged in providing
financial advisory services and rendering fairness opinions in
connection with mergers and acquisitions, leveraged buyouts, and
business and securities valuations for a variety of regulatory
and planning purposes, recapitalizations, financial
restructurings and private placements of debt and equity
securities. Houlihan Lokey has no material prior relationship
with Mayor’s or its affiliates. The fairness opinion is
directed only to the fairness, from a financial point of view,
of the exchange ratio and is not intended to constitute and does
not constitute a recommendation as to whether the public
stockholders should vote for or against the merger. The exchange
ratio was determined on the basis of negotiations between the
special committee and Birks, and was recommended by the special
committee, by a unanimous vote and approved by Mayor’s
board of directors, with Dr. Rossi, Mr. Recami and
Mr. Andruskevich abstaining. Mayor’s stockholders are
urged to read the text of Houlihan Lokey’s fairness
opinion, which is attached hereto as Appendix B, carefully
in its entirety.
Mayor’s has agreed to pay Houlihan Lokey a fee of $400,000
for its services, payable in part upon Houlihan Lokey’s
retention, in part upon the issuance of Houlihan Lokey’s
opinion and the balance upon closing of the transaction. No
portion of Houlihan Lokey’s fee is contingent upon the
conclusions reached in the Houlihan Lokey opinion. Mayor’s
has agreed to indemnify and hold harmless Houlihan Lokey, or any
employee, agent, officer, director, attorney, shareholders or
any person who controls Houlihan Lokey, against and from, with
certain exceptions, all losses arising out of or in connection
with its engagement by the special committee.
In connection with its opinion, Houlihan Lokey had made such
reviews, analyses and inquiries as it deemed necessary and
appropriate under the circumstances. Among other things,
Houlihan Lokey:
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(i) reviewed Mayor’s annual reports on Form 10-K
for the fiscal years ended February 2, 2002, March 29,
2003 and March 27, 2004, as well as the Form 10-K/ A
for the fiscal year ended March 27, 2004; the internally
prepared monthly financial statements for (a) April through
March of 2002 and
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2003, (b) March through December of 2004, and
(c) January and February 2005 and quarterly reports on
Form 10-Q for the quarter and nine months ended
December 25, 2004, which Mayor’s management identified
as being the most current financial statements available;
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(ii) reviewed Birks’ audited financial statements for
the fiscal years ending February 2, 2002, March 29,
2003 and March 27, 2004 and internally prepared financial
statements for (a) the fiscal years ending February 2,
2002, March 29, 2003 and March 27, 2004, (b) the
period from March through December 2004 and (c) January and
February 2005;
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(iii) reviewed monthly CFO reports from both Birks and
Mayor’s from the period April 2002 through February 2005;
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(iv) reviewed Mayor’s and Birks’ financial
projections for the fiscal year ending March 26, 2005, as
well as summary projections for the fiscal years ending
March 25, 2006 and March 31, 2007;
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(v) reviewed the combined pro forma projected financial
statements for Birks giving effect to the merger;
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(vi) reviewed the Fiscal Year 2004-2006 Strategic Plan
documents for each of Mayor’s and Birks;
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(vii) reviewed a draft of the merger agreement, draft dated
April 14, 2005;
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(viii) reviewed a draft of Birks’ amended charter and
amended by-laws;
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(ix) reviewed a draft of this proxy statement/ prospectus
dated April 6, 2005;
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(x) met with certain members of the senior management of
Mayor’s and Birks to discuss the respective operations,
financial condition, future prospects and projected operations
and performance of Mayor’s and Birks, and met with
representatives of Birks’ commercial bankers to discuss
certain matters;
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(xi) visited certain facilities and business offices of
Mayor’s and Birks;
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(xii) reviewed the historical market prices and trading
volume for Mayor’s publicly traded securities;
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(xiii) reviewed certain other publicly available financial
data for certain companies that Houlihan Lokey deemed comparable
to Mayor’s, and publicly available prices and premiums paid
in other transactions that Houlihan Lokey considered similar to
the merger; and
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(xiv) conducted such other studies, analyses and inquiries
as Houlihan Lokey deemed appropriate.
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Summary of financial analyses performed by Houlihan
Lokey.
Houlihan Lokey used several valuation methodologies
as a part of its assessment of the exchange ratio. The following
is a summary of the material financial analyses used by Houlihan
Lokey in connection with providing its opinion in connection
with the merger. This summary is qualified in its entirety by
reference to the full text of such opinion, which is attached as
Appendix B to this proxy statement/ prospectus and
incorporated into this proxy statement/ prospectus by reference.
Houlihan Lokey utilized the following analyses based upon its
view that they are appropriate and reflective of generally
accepted valuation methodologies given the accessibility of
comparable publicly traded companies, the availability of
forecasts from management of Mayor’s and Birks and
available information regarding similar transactions in the
retail jewelry industry. Each analysis provides an indication of
Mayor’s and Birks’ respective enterprise values
(equity value of the company in question plus all of its
interest-bearing debt and minority interests less cash and cash
equivalents) (“EV”). No single methodology was
considered to be more appropriate than any other methodology,
and therefore Houlihan Lokey considered all of the
aforementioned methodologies in arriving at its conclusions.
Houlihan Lokey’s analyses included (i) a market
multiple methodology and (ii) a discounted cash flow
methodology. Houlihan Lokey assessed a comparable transaction
methodology, but did not base its conclusion on such a
methodology due to an insufficient number of comparable
transactions.
Market Multiple Methodology.
Houlihan Lokey reviewed
financial information of certain publicly traded comparable
companies. Houlihan Lokey deemed the selected companies to be
reasonably comparable
46
to Mayor’s based on the industry in which Mayor’s
operates, its principal competitors and its business risk
profile. The comparable companies include Finlay Enterprises,
Inc., Signet Group Plc., Tiffany & Co., Whitehall
Jewellers, Inc., and Zale Corp.
Houlihan Lokey calculated certain financial ratios of the
comparable companies based on the most recent publicly available
information, including the multiples of:
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(i) EV to latest twelve months (“LTM”), next
fiscal year (“NFY”), and the following projected
fiscal year (“NFY+1”) earnings before interest, taxes,
depreciation and amortization (“EBITDA”); and
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(ii) EV to projected LTM, NFY, and NFY + 1 revenues.
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The analysis showed that the multiples exhibited by the
comparable companies as of approximately April 4, 2005 were
as follows:
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EV/ Revenue
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EV/ EBITDA
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LTM
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NFY
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NFY+1
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LTM
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NFY
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NFY+1
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Low
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0.4x
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0.7x
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0.7x
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5.5x
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7.1x
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6.2x
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High
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2.6x
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2.3x
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1.1x
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12.2x
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10.6x
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6.5x
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Median
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0.8x
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1.2x
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0.9x
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7.8x
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7.2x
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6.4x
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Mean
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1.1x
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1.4x
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0.9x
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8.4x
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8.3x
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6.4x
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Houlihan Lokey’s selection of market multiples for each of
Mayor’s and Birks was based upon an analysis of the
comparable companies. Houlihan Lokey’s analysis of
Mayor’s and Birks included both qualitative considerations
and quantitative considerations such as size, profitability,
growth history and expectations. No single factor was
determinative in the analysis. Houlihan Lokey derived
indications of the EV of each of Mayor’s and Birks by
applying selected EBITDA and revenue multiples to each of
Mayor’s and Birks LTM results as well as to expected
operating results for the next fiscal year ending March 25,
2006 and following projected fiscal year March 31, 2007.
With respect to Mayor’s, Houlihan Lokey selected EV to
revenue multiples in the range of 0.75x to 0.80x for the LTM
period, EV to EBITDA multiples in the range of 7.5x to 8.0x for
the NFY period and in the range of 6.0x to 7.0x for the NFY+1
period. The resulting indications of the EV of the operations of
Mayor’s range from approximately $92.0 million to
$101.0 million. With respect to Birks, Houlihan Lokey
selected EV to revenue multiples in the range of 0.75x to 0.80x
for the LTM period. Houlihan Lokey selected EV to EBITDA
multiples in the range of 7.5x to 8.0x for the NFY period and in
the range of 6.0x to 7.0x for the NFY+1 period. The resulting
indications of the EV of the operations of Birks range from
approximately $76.0 million to $84.0 million.
Discounted Cash Flow Methodology.
Houlihan Lokey utilized
certain financial projections prepared by the management teams
of Mayor’s and Birks, respectively, regarding the fiscal
years ending March 25, 2006 through March 31, 2007.
Houlihan Lokey determined the EV of each Mayor’s and Birks
by first deriving adjusted free cash flow (by adjusting for
capital expenditures, as well as working capital requirements
and any taxes) and discounting free cash flow to the present.
Houlihan Lokey applied risk-adjusted discount rates ranging from
11.0% to 15.0% to the projected adjusted free cash flows of each
of Mayor’s and Birks. Houlihan Lokey used both the terminal
multiple approach and a Gordon growth rate approach(1) to
determine the estimated value of Mayor’s and Birks at the
end of the projection period. When using the terminal multiple
approach, Houlihan Lokey applied terminal EBITDA multiples of
6.5x to 8.5x for Mayor’s and 6.0x to 8.0x for Birks in the
calculation of the terminal value, discounted to the present.
When using the Gordon growth rate approach, Houlihan Lokey
applied growth rates ranging from 6.0% to 8.0% for Mayor’s
and
(1) Terminal values for assets or businesses assumed to
operate on a going concern basis in perpetuity are calculated
using either the “multiple method,” which uses a
projected market multiple to capitalize the cash flows in the
final period that are then discounted to the present using the
selected discount rate, or the “perpetuity” or Gordon
growth method. The Gordon growth method of calculating the
terminal value involves capitalizing the final year’s
normalized free cash flow by the selected discount rate,
adjusted for a level of growth that can be expected into
perpetuity.
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5.0% to 7.0% for Birks in the calculation of the terminal value,
discounted to the present. The summation of the present value of
the free cash flows for the fiscal years ending March 25,
2006 through March 31, 2007 plus the present value of the
terminal value resulted in an indicated EV range for each of
Mayor’s and Birks. The discount rate used in the discounted
cash flow analysis was calculated based on an estimate of the
industry’s weighted average cost of capital, which
represents the blended, after-tax costs of debt and equity.
Houlihan Lokey focused on the range of EV exhibited by discount
rates in the middle of the selected range, or 13.0%.
Determination of Mayor’s Equity Value.
As set forth
above, Houlihan Lokey determined the EV of the operations of
Mayor’s based on (i) the market multiple approach and
(ii) the discounted cash flow approaches. These valuation
indications are summarized as follows:
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Low
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High
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($ In thousands)
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Market Multiple Approach
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$
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92,000
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$
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101,000
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Discounted Cash Flow — Terminal Multiple Approach
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$
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91,000
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$
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103,000
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Discounted Cash Flow — Gordon Growth Approach
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$
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91,000
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$
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107,000
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Based upon the foregoing analyses, Houlihan Lokey selected a
range of Mayor’s EV of $92.0 million to
$103.0 million.
Houlihan Lokey then made certain adjustments to the range of
selected EV to determine Mayor’s equity value. Such
adjustments included adding its current holdings of cash and
cash equivalents of $0.848 million, adding the estimated
value of Mayor’s net operating loss carry forward of
$9.20 million on the low end and $10.20 million on the
high end, and subtracting Mayor’s debt of
$45.419 million. These adjustments resulted in a range of
equity value for Mayor’s of $56.629 million to
$68.629 million, or $0.61 to $0.74 per share.
Determination of Birks’ Equity Value.
As set forth
above, Houlihan Lokey determined the EV of the operations of
Birks based on (i) the market multiple approach and
(ii) the discounted cash flow approaches. These valuation
indications are summarized as follows:
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Low
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High
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|
|
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|
|
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($ In thousands)
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Market Multiple Approach
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$
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76,000
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$
|
84,000
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Discounted Cash Flow — Terminal Multiple Approach
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$
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75,000
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|
$
|
86,000
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|
|
Discounted Cash Flow — Gordon Growth Approach
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$
|
71,000
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|
|
$
|
82,000
|
|
Based upon the foregoing analyses, Houlihan Lokey selected a
range of Birks’ EV of $75.0 million to
$84.0 million.
Houlihan Lokey then made certain adjustments to the range of
selected EV to determine Birks’ equity value. Such
adjustments included adding its current holdings of cash and
cash equivalents of $0.038 million, and subtracting
Birks’ debt of $44.601 million. In addition,
Birks’ 72.5% fully diluted equity interest in Mayor’s,
$41.075 million on the low end and $49.779 million on
the high end, was also added to calculate the total equity
value. These adjustments resulted in a range of equity value for
Birks of $71.512 million to $89.216 million, or $7.33
to $9.14 per share.
Analysis of Exchange Ratio.
A ratio was then calculated
by dividing the estimated value per share for Mayor’s stock
by the estimated value per share for Birks Class A voting
shares. Using the midpoint of the estimate stock price ranges
results in a ratio of approximately 0.082. This figure
represents the number of Birks Class A voting shares by
which the exchange of one Mayor’s share would result in the
holder receiving equivalent value, based upon the estimated
values for each company’s respective shares. A higher
exchange ratio would result in a holder of Mayor’s common
stock receiving a greater value of Birks Class A voting
shares in an exchange. Therefore, the exchange ratio of 0.08695,
based upon the midpoint of the valuation ranges, should result
in the holder of Mayor’s stock receiving similar or
slightly greater value upon exchange to Birks Class A
voting shares.
48
Additionally, Houlihan Lokey performed certain exchange ratio
sensitivity analysis, whereby the implied exchange ratio
assuming (a) Mayor’s total enterprise values and
(b) Birks total enterprise values are (x) 10% greater
and (y) 10% lower than the midpoint of the concluded total
enterprise value for each were compared. This sensitivity
analysis resulted in an indicated exchange ratio range of 0.095
to 0.068 with a midpoint of 0.082. Houlihan Lokey noted that the
0.08695 exchange ratio contemplated by the merger agreement is
approximately 5% higher than the midpoint of the implied
exchange ratio range that resulted from the above mentioned
exchange ratio sensitivity analysis. Since higher exchange
ratios provide greater value to Mayor’s public
stockholders, the merger exchange ratio is favorable to the
midpoint of the implied exchange ratio analysis.
After consideration of the exchange ratio sensitivity analysis
and all other analysis performed, Houlihan Lokey noted that the
exchange ratio of 0.08695 provides Mayor’s public
stockholders with value within the range of the indications of
value that are the result of Houlihan Lokey’s analyses.
Accordingly, Houlihan Lokey determined that, as of the date of
its opinion, the exchange ratio applicable to the exchange of
Mayor’s common stock for Birks Class A voting shares
in connection with the merger is fair to the public stockholders
of Mayor’s from a financial point of view.
As a matter of course, Mayor’s and Birks do not publicly
disclose forward-looking financial information. Nevertheless, in
connection with its review, Houlihan Lokey considered financial
projections prepared by the management teams of Mayor’s and
Birks. The financial projections presented to Houlihan Lokey
were prepared under market conditions as they existed as of
approximately March 2005. The financial projections do not take
into account any circumstances or events occurring after the
date they were prepared. In addition, factors such as industry
performance and general business, economic, regulatory, market
and financial conditions, as well as changes to the business,
financial condition or results of operation of Mayor’s and
Birks, may cause the financial projections or the underlying
assumptions to be inaccurate. As a result, the financial
projections should not be relied upon as necessarily indicative
of future results. Additionally, the financial forecasts did not
contain any potential ongoing cost savings as a result of the
merger. Any actual realized cost savings would accrue to the
benefit of all stockholders of the combined company. See
“— Financial Projections Provided to Houlihan
Lokey” below.
In arriving at its fairness opinion, Houlihan Lokey reviewed key
economic and market indicators, including, but not limited to,
growth in the Gross Domestic Product, inflation rates, interest
rates, consumer spending levels, manufacturing productivity
levels, unemployment rates and general stock market performance.
Houlihan Lokey’s opinion is based on the business,
economic, market and other conditions as they existed as of
April 2005, and on the financial projections of Mayor’s and
Birks provided to Houlihan Lokey. In rendering its opinion,
Houlihan Lokey relied upon and assumed, without independent
verification, that the financial and other information provided
to Houlihan Lokey by the management teams of Mayor’s and
Birks, including the financial projections, was accurate,
complete and reasonably prepared and reflects the best currently
available estimates of the financial results and condition of
each of Mayor’s and Birks; that no material changes have
occurred in the information reviewed between the date the
information was provided and the date of the Houlihan Lokey
opinion; and that there were no facts or information regarding
Mayor’s or Birks that would cause the information supplied
by Houlihan Lokey to be incomplete or misleading in any material
respect. Houlihan Lokey did not independently verify the
accuracy or completeness of the information supplied to it with
respect to Mayor’s or Birks and does not assume
responsibility for it. Houlihan Lokey also assumed that the
transaction will be consummated in all material respects as
described in the merger agreement. Houlihan Lokey did not make
any independent appraisal of the specific properties or assets
of Mayor’s or Birks.
HOULIHAN LOKEY WAS NOT ASKED TO OPINE AND DOES NOT EXPRESS ANY
OPINION AS TO: (1) THE TAX OR LEGAL CONSEQUENCES OF THE
MERGER; (2) THE REALIZABLE VALUE OF MAYOR’S COMMON
STOCK OR THE PRICES AT WHICH BIRKS CLASS A VOTING SHARES
MAY TRADE AFTER CONSUMMATION OF THE TRANSACTION; OR (3) THE
FAIRNESS OF ANY ASPECT OF THE TRANSACTION NOT EXPRESSLY
ADDRESSED IN ITS FAIRNESS OPINION.
49
THE HOULIHAN LOKEY OPINION DOES NOT ADDRESS MAYOR’S
UNDERLYING BUSINESS DECISION TO EFFECT THE MERGER OR THE
UNDERLYING BUSINESS DECISION OF THE SPECIAL COMMITTEE OR THE
BOARD OF DIRECTORS TO ENDORSE THE MERGER, NOR DOES IT CONSTITUTE
A RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER THE
STOCKHOLDER SHOULD VOTE IN FAVOR OF THE MERGER.
The summary set forth above describes the material points of
more detailed analyses performed by Houlihan Lokey in arriving
at its fairness opinion. The preparation of a fairness opinion
is a complex analytical process involving various determinations
as to the most appropriate and relevant methods of financial
analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to
summary description. In arriving at its opinion, Houlihan Lokey
made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, Houlihan Lokey
believes that its analyses and summary set forth herein must be
considered as a whole and that selecting portions of its
analyses, without considering all analyses and factors, or
portions of this summary, could create an incomplete and/or
inaccurate view of the processes underlying the analyses set
forth in Houlihan Lokey’s fairness opinion. In its
analyses, Houlihan Lokey made numerous assumptions with respect
to Mayor’s, Birks, the transaction, industry performance,
general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the
respective entities. The estimates contained in such analyses
are not necessarily indicative of actual values or predictive of
future results or values, which may be more or less favorable
than suggested by such analyses. Additionally, analyses relating
to the value of businesses or securities of Mayor’s or
Birks are not appraisals. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
Financial Projections Provided to Houlihan Lokey
THE FOLLOWING PROJECTIONS WERE PREPARED FOR THE USE OF HOULIHAN
LOKEY IN ITS CAPACITY AS FINANCIAL ADVISOR TO THE SPECIAL
COMMITTEE AND ARE INCLUDED ONLY BECAUSE THEY WERE SO USED. THE
PROJECTIONS REFLECT NUMEROUS ASSUMPTIONS AND ARE SUBJECT TO
VARIOUS RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY VARY
MATERIALLY FROM THE PROJECTIONS. SEE “RISK FACTORS”
ELSEWHERE IN THIS PROXY STATEMENT/ PROSPECTUS.
As discussed above, Houlihan Lokey relied on financial
projections prepared by Birks’ and Mayor’s management
in performing its analyses. The projections prepared by
Birks’ management reflected the best estimates of
Birks’ management as to the future results of Birks,
excluding Mayor’s and its subsidiaries. The projections
prepared by Mayor’s management reflected the best estimates
of Birks’ management as to the future results of
Mayor’s. The projections prepared by Birks’ and
Mayor’s management for Houlihan Lokey contained the
following estimates of net sales, gross profit, EBITDA and net
income for the fiscal years ending March 25, 2006 and
March 31, 2007.
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Projected Fiscal Year
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Ending March,
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2006
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|
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2007
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|
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($ In thousands)(1)(2)
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Net Sales
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$
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120,827
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$
|
130,066
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Gross Profit
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$
|
61,072
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|
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$
|
65,955
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EBITDA
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$
|
9,438
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|
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$
|
13,166
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Net Income
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$
|
2,462
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|
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$
|
5,496
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(1)
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Assumes a fixed foreign currency exchange rate of
Cdn$1.00 per $0.82.
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(2)
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Prepared in accordance with Canadian GAAP.
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50
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Projected Fiscal Year
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Ending March,
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|
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|
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2006
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|
|
2007
|
|
|
|
|
|
|
|
|
|
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($ In thousands)
|
|
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Net Sales
|
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$
|
156,800
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|
|
$
|
172,057
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|
|
Gross Profit
|
|
$
|
69,831
|
|
|
$
|
78,046
|
|
|
EBITDA
|
|
$
|
10,032
|
|
|
$
|
15,430
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|
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Net Income
|
|
$
|
1,651
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|
|
$
|
7,544
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While the projections provided to Houlihan Lokey regarding Birks
exclude the results of Mayor’s and its subsidiaries,
Birks’ consolidated financial statements and financial data
included elsewhere in this proxy statement/ prospectus
include the results of Mayor’s, subject to the deduction of
the minority interest. Additionally, while the projections
regarding Birks were prepared in accordance with accounting
principles generally accepted in Canada, Birks’
consolidated financial statements and financial data included
elsewhere in this proxy statement/ prospectus were prepared in
accordance with U.S. GAAP. Therefore, the projections
provided to Houlihan Lokey regarding Birks are not directly
comparable to either Birks’ consolidated financial
statements and financial data included elsewhere in this proxy
statement/ prospectus or the projections provided to Houlihan
Lokey regarding Mayor’s.
The financial projections presented to Houlihan Lokey were
prepared under market conditions as they existed as of
approximately March 2005 and the preceding months. These
projections reflect management of Birks’ and management of
Mayor’s reasonable estimates and are not indicative, and
should not be assumed to be indicative, of Birks’ future
results, Mayor’s future results or the results of Birks
following the merger.
Birks and Mayor’s do not as a matter of course make public
their projections as to future performance or earnings. The
projections referred to above were not prepared with a view to
public disclosure, and are included in this proxy statement/
prospectus because such information was not otherwise publicly
available and was provided to Houlihan Lokey and the special
committee. The projections were not prepared with a view to
compliance with published guidelines of the SEC, the guidelines
established by the American Institute of Certified Public
Accountants regarding projections or forecasts, or generally
accepted accounting principles. Neither the independent auditors
of Birks and Mayor’s, nor any other independent
accountants, have compiled, examined or performed any procedures
with respect to the projections.
The projections are forward-looking statements that are subject
to certain risks and uncertainties and should be read with
caution. See “Cautionary Statement Regarding
Forward-Looking Statements,” and
“Risk Factors.” The projections are subjective in
many respects and thus susceptible to interpretation and
periodic revision based on actual experience and recent
developments. While presented with numeric specificity, the
projections reflect numerous assumptions made by the managements
of Birks and Mayor’s with respect to industry performance
and competition, general business, economic, market and
financial conditions, foreign currency exchange rates, and other
matters, all of which are difficult to predict, and many of
which are beyond the control of Birks and Mayor’s. As a
result, actual results may be materially greater or less than
those contained in the projections provided to Houlihan Lokey.
For these reasons, the inclusion of the projections in this
document should not be regarded as an indication that Birks,
Mayor’s, any recipient of the projections or their
respective affiliates or representatives, considered or consider
the projections to be a reliable prediction of future events,
and the projections should not be relied upon as such. Except to
the extent required under the federal securities laws, Birks and
Mayor’s do not intend to make publicly available any update
or other revisions to the projections to reflect the
circumstances existing after the date of the preparation of the
projections or the occurrence of future events even in the event
that any or all of the assumptions are shown to be in error.
51
Birks’ Reasons for the Merger
Birks supports the proposed merger of Birks and Mayor’s
because the merger will, among other things:
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•
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create a larger public company; and
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•
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eliminate inefficiencies resulting from operating two separate
companies.
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Birks believes the merger will allow Birks to more effectively
compete within the fragmented $50.0 billion North American
jewelry market. Specifically, Birks believes that the larger
scale resulting from the merger should allow increased access to
capital markets, which may reduce the cost of capital. Birks
also believes the larger platform will allow it to more
effectively pursue its strategy of internal growth and enhance
its ability to make selective acquisitions, each of which Birks
believes will increase potential net sales growth and gross
profit expansion and allow for further leveraging of its fixed
costs. In addition, the merger will allow Birks to effectively
complete the organizational integration that it began when Birks
acquired the majority interest in Mayor’s in August 2002.
In particular, Birks believes the merger will unify management
and shareholder interests and eliminate focus on the
profitability of Birks versus the profitability of Mayor’s,
which sometimes may conflict. For example, Birks believes the
merger will eliminate internal constraints on the allocation of
resources, including financial and managerial resources, which
will allow Birks to improve the return on resources invested.
Similarly, Birks believes the unification of management and
shareholder interests will allow it to further consolidate its
vendor base and enhance its design and manufacturing capability,
to improve its supply chain and expand gross margins. For these
reasons, Birks believes the merger is in the best interests of
all shareholders of Birks and Mayor’s.
Interests of Mayor’s Executive Officers and Directors in
the Merger
Mayor’s Executive Officers and Directors.
When
Mayor’s stockholders consider Mayor’s board of
directors’ recommendation to vote in favor of approval and
adoption of the merger agreement, Mayor’s stockholders
should be aware that Mayor’s executive officers and
directors may have interests in the merger that may be different
from, or in addition to, the interests of other Mayor’s
stockholders. Several of Mayor’s directors and officers are
also directors and officers of Birks.
Mayor’s Chief Executive Officer, Interim Chief Financial
Officer, Chief Marketing Officer, Group Vice
President–Finance, Group Vice President–Supply Chain
Operations, Group Vice President–Strategy and Business
Integration, Group Creative Director and other members of
Mayor’s management serve in similar capacities for Birks.
The Vice President–Retail also serves in similar capacity
for Birks as for Mayor’s and Mayor’s Group Vice
President–Category Management will assist Birks in the
category management of Birks’ branded watch business. In
addition, Thomas A. Andruskevich, Chairman of Mayor’s board
of directors, and its President and Chief Executive Officer, and
Filippo Recami, a director of Mayor’s, serve as directors
of Birks.
In recognition of this potential conflict of interest,
Mayor’s board of directors formed the special committee to
consider and evaluate the merger agreement and the merger and
make its recommendation to the board of directors.
Representation on Birks’ Board of Directors.
The
Birks directors immediately prior to the merger will remain
directors immediately following consummation of the merger. The
merger agreement provides that Birks shall cause its board of
directors, within twelve months of consummation of the merger,
to be comprised of a majority of independent directors under the
applicable definitions of the SEC and the American Stock
Exchange.
Officers of Birks.
The existing officers of Birks will
remain in such positions as described under “Management of
Birks” immediately following consummation of the merger.
Representation on Mayor’s Board of Directors.
Upon
consummation of the merger, the directors of Merger Co. will
replace the current members of Mayor’s board of directors
and form the board of directors
52
of the surviving corporation. The directors of Merger Co. are
Thomas A. Andruskevich, Gerald Berclaz, Davide Barberis Canonico
and Carlo Coda-Nunziante.
Officers of Mayor’s.
The merger agreement provides
that the current officers of Mayor’s will remain officers
of the surviving corporation immediately following the effective
time of the merger.
Birks’ Directors and Executive Officers.
The
directors and executive officers of Birks are as follows: Thomas
A. Andruskevich, President, Chief Executive Officer, and
Director; Lawrence Litowitz, Interim Chief Financial Officer and
Principal Accounting Officer; Daisy Chin-Lor, Senior Vice
President and Chief Marketing Officer; Carlo Coda-Nunziante,
Group Vice President for Strategy and Business Development;
Randolph Dirth, Group Vice President, Merchandising; John C.
Orrico, Group Vice President, Supply Chain Operations; Marco I.
Pasteris, Group Vice President, Finance; Sabine Bruckert, Vice
President, General Counsel and Corporate Secretary; Jocelyn
Désy, Vice President, Corporate Sales; Hélène
Messier, Vice President, Human Resources; Albert J.
Rahm, II, Vice President, Retail Store Operations;
Dr. Lorenzo Rossi di Montelera, Chairman of the board of
directors; Shirley A. Dawe, Director; Margherita Oberti,
Director; Peter R. O’Brien, Director; and Filippo Recami,
Director.
Treatment of Stock Options, Warrants and Other Stock
Awards.
Each option and warrant to acquire shares of
Mayor’s common stock and each other award based on
Mayor’s common stock outstanding immediately prior to the
effective time of the merger, including options and warrants
held by Mayor’s officers and directors, will be converted
into an option, warrant or other stock-based award to acquire
the number of Birks Class A voting shares obtained by
multiplying (x) the number of shares of Mayor’s common
stock subject to such Mayor’s option, warrant or other
stock-based award by (y) the exchange ratio of 0.08695
(rounded downward to the nearest whole share). The per share
exercise price of converted options will be obtained by dividing
(A) the per share exercise price of Mayor’s option by
(B) the exchange ratio of 0.08695 (rounded upward to the
nearest whole cent). Each converted option will be governed by
the same terms and conditions as those in effect immediately
prior to the effective time of the merger under the relevant
Mayor’s stock plan or agreement. In addition, all shares of
Mayor’s restricted common stock granted under a
Mayor’s stock plan and outstanding immediately prior to the
effective time of the merger will be converted into Birks
Class A voting shares and be governed by the same terms and
conditions as those in effect immediately prior to the effective
time of the merger under the relevant Mayor’s stock plan or
agreement.
Indemnification and Insurance.
The merger agreement
provides that the surviving corporation in the merger will
retain the current provisions in Mayor’s by-laws governing
indemnification of present and former officers and directors of
Mayor’s. The merger agreement also provides that Birks will
maintain in effect for six years the directors’ and
officers’ liability insurance maintained by Mayor’s at
the effective time of the merger (provided that the surviving
corporation may substitute policies that are materially no less
favorable) with respect to matters that occurred prior to the
effective time of the merger; provided that in no event will
Birks be required to expend more than an amount per year equal
to 200% of current annual premiums provided by Mayor’s for
such insurance.
53
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER
The following discussion is a summary of the material
U.S. federal income tax consequences of the merger to
U.S. Holders (as defined below) who will exchange their
Mayor’s common stock for Birks Class A voting shares,
and the material U.S. federal income tax consequences of
the ownership and disposition of Birks Class A voting
shares. The discussion is based on the U.S. Internal
Revenue Code of 1986, referred to in this proxy statement/
prospectus as the Code, applicable Treasury regulations,
administrative rulings and pronouncements and judicial decisions
currently in effect, all of which could change. Any change,
which may be retroactive, could result in U.S. federal
income tax consequences different from those discussed below.
The discussion of tax consequences is also based on
representations made by Birks and Mayor’s. If any of those
representations is inaccurate, the tax consequences of the
merger could differ from those described below. The discussion
is not binding on the Internal Revenue Service, and there can be
no assurance that the Internal Revenue Service will not disagree
with or challenge any of the conclusions described below.
Except where specifically noted, the discussion below does not
address the effects of any state, local or non-U.S. tax
laws (or other tax consequences such as estate or gift tax
consequences). The discussion does not address the tax
consequences of any transaction other than the merger, including
transactions completed prior to or after the merger (whether or
not such transactions are in connection with the merger). In
addition, the discussion below relates to persons who hold
Mayor’s common stock and will hold Birks Class A
voting shares as capital assets within the meaning of
Section 1221 of the Code. The tax treatment of those
persons may vary depending upon the holder’s particular
situation, and some holders may be subject to special rules not
discussed below. Those holders would include, for example:
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banks, insurance companies, trustees and mutual funds;
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•
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tax-exempt organizations;
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•
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financial institutions;
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•
|
pass-through entities and investors in pass-through entities;
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•
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traders in securities who elect to apply a mark-to-market method
of accounting;
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•
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broker-dealers;
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•
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holders who are not U.S. Holders (as defined below);
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•
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holders who received Mayor’s common stock pursuant to the
exercise of employee stock options or otherwise as compensation;
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•
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holders who hold Mayor’s common stock as part of a hedging,
integration, conversion or constructive sale transaction or a
straddle;
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•
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persons whose “functional currency” is not the
U.S. dollar;
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•
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holders who are subject to the alternative minimum tax;
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•
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holders of Mayor’s common stock who will own 5% or more of
either the total voting power or the total value of the
outstanding stock of Birks after the merger, determined after
taking into account ownership under the applicable attribution
rules of the Code and Treasury regulations (these holders are
referred to in this proxy statement/ prospectus as 5% transferee
shareholders); and
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•
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holders who own, as a result of the merger or otherwise
(directly, indirectly or constructively), 10% or more of the
total combined voting power of Birks Class A voting shares.
|
Holders should consult their own tax advisors concerning the
U.S. federal income tax consequences of the merger and the
ownership of Birks Class A voting shares in light of their
particular situations, as well as any consequences arising under
the laws of any other taxing jurisdiction.
As used in this proxy statement/ prospectus, the term
“U.S. Holder” means a beneficial holder of
Mayor’s common stock that is (1) an individual who is
a U.S. citizen or U.S. resident alien, (2) a
54
corporation, or other entity taxable as a corporation, created
or organized in or under the laws of the United States or
any political subdivision of the United States, (3) an
estate which is subject to U.S. federal income tax on its
worldwide income regardless of its source or (4) a trust
(x) that is subject to primary supervision of a court
within the United States and the control of one or more
U.S. persons as described in section 7701(a)(30) of
the Code or (y) that has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a
U.S. person.
If a partnership holds Mayor’s common stock, the
U.S. federal income tax treatment of a partner will
generally depend upon the status of the partner and the
activities of the partnership. Partners of partnerships that
hold Mayor’s common stock should consult their tax advisors
regarding the U.S. federal income tax consequences to them
of the merger.
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Consequences of the Merger
|
For U.S. federal income tax purposes, the merger will
qualify as a tax-free reorganization under Section 368(a)
of the Code. It is a condition to completion of the merger that
Mayor’s receive an opinion from Holland & Knight
LLP, its legal counsel, that (i) the merger will qualify as
a reorganization within the meaning of Section 368(a) of
the Code and each of Birks and Mayor’s will be a party to
the reorganization, and (ii) the conversion of Mayor’s
common stock into Birks Class A voting shares in the merger
generally will not result in the recognition of gain under
Section 367 of the Code (except as described below, in the
case of a 5% transferee shareholder). If Holland &
Knight LLP is unable to deliver such opinion, this condition
will be satisfied if King & Spalding LLP, legal counsel
to the special committee, provides such opinion to Mayor’s.
Mayor’s will not waive this closing condition without
resoliciting shareholder approval of the merger after
appropriate disclosure.
In accordance with the tax opinion that Mayor’s expects to
receive at the closing of the merger, the material
U.S. federal income tax consequences of the merger to
U.S. Holders will be as follows:
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no gain or loss will be recognized by a holder of Mayor’s
common stock as a result of the merger, except to the extent of
any cash received in lieu of a fractional share of Birks, and
provided that, in the case of any 5% transferee shareholder, the
5% transferee shareholder enters into a “gain recognition
agreement” in accordance with applicable Treasury
regulations;
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the aggregate adjusted tax basis of a Mayor’s stockholder
in the Birks Class A voting shares issued upon conversion
of Mayor’s common stock pursuant to the merger (including
any fractional share interest deemed to be received and
converted into cash, as discussed below) will equal that
stockholder’s aggregate adjusted tax basis in Mayor’s
common stock surrendered in the conversion; and
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the holding period of a Mayor’s stockholder for the Birks
Class A voting shares received in the merger will include
the holding period for Mayor’s common stock surrendered in
the conversion into Birks Class A voting shares in the
merger.
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If a Mayor’s stockholder acquired different blocks of
Mayor’s common stock at different times and at different
prices, the basis and holding period in the Birks Class A
voting shares may be determined with reference to each block of
Mayor’s common stock.
The tax opinion that Mayor’s will receive before completion
of the merger will not be binding on the Internal Revenue
Service or the courts, and no rulings will be sought from the
Internal Revenue Service regarding the U.S. federal income
tax consequences of the merger. Accordingly, there can be no
complete assurance that the Internal Revenue Service will not
challenge the conclusion set forth in the tax opinion or that a
court would not sustain such a challenge.
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Cash in Lieu of Fractional Shares
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A U.S. Holder of Mayor’s common stock that receives
cash instead of a fractional share generally will be treated as
having received a fractional share and then as having sold the
fractional share for cash in the
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market. Such stockholder will generally recognize capital gain
or loss on any cash received in lieu of a fractional share equal
to the difference between the amount of cash received and the
basis allocated to that fractional share. Such capital gain or
loss will constitute long-term capital gain or loss if the
stockholder’s holding period in Mayor’s common stock
surrendered in the merger is greater than one year as at the
effective time of the merger. Long-term capital gains recognized
by certain non-corporate U.S. Holders, including
individuals, generally will be subject to a maximum rate of
U.S. federal income tax of 15%.
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Backup Withholding and Information Reporting
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Non-corporate U.S. Holders of Mayor’s common stock may
be subject to information reporting and backup withholding at a
28% rate on any cash payments received in lieu of a fractional
Birks share. These U.S. Holders will not be subject to
backup withholding, however, if they:
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furnish a correct taxpayer identification number and certify
that they are not subject to backup withholding on the
Form W-9 or successor form included in the letter of
transmittal to be delivered to the holders following the
completion of the merger; or
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are otherwise exempt from backup withholding.
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Any amounts withheld under the backup withholding rules will be
allowed as a refund or credit against that holder’s
U.S. federal income tax liability, provided the required
information or appropriate claim for refund is furnished to the
Internal Revenue Service.
A U.S. Holder of Mayor’s common stock that receives
Birks Class A voting shares in the merger will be required
to retain records pertaining to the merger and will be required
to file with its U.S. federal income tax return for the
year in which the merger takes place a statement setting forth
certain facts relating to the merger.
Material U.S. Federal Income Tax Consequences of Owning
and Disposing of Birks Class A Voting Shares
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Dividends and Distributions
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Subject to the passive foreign investment company
(PFIC) rules discussed below, the gross amount of dividends
paid to U.S. Holders of Birks Class A voting shares,
including amounts withheld to reflect Canadian withholding
taxes, will be treated as dividend income to these
U.S. Holders, to the extent paid out of current or
accumulated earnings and profits, as determined under
U.S. federal income tax principles. This income will be
includable in the gross income of a U.S. Holder on the day
actually or constructively received by the U.S. Holder.
Dividends generally will not be eligible for the dividends
received deduction allowed to corporations upon the receipt of
dividends distributed by U.S. corporations.
Subject to certain conditions and limitations, Canadian
withholding taxes on dividends may be treated as foreign taxes
eligible for credit against a U.S. Holder’s
U.S. federal income tax liability. For purposes of
calculating the foreign tax credit, dividends paid on the Birks
Class A voting shares will be treated as income from
sources outside the United States and generally will constitute
“passive income.” Special rules apply to certain
individuals whose foreign source income during the taxable year
consists entirely of “qualified passive income” and
whose creditable foreign taxes paid or accrued during the
taxable year do not exceed $300 ($600 in the case of a joint
return). Further, in certain circumstances, a U.S. Holder
that (1) has held Birks Class A voting shares for less
than a specified minimum period during which it is not protected
from risk of loss, (2) is obligated to make payments
related to the dividends with respect to positions in
substantially similar or related property or (3) holds the
Birks Class A voting shares in arrangements in which the
U.S. Holder’s expected economic profit, after
non-U.S. taxes, is insubstantial will not be allowed a
foreign tax credit for foreign taxes imposed on dividends paid
on Class A voting shares.
To the extent that the amount of any distribution exceeds
Birks’ current and accumulated earnings and profits for a
taxable year, the distribution will first be treated as a
tax-free return of capital, causing a reduction in the adjusted
basis of the Birks Class A voting shares (thereby
increasing the amount of gain, or
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decreasing the amount of loss, to be recognized by the
U.S. Holder on a subsequent disposition of the Class A
voting shares), and the balance in excess of adjusted basis will
be taxed as capital gain recognized on a sale or exchange.
Consequently, under the Code, a distribution in excess of
Birks’ current and accumulated earnings and profits would
not give rise to foreign source income and a U.S. Holder
would not be able to use the foreign tax credit arising from any
Canadian withholding tax imposed on that distribution unless
that credit can be applied (subject to applicable limitations)
against U.S. tax due on other foreign source income in the
appropriate category for foreign tax credit purposes. Under the
U.S.-Canada income tax treaty, however, the gain may be treated
as foreign source income and therefore a different result may be
achieved.
With respect to certain U.S. Holders who are not
corporations, including individuals, certain dividends received
before January 1, 2009 from a qualified foreign corporation
may be subject to reduced rates of taxation. A “qualified
foreign corporation” includes a foreign corporation that is
eligible for the benefits of a comprehensive income tax treaty
with the United States which the U.S. Treasury determines
to be satisfactory for these purposes and which includes an
exchange of information program. U.S. Treasury guidance
indicates that the current income tax treaty between Canada and
the United States meets these requirements, and Birks believes
it is eligible for the benefits of that treaty. In addition, a
foreign corporation is treated as a qualified foreign
corporation with respect to dividends received from that
corporation on shares that are readily tradable on an
established securities market in the United States.
U.S. Treasury guidance indicates that Birks Class A
voting shares, which are expected to be listed on the American
Stock Exchange in connection with the merger, would, when so
listed, be readily tradable on an established securities market
in the United States. Individuals that do not meet a minimum
holding period requirement during which they are not protected
from the risk of loss or that elect to treat the dividend income
as “investment income” pursuant to
Section 163(d)(4) of the Code will not be eligible for the
reduced rates of taxation regardless of the trading status of
Birks Class A voting shares. In addition, the rate
reduction will not apply to dividends if the recipient of a
dividend is obligated to make related payments with respect to
positions in substantially similar or related property. This
disallowance applies even if the minimum holding period has been
met. U.S. Holders should consult their own tax advisors
regarding the application of these rules given their particular
circumstances. The rules governing the foreign tax credit are
complex. Certain U.S. Holders of Birks Class A voting
shares may not be able to claim a foreign tax credit with
respect to amounts withheld for Canadian withholding taxes.
U.S. Holders are urged to consult their tax advisors
regarding the availability of the foreign tax credit under their
particular circumstances.
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Sale or Exchange of Class A Voting Shares
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For U.S. federal income tax purposes, subject to the rules
relating to PFICs described below, a U.S. Holder generally
will recognize taxable gain or loss on any sale or exchange of
Birks Class A voting shares in an amount equal to the
difference between the amount realized for the Birks
Class A voting shares and the U.S. Holder’s tax
basis in such shares. This gain or loss will be capital gain or
loss and generally will be treated as U.S. source gain or
loss. Long-term capital gains recognized by certain
U.S. Holders who are not corporations, including
individuals, generally will be subject to a maximum rate of
U.S. federal income tax or 15%. The deductibility of
capital losses is subject to limitations.
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Passive Foreign Investment Company
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Birks believes that Birks Class A voting shares should not
be treated as stock of a PFIC for U.S. federal income tax
purposes, and it expects to continue its operations in such a
manner that it will not be a PFIC. In general, a company is
considered a PFIC for any taxable year if either (i) at
least 75% of its gross income is passive income or (ii) at
least 50% of the value of its assets is attributable to assets
that produce or are held for the production of passive income.
The 50% of value test is based on the average of the value of
Birks’ assets for each quarter during the taxable year. If
Birks owns at least 25% by value of another company’s
stock, it will be treated, for purposes of the PFIC rules, as
owning its proportionate share of the assets and receiving its
proportionate share of the income of that company. Based on the
nature of the income, assets
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and activities of Birks, and the manner in which it plans to
operate its business in future years, Birks does not expect that
it will be classified as a PFIC for any taxable year.
If, however, Birks is or becomes a PFIC, U.S. Holders could
be subject to additional U.S. federal income taxes on gain
recognized with respect to the Birks Class A voting shares
and on certain distributions, plus an interest charge on certain
taxes treated as having been deferred by the U.S. Holder
under the PFIC rules.
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Backup Withholding and Information Reporting
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In general, information reporting requirements will apply to
dividends in respect of Birks Class A voting shares or the
proceeds received on the sale, exchange, or redemption of Birks
Class A voting shares paid within the United States (and in
certain cases, outside of the United States) to
U.S. Holders other than certain exempt recipients (such as
corporations), and a 28% backup withholding tax may apply to
these amounts if the U.S. Holder fails to provide an
accurate taxpayer identification number, to report dividends
required to be shown on its U.S. federal income tax returns
or, in certain circumstances, to comply with applicable
certification requirements. The amount of any backup withholding
from a payment to a U.S. Holder will be allowed as a refund
or credit against the U.S. Holder’s U.S. federal
income tax liability, provided that the required information or
appropriate claim for refund is furnished to the Internal
Revenue Service.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER
The following discussion is a summary of the material Canadian
federal income tax considerations under the Income Tax Act
(Canada) (referred to in this proxy statement/ prospectus as the
Canadian Tax Act) of the conversion of Mayor’s common stock
into Birks Class A voting shares (and cash in lieu of a
fractional Birks Class A voting share) in the merger and
the ownership of Birks Class A voting shares received
pursuant to the merger, generally applicable to holders of
Mayor’s common stock who, for purposes of the Canadian Tax
Act and at all relevant times, are not and are not deemed to be
resident in Canada, hold Mayor’s common stock and will hold
Birks Class A voting shares as capital property, deal at
arm’s length with Birks and Mayor’s and who do not use
or hold and are not deemed to use or hold Mayor’s common
stock or the Birks Class A voting shares in connection with
carrying on business in Canada and for whom neither Mayor’s
common stock nor the Birks Class A voting shares are
“designated insurance property” under the Canadian Tax
Act (referred to in this proxy statement/ prospectus as
Non-resident holders). This discussion does not apply to a
non-resident insurer that carries on business in Canada and
elsewhere.
This summary is based upon the current provisions of the
Canadian Tax Act, the regulations under the Canadian Tax Act,
all specific proposals to amend the Canadian Tax Act and the
regulations publicly announced by the Minister of Finance prior
to the date of this proxy statement/ prospectus and the current
published administrative and assessing practices of the Canada
Revenue Agency. This summary does not otherwise take into
account or anticipate any change in law, whether by legislative,
governmental or judicial action, nor does it take into account
or consider any provincial, territorial or foreign income tax
legislation or considerations.
This summary is of a general nature only and is not intended to
be, nor should it be construed to be, legal or tax advice to
holders of Mayor’s common stock. Accordingly, holders of
Mayor’s common stock should consult their own tax advisors
with respect to their particular circumstances.
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Conversion of Mayor’s Common Stock
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The conversion of Mayor’s common stock into Birks
Class A voting shares (and cash in lieu of a fractional
share) pursuant to the merger will not give rise to tax for a
Non-resident holder under the Canadian Tax Act.
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Dividends on Birks Class A Voting Shares
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Dividends paid or credited (or deemed to have been paid or
credited) on the Birks Class A voting shares to a
Non-resident holder will be subject to non-resident withholding
tax under the Canadian Tax Act of 25% of the gross amount of
those dividends (subject to reduction in accordance with an
applicable international tax treaty between Canada and the
Non-resident holder’s country of residence). Where the
Non-resident holder is a resident of the United States for
purposes of the Canada-United States Income Tax Convention
(1980) (referred to in this proxy statement/ prospectus as the
Convention), the rate of this withholding tax is generally
reduced to 15%. Under the Convention, dividends paid to certain
religious, scientific, literary, educational or charitable
organizations and certain pension organizations that are
resident in, and generally exempt from taxation by, the United
States, are generally exempt from Canadian non-resident
withholding tax. Provided that certain administrative procedures
are observed by such an organization, Birks would not be
required to withhold tax from dividends paid or credited to the
organization.
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Disposition of Birks Class A Voting Shares
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A Non-resident holder will not be subject to tax under the
Canadian Tax Act in respect of any capital gain realized by that
Non-resident holder on a disposition of a Birks Class A
voting share, unless the Birks Class A voting share
constitutes “taxable Canadian property” of the
Non-resident holder for purposes of the Canadian Tax Act and the
Non-resident holder is not entitled to relief under an
applicable tax treaty. Provided that, at the time of
disposition, the Birks Class A voting shares are listed on
a prescribed stock exchange (which includes the Toronto Stock
Exchange and the American Stock Exchange), the Birks
Class A voting shares will generally not constitute taxable
Canadian property to a Non-resident holder unless, at any time
during the 60-month period immediately preceding the disposition
of the Birks Class A voting shares, the holder, persons
with whom the holder does not deal at arm’s length or the
holder together with those persons, owns not less than 25% of
the issued shares of any class or any series of shares of the
capital stock of Birks.
Even if the Birks Class A voting shares are taxable
Canadian property to a Non-resident holder, the Convention will
generally exempt a Non-resident holder who is a resident of the
United States for purposes of the Convention from tax under the
Canadian Tax Act on any capital gain arising on the disposition
of a Birks Class A voting share unless the value of the
Birks Class A voting shares at the time of disposition is
derived principally from real property situated in Canada.
MERGER FEES, COSTS AND EXPENSES
All expenses incurred in connection with the merger agreement
and the transactions contemplated by the merger agreement will
be paid by the party incurring such expenses, whether or not the
merger or any other transaction is consummated, except that
Mayor’s and Birks will each pay one-half of all expenses
relating to printing, filing and mailing the registration
statement and this proxy statement/ prospectus and all SEC and
other regulatory filing fees incurred in connection with the
registration statement and this proxy statement/ prospectus. In
the event, however, the merger agreement is terminated by
Mayor’s (i) upon the registration statement not being
declared effective under the Securities Act of 1933 by
December 31, 2005 for reasons unrelated to Mayor’s and
its subsidiaries, or (ii) upon Birks Class A voting
shares not being authorized for listing on the American Stock
Exchange for reasons unrelated to Mayor’s and its
subsidiaries, Birks will reimburse Mayor’s for all of
Mayor’s expenses.
NO DISSENTERS’ RIGHTS OF APPRAISAL
The Delaware General Corporation Law, referred to in this proxy
statement/ prospectus as the DGCL, provides that in some
mergers, stockholders who do not vote in favor of a merger and
who comply with a series of statutory requirements have the
right to receive, instead of the merger consideration, the fair
value of their shares as appraised by the Delaware Court of
Chancery, payable in cash. However, this right to appraisal is
not available under the DGCL to holders of Mayor’s common
stock in connection with the merger because Mayor’s common
stock will be listed on the American Stock Exchange on the
record date for
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the special and annual meeting and Birks Class A voting
shares will be listed on the American Stock Exchange at the time
of the merger.
STOCK EXCHANGE LISTING
Birks Class A voting shares are not currently listed for
trading on any U.S. or foreign stock exchange. Birks is
obligated under the merger agreement to promptly prepare and
submit to the American Stock Exchange a listing application
covering the Birks Class A voting shares, including the
Birks Class A voting shares issued in the merger and
pursuant to Mayor’s options and warrants that will be
converted to Birks stock options and Birks warrants pursuant to
the merger agreement. Birks is obligated to use its reasonable
best efforts to cause the Birks Class A voting shares to be
approved for listing on the American Stock Exchange. In
addition, it is a condition to the closing of the merger that
these shares be approved for listing on the American Stock
Exchange, subject to official notice of issuance. Birks has
filed an original listing application with the American Stock
Exchange. The American Stock Exchange has reserved the symbol
“BMJ” for Birks. Listing remains subject to approval
by the American Stock Exchange. Mayor’s common stock will
be delisted from the American Stock Exchange following
consummation of the merger.
RESALE OF BIRKS CLASS A VOTING SHARES
U.S. Resale Requirements.
The Birks Class A
voting shares issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act,
except for shares issued to any Mayor’s stockholder who may
be deemed to be an “affiliate” of Birks or
Mayor’s for purposes of Rule 144 or Rule 145
under the Securities Act. It is expected that each affiliate
will enter into an agreement with Mayor’s providing that
the affiliate will not transfer any Birks Class A voting
shares received in the merger except in compliance with the
Securities Act.
Canadian Resale Requirements.
Birks is not currently a
reporting issuer (or the equivalent) with any Canadian
provincial or territorial securities regulatory authority.
Accordingly, Birks Class A voting shares, including the
Class A voting shares issued pursuant to the merger
agreement, will not be freely tradeable in Canada and will be
subject to substantial restrictions on transfer under applicable
Canadian securities legislation.
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THE MERGER AGREEMENT
The following is a summary of selected provisions of the
merger agreement. While Mayor’s and Birks believe this
description covers the material terms of the merger agreement,
it may not contain all the information that is important to you,
and it is qualified in its entirety by reference to the merger
agreement, which is incorporated by reference in its entirety
and attached to this proxy statement/ prospectus as
Appendix A. We urge you to read the merger agreement in its
entirety. In the event of any discrepancy between the terms of
the merger agreement and the following summary, the merger
agreement will control.
Structure of the Merger
If the holders of Mayor’s voting stock approve and adopt
the merger agreement and all other conditions to the merger are
satisfied or waived, Merger Co. will be merged with and into
Mayor’s. After the merger, Mayor’s will be the
surviving corporation and will be a wholly-owned subsidiary of
Birks.
Effective Time of the Merger
The merger will become effective when the certificate of merger
is duly filed with the Secretary of State of the State of
Delaware or at a later time agreed upon by the parties and
specified in the certificate of merger. The filing of the
certificate of merger will take place as soon as practicable
after the closing of the merger (but in no event earlier than
August 21, 2005).
Closing
Unless the parties agree otherwise, the closing of the merger
will occur as promptly as practicable after satisfaction or
waiver of all closing conditions. See
“— Conditions to the Merger” below.
Surviving Corporation Governing Documents, Officers and
Directors
Surviving Corporation Governing Documents.
At the
effective time of the merger, the certificate of incorporation
of Mayor’s will be amended and restated to be the same as
the certificate of incorporation of Merger Co. in effect
immediately prior to the effective time of the merger, except
that the name of the surviving corporation will be Mayor’s
Jewelers, Inc. At the effective time of the merger, the by-laws
of Mayor’s will be amended and restated to be the same as
the by-laws of Merger Co. in effect immediately prior to the
effective time of the merger.
Surviving Corporation Officers and Directors.
Immediately
following the effective time of the merger, the officers of the
surviving corporation will be Mayor’s officers immediately
prior to the effective time of the merger. Immediately following
the effective time of the merger, the directors of the surviving
corporation will be Merger Co.’s directors as of the date
of the merger agreement.
Merger Consideration
Conversion of Mayor’s Common Stock.
The merger
agreement provides that each share of Mayor’s common stock
issued and outstanding immediately prior to the effective time
of the merger (other than treasury stock of Mayor’s and
Mayor’s common stock owned by Birks) will be converted into
the right to receive 0.08695 Birks Class A voting shares,
together with any cash paid for fractional shares. See
“— Fractional Birks Class A Voting
Shares” below.
Cancellation of Treasury Stock.
Shares of Mayor’s
common stock held by Mayor’s in treasury will be canceled
in the merger, and no Birks Class A voting shares or other
consideration will be delivered in exchange for such treasury
stock.
Conversion of Merger Co. Stock.
All shares of Merger Co.
common stock outstanding immediately prior to the effective time
of the merger will be canceled in the merger, and no Birks
Class A voting shares or other consideration will be
delivered in exchange for such Merger Co. stock.
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Fractional Birks Class A Voting Shares.
Birks will
not issue fractional Birks Class A voting shares in the
merger. Instead, each holder of shares of Mayor’s common
stock who would otherwise be entitled to a fraction of a Birks
Class A voting share as merger consideration will be paid
cash in an amount equal to the product obtained by multiplying
(1) such fractional interest, by (2) the average
closing price for Birks Class A voting shares on the
American Stock Exchange on the 20 consecutive trading days
beginning on and including the trading day immediately following
the date of the effective time of the merger.
Options, Warrants and Other Stock Awards.
Each option and
warrant to acquire shares of Mayor’s common stock and all
other Mayor’s stock-based awards which have been granted
pursuant to a Mayor’s stock plan and which are outstanding
immediately prior to the effective time of the merger will be
converted into an option, warrant or other award to acquire the
number of Birks Class A voting shares obtained by
multiplying (x) the number of shares of Mayor’s common
stock subject to Mayor’s option, warrant or other
stock-based award by (y) the exchange ratio of 0.08695
(rounded downward to the nearest whole share). The per share
exercise price of converted stock options or warrants will be
obtained by dividing (A) the per share exercise price of
Mayor’s option or warrant by (B) the exchange ratio of
0.08695 (rounded upward to the nearest whole cent). In addition,
all shares of Mayor’s restricted common stock granted under
a Mayor’s stock plan and outstanding immediately prior to
the effective time of the merger will be converted into Birks
Class A voting shares and be governed by the same terms and
conditions as those in effect immediately prior to the effective
time of the merger under the relevant Mayor’s stock plan.
Lost, Stolen or Destroyed Certificates.
Upon the making
of an affidavit that a certificate representing shares of
Mayor’s common stock has been lost, stolen or destroyed,
and at Birks’ option upon the delivery of an indemnity
bond, the exchange agent will issue the merger consideration and
any dividends or other distributions in respect of the shares of
Mayor’s common stock represented by the lost, stolen or
destroyed certificates to which the holder is entitled.
Certain Adjustments.
If, between the date of the merger
agreement and the effective time of the merger, the outstanding
Birks Class A voting shares or Mayor’s common stock
are increased, decreased, changed into or exchanged for a
different class of stock through a reclassification,
recapitalization, stock-split, reverse stock-split, split-up,
combination or exchange of shares, a stock dividend or other
stock distribution is declared with a record date in the period,
an issuer tender offer or exchange offer is effected by Birks in
violation of the covenants contained in the merger agreement,
then the exchange ratio and merger consideration will be
appropriately adjusted to provide Mayor’s stockholders the
same economic effect as contemplated by the merger agreement
prior to the relevant event.
Representations and Warranties
The merger agreement contains representations and warranties
made by Mayor’s to Birks relating to a number of matters,
including the following:
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corporate authorization and validity of the merger agreement and
the inapplicability of anti-takeover statutes to the merger;
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the absence of any conflict of the merger agreement with
Mayor’s certificate of incorporation or by-laws, with
applicable laws or with any agreement to which Mayor’s 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;
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the approval by the special committee and Mayor’s board of
directors of the merger agreement and the transactions
contemplated by the merger agreement, the recommendation of the
merger agreement by the special committee and Mayor’s board
of directors to Mayor’s stockholders and the required vote
by the stockholders of Mayor’s to complete the merger;
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the receipt of the opinion of the financial advisor to the
special committee as to the fairness, from a financial point of
view, of the merger consideration to Mayor’s common
stockholders; and
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brokers’ and finders’ fees related to the merger.
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The merger agreement also contains representations and
warranties by Birks and Merger Co. to Mayor’s relating to a
number of matters, including the following:
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amalgamation or incorporation, valid existence and qualification
to do business of Birks and each of its subsidiaries, and
Birks’ interests in its subsidiaries and certain
partnerships and limited liability companies;
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the amended charter and amended by-laws, or other organizational
documents, of Birks being amended as specified in the merger
agreement, being in full force and effect and Birks not being in
conflict with such organizational documents;
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Birks’ capitalization;
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corporate authorization and validity of the merger agreement;
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the absence of any conflict of the merger agreement with
Birks’ amended charter or Birks’ amended by-laws, with
applicable laws or with any agreement to which Birks 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;
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Birks’ possession of all permits and regulatory approvals
required to conduct its business, and compliance by Birks and
its subsidiaries with all applicable foreign, federal, state and
local laws;
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the proper filing of documents with the SEC;
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the accuracy of financial statements and absence of undisclosed
liabilities;
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the absence of material changes or events in the business of
Birks;
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the adequacy of internal control over financial reporting and
the absence of any complaint or allegation with respect to
questionable accounting or auditing practices;
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the absence of material pending or threatened litigation
outstanding against Birks or any of its subsidiaries;
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employee benefit plans;
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labor and employment matters;
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title to real property, whether leased or owned;
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ownership and validity of intellectual property rights;
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tax matters and the payment of taxes;
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various environmental matters, including compliance with
environmental laws;
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validity and effect of, and absence of defaults under, material
contracts;
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adequacy of insurance;
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customers and suppliers;
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the absence of certain unlawful business practices;
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interested party transactions;
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a vote of Birks’ shareholders not being required to
consummate the merger;
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accounts receivables;
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inventories;
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Merger Co.’s operations; and
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brokers’ and finders’ fees related to the merger.
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Certain of Mayor’s and Birks’ representations and
warranties are qualified as to materiality or “material
adverse effect.” When used with respect to Mayor’s,
Birks or the surviving corporation, “material adverse
effect” means any material adverse change or effect on the
financial condition, properties, assets, businesses or results
of operations of that entity and its subsidiaries, taken as a
whole, as applicable, other than any change or effect relating
to:
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general economic conditions or securities markets in general
that do not have a disproportionate effect on Mayor’s or
Birks, as applicable;
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the industry in which Birks and Mayor’s operate that does
not have a disproportionate effect on Mayor’s or Birks, as
applicable; or
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the public announcement of the merger agreement or the
consummation of the transactions contemplated by the merger
agreement.
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Conduct of Business Pending the Merger
Conduct of Mayor’s Business Pending Merger.
Mayor’s has agreed that, until the termination of the
merger agreement or the effective time of the merger,
Mayor’s and its subsidiaries will operate their respective
businesses in all material respects in the ordinary course of
business and consistent with past practice, except as expressly
contemplated by any provision of the merger agreement and except
as directed or consented to by Birks or its affiliates or
associates.
Conduct of Birks’ Business Pending Merger.
Birks has
agreed that, until the termination of the merger agreement or
the effective time of the merger, it will not do any of the
following, except as expressly contemplated by any provision of
the merger agreement, without the prior written consent of the
special committee:
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operate other than in the ordinary course of business and
consistent with past practice or in a way that would cause it to
be in default under its credit agreement;
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change or amend its charter or by-laws;
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issue, sell, or grant any shares of capital stock, or any
options, warrants or rights to purchase or subscribe to, or
enter into any arrangement with respect to the issuance or sale
of any capital stock of Birks or any rights or obligations
convertible into or exchangeable for any such shares;
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split, combine or reclassify any of its capital stock or
otherwise make any changes to its capital structure;
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declare, pay, or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity
securities of Birks or any of its subsidiaries or redeem,
purchase, or otherwise acquire any shares of the capital stock
or other securities of Birks or any of its subsidiaries or
rights or obligations convertible into or exchangeable for any
shares of the capital stock or other securities of Birks or any
of its subsidiaries or obligations convertible into such, or any
options, warrants, or other rights to purchase or subscribe to
any of the foregoing;
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increase the wages, salaries compensation, or other benefits
payable to any officer, employee or director of Birks, pay any
pension or retirement allowance not required by existing
agreement or applicable law, pay any bonus not consistent with
past practice or required by an existing agreement or applicable
law, become a party to or amend or commit itself to any other
benefit agreement not required by existing agreement or
applicable law, or accelerate the vesting of any stock options
previously granted, other than in the ordinary course of
business consistent with past practice;
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sell, license, lease, encumber, assign, or otherwise dispose of,
abandon, or fail to maintain any material assets or rights or
agreements other than in the ordinary course of business
consistent with past practice;
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enter into any new line of business;
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acquire or agree to acquire a substantial equity interest in or
a substantial portion of the assets of any business or any
division thereof;
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create, renew, amend, terminate, or fail to perform any material
obligations under or waive or release any material rights under
or give notice of a proposed renewal, amendment, waiver, release
or termination of, any material contract, agreement, or lease
for goods, services or office space to which Birks is a party
other than in the ordinary course of business and with prior
notice to Mayor’s;
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cause any material insurance policy naming Birks as a
beneficiary or loss payable payee to be cancelled or terminated,
or cause Birks’ directors and officers liability insurance
policy to be cancelled, terminated, or otherwise not renewed or
replaced without an equivalent amount of coverage on no less
favorable terms to Birks;
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adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of Birks or any of its subsidiaries;
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make any material election relating to taxes or change any tax
accounting method, or settle any liability relating to taxes
other than in the ordinary course of business consistent with
past practice;
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engage in any action that could be expected to cause the merger
to fail to qualify as a “reorganization” under
section 368(a) of the Code or result in the application of
Section 367(a)(1) of the Code to any person other than a 5%
transferee shareholder;
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take any action to cause Birks’ representations and
warranties to be untrue in any material respect
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take any action that would reasonably be likely to materially
delay the merger; or
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agree to take, make any commitment to take, or adopt any
resolutions of its board of directors in support of, any of the
foregoing actions.
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Additional Agreements
Registration Statement; Proxy Statement.
Birks and
Mayor’s have agreed that as promptly as practicable after
the execution of the merger agreement they would prepare and
file with the SEC (1) the proxy statement to be sent to
Mayor’s stockholders relating to the special and annual
meeting and (2) a registration statement on Form S-4
in connection with the registration under the Securities Act of
the Birks Class A voting shares to be issued pursuant to
the merger. Birks and Mayor’s have agreed to use their
reasonable best efforts to cause the registration statement to
become effective as promptly as practicable and thereafter to
mail this proxy statement/ prospectus to Mayor’s
stockholders.
Mayor’s has also agreed that neither Mayor’s board of
directors nor the special committee will withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Birks, its
approval and recommendation of the merger agreement and the
merger unless the board of directors or special committee
determines in its good faith judgment and after consultation
with outside legal counsel that the failure to so withdraw or
modify its approval and recommendation of the merger agreement
and the merger would be inconsistent with its fiduciary duties.
The parties have further agreed that at (1) the time the
registration statement was declared effective, (2) the time
this proxy statement/ prospectus was first mailed, (3) the
time of the special and annual meeting and (4) the time the
merger is effective, the information such party provided for
inclusion in this proxy statement/ prospectus would not contain
any untrue statement of a material fact or fail to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Stockholder Meeting.
The merger agreement requires
Mayor’s to call and hold a meeting of its stockholders to
approve and adopt the merger agreement. Mayor’s, however,
is not required to hold a meeting if the special committee or
the board of directors of Mayor’s withdraws its
recommendation. See “— Termination” below.
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Access to Information and Confidentiality.
The parties
have agreed to provide each other with reasonable access to
their and their subsidiaries’ respective properties, books,
contracts, records and other information, subject to applicable
law and confidentiality obligations.
Indemnification and Directors’ and Officers’
Insurance.
Birks has agreed that, for six years following
the effective time of the merger, it will indemnify and hold
harmless Mayor’s directors and officers and maintain
directors’ and officers’ liability insurance as
described under “The Merger — Indemnification and
Insurance”; provided, however, that in no event shall Birks
be required to expend more than an amount per year equal to 200%
of current annual premiums paid by Mayor’s for such
insurance.
Notification.
The parties have agreed to notify each
other of certain written communications, notices and proceedings
related to the merger.
Mayor’s Affiliates.
Mayor’s has agreed to use
its reasonable best efforts to cause its affiliates to deliver
letters from such affiliates acknowledging the transfer
restrictions under Rule 145 of the Securities Act with
respect to any Birks Class A voting shares received by such
affiliate pursuant to the merger.
Further Action; Reasonable Efforts.
Each of Mayor’s,
Birks and Merger Co. has agreed to use its respective reasonable
efforts to take all necessary actions to comply promptly with
all legal requirements which may be imposed on that party with
respect to the merger and to consummate the transactions
contemplated by the merger agreement as promptly as practicable.
Plan of Reorganization.
Each party has agreed to use its
reasonable efforts to cause the merger to qualify as a
reorganization within the meaning of Section 368(a) of the
Code to which, in the case of any person other than a
five-percent transferee shareholder, Section 367(a)(1) of
the Code does not apply.
Obligations of Merger Co.
Birks has agreed to take all
action necessary to cause Merger Co. to perform its obligations
under the merger agreement and to consummate the merger on the
terms and subject to the conditions set forth in the merger
agreement.
Consents of Accountants.
Mayor’s and Birks have
agreed to use all reasonable efforts to cause to be delivered to
each other consents from their respective independent auditors
with respect to the inclusion of reports by such auditors in the
registration statement.
AMEX Listing.
Birks has agreed to promptly prepare and
submit to the American Stock Exchange a listing application
covering the Birks Class A voting shares outstanding and to
be issued in connection with the merger and to use its
reasonable efforts to obtain, prior to the effective time of the
merger, approval for the listing of the Birks Class A
voting shares, subject to official notice of issuance to the
American Stock Exchange.
Public Announcements.
Mayor’s and Birks have agreed
to use their reasonable best efforts to consult with each other
before issuing communications with respect to the merger.
Birks Board of Directors.
Birks has agreed that its board
of directors will consist of a majority of independent directors
within one year of completion of the merger.
Mayor’s Stock Held by Birks.
Birks has agreed not to
transfer, sell or otherwise dispose of any of the shares of
Mayor’s common stock or preferred stock that it owns in
advance of the merger, and will vote all such stock in favor of
the approval and adoption of the merger agreement at
Mayor’s stockholders’ meeting.
Conditions to the Merger
The respective obligations of Birks, Mayor’s and Merger Co.
to complete the merger are subject to the satisfaction of
certain conditions. Any waiver or determination to be made by
Mayor’s with respect to these conditions requires the
approval of the special committee.
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Conditions to Each Party’s Obligation to Effect the
Merger.
The obligations of Birks, Mayor’s and Merger
Co. to complete the merger are conditioned upon the following
conditions being satisfied (or waived by the other party):
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the registration statement of which this proxy statement/
prospectus is a part having been declared effective under the
Securities Act of 1933, and no stop order or proceeding seeking
a stop order being pending by or before the SEC;
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Mayor’s disinterested stockholders having affirmatively
voted to approve and adopt the merger agreement by the requisite
vote;
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no injunction, order or other legal restraint or prohibition
preventing the consummation of the merger being in effect;
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Birks Class A voting shares having been authorized for
listing on the American Stock Exchange; and
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the fairness opinion obtained from Houlihan Lokey having not
been withdrawn, revoked, annulled or materially modified.
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Conditions to Obligations of Birks and Merger Co.
The
obligations of Birks and Merger Co. to effect the merger depend
upon the following additional conditions being satisfied (or
waived by Birks) prior to the closing of the merger:
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the representations and warranties of Mayor’s being true
and correct in all material respect as of the effective time of
the merger as if made at the effective time of the merger
(except that any representation or warranty that is qualified by
materiality will be read without such materiality
qualifications) and Birks having received a certificate from
Mayor’s to this effect;
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Mayor’s having performed in all material respects all of
its obligations under the merger agreement, and Birks having
received a certificate from Mayor’s to this effect;
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all consents, approvals and authorizations legally required to
be obtained to consummate the merger from all Governmental
Authorities, and all consents from specified third parties,
having been obtained;
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Mayor’s not being subject to a material adverse effect as
defined in the merger agreement; and
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additional warrants to purchase Mayor’s common stock having
been issued to Joseph A. Keifer, Marco Pasteris and Carlo
Coda-Nunziante.
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Conditions to Obligations of Mayor’s.
The obligation
of Mayor’s to complete the merger depends on the following
additional conditions being satisfied (or waived by
Mayor’s):
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the representations and warranties of Birks being true and
correct in all material respect as of the effective time of the
merger as if made at the effective time of the merger (except
that any representation or warranty that is qualified by
materiality will be read without such materiality
qualifications) and Mayor’s having received a certificate
from Birks to this effect;
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Birks having performed in all material respects all of its
obligations under the merger agreement, and Mayor’s having
received a certificate from Mayor’s to this effect;
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Mayor’s having received an opinion of Holland &
Knight LLP, Mayor’s legal counsel, stating that
(i) the merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code and each of Birks and
Mayor’s will be a party to the reorganization, and
(ii) the conversion of Mayor’s common stock into Birks
Class A voting shares in the merger will not result in the
recognition of gain under Section 367 of the Code (except,
under certain circumstances, in the case of a person who owns,
actually or constructively, 5% or more of the voting power or
value of the outstanding stock of Birks following the merger).
If Mayor’s counsel is unable to deliver such opinion, this
condition will be satisfied if King & Spalding LLP,
legal counsel to the special committee, provides such opinion to
Mayor’s;
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Mayor’s having obtained the affirmative vote of the
required majority of Mayor’s voting stock in favor of the
merger at Mayor’s stockholders’ meeting;
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Birks’ Articles of Amalgamation and Birks’ By-laws
being amended as specified in the merger agreement;
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Birks not being subject to a material adverse effect as defined
in the merger agreement;
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all consents, approvals and authorizations legally required to
be obtained to consummate the merger from all Governmental
Authorities, and all consents from specified third parties,
having been obtained;
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all of the issued and outstanding Series A preferred shares
of Birks and $5,000,000 aggregate principal amount of secured
convertible notes of Birks having been converted into Birks
Class A voting shares and Birks Class B multiple
voting shares;
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warrants to purchase Mayor’s common stock having been
amended to eliminate the application of anti-dilution
provisions; and
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the employment agreement or other documents between Birks and
Thomas A. Andruskevich having been amended to eliminate the
application of certain anti-dilution provisions to the future
issuance of stock based compensation after the merger is
consummated.
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Termination, Amendment and Waiver
Termination.
The merger agreement may be terminated at
any time prior to the completion of the merger by action taken
or authorized by the board of directors of Birks or the special
committee of Mayor’s:
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by mutual written consent of Birks and Mayor’s; or
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by either Birks or Mayor’s if:
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the merger is not effective by December 31, 2005; provided
that the right to terminate will not be available to any party
whose failure to fulfill any obligation under the merger
agreement has been the cause of, or resulted in, the failure of
the merger to be completed by such date;
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a governmental entity of competent jurisdiction has issued an
order or injunction or has issued any other restraint or
prohibition preventing consummation of the merger;
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Mayor’s stockholders fail to approve and adopt the merger
agreement at the special and annual meeting (or any adjournment
or postponement of the special and annual meeting);
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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 prior to
15 days after notice of the breach; or
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the special committee or Mayor’s board of directors fails
to recommend or withdraws, modifies or qualifies in any manner
adverse to Birks its recommendation of the approval and adoption
of the merger agreement, or the fairness opinion obtained from
Houlihan Lokey is withdrawn, revoked, annulled or materially
modified.
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Any waiver or determination to be made by Mayor’s with
respect to the termination of the merger agreement requires the
approval of the special committee.
Effect of Termination.
If the merger agreement is
terminated as described above, the agreement will be void, and
there will be no liability or obligation of Mayor’s or
Birks or their respective officers and directors except as to
prior breaches of the merger agreement, confidentiality, fees
and expenses (including brokers’ and finders’ fees)
described below.
Fees and Expenses.
All expenses incurred in connection
with the merger agreement and the transactions contemplated by
the merger agreement will be paid by the party incurring such
expenses, whether or not the merger or any other transaction is
consummated, except that Mayor’s and Birks will each
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pay one-half of all expenses relating to printing, filing and
mailing the registration statement and this proxy statement/
prospectus and all SEC and other regulatory filing fees incurred
in connection with the registration statement and this proxy
statement/ prospectus; provided, however, that in the event the
merger agreement is terminated by Mayor’s (i) upon the
registration statement not being declared effective under the
Securities Act of 1933 by December 31, 2005 for reasons
unrelated to Mayor’s and its subsidiaries, or
(ii) upon Birks Class A voting shares not being
authorized for listing on the American Stock Exchange for
reasons unrelated to Mayor’s and its subsidiaries, Birks
will reimburse Mayor’s for all of Mayor’s expenses.
Amendment.
The merger agreement may be amended in writing
by the parties by action taken or authorized by their respective
boards of directors at any time before or after the approval and
adoption of the merger agreement by Mayor’s stockholders.
However, following that approval and adoption, no amendment may
be made that by applicable law or in accordance with the rules
of the American Stock Exchange requires further approval by such
stockholders without first obtaining that further stockholder
approval.
Waiver.
At any time prior to the effective time of the
merger, either party to the merger agreement may, in writing,
extend the time for the performance of any obligation or other
act of any other party, waive any inaccuracy in the
representations and warranties of any other party and waive
compliance with any agreement of any other party or any
condition to its own obligations.
General Provisions
Non-Survival of Representations and Warranties.
The
representations, warranties and agreements in the merger
agreement and in any certificate delivered pursuant the merger
agreement shall terminate at the time the merger is effective,
except that the agreements with respect to confidentiality and
the general provisions will survive.
Governing Law.
The merger agreement is governed by
Delaware law and the parties agreed to submit to the
jurisdiction of the Delaware Chancery Court.
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COMPARISON OF STOCKHOLDER RIGHTS
The rights and privileges of holders of Mayor’s common
stock are currently governed principally by:
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the laws of Delaware, particularly the Delaware General
Corporation Law, referred to in this proxy statement/ prospectus
as the DGCL;
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Mayor’s Certificate of Incorporation, referred to in this
proxy statement/ prospectus as Mayor’s charter or
Mayor’s certificate of incorporation; and
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Mayor’s By-laws, referred to in this proxy statement/
prospectus as Mayor’s by-laws.
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As a result of the merger, holders of Mayor’s common stock
who receive Birks Class A voting shares will have the
rights and privileges of those shares governed principally by:
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the Canada Business Corporations Act, referred to in this proxy
statement/ prospectus as the CBCA;
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Birks’ amended Articles of Amalgamation, which is referred
to in this proxy statement/ prospectus as Birks’ amended
charter; and
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Birks’ amended By-laws, which are referred to in this proxy
statement/ prospectus as Birks’ amended by-laws.
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While the rights and privileges of shareholders of a corporation
amalgamated under the CBCA such as Birks are, in many instances,
comparable to those of stockholders of a Delaware corporation
such as Mayor’s, there are material differences. The
following is a summary of the material differences between the
rights of holders of Mayor’s common stock and the rights of
holders of Birks Class A voting shares, as of the date of
this proxy statement/ prospectus. These differences arise
principally from differences between the DGCL and the CBCA and
between Mayor’s charter and by-laws and Birks’ amended
charter and amended by-laws.
This summary does not purport to be complete and is qualified in
its entirety by reference to the DGCL and the CBCA and the
charters and by-laws of Mayor’s and the amended charter and
amended by-laws of Birks.
Classes and Series of Capital Stock
Under Mayor’s charter, Mayor’s may issue up to
50,000,000 shares of common stock, 5,000,000 shares of
preferred stock and 1,000 shares of non-voting common
stock. As of the date of this proxy statement/ prospectus,
36,991,592 shares of Mayor’s common stock and
15,050 shares of Mayor’s preferred stock were
outstanding. As of the date of this proxy statement/ prospectus,
no shares of Mayor’s non-voting preferred stock were issued
and outstanding.
Under Birks’ amended charter, Birks will be authorized to
issue an unlimited number of Class A voting shares without
nominal or par value, an unlimited number of Class B
multiple voting shares without nominal or par value, and an
unlimited number of preferred shares, issuable in one or more
series, without nominal or par value. Upon consummation of the
merger, approximately 3,491,474 Class A voting shares,
7,717,970 Class B multiple voting shares and no Birks
preferred shares will be issued and outstanding. For a
description of the different classes of shares Birks may issue,
see “Description of Birks Capital Stock.”
Annual Meetings of Stockholders
Under the DGCL, if a corporation does not hold an annual meeting
for the election of directors on the date, if any, designated in
the corporation’s certificate of incorporation or by-laws,
the directors must hold such a meeting as soon after that date
as may be convenient. If a corporation fails to hold an annual
meeting
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for a period of thirty days after the designated date, or, if no
date is designated, for a period of thirteen months after the
last annual meeting or written consent to elect directors in
lieu of an annual meeting, the Delaware Court of Chancery may
summarily order a meeting to be held upon application of any
stockholder or director. The shares of stock represented at a
meeting called by the Delaware Court of Chancery either in
person or by proxy and entitled to vote at the meeting
constitute a quorum for the purposes of the meeting, even if the
corporation’s certificate of incorporation or by-laws
provide for a different quorum requirement. The DGCL does not
permit a stockholder to call an annual meeting other than by
application to the Delaware Court of Chancery. Mayor’s
by-laws provide that the annual meeting will be held in the
third week of the month of May or at such other date, time and
place designated by the board of directors.
Under the CBCA, the directors of Birks must call an annual
meeting of shareholders not later than 15 months after the
last preceding annual meeting and not later than six months
after the end of Birks’ financial year. Subject to certain
provisions of the CBCA, the holders of not less than 5% of the
issued and outstanding shares of Birks that carry the right to
vote at the meeting sought to be held may request that the
directors call an annual meeting. If the directors do not call
the meeting within 21 days after receiving the requisition,
any shareholder who signed such requisition may call the
meeting. The CBCA gives holders a similar right to call a
special meeting of shareholders, as described under the caption
“Special Meetings of Stockholders” below. If for any
reason it is impracticable to call a meeting or to conduct a
meeting in the manner in which it is otherwise to be called or
as prescribed by Birks’ amended by-laws or the CBCA, any
director or shareholder entitled to vote at that meeting may
apply to a court for an order calling the meeting and setting
forth the manner to hold and conduct the meeting. The CBCA
requires meetings of shareholders to be held in Canada unless
the charter specifies a place outside of Canada where such
meetings may be held. Birks’ amended charter provides that
shareholders meetings can also be held in the greater
metropolitan area of any city having a population of more than
80,000 inhabitants in the United States.
Special Meetings of Stockholders
Under the DGCL, special meetings of stockholders may be called
only by the board of directors or other persons authorized by
the certificate of incorporation or by-laws. Mayor’s
by-laws permit only the following persons to call a special
meeting (which meeting may be called at any time):
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the president; or
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the board of directors pursuant to a resolution approved by a
majority of the board.
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Under the CBCA, special meetings of shareholders may be called
at any time by the board of directors. Birks’ amended
by-laws provide that special meetings may also be convened by
order of the chairman of the board of directors, the president
or a vice-president who is a director. In addition, subject to
certain provisions of the CBCA, the holders of not less than 5%
of the issued and outstanding shares of Birks that carry the
right to vote at the meeting sought to be held may request that
the directors call a meeting of shareholders for any purpose. If
the directors do not call the meeting within 21 days after
receiving such a requisition, any shareholder who signed the
requisition requesting the directors to call the meeting may
call the meeting. The CBCA also requires meetings of
shareholders to be held in Canada, unless the charter specifies
a place outside of Canada where such meeting may be held.
Birks’ amended charter provides that shareholders meetings
can also be held in the greater metropolitan area of any city
having a population of more than 80,000 inhabitants in the
United States.
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Quorum of Stockholders
Under the DGCL, a quorum consists of a majority of the shares
entitled to vote present in person or represented by proxy,
unless the certificate of incorporation or by-laws provide
otherwise. Mayor’s by-laws provide that the presence of a
majority of the shares entitled to vote constitutes a quorum.
Under the CBCA, unless the corporation’s by-laws otherwise
provide, a quorum of shareholders is present at a meeting of
shareholders, irrespective of the number of persons actually
present at the meeting, if the holders of a majority of the
shares who are entitled to vote are represented in person or by
proxy at the meeting. Birks’ amended by-laws provide that
the quorum for the choice of a chairman of the meeting and for
the adjournment of the meeting will be one person present and
holding or representing by proxy at least one issued voting
share of the corporation. For all other purposes, the quorum at
any meeting of shareholders will be met if persons being not
less than two in number and holding or representing by proxy at
least 50% of the total voting rights attached to the issued and
outstanding shares entitled to vote at such meeting are present.
Stockholder Action Without a Meeting
As permitted by the DGCL, Mayor’s charter prohibits
Mayor’s stockholders from taking any action by written
consent. As a result, all actions of Mayor’s stockholders
are required to be taken at a duly called annual or special
meeting.
Under the CBCA, shareholder action may be taken without a
meeting of shareholders by written resolution signed by all
shareholders who would be entitled to vote on the matter at a
meeting of shareholders except with respect to a meeting called
for the purpose of (1) removing a director or the auditor
from office or (2) electing or appointing a director or
auditor following the resignation, removal or expiry of term of
office of the director or auditor where, in either case, the
director or auditor has submitted a written statement giving the
reasons why he opposes the proposed action or resolution.
Stockholder Nominations and Proposals
Mayor’s by-laws contain provisions governing stockholder
nominations of persons for election as directors as well as
stockholder proposals to be considered at an annual or special
meeting. Under Mayor’s by-laws, for nominations and other
proposals to be properly brought before an annual meeting, a
stockholder generally must give notice to the Secretary of
Mayor’s at least 30 days in advance of an annual
meeting and with respect to a special meeting, by the tenth day
following the date notice of the special meeting is first given.
Such notice must contain certain information. A stockholder
proposal to be considered at a stockholder meeting must be
received by the Secretary of Mayor’s between 60 and
90 days prior to an annual meeting and with respect to a
special meeting, by the tenth day following the date notice of
the special meeting is first given. The stockholder notice must
contain a brief description of business desired to be brought to
the meeting.
Under the CBCA, shareholder proposals may be submitted only at
annual meetings of shareholders. A shareholder entitled to vote
at an annual meeting of shareholders and who holds (1) at
least 1% of the total number of outstanding voting shares of
Birks or (2) shares having a fair market value of at least
$2,000, may
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submit to Birks notice of any matter that the shareholder
proposes to raise at the meeting and discuss at the meeting any
matter in respect of which the person would have been entitled
to submit a proposal. Birks is not required to set out the
proposal in its management proxy circular if, among other
things, the proposal is not submitted to Birks at least
90 days before the anniversary date of Birks’ previous
annual meeting of shareholders. A shareholder proposal may
include nominations for the election of directors if the
proposal is signed by the holders of not less than 5% of the
issued and outstanding shares that carry the right to vote at
the meeting to which the proposal is to be presented, but this
requirement does not preclude nominations made at a meeting of
shareholders.
Access to Corporate Records, Financial Statements and Related
Matters
Under the DGCL, any stockholder may for any proper purpose,
inspect a corporation’s stock ledger, a list of its
stockholders and its other books and records, and may make
copies of and extracts from the record. A stockholder may
exercise this right only upon written demand under oath. The
inspection must occur during regular business hours.
Under the CBCA, a corporation is required to make available to
its shareholders and creditors and their personal
representatives, specified books and records during usual
business hours of the corporation. These persons may take
extracts from these books and records free of charge. Birks,
shareholders or creditors and their personal representatives may
also obtain a list of Birks’ shareholders by paying a
reasonable fee and submitting an affidavit certifying, among
other things, that the list will only be used for the purposes
set out in the CBCA.
Charter Amendments
Under the DGCL, unless its certificate of incorporation
otherwise provides, amendments to a corporation’s
certificate of incorporation generally require the approval of
the holders of a majority of the outstanding stock entitled to
vote following approval of the amendment by the board of
directors of the corporation. In addition, if an amendment would
adversely affect certain rights of holders of a particular class
of stock, the approval of a majority of the outstanding stock of
that class is required. Mayor’s charter requires a greater
stockholder vote for some amendments to its charter. The
affirmative vote of the holders of at least 80% of the
outstanding Mayor’s stock generally entitled to vote in the
election of directors, is required to amend provisions of
Mayor’s charter governing:
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the amendment of the by-laws;
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the prohibition of stockholder action by written consent;
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the board of directors and management of Mayor’s; and
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business combinations (except that to amend the business
combination provision of the charter, the affirmative vote of
holders of not less than two-thirds of the outstanding
Mayor’s stock entitled to vote that are not related to the
business combination is required).
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Under the CBCA, any amendment to a corporation’s charter
generally requires approval by special resolution. Generally
speaking, such special resolution must be passed by a vote of
not less than two-thirds of the votes cast by shareholders who
voted in respect of the resolution or signed by all the
shareholders entitled to vote on the resolution. However, if an
amendment affects certain rights of holders of a particular
class or series of shares, the approval of two-thirds of the
outstanding shares of that class or series is required.
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Birks’ amended charter will prohibit any amendment to or
alteration of Birks’ amended charter that would have an
adverse effect on the holders of Birks Class A voting
shares without (i) the consent of the majority of a
committee of independent directors of Birks and (ii) the
affirmative vote in favor of the approval of the amendment by
the majority of the holders of Birks Class A voting shares
(exclusive of any shares held by any related person (as defined
in Birks’ amended charter) and its affiliates which is a
party to the amendment or alteration) that cast a vote, in
person or by proxy, at the annual or special meeting at which
such amendment is considered. See “Description of Birks
Capital Stock.”
By-Law Amendments
Under the DGCL, the power to adopt, amend or repeal by-laws is
vested in the voting stockholders, although a corporation’s
certificate of incorporation may also confer this power upon the
board of directors to be shared with the stockholders.
Mayor’s charter provides that the directors may adopt,
amend or repeal Mayor’s by-laws, except so far as the
by-laws otherwise provide and that any amendments made to the
by-laws by the directors may be subsequently amended or repealed
by the stockholders. The sections of the by-laws related to the
calling of a special meeting, action by consent of stockholders,
notice of agenda of stockholder meetings, the election of
directors and indemnification insurance may not be amended or
repealed without the affirmative vote of holders of at least 80%
of the outstanding Mayor’s stock entitled to vote;
provided, that Mayor’s continuing directors, by a
two-thirds vote, may amend such provisions of the by-laws
without the requirements of a shareholder vote.
The CBCA provides that unless a corporation’s charter or
by-laws otherwise provide, the directors may, by resolution,
make, amend or repeal any by-laws that regulate the business or
affairs of the corporation. Where the directors make, amend or
repeal a by-law, they are required under the CBCA to submit the
by-law, amendment or repeal to the shareholders at the next
meeting of shareholders, and the shareholders may confirm,
reject or amend the by-law, amendment or repeal by an ordinary
resolution. An ordinary resolution is a resolution passed by a
majority of the votes cast by shareholders who voted in respect
of the resolution. A by-law, or an amendment or a repeal of a
by-law, is effective from the date of the resolution of the
directors until it is confirmed, amended or rejected by the
shareholders.
Birks’ amended charter prohibits any amendment to or
alteration of Birks’ by-laws that would have an adverse
effect on the holders of Birks Class A voting shares
without (i) the consent of the majority of a committee of
independent directors of Birks and (ii) the affirmative
vote in favor of the approval of the amendment by the majority
of the holders of Birks Class A voting shares (exclusive of
any shares held by any related person (as defined in Birks’
amended charter) and its affiliates which is a party to the
amendment or alteration) that cast a vote, in person or by
proxy, at the annual or special meeting at which such amendment
is considered. See “Description of Birks Capital
Stock.”
Vote on Sale or Lease of Assets
Under the DGCL, Mayor’s board may, if authorized by a
resolution adopted by the holders of a majority of the
outstanding shares of Mayor’s stock entitled to vote, sell,
lease or exchange all or substantially all of its property and
assets.
Under the CBCA, the sale of all or substantially all the assets
of a corporation other than in the ordinary course of business
requires the approval of the shareholders by special resolution.
This resolution must be passed by a vote of not less than
two-thirds of the votes cast by shareholders who voted in
respect of the resolution, each share carrying the right to
vote, whether or not it otherwise carries the right to vote. The
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holders of each class or series of shares which is affected
differently by the transaction from the shares of any other
class or series are entitled to vote separately as a class or
series.
Vote on Extraordinary Corporate Actions
Under the DGCL, mergers and business combinations require the
approval of the holders of at least a majority of the
outstanding stock of the corporation entitled to vote on the
transaction unless a greater percentage is required by the
corporation’s certificate of incorporation. However, unless
required by its certificate of incorporation, approval is not
required by the holders of a corporation surviving a merger if:
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the merger will not result in the issuance of shares
representing more than 20% of its common stock outstanding
immediately prior to the merger;
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each share of its stock outstanding prior to the merger will be
an identical share of stock following the merger; and
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the merger agreement does not amend in any respect its
certificate of incorporation.
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Additionally, stockholder approval is not required for either
the acquired or, in most cases, the acquiring corporation in a
merger if the corporation surviving the merger is at least the
90% parent of the acquired corporation. If the 90% parent is not
the surviving corporation, however, the otherwise required vote
of at least a majority of the parent’s outstanding stock
entitled to vote is required to approve the merger. No vote of
the holders of the subsidiary’s outstanding stock is
required in these circumstances. In addition, unless required by
its certificate of incorporation, approval of the holders of a
corporation will not be required to approve a holding company
reorganization of the corporation pursuant to the merger of that
corporation with or into a single direct or indirect
wholly-owned subsidiary of that corporation, if the merger
complies with certain provisions of the DGCL applicable to
“holding company” mergers.
Mayor’s charter provides that any business combination, as
defined in Mayor’s charter, be approved by the affirmative
vote of holders of not less than two-thirds of the outstanding
Mayor’s stock entitled to vote that are not related to the
business combination. Such stockholders vote is not required if
the business combination is approved by not less than two-thirds
of Mayor’s continuing directors and certain other
conditions are met. Because Birks is not deemed to be a related
person, as defined in Mayor’s charter, the business
combination provision does not apply to the merger.
Under the CBCA, certain extraordinary corporate actions, such as
certain amalgamations, continuances, and sales, leases or
exchanges of all or substantially all the property of a
corporation other than in the ordinary course of business, and
other extraordinary corporate actions such as liquidations,
dissolutions and (if not ordered by a court) arrangements, are
required to be approved by special resolution. A special
resolution is a resolution passed at a meeting by not less than
two-thirds of the votes cast by the shareholders who voted in
respect of the resolution. In certain cases, a special
resolution to approve an extraordinary corporate action is also
required to be approved separately by the holders of a class or
series of shares, including in certain cases a class or series
of shares not otherwise carrying voting rights.
Additionally, Birks’ amended charter prohibits any business
combination, as defined in such charter, unless holders of Birks
Class A voting shares have the right to receive the same
consideration, on a per share basis, whether cash, non-cash or
some combination thereof, as that to be received by the holders
of Class B multiple voting shares in connection with such
transaction and to participate in the transaction on the same
terms as the holders of Class B multiple voting shares in
all other material respects. See “Description of Birks
Capital Stock.”
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Preemptive Rights
The DGCL provides that security holders of a corporation
incorporated after July 3, 1967 only have preemptive rights
if such rights are specifically provided in the
corporation’s certificate of incorporation. Mayor’s
charter does not provide for preemptive rights.
The CBCA provides that shareholders may have a preemptive right
if such a right is specifically provided in the
corporation’s charter. Birks’ amended charter does not
provide for preemptive rights.
Dividends
Under the DGCL, subject to any restriction contained in a
corporation’s certificate of incorporation, the board of
directors may declare, and the corporation may pay, dividends
upon the shares of its capital stock either:
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out of “surplus”; or
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if there is no surplus, out of the net profits for the fiscal
year in which the dividend is declared and/or the preceding
fiscal year, unless net assets are less than the capital
represented by all outstanding preferred stock.
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“Surplus” is defined as the excess of the net assets
of the corporation over the amount determined to be the capital
of the corporation by the board of directors. The capital of the
corporation cannot be less than the aggregate par value of all
issued shares of capital stock. Net assets equals total assets
minus total liabilities. Mayor’s charter does not alter
these provisions of the DGCL.
Under the CBCA, a corporation may declare or pay a dividend
unless there are reasonable grounds for believing that the
corporation is or would be, after payment of the dividend,
unable to pay its liabilities as they become due or the
realizable value of the corporation’s assets would, as a
result of the payment of the dividend, be less than the
aggregate of its liabilities and stated capital. Additionally,
Birks’ amended charter provides that holders of each class
of common share, including holders of the Birks Class A
voting shares and the Class B multiple voting shares, will
have the right to receive the same dividends.
Appraisal and Dissent Rights
Stockholders of a Delaware corporation who dissent from a merger
or consolidation of the corporation are entitled to appraisal
rights in certain circumstances. Appraisal rights entitle the
holder to receive in cash the fair value of his or her shares as
appraised by the Delaware Chancery Court. However, stockholders
do not have appraisal rights if the shares of stock they hold,
at the record date for determination of stockholders entitled to
vote at the meeting of stockholders to act upon the merger or
consolidation, or on the record date with respect to action by
written consent, are either:
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listed on a national securities exchange or designated as a
Nasdaq National Market security; or
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held of record by more than 2,000 stockholders.
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Those stockholders, however, will have appraisal rights if the
merger agreement requires that they receive for their shares of
stock anything other than:
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stock of the surviving corporation;
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stock of another corporation which is either listed on a
national securities exchange or designated as a Nasdaq National
Market security or held of record by more than 2,000
stockholders;
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cash in lieu of fractional shares; or
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some combination of the above.
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Mayor’s charter and Mayor’s by-laws do not contain any
additional provisions relating to dissenters’ rights of
appraisal.
The CBCA provides that shareholders of a corporation are
entitled to vote on certain matters, to exercise dissent rights
and to be paid the fair value of their shares in connection
therewith. The matters giving rights to dissent rights include:
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any amalgamation with another corporation (other than with
certain affiliated corporations);
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an amendment to a corporation’s charter to add, change or
remove any provisions restricting the issue transfer or
ownership of shares;
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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;
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a continuance under the laws of another jurisdiction;
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a sale, lease or exchange of all or substantially all the
property of a corporation other than in the ordinary course of
business;
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a going-private transaction or a squeeze-out transaction;
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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
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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 company’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.
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Under the CBCA, a shareholder may, in addition to exercising
dissent rights, seek an oppression remedy for any act or
omission of a corporation which is oppressive, unfairly
prejudicial to or that unfairly disregards a shareholder’s
interests.
Stock Repurchases
Under the DGCL, a corporation may not purchase or redeem its
shares of capital stock when the capital of the corporation is
impaired or if the purchase or redemption would cause any
impairment of the capital of the corporation, provided that a
corporation may purchase or redeem out of capital any of its own
preferred shares (or any of its own shares if no preferred
shares are outstanding) if the shares will be retired upon
acquisition, the capital of the corporation will be reduced and
the remaining assets of the corporation will be at least equal
to its debts. Under the DGCL, a corporation may hold its own
stock in treasury.
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Under the CBCA, a corporation may acquire its own shares unless
there are reasonable grounds for believing that the corporation
is or would be, after payment for such shares, unable to pay its
liabilities as they become due or if the realizable value of the
corporation’s assets would, as a result of the payment for
such shares, be less than the aggregate of its liabilities and
stated capital. Under the CBCA, a corporation that acquires its
own shares must cancel such shares and must deduct from its
stated capital account an amount equal to the stated capital
attributable to the repurchased shares.
Number and Qualification of Directors
The DGCL provides that the minimum number of directors is one.
The number of directors is fixed by or in the manner provided in
the by-laws, unless the certificate of incorporation fixes the
number of directors. If the certificate of incorporation fixes
the number of directors, a change in the number may only be made
by amendment to the certificate of incorporation. Mayor’s
by-laws provide that Mayor’s must have at least
3 directors but not more than 13, but that the exact
number of directors is to be fixed by the majority of
Mayor’s board then in office. Mayor’s charter and
Mayor’s by-laws establish a classified board, with each
class being as nearly equal in number as possible. There are
three staggered classes of directors with each class serving a
three-year term.
The CBCA requires that a corporation whose securities are
publicly traded have at least three directors, at least two of
whom are not officers or employees of such corporation or any of
its affiliates. In addition, the CBCA requires that at least 25%
of the directors of a corporation be resident Canadians.
Birks’ amended charter and amended by-laws are consistent
with those requirements.
Under Birks’ amended charter, the minimum number of
directors is three and the maximum number of directors is
fifteen. Birks’ amended charter provides that a
director’s term of office is from the date of the meeting
at which he is elected or appointed until the next annual
meeting following his election or nomination.
Filling Vacancies on the Board of Directors
The DGCL provides that vacancies in the board of directors and
newly created directorships may be filled by a majority of the
directors then in office, although less than a quorum, or by a
sole remaining director, unless otherwise provided in the
certificate of incorporation or by-laws. If the certificate of
incorporation directs that a particular class of stock is to
elect one or more directors, however, vacancies or newly created
directorships of that class may be filled only by a majority of
the directors elected to the class then in office, or by a sole
remaining director elected to that class. If, at the time of
filling any vacancy or newly created directorship, the directors
then in office constitute less than a majority of the entire
board, the Delaware Court of Chancery may, upon application of
stockholders holding at least 10% of the outstanding shares
having the right to vote for these directors, order an election
to be held to fill any vacancy or newly created directorship or
to replace the directors chosen by the directors then in office.
Mayor’s charter provides that vacancies and newly created
directorships may be filled by a majority of the remaining
directors then in office, even though less than a quorum,
subject to the right of stockholders to fill a vacancy that has
arisen as a result of the removal of the director for cause
pursuant to a stockholder vote. See “— Removal of
Directors” below. A director elected to fill a vacancy will
hold office for the unexpired term of that director’s
predecessor. A director elected to fill a newly created
directorship will hold office for the remainder of the term of
the class to which the director is elected.
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Under the CBCA, a quorum of directors may appoint one or more
directors to fill a vacancy among the directors (except a
vacancy resulting from an increase in the number or the minimum
or maximum number of directors or a failure to elect the number
or minimum number of directors provided for in the articles) and
any director so appointed will hold office for the unexpired
term of the director’s predecessor in office. Under
Birks’ amended by-laws, a quorum of directors may appoint a
qualified person to fill a vacancy for the remainder of the
term, except a vacancy resulting from the fixing, in the
articles, of a number of directors that is higher than the
number of directors in office at the time of the amendment to
the articles, from a subsequent increase of such fixed number or
from a failure of the shareholders to elect the number or
minimum number of directors specified in the articles.
Removal of Directors
Under the DGCL, directors generally may be removed, with or
without cause, by a majority of the stockholders entitled to
vote at an election of directors. However, unless the
certificate of incorporation otherwise provides, if the board of
directors is classified, stockholders are only able to remove
directors for cause.
The certificate of incorporation of Mayor’s permits the
holders of a majority of the combined voting power of the then
outstanding stock of Mayor’s entitled to vote generally in
the election of directors to remove a director for cause only.
Under the CBCA, the shareholders of Birks may by ordinary
resolution at a special meeting remove any director or directors
from office. This resolution must be passed by a vote of not
less than a majority of the votes cast by shareholders who voted
in respect of the resolution.
Transactions with Directors and Officers
Under the DGCL, no contract or transaction between a corporation
and one or more of its directors or officers, or between a
corporation and any other entity of which one or more of its
directors or officers are directors or officers, or in which one
or more of its directors or officers have a financial interest,
is void or voidable solely because of that relationship or
because that director or officer participates in the
authorization of the contract or transaction, if:
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the material facts regarding the director’s or
officer’s relationship or interest with respect to the
contract or transaction are disclosed to or known by the board
of directors and a majority of the disinterested directors
authorize the contract or transaction in good faith, even though
the disinterested directors are less than a quorum;
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the material facts regarding the director’s or
officer’s relationship or interest and the contract or
transaction are disclosed to or known by the stockholders
entitled to vote on the contract or transaction and the contract
or transaction is specifically approved in good faith by the
stockholders; or
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the contract or transaction is fair to the corporation as of the
time it is authorized, approved or ratified by the board of
directors or the stockholders.
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Under the CBCA, no material contract between Birks and one or
more of its directors or officers or between Birks and another
entity of which a director or officer of Birks is a director or
officer or in which
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one or more of its directors or officers has a material
interest, is void or voidable as a result of that relationship
or because that director is present at or is counted to
determine the presence of a quorum at a meeting of directors or
a committee of directors that authorized the material contract
if:
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the director or officer disclosed his interest;
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the contract was approved by the directors; and
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the contract was reasonable and fair to Birks at the time the
contract was approved.
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Additionally, Birks’ amended charter and Birks’
amended by-laws prohibit certain related party transactions
without the approval of an independent committee of directors
and, in some cases, approval of the holders of the Birks
Class A voting shares.
Director and Officer Liability and Indemnification
The DGCL allows a Delaware corporation to include a provision in
its certificate of incorporation limiting or eliminating the
liability of directors to the corporation or its stockholders
for monetary damages for a breach of their fiduciary duty as
directors, except for:
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•
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breaches of duty of loyalty;
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•
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acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law;
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•
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the payment of unlawful dividends, stock repurchases or
redemptions; or
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•
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any transaction in which the director received an improper
personal benefit.
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Mayor’s by-laws provides that Mayor’s will, to the
fullest extent permitted by law, indemnify any person that is
threatened or made a party to any action by reason of the fact
that such person is or was a director or officer of
Mayor’s. Mayor’s charter provides that, to the fullest
extent permitted by law, a director shall not be personally
liable to Mayor’s or Mayor’s stockholders for a breach
of fiduciary duty.
Delaware corporations may also indemnify directors, officers,
employees and agents. Under the DGCL, a corporation may
indemnify a director, officer, employee or agent for fines,
judgments or settlements, as well as expenses, in the context of
third-party civil actions, so long as that person acted in good
faith and in a manner that person reasonably believed to be in
or not opposed to the best interest of the corporation. In a
criminal action, a corporation may provide indemnification if
that person, in addition, had no reasonable cause to believe the
conduct was unlawful. In the context of derivative actions or
other actions by or in right of the corporation, the corporation
may provide indemnification for expenses only, except that if an
officer, director, employee or agent is adjudged liable to the
corporation, payment of expenses is not allowable unless a court
deems the award of expenses appropriate. The foregoing
determinations regarding indemnification are to be made, unless
otherwise ordered by a court, by the majority vote of
disinterested directors, even if less than a quorum, or a
committee of the disinterested directors or, if there are no
disinterested directors, or if the disinterested directors so
direct, by independent legal counsel or by the stockholders. The
DGCL mandates indemnification for expenses incurred by an
officer or director in connection with a successful defense, on
the merits or otherwise, of a proceeding against that person for
actions in his or her capacity as an officer or director of the
corporation. A corporation may advance defense expenses;
however, a director or officer to whom such expenses are
advanced must undertake to reimburse the corporation for those
expenses if it is ultimately determined that the person is not
entitled to indemnification.
The DGCL expressly authorizes Delaware corporations to purchase
and maintain insurance against liability for its directors and
officers. The insurance may be purchased for any officer,
director, employee or agent, even if that individual may
otherwise be indemnified by the corporation. The DGCL also
allows for the advance payment of an indemnified person’s
expenses prior to the final disposition of an action, provided
that, in the case of a current director or officer, such person
undertakes to repay any such amount advanced if
80
it is later determined that such person is not entitled to
indemnification with regard to the action for which the expenses
were advanced.
Under the CBCA, a corporation may not, by contract, resolution
or by-law, limit the liability of its directors for breaches of
their fiduciary duties. However, the corporation may indemnify a
director or officer, a former director or officer or a person
who acts or acted at the corporation’s request as a
director or officer of an entity of which the corporation is or
was a shareholder or creditor, and his or her heirs and legal
representatives, against all costs, charges and expenses,
including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her because of any
civil, criminal or administrative action or proceeding to which
he or she is made a party by reason of being or having been a
director or officer of the corporation or the entity, if:
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(1) that person acted honestly and in good faith with a
view to the best interests of the corporation; and
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(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.
|
These individuals are entitled to indemnity from the corporation
if the person was substantially successful on the merits of his
or her defense of the action or proceeding and fulfilled the
conditions set out in (1) and (2) above. A corporation
may, with the approval of a court, also indemnify that person
regarding an action by or on behalf of the corporation or entity
to procure a judgment in its favor, to which the person is made
a party by reason of being or having been a director or officer
of the corporation or entity, if he or she fulfills the
conditions set out in (1) and (2) above.
Birks’ amended by-laws provide for indemnification of
directors and officers to the fullest extent authorized by the
CBCA.
The CBCA does not expressly provide for advance payment of an
indemnified person’s expenses. However, such advance
payment is permitted provided that the individual must repay the
money received if it does not fulfill the conditions set out in
(1) and (2) above.
Fiduciary Duties of Directors
Directors of corporations incorporated or organized under the
DGCL have fiduciary obligations to the corporation and its
shareholders. Pursuant to these fiduciary obligations, the
directors must act in accordance with the so-called duties of
“due care” and “loyalty”. Under the DGCL,
the duty of care requires that the directors act in an informed
and deliberative manner and that they inform themselves, prior
to making a business decision, of all material information
reasonably available to them. The duty of loyalty may be
summarized as the duty to act in good faith in a manner that the
directors reasonably believe to be in the best interests of the
corporation and its shareholders.
Directors of corporations governed by the CBCA have fiduciary
obligations to the corporation. Under the CBCA, directors of a
corporation must act honestly and in good faith with a view to
the best interests of the corporation, and must exercise the
care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
81
Derivative Action
A stockholder may bring a derivative action in Delaware on
behalf of the corporation. The DGCL requires a stockholder to
state in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she
complains. To bring a derivative action, a stockholder must
first make a demand on the corporation that it bring suit and
the demand must be refused, unless the stockholder can show that
the demand would have been futile.
Under the CBCA, a person may apply to the applicable court for
leave to bring an action in the name of and on behalf of a
corporation or any subsidiary, or to intervene in an existing
action to which the corporation or a subsidiary is a party, for
the purpose of prosecuting, defending or discontinuing the
action on behalf of the corporation or the subsidiary. Under the
CBCA, no action may be brought and no intervention in an action
may be made unless the court is satisfied that:
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•
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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;
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•
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the person is acting in good faith; and
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•
|
it appears to be in the interests of the corporation or its
subsidiary that the action be brought, prosecuted, defended or
discontinued.
|
Under the CBCA, in connection with a derivative action, the
court may make any order it thinks fit, including an order
requiring a corporation or its subsidiary to pay reasonable
legal fees incurred by the person in connection with the action.
Oppression Remedy
The DGCL does not provide an oppression remedy.
The CBCA provides an oppression remedy that enables the court to
make any order, both interim and final, to rectify the matters
complained of if the court is satisfied upon application by a
complainant, as defined below, that:
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(1) any act or omission of a corporation or an affiliate
effects a result;
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(2) the business or affairs of a corporation or an
affiliate are or have been carried on or conducted in a
manner; or
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(3) the powers of the directors of a corporation or an
affiliate are or have been exercised in a manner;
|
that is oppressive or unfairly prejudicial to or that unfairly
disregards the interest of any security holder, creditor,
director or officer of such corporation.
82
A complainant who may apply to a court for an order granting an
oppression remedy includes:
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(1) a present or former registered holder or beneficial
owner of securities of a corporation or any of its affiliates;
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(2) a present or former officer or director of a
corporation or any of its affiliates;
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(3) a director under the CBCA; and
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(4) any other person who in the discretion of the court is
a proper person to make such application.
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The oppression remedy provides the court with an extremely broad
and flexible jurisdiction to intervene in corporate affairs to
protect “reasonable expectations” of shareholders and
other complainants. While conduct which is in breach of
fiduciary duties of directors or that is contrary to the legal
right of a complainant will normally trigger the court’s
jurisdiction under the oppression remedy, the exercise of that
jurisdiction does not depend on a finding of a breach of such
legal and equitable rights. Furthermore, the court may order a
company to pay the interim expenses of a complainant seeking an
oppression remedy, but the complainant may be held accountable
for such interim costs on final disposition of the complaint, as
in the case of a derivative action.
Anti-Takeover and Ownership Provisions
Section 203 of the DGCL restricts the ability of an
“interested stockholder” of a corporation to merge
with or enter into other business combinations with the
corporation for a period of three years after becoming an
“interested stockholder.” A person is generally deemed
to be an “interested stockholder” upon acquiring 15%
or more of the outstanding voting stock of the corporation.
However, Section 203 does not apply, if, among other
things, the corporation, by action of its board of directors,
adopted within ninety days following the enactment of
Section 203 an amendment to its by-laws expressly electing
not to be governed by the statute.
Mayor’s by-laws contain a provision expressly electing not
to be governed by Section 203.
The CBCA does not contain a comparable provision to
Section 203 of the DGCL with respect to business
combinations.
Birks’ amended charter prohibits business combinations with
any “related person” without (i) the consent of
the majority of a committee of independent directors of Birks
and (ii) the affirmative vote in favor of the approval of
the business combination by the majority of the holders of Birks
Class A voting shares (exclusive of any shares held by any
person and its affiliates which equal twenty percent or more of
the total Class A voting shares outstanding) that cast a
vote, in person or by proxy, at the annual or special meeting at
which such business combination is considered. “Related
person” means any person that, together with its affiliates
and associates, beneficially owns more than 20% or more of the
total voting rights attached to Birks Class A voting shares
and Class B multiple voting shares issued and outstanding.
See “Description of Birks’ Capital Stock.”
Voluntary Dissolution
Under the DGCL, the dissolution of a corporation without action
by the board of directors requires the written consent of
stockholders holding 100% of the total voting power of the
corporation. However, if the
83
dissolution is approved by the board of directors, it need only
then be approved by the holders of a majority of the outstanding
stock of the corporation entitled to vote on the dissolution.
Under the CBCA, the directors may propose, or a shareholder who
is entitled to vote at an annual meeting of shareholders of
Birks may make a proposal in accordance with the shareholder
proposal requirements of the CBCA for, the voluntary liquidation
and dissolution of Birks. A voluntary dissolution of Birks would
require approval by special resolution of the holders of each
class of shares of Birks, whether or not they are otherwise
entitled to vote. A special resolution is a resolution passed at
a meeting by not less than two-thirds of the votes cast by the
shareholders who voted in respect of the resolution.
Foreign Private Issuer Status
As a “foreign private issuer” Birks is exempt from
rules under the Exchange Act that impose certain disclosure and
procedural requirements for proxy solicitations under
Section 14 of the Exchange Act. In addition, Birks’
officers, directors and principal shareholders will be exempt
from the reporting and “short-swing” profit recovery
provisions of Section 16 of the Exchange Act and the rules
under the Exchange Act with respect to their purchases and sales
of Birks Class A voting shares. Moreover, Birks will not be
required to file periodic reports and financial statements with
the SEC as frequently or as promptly as U.S. companies
whose securities are registered under the Exchange Act; nor will
it be required to comply with Regulation FD, which
restricts the selective disclosure of material information.
Accordingly, there may be less information concerning Birks
publicly available than there is for U.S. public companies
such as Mayor’s.
84
SELECTED HISTORICAL FINANCIAL DATA OF BIRKS
The following financial data as of March 26, 2005 and
March 27, 2004, and for each of the three years ended
March 26, 2005, March 27, 2004, and March 29,
2003 have been derived from Birks’ audited consolidated
financial statements, which are included elsewhere in this proxy
statement/ prospectus. The following financial data as of
March 29, 2003, March 30, 2002 and March 31, 2001
and for each of the two years ended March 30, 2002 and
March 31, 2001 have been derived from Birks’ audited
consolidated financial statements not included in this proxy
statement/ prospectus. The historical results included below and
elsewhere in this proxy statement/ prospectus are not
necessarily indicative of the future performance of Birks.
Birks acquired approximately 72% of the voting control in
Mayor’s on August 20, 2002. Since that date, the
results of Mayor’s have been consolidated in Birks’
financial statements. Specifically, Birks’ results of
operations for the periods after the acquisition of Mayor’s
include Mayor’s revenues and expenses, while Mayor’s
net losses have been allocated between Birks and the minority
stockholders of Mayor’s based on their residual equity
interests in Mayor’s. As a result, Birks’ results in
prior periods are not directly comparable.
The data presented below are only a summary and should be read
in conjunction with the audited financial statements of Birks,
including the notes thereto, included elsewhere in this proxy
statement/ prospectus. You should also read the following
summary data in conjunction with “Management’s
Discussion and Analysis of the Financial Condition and Results
of Operations of Birks” included elsewhere in this proxy
statement/ prospectus.
The following selected historical financial data of Birks have
been prepared in accordance with generally accepted accounting
principles in the United States, referred to in this proxy
statement/ prospectus as U.S. GAAP, and are expressed in
U.S. dollars.
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|
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|
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|
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Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
March 29,
|
|
|
March 30,
|
|
|
March 31,
|
|
|
Income Statement Data
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(Amounts in thousands of dollars except per share data)
|
|
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Net sales
|
|
$
|
239,301
|
|
|
$
|
216,256
|
|
|
$
|
151,312
|
|
|
$
|
75,848
|
|
|
$
|
81,123
|
|
|
Cost of sales
|
|
|
130,037
|
|
|
|
118,861
|
|
|
|
83,698
|
|
|
|
36,810
|
|
|
|
40,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
109,264
|
|
|
|
97,395
|
|
|
|
67,614
|
|
|
|
39,038
|
|
|
|
40,872
|
|
|
Selling, general and administrative expenses (including non-cash
compensation expense)
|
|
|
95,764
|
|
|
|
93,638
|
|
|
|
63,890
|
|
|
|
34,787
|
|
|
|
35,298
|
|
|
Depreciation and amortization
|
|
|
4,749
|
|
|
|
4,312
|
|
|
|
3,256
|
|
|
|
2,894
|
|
|
|
2,844
|
|
|
Other items
|
|
|
(1,181
|
)
|
|
|
338
|
|
|
|
(210
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
99,332
|
|
|
|
98,288
|
|
|
|
66,936
|
|
|
|
37,681
|
|
|
|
38,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
9,932
|
|
|
|
(893
|
)
|
|
|
678
|
|
|
|
1,357
|
|
|
|
2,734
|
|
|
Interest on long-term debt
|
|
|
2,906
|
|
|
|
2,858
|
|
|
|
2,448
|
|
|
|
1,475
|
|
|
|
1,287
|
|
|
Interest and other financial costs
|
|
|
5,759
|
|
|
|
5,312
|
|
|
|
3,486
|
|
|
|
2,307
|
|
|
|
2,750
|
|
|
(Gain) loss on sale of Mayor’s common shares
|
|
|
(232
|
)
|
|
|
176
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Loss on disposal of Mayor’s warrants
|
|
|
332
|
|
|
|
334
|
|
|
|
312
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest and other income
|
|
|
—
|
|
|
|
(184
|
)
|
|
|
(389
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax,
minority interest, discontinued operations and extraordinary item
|
|
|
1,167
|
|
|
|
(9,389
|
)
|
|
|
(5,179
|
)
|
|
|
(2,425
|
)
|
|
|
(1,303
|
)
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
991
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before minority
interest, discontinued operations and extraordinary item
|
|
|
1,167
|
|
|
|
(9,389
|
)
|
|
|
(4,188
|
)
|
|
|
(2,425
|
)
|
|
|
(1,303
|
)
|
|
Minority interest in loss of subsidiary(1)
|
|
|
—
|
|
|
|
7,175
|
|
|
|
8,071
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
March 29,
|
|
|
March 30,
|
|
|
March 31,
|
|
|
Income Statement Data
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands of dollars except per share data)
|
|
|
Income (loss) from continuing operations before discontinued
operations and extraordinary item
|
|
|
1,167
|
|
|
|
(2,214
|
)
|
|
|
3,883
|
|
|
|
(2,425
|
)
|
|
|
(1,303
|
)
|
|
Loss from discontinued operations, net of income tax of nil(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
(828
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary item
|
|
|
1,167
|
|
|
|
(2,214
|
)
|
|
|
3,055
|
|
|
|
(2,425
|
)
|
|
|
(1,303
|
)
|
|
Extraordinary gain, net of income tax of nil(3)
|
|
|
—
|
|
|
|
—
|
|
|
|
9,042
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
1,167
|
|
|
$
|
(2,214
|
)
|
|
$
|
12,097
|
|
|
$
|
(2,425
|
)
|
|
$
|
(1,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
|
|
$
|
0.16
|
|
|
$
|
(0.35
|
)
|
|
$
|
2.05
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations per common share
|
|
$
|
0.16
|
|
|
$
|
(0.35
|
)
|
|
$
|
1.92
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share — diluted
|
|
$
|
0.13
|
|
|
$
|
(0.35
|
)
|
|
$
|
1.28
|
|
|
$
|
(0.38
|
)
|
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
7,298,544
|
|
|
|
6,313,308
|
|
|
|
6,313,308
|
|
|
|
6,313,381
|
|
|
|
6,313,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding — diluted
|
|
|
9,614,508
|
|
|
|
6,313,308
|
|
|
|
9,502,564
|
|
|
|
6,313,381
|
|
|
|
6,313,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
|
|
|
As at
|
|
|
As at
|
|
|
As at
|
|
|
As at
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
March 29,
|
|
|
March 30,
|
|
|
March 31,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
35,056
|
|
|
$
|
34,730
|
|
|
$
|
37,717
|
|
|
$
|
(1,114
|
)
|
|
$
|
524
|
|
|
Total assets
|
|
$
|
199,721
|
|
|
$
|
193,380
|
|
|
$
|
171,146
|
|
|
$
|
67,826
|
|
|
$
|
63,826
|
|
|
Bank indebtedness
|
|
$
|
74,254
|
|
|
$
|
70,262
|
|
|
$
|
58,086
|
|
|
$
|
28,002
|
|
|
$
|
26,554
|
|
|
Stockholders’ equity
|
|
$
|
40,198
|
|
|
$
|
32,187
|
|
|
$
|
29,327
|
|
|
$
|
7,554
|
|
|
$
|
9,858
|
|
|
|
|
|
(1)
|
Minority interest in loss of subsidiaries relates to the
allocation of Mayor’s net income or loss to the minority
stockholders of Mayor’s based on their common stock
ownership.
|
|
|
|
(2)
|
The loss from discontinued operations for fiscal 2002 relates to
the discontinued operations of the store at Tysons Galleria in
McLean, Virginia which was closed in March 2003. Costs related
to the discontinued operation include operating losses, costs to
exit the lease, write-off of fixed assets and severance costs
offset by the write-off of deferred revenue from landlord
inducements. The net assets of the store are not significant.
|
|
|
|
(3)
|
The extraordinary gain for fiscal 2002 relates to the
acquisition of Mayor’s. Specifically, on August 20,
2002, Birks made an investment of $15.05 million in
Mayor’s. The investment consisted of 15,050 shares of
Mayor’s preferred stock, originally convertible into
3,333.33 shares of common stock for each preferred share
with an allocated fair value of $11.2 million at the
acquisition date. Birks also received 37,273,787 warrants to
purchase shares of common stock, one-third at $0.30, one-third
at $0.35 and one-third at $0.40. A fair value of
$3.8 million has been allocated to the warrants. At the
investment date the conversion of these preferred shares would
have given Birks a 71.9% equity interest in the common stock of
Mayor’s. The excess of the fair value assigned to the
preferred shares over 71.9% of the net book value of
Mayor’s, net of the fair value assigned to the warrants,
amounting to $21.2 million has been determined to be
negative goodwill. The negative goodwill has been accounted for
by reducing property and equipment by $12.2 million with
the balance of $9.0 million recorded as an extraordinary
gain.
|
86
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION OF BIRKS
The following unaudited pro forma condensed consolidated
financial statements are presented to illustrate the effects of
the merger on the results of operations and financial position
of Birks had the merger been completed at an earlier date. The
merger will result from Birks acquiring the minority interest of
Mayor’s through the issuance of Birks Class A voting
common shares. The unaudited pro forma condensed consolidated
statement of operations for fiscal 2004 reflects adjustments as
if the merger had occurred on March 28, 2004. The unaudited
pro forma condensed consolidated balance sheet as of
March 26, 2005 gives effect to the merger as if it had
occurred on March 26, 2005.
The unaudited pro forma condensed consolidated balance sheet
gives effect to the following transactions and events:
|
|
|
|
|
|
•
|
the issuance of Birks Class A voting shares in exchange for
all outstanding minority-held Mayor’s common stock;
|
|
|
|
|
•
|
the allocation of the purchase price, including transaction
costs incurred by Birks and the value of Birks Class A
voting shares to be issued to Mayor’s stockholders, to the
assets acquired and liabilities assumed based on a preliminary
estimate of their respective fair values at March 26, 2005;
|
|
|
|
|
•
|
the issuance of Birks options and warrants to purchase Birks
Class A voting shares in exchange for the outstanding
Mayor’s options and warrants to purchase Mayor’s
common stock other than those warrants held by Birks;
|
|
|
|
|
•
|
the accrual of and adjustment to Birks’ accumulated deficit
for the estimated transaction costs that will be incurred by
Mayor’s subsequent to March 26, 2005 in order to
complete the merger, which are required to be expensed as
incurred in accordance with SFAS No. 141
“Business Combinations”
;
|
|
|
|
|
•
|
the execution of the condition of the merger that all of the
issued and outstanding Series A preferred shares of Birks
and $5,000,000 aggregate principal amount of convertible notes
of Birks be converted into Birks Class A voting shares and
Birks Class B multiple voting shares; and
|
|
|
|
|
•
|
the elimination of the Mayor’s minority interest in
Birks’ consolidated financial statements.
|
The unaudited pro forma condensed consolidated statement of
operations gives effect to the following transactions and events
for fiscal 2004:
|
|
|
|
|
|
•
|
recognition of amortization expense related to the fair value of
the identifiable intangible assets acquired;
|
|
|
|
|
•
|
reversal of fees and other costs related to the transaction
incurred and expensed by Mayor’s during the year ended
March 26, 2005, as those costs would have been incurred in
the prior period in accordance with the pro forma assumptions;
|
|
|
|
|
•
|
recognition of compensation expense related to the vesting of
options to purchase Birks Class A voting shares that will
be exchanged for outstanding Mayor’s options to purchase
Mayor’s common stock as a condition of the merger;
|
|
|
|
|
•
|
recognition of incremental interest expense due to borrowing
from the Birks’ and Mayor’s credit facilities to fund
the fees and other costs related to the merger; and
|
|
|
|
|
•
|
reversal of interest expense and foreign exchange gain related
to the secured convertible notes of Birks converted into capital
stock of Birks.
|
Birks’ acquisition of the Mayor’s minority interest
will be accounted for using the purchase method of accounting.
Accordingly, the purchase price will be allocated to the
acquired portion of the estimated fair value of identifiable net
assets. Any excess purchase price remaining after this
allocation will be accounted for as goodwill.
87
The financial effects of the merger presented in the unaudited
pro forma condensed consolidated financial statements are not
necessarily indicative of either the financial position or
results of operations that would have been obtained had the
merger actually occurred on the dates set forth above, nor are
they necessarily indicative of the results of future operations.
The unaudited pro forma condensed consolidated statement of
operations does not reflect any adjustments for nonrecurring
items or operating synergies as a result of the merger. In
addition, pro forma adjustments are based on certain assumptions
and other information that are subject to change as additional
information becomes available. Accordingly, the adjustments
included in Birks’ financial statements published after the
completion of the merger will vary from the adjustments included
in the unaudited pro forma condensed consolidated financial
statements included in this proxy statement/ prospectus.
The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with Birks’ and
Mayor’s historical financial statements, and related notes,
included elsewhere in this proxy statement/ prospectus.
88
HENRY BIRKS & SONS INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS OF
MARCH 26, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands)
|
|
|
ASSETS
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,762
|
|
|
|
|
|
|
$
|
1,762
|
|
|
|
Accounts receivable, net
|
|
|
9,805
|
|
|
|
|
|
|
|
9,805
|
|
|
|
Inventories
|
|
|
136,999
|
|
|
|
|
|
|
|
136,999
|
|
|
|
Other current assets
|
|
|
2,951
|
|
|
|
|
|
|
|
2,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
151,517
|
|
|
|
|
|
|
|
151,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
30,117
|
|
|
|
|
|
|
|
30,117
|
|
|
Goodwill
|
|
|
15,463
|
|
|
|
17,137
|
(2a)
|
|
|
32,600
|
|
|
Intangible assets, net
|
|
|
262
|
|
|
|
726
|
(2a)
|
|
|
988
|
|
|
Other assets
|
|
|
2,362
|
|
|
|
98
|
(2b)
|
|
|
1,060
|
|
|
|
|
|
|
|
|
|
(1,399
|
)(2a)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)(2e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
199,721
|
|
|
$
|
16,561
|
|
|
$
|
216,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
$
|
74,254
|
|
|
|
|
|
|
$
|
74,254
|
|
|
|
Accounts payable
|
|
|
22,571
|
|
|
|
|
|
|
|
22,571
|
|
|
|
Accrued liabilities
|
|
|
11,665
|
|
|
|
787
|
(2a)
|
|
|
12,745
|
|
|
|
|
|
|
|
|
|
444
|
(2c)
|
|
|
|
|
|
|
|
|
|
|
|
|
(151
|
)(2d)
|
|
|
|
|
|
|
Other taxes payable
|
|
|
3,633
|
|
|
|
|
|
|
|
3,633
|
|
|
|
Loans for leasehold improvements and term loans
|
|
|
1,262
|
|
|
|
|
|
|
|
1,262
|
|
|
|
Current portion of long-term debt
|
|
|
3,076
|
|
|
|
|
|
|
|
3,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
116,461
|
|
|
|
1,080
|
|
|
|
117,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
28,555
|
|
|
|
|
|
|
|
28,555
|
|
|
Convertible notes
|
|
|
5,000
|
|
|
|
(5,000
|
)(2d)
|
|
|
—
|
|
|
Other long-term liabilities
|
|
|
4,456
|
|
|
|
|
|
|
|
4,456
|
|
|
Minority interest
|
|
|
1
|
|
|
|
(1
|
)(2e)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
154,473
|
|
|
|
(3,921
|
)
|
|
|
150,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock
|
|
|
5,050
|
|
|
|
(5,050
|
)(2d)
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
Class A voting shares
|
|
|
336
|
|
|
|
12,320
|
(2a)
|
|
|
20,281
|
|
|
|
|
|
|
|
|
|
7,625
|
(2d)
|
|
|
|
|
|
Class B multiple voting shares
|
|
|
36,028
|
|
|
|
2,576
|
(2d)
|
|
|
38,604
|
|
|
Additional paid-in capital
|
|
|
16,867
|
|
|
|
3,357
|
(2a)
|
|
|
20,322
|
|
|
|
|
|
|
|
|
|
98
|
(2b)
|
|
|
|
|
|
Accumulated deficit
|
|
|
(13,760
|
)
|
|
|
(444
|
)(2c)
|
|
|
(14,204
|
)
|
|
Accumulated other comprehensive income
|
|
|
727
|
|
|
|
|
|
|
|
727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
40,198
|
|
|
|
25,532
|
|
|
|
65,730
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
199,721
|
|
|
$
|
16,561
|
|
|
$
|
216,282
|
|
|
|
|
|
|
|
|
|
|
|
|
89
HENRY BIRKS & SONS INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 26, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands, except
|
|
|
|
|
share and per share data)
|
|
|
Net sales
|
|
$
|
239,301
|
|
|
|
—
|
|
|
$
|
239,301
|
|
|
Cost of sales
|
|
|
130,037
|
|
|
|
—
|
|
|
|
130,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
109,264
|
|
|
|
—
|
|
|
|
109,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
95,764
|
|
|
|
(824
|
)(3b)
|
|
|
94,989
|
|
|
|
|
|
|
|
|
|
49
|
(3e)
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,749
|
|
|
|
36
|
(3a)
|
|
|
4,785
|
|
|
Other items
|
|
|
(1,181
|
)
|
|
|
|
|
|
|
(1,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
99,332
|
|
|
|
(739
|
)
|
|
|
98,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
9,932
|
|
|
|
739
|
|
|
|
10,671
|
|
|
Interest on long-term debt
|
|
|
2,906
|
|
|
|
401
|
(3d)
|
|
|
3,307
|
|
|
Interest and other financial cost
|
|
|
5,759
|
|
|
|
115
|
(3c)
|
|
|
5,824
|
|
|
|
|
|
|
|
|
|
(50
|
)(3d)
|
|
|
|
|
|
Gain on sale of Mayor’s common shares
|
|
|
(232
|
)
|
|
|
|
|
|
|
(232
|
)
|
|
Loss on disposal of Mayor’s warrants
|
|
|
332
|
|
|
|
—
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,765
|
|
|
|
466
|
|
|
|
9,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
1,167
|
|
|
|
273
|
|
|
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
|
$
|
1,167
|
|
|
$
|
273
|
|
|
$
|
1,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,298,544
|
|
|
|
|
|
|
|
11,209,444
|
|
|
|
Diluted
|
|
|
9,614,508
|
|
|
|
|
|
|
|
11,795,820
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.16
|
|
|
|
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.13
|
|
|
|
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
90
HENRY BIRKS & SONS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Amounts shown in thousands, except share and per share
data)
The following summary of pro forma adjustments is based on
available information and certain estimates and assumptions.
Therefore, the actual adjustments after the merger will differ
from the pro forma adjustments. Birks believes that such
assumptions provide a reasonable basis for presenting the
significant effects of the merger and that the pro forma
adjustments give appropriate effect to those assumptions and are
properly applied in the accompanying condensed consolidated
financial statements.
Birks will account for the merger using the purchase method of
accounting in accordance with the requirements of
SFAS No. 141,
“Business
Combinations”.
Accordingly, Birks will recognize
certain intangible assets acquired separately from goodwill,
which represents the excess of the purchase price over the
minority interest portion of the estimated fair value of
identifiable net assets acquired. In accordance with the
provisions of SFAS No. 142,
“Goodwill and
Other Intangible Assets”
, goodwill will not be
amortized. Instead, the goodwill will be reviewed for impairment
in accordance with the provisions of SFAS No. 142.
Amounts for Birks were derived from the historical consolidated
financial statements of Birks, included elsewhere in this proxy
statement/ prospectus.
|
|
|
|
2.
|
Adjustments to the Unaudited Pro Forma condensed Consolidated
Balance Sheet
|
(a) The unaudited pro forma condensed consolidated balance
sheet gives effect to the following transactions and events:
|
|
|
|
|
|
•
|
the issuance of Birks Class A voting shares in exchange for
all outstanding minority-held Mayor’s common stock;
|
|
|
|
|
•
|
the allocation of the purchase price, including transaction
costs incurred by Birks and the value of Birks Class A
voting shares to be issued to Mayor’s stockholders, to the
assets acquired and liabilities assumed based on a preliminary
estimate of their respective fair values at March 26, 2005;
|
|
|
|
|
•
|
the issuance of Birks options and warrants to purchase Birks
Class A voting shares in exchange for the outstanding
Mayor’s options and warrants to purchase Mayor’s
common stock other than those warrants held by Birks;
|
|
|
|
|
•
|
the accrual of and adjustment to Birks’ accumulated deficit
for the estimated transaction costs that will be incurred by
Mayor’s subsequent to March 26, 2005 in order to
complete the merger, which are required to be expensed as
incurred in accordance with SFAS No. 141
“Business Combinations”
;
|
|
|
|
|
•
|
the execution of the condition of the merger that all of the
issued and outstanding Series A preferred shares of Birks
and $5,000 aggregate principal amount of convertible notes of
Birks be converted into Birks Class A voting shares and
Birks Class B multiple voting shares.
|
The value of Birks Class A voting shares to be issued in
the merger was based upon the issuance of 1,859,738 Class A
voting shares, without par value, in exchange for 21,388,595
minority shares of Mayor’s common stock outstanding as of
March 26, 2005, and applying an exchange ratio of
0.08695 shares of Birks Class A voting shares for one
share of Mayor’s common stock. The value of Birks’
Class A voting shares to be issued is based on the stock
price of Mayor’s for a reasonable period before and after
the announcement date of the merger agreement, of $0.576. The
value of the exchange of options and warrants to purchase Birks
Class A voting shares to replace the outstanding options
and warrants to purchase Mayor’s common stock is based on
the fair value of the total Birks’ options and warrants to
be issued less the intrinsic value of unvested options. The fair
values were determined using the Black-Scholes option pricing
model using the
91
HENRY BIRKS & SONS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
same value for Mayor’s stock as noted above and other
current assumptions. The estimated pro forma allocation of the
purchase price is as follows:
|
|
|
|
|
|
|
|
Value of Birks Class A voting shares to acquire
Mayor’s common stock
|
|
$
|
12,320
|
|
|
Birks options and warrants in exchange of Mayor’s options
and warrants, net of intrinsic value of unvested options, ($975
and $2,382, respectively)
|
|
|
3,357
|
|
|
Fees and other costs of the merger incurred and expected to be
incurred by Birks, including $1,399 deferred in other assets at
March 26, 2005
|
|
|
2,186
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
17,863
|
|
|
|
|
|
|
|
Minority interest portion of estimated fair value of
Mayor’s identifiable assets:
|
|
|
|
|
|
|
Tradename
|
|
$
|
726
|
*
|
|
Estimated fair value of identifiable net assets acquired
|
|
$
|
726
|
|
|
|
|
|
|
|
Excess of purchase price over net assets acquired
|
|
$
|
17,137
|
**
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Amount included in pro forma adjustments to intangible assets,
net.
|
|
|
|
|
**
|
Amount included in pro forma adjustments to goodwill.
|
(b) Represents the intrinsic value of unvested Mayor’s
options of $98 which is deferred compensation amortized over the
remaining vesting period. The intrinsic value was based on the
stock price of Mayor’s of $0.576. The assumptions used to
calculate intrinsic value of the then unvested options will be
updated at the date of closing.
(c) Represents $444 of estimated remaining fees and other
transaction costs to be incurred by Mayor’s subsequent to
the year ended March 26, 2005 in order to complete the
merger and are expensed in accordance with
SFAS No. 141. These fees and transaction costs are
added to the accumulated deficit in order to reflect the total
costs that would have been incurred and expensed prior to the
completion of the merger.
(d) Represents the reorganization of Birks’ equity,
preferred shares and convertible notes prior to the acquisition
of Mayor’s in the following steps:
|
|
|
|
|
|
•
|
Conversion of $5,000 convertible notes and related accrued
interest of $151 into 512,015 Birks Class A voting shares
and 504,876 Birks Class B multiple voting shares; and
|
|
|
|
|
•
|
Conversion of the Birks Series A preferred shares into
1,034,272 Birks Class A voting shares.
|
(e) Represents the elimination of Mayor’s minority
interest in Birks’ consolidated financial statements.
|
|
|
|
3.
|
Adjustments to Unaudited Pro Forma Consolidated Condensed
Statement of Operations
|
(a) Represents the amortization expense related to the fair
value of the identifiable intangible assets acquired in the
merger, amortized on a straight-line basis, as if the merger
occurred on March 28, 2004 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
Year Ended
|
|
|
|
|
Fair Value
|
|
|
Useful Life
|
|
|
March 26, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
$
|
726
|
|
|
|
20 years
|
|
|
$
|
36
|
|
(b) Represents the elimination of $824 of fees and other
costs related to the transaction that were incurred and expensed
by Mayor’s during fiscal 2004 in accordance with
SFAS No. 141. These costs are eliminated as a pro
forma adjustment, because, based on the assumption of the pro
forma unaudited
92
HENRY BIRKS & SONS INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — (Continued)
condensed consolidated statement of operations, all Mayor’s
fees and other costs related to the transaction would have been
incurred and expensed prior to fiscal 2004. In addition to the
$824 incurred during fiscal 2004, it is expected that
Mayor’s will incur an additional $444 in transaction
related costs.
(c) Represents incremental interest expense that would have
been incurred by Birks and Mayor’s due to the annualization
of incremental borrowings for fiscal 2004 and future borrowings
that will be required to pay fees and other costs related to the
transaction that were not incurred as of March 26, 2005.
The incremental interest expense is estimated to be
approximately $115 for fiscal 2004.
(d) As a condition of the acquisition of Mayor’s, the
$5,000 aggregate principal amount of convertible notes of Birks
will be converted into Birks Class A voting shares and
Birks Class B multiple voting shares. The following
reflects the reversal of interest expense and foreign exchange
gain related to the secured convertible notes as if the
conversion of the notes had taken place on March 28, 2004:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
March 26, 2005
|
|
|
|
|
|
|
|
Interest and other financial costs
|
|
$
|
(50
|
)
|
|
|
|
|
|
|
Foreign exchange gain
|
|
$
|
401
|
|
|
|
|
|
|
(e) Represents compensation expense related to the vesting
of Birks’ options to be issued in exchange for Mayor’s
options as part of the merger (see 2b above) in the amounts of
$49 for the year ended March 26, 2005.
(f) The pro forma weighted average basic common shares
outstanding, for the year ended March 26, 2005 were
comprised as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
March 27, 2004
|
|
|
|
|
|
|
|
Class A voting shares:
|
|
|
|
|
|
Class A voting shares oustanding
|
|
|
85,450
|
|
|
Conversion of convertible note and related accrued interest
|
|
|
512,015
|
|
|
Conversion of Series A preferred shares
|
|
|
1,034,272
|
|
|
Issuance to Mayor’s minority stockholders
|
|
|
1,859,738
|
|
|
|
|
|
|
|
|
Total Class A voting shares, basic
|
|
|
3,491,474
|
|
|
Class B multiple voting shares:
|
|
|
|
|
|
Class B multiple voting shares outstanding
|
|
|
7,213,094
|
|
|
Conversion of convertible note and related accrued interest
|
|
|
504,876
|
|
|
|
Total Class B multiple voting shares, basic
|
|
|
7,717,970
|
|
|
Total common shares, basic
|
|
|
11,209,444
|
|
93
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF BIRKS
The following discussion should be read in conjunction with,
and is qualified by, Birks’ consolidated financial
statements and the notes thereto included elsewhere in this
proxy statement/ prospectus. The following discussion includes
certain forward-looking statements. For a discussion of
important factors, including the continuing development of
Birks’ business, actions of regulatory authorities and
competitors and other factors which could cause actual results
to differ materially from the results referred to in the
forward-looking statements, see “Risk factors” and
“Forward-looking statements.”
Throughout this proxy statement/ prospectus, Birks refers to
its fiscal years ended March 26, 2005, March 27, 2004
and March 29, 2003 as fiscal 2004, fiscal 2003 and fiscal
2002, respectively. Birks’ fiscal year consists of 52 or
53 weeks, reported in four 13-week periods, and ends on the
last Saturday in March of each year. Fiscal 2002, 2003 and 2004
included 52 weeks.
Birks acquired approximately 72% of the voting control in
Mayor’s on August 20, 2002. Since that date, the
results of Mayor’s have been consolidated in Birks’
financial statements, subject to the deduction of the minority
interest. As a result, Birks’ results in prior periods are
not directly comparable.
When used in this section, as in the other sections of
this proxy statement/ prospectus, “Birks” refers to
Henry Birks & Sons Inc. and its subsidiaries, including
Mayor’s.
Overview
Birks is a leading operator of luxury jewelry retail stores in
the United States and Canada. As of March 26, 2005, Birks
operated 38 stores under the Birks brand in most major
metropolitan markets of Canada and 28 stores under the Mayors
brand in Florida and Metropolitan Atlanta, Georgia. Birks’
operations increased significantly as a result of its
acquisition of 72% of the voting power in Mayor’s in August
2002. Birks controls Mayor’s through its ownership of
Mayor’s preferred stock and common stock. Consequently,
Mayor’s is a majority-owned subsidiary of Birks and its
results are consolidated in Birks’ results, subject to the
deduction of the minority interest. Specifically, Birks’
results of operations for the periods after the acquisition of
Mayor’s include 100% of Mayor’s revenues and expenses,
with Mayor’s net loss allocated between Birks and the
minority stockholders of Mayor’s based on their respective
common stock ownership. None of Mayor’s net loss is
attributed to Birks’ ownership of Mayor’s preferred
stock. Because the acquisition of Mayor’s took place in
August 2002, Birks’ results of operations include the
results of U.S. operations for 7 months in fiscal 2002
and for the entire period in fiscal 2003 and fiscal 2004.
Birks has two reportable segments, Canada and the United States.
In Canada, Birks operates stores under the Birks brand. In the
United States, Birks operates stores under the Mayors brand. The
two segments are managed and evaluated separately based on
operating profit. The accounting policies used for each of the
segments are the same as those used for the consolidated
financial statements. Inter-segment sales are made at amounts of
consideration agreed upon between the related segments.
Birks’ net sales are comprised of revenues from its retail
sales (including corporate, catalogue and internet sales), net
of discounts, and service operations, in each case, excluding
sales tax. Sales are recognized at the point of sale when
merchandise is taken or shipped. Sales of consignment
merchandise are recognized on a full retail basis at such time
that the merchandise is sold. Revenues for gift certificates and
store credits are recognized upon redemption. Customers use
cash, checks, debit cards, third-party credit cards, proprietary
credit cards and house accounts (primarily for corporate
customers) to make purchases.
Birks’ operating costs and expenses are primarily comprised
of cost of sales and selling, general and administrative
expenses. Cost of sales includes the cost of merchandise
(including inbound freights and insurance), factory production
costs, packaging, shrink and losses due to robberies, as well as
depreciation and amortization of production facilities and
production tools, dies and molds as well as product development
costs. Selling, general and administrative expenses (SG&A)
include, but are not limited to, all non-production payroll and
benefits (including non-cash compensation expense), store and
head office occupancy costs, overhead, distribution, marketing
(net of amounts received from vendors for cooperative
advertising), credit
94
card fees, information systems, professional services,
consulting fees, repairs and maintenance, travel and
entertainment, insurance, legal and public relations expenses.
SG&A also includes depreciation and amortization of
Birks’ stores and head office, including buildings,
leasehold improvements, furniture and fixtures, computer
hardware and software and automobiles and trucks. Occupancy,
overhead and depreciation are generally less variable relative
to net sales than other components of SG&A and certain
elements of payroll, such as commissions.
In this management’s discussion and analysis, Birks uses
the terms “gross profit,” “gross margin,”
“comparable store sales,” “comparable transaction
volume” and “average transaction dollars” to
compare its period-over-period performance. Gross profit is
defined as net sales less cost of sales in a period. Gross
margin is defined as gross profit as a percentage of net sales
in a period. Comparable store sales is calculated by comparing
net sales for a period to net sales of the equivalent prior
period for all stores open. Comparable transaction volume is the
number of transactions in a period based on comparable store
sales. Average transaction dollars is calculated by dividing net
sales by comparable transaction volume in a period.
Birks believes that the key drivers of its performance are its
ability to:
|
|
|
|
|
|
•
|
execute its merchandising strategy to increase net sales and
expand gross margin in existing stores by developing and
marketing higher margin exclusive and unique products, and
developing its internal capability to design, develop,
manufacture or source products;
|
|
|
|
|
•
|
execute its marketing strategy to enhance customer awareness and
appreciation of its two brands, Birks and Mayors, and to
increase customer traffic and net sales through regional and
national advertising campaigns on television, billboards, and
print, catalog mailings, in-store client events, community
relations, partnerships with key suppliers, such as Mayor’s
relationship with Rolex, and associations with prestige
institutions, such as the Royal Ontario Museum;
|
|
|
|
|
•
|
provide a superior client experience through consistent
outstanding customer service that will ensure customer
satisfaction and promote the frequency and value of customer
spending;
|
|
|
|
|
•
|
rationalize and integrate the activities between Birks’
U.S. operations and Canadian operations by providing for
cost reduction and improved operations through the
implementation of best practices; and
|
|
|
|
|
•
|
expand distribution by selective new store openings in existing
and new markets.
|
Birks’ performance, like that of all participants in the
luxury retail jewelry industry, is significantly affected by
changes in general economic conditions and, specifically, shifts
in consumer confidence and spending. For example, the economic
slowdown after the terrorist attacks of September 11, 2001
saw a decrease in luxury good spending. In contrast, the general
improvements in the U.S. and Canadian economies in recent years
have coincided with a significant increase in consumer
consumption of luxury goods.
Birks’ performance is also affected by competition from
regional, national and international jewelry chains, independent
jewelry stores, general merchandisers, internet retailers and
warehouse clubs. Management believes that as the retail industry
generally, and the retail jewelry industry specifically,
continues to consolidate, competition with respect to price will
intensify. Such a heightened competitive pricing environment
will make it increasingly important for Birks to successfully
distinguish itself from competitors based on unique products,
quality and superior service and operating efficiency.
Because most of Birks’ stores are located in malls, the
success of Birks’ operations also depends on the ability of
the malls in which its stores are located to generate customer
traffic. The performance of a mall may be adversely affected by
the failure to attract or retain an anchor tenant, the opening
of competing malls or stores or economic downturns or other
events, such as hurricanes or terrorist attacks, that reduce
customer traffic or decrease consumer confidence.
Period over period comparisons are affected by seasonality. The
retail jewelry business is seasonal in nature with a higher
proportion of sales and a significant portion of earnings
generated during the third fiscal
95
quarter holiday selling season. For example, Birks’ net
sales for the third quarter of fiscal 2004, 2003 and 2002
equaled approximately 39.9%, 39.2% and 37.1% of net sales for
fiscal 2004, 2003 and 2002, respectively.
|
|
|
|
|
Store Openings and Closures and Acquisitions
|
Store openings and store closures also affect period over period
comparisons. For example, following Birks’ acquisition of
Mayor’s in August 2002, Birks increased its total store
base from 38 stores to 66 stores (excluding 13 underperforming
Mayor’s stores in non-Florida and Georgia markets which
Birks closed as part of a restructuring plan that it implemented
after the acquisition) and nearly doubled its net sales from
fiscal 2001 to fiscal 2002. The table below shows the
number of stores Birks operated at the beginning and end of each
period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores at beginning of period:
|
|
|
65
|
|
|
|
66
|
|
|
|
37
|
|
|
Stores opened during period:
|
|
|
1
|
|
|
|
0
|
|
|
|
3
|
|
|
Stores acquired during period:
|
|
|
0
|
|
|
|
0
|
|
|
|
29
|
|
|
Stores closed during period:
|
|
|
0
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores at end of period:
|
|
|
66
|
|
|
|
65
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
A new store in Toronto, Canada opened in June 2005, and Birks
believes there is market potential to open new stores in
existing and new markets in United States and Canada. Birks will
continue to evaluate selective expansion opportunities including
acquisitions and other strategic alliances in North America and
possibly abroad.
Because Birks has operations in the United States and Canada,
its results are affected by foreign currency changes. Revenue
and expenses incurred in Canadian dollars are translated into
U.S. dollars for reporting purposes. Changes in the value
of the Canadian dollar compared to the U.S. dollar between
periods impact Birks’ results and affect period over period
comparison. Over the past two years the value of the Canadian
dollar has increased significantly compared to the
U.S. dollar which, for reporting purposes, has increased
Birks’ net sales and expenses from Canadian operations.
Birks uses comparable store sales as a key performance measure
for its business. Birks classifies stores as new or comparable
stores and does not include its non-retail store sales in its
comparable store calculations. New stores are stores that have
been open for less than 12 full months. Stores enter the
comparable store calculation in their thirteenth full month of
operation. Stores that have been resized and stores that are
relocated are evaluated on a case by case basis to determine if
they are functionally the same store or a new store and then are
included or excluded from comparable store sales, accordingly.
Comparable store sales is calculated in local currency terms and
measures the percentage change in net sales for comparable
stores in a period compared to the corresponding period in the
previous year. If a comparable store is not open for the
entirety of both periods, comparable store sales measures the
change in net sales for the portion of time that such store was
open in both periods. Comparable store sales for stores
operating under the Mayors brand have been calculated for those
stores in the Florida and Georgia core markets and exclude
Mayor’s stores in other U.S. markets that were closed
as part of Birks’ restructuring after its acquisition of
Mayor’s in 2002. Additionally, comparable store sales for
stores operating under the Mayors brand, when calculated for
periods prior to fiscal 2004, measures percentage changes in net
sales achieved in
96
such comparable stores prior to Birks’ acquisition of
Mayors in August 2002. The percentage increase (or decrease) in
comparable store sales for the periods presented below is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores operating under the Birks brand
|
|
|
0.0
|
%
|
|
|
2.5
|
%
|
|
|
1.6
|
%
|
|
Stores operating under the Mayors brand
|
|
|
11.9
|
%
|
|
|
15.6
|
%
|
|
|
(20.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Birks believes the increase in overall comparable store sales
for fiscal 2003 and fiscal 2004 is primarily the result of three
factors: improvements in the U.S. and Canadian economies,
improved product offering and enhanced brand awareness as a
result of implementation of targeted use of catalogs, television
and print advertising as well as other marketing programs. In
particular, the comparable store sales increase in stores
operating under the Mayors brand of 11.9% for fiscal 2004 was
primarily attributable to the resurgence of the economy in
Florida and Georgia during this period as well as the improved
merchandising of the stores combined with effective marketing
programs and retail store initiatives. By comparison, stores
operating under the Birks brand were unchanged in fiscal 2004
since sales increases achieved by effective marketing and
merchandising programs were offset by lower January sales in
2005 compared with 2004. Birks believes the relatively modest
increase in comparable store sales in its stores operating under
the Birks brand during fiscal 2003 and fiscal 2002 was largely
the result of improved merchandising and marketing, offset by
the negative impacts of SARS and mad cow disease on tourism in
Canada and the diversion of resources, in particular management
attention, to stores operating under the Mayors brand.
Management believes the decline in comparable store sales in
stores operating under the Mayors brand during fiscal 2002 was
primarily due to the distressed financial position of
Mayor’s prior to Birks’ acquisition of Mayor’s in
August 2002.
Results of Operations
The following is a discussion of certain factors affecting
Birks’ results of operations from fiscal 2002 through
fiscal 2004. This discussion should be read in conjunction with
Birks’ consolidated financial statements and notes thereto
included elsewhere in this proxy statement/ prospectus.
|
|
|
|
|
Fiscal 2004 Compared to Fiscal 2003
|
The following table sets forth, for fiscal 2004 and for fiscal
2003, the amounts for certain items in Birks’ consolidated
statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
Net sales
|
|
$
|
239,301
|
|
|
$
|
216,256
|
|
|
Cost of sales
|
|
|
130,037
|
|
|
|
118,861
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
109,264
|
|
|
|
97,395
|
|
|
Selling, general and administrative expenses
|
|
|
95,764
|
|
|
|
93,638
|
|
|
Depreciation and amortization
|
|
|
4,749
|
|
|
|
4,312
|
|
|
Other items
|
|
|
(1,181
|
)
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
99,332
|
|
|
|
98,288
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
9,932
|
|
|
|
(893
|
)
|
|
Interest on long-term debt
|
|
|
2,906
|
|
|
|
2,858
|
|
|
Interest and other financial costs
|
|
|
5,759
|
|
|
|
5,312
|
|
|
Gain (loss) on sale of Mayor’s common shares
|
|
|
(232
|
)
|
|
|
176
|
|
|
Loss on disposal of Mayor’s warrants
|
|
|
332
|
|
|
|
334
|
|
|
Interest and other income
|
|
|
—
|
|
|
|
(184
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interest
|
|
|
1,167
|
|
|
|
(9,389
|
)
|
|
Minority interest in loss of subsidiary
|
|
|
—
|
|
|
|
7,175
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
1,167
|
|
|
$
|
(2,214
|
)
|
|
|
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
Net sales — Canada
|
|
$
|
96,600
|
|
|
$
|
90,825
|
|
|
Net sales — United States
|
|
|
142,701
|
|
|
|
125,431
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
239,301
|
|
|
$
|
216,256
|
|
|
|
|
|
|
|
|
|
Net sales were $239.3 million for fiscal 2004 compared to
$216.3 million for fiscal 2003. Net sales for stores
operating under the Birks brand increased 6.4% while net sales
for stores operating under the Mayors brand increased 13.7%. The
increase in overall net sales for fiscal 2004 was primarily the
result of an effective mix of successful merchandising
strategies, increased focus on core inventory, effective new
product development, enhanced marketing initiatives and customer
events, the continued increase in consumer confidence and
spending compared to fiscal 2003 and the impact of translating
the sales of the Canadian operations to U.S. dollars with a
relatively stronger Canadian dollar.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
|
Cost of sales — Canada
|
|
$
|
48,322
|
|
|
$
|
45,434
|
|
|
Cost of sales — United States
|
|
|
81,715
|
|
|
|
73,427
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
130,037
|
|
|
$
|
118,861
|
|
|
|
|
|
|
|
|
|
Cost of sales were $130.0 million for fiscal 2004 compared
to $118.9 million for fiscal 2003. This increase was
primarily the result of the increased volume of sales at
Canadian and U.S. stores and the impact of translating the
cost of sales of the Canadian operations to U.S. dollars
with a relatively stronger Canadian dollar.
Gross Profit.
Gross profit was $109.3 million for
fiscal 2004 compared to $97.4 million for fiscal 2003.
Gross margin was 45.7% for fiscal 2004 compared to 45.0% for
fiscal 2003. Management believes the increase in gross profit
and gross margin was primarily due to the continued successful
execution of merchandising strategies aimed at increasing the
level of exclusive merchandise designed and made by Birks as
well as the reduction of marking down products in its stores
operating under the Mayors brand. Gross margin was higher for
stores operating under the Birks brand than for stores operating
under the Mayors brand primarily as a result of the greater
percentage of exclusive merchandise sold at Birks stores in
Canada.
|
|
|
|
|
Selling, General and Administrative Expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
($ In thousands)
|
|
|
Selling, general and administrative
expenses — Canada
|
|
$
|
42,035
|
|
|
$
|
41,355
|
|
|
Selling, general and administrative
expenses — United States
|
|
|
53,729
|
|
|
|
52,283
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
$
|
95,764
|
|
|
$
|
93,638
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses were
$95.8 million, or 40.0% of net sales, for fiscal 2004
compared to $93.6 million, or 43.3% of net sales, for
fiscal 2003. The increase in selling, general and administrative
expenses for fiscal 2004 was primarily a result of an increase
in variable costs for the U.S. operations due to the
increase in net sales, partially offset by cost savings and
efficiencies realized in the
98
Canadian operations despite the impact of the increase in the
value of the Canadian dollar compared to the U.S. dollar on
Canadian dollar expenses. The decrease in selling, general and
administrative expenses as a percentage of net sales for fiscal
2004 was primarily due to the positive impact of leveraging the
incremental increase in net sales against that portion of the
operating expenses that are fixed, such as fixed occupancy,
overhead and depreciation, and a slight percentage decrease in
variable expenses combined with cost savings and efficiencies.
Depreciation and Amortization.
Depreciation and
amortization expense was $4.7 million for fiscal 2004
compared to $4.3 million for fiscal 2004. This
$0.4 million increase was primarily due to an additional
investment in fixed assets and, to a lesser extent, to the
impact of the increase in the value of the Canadian dollar
compared to the U.S. dollar on the depreciation expense of
the Canadian property and equipment.
Other items.
Other items of approximately
$1.2 million of expenses for fiscal 2004 included, among
other things, approximately $0.4 million of expenses
incurred in connection with the restatement of certain reports
previously filed by Mayor’s with the Securities and
Exchange Commission, approximately $0.5 million of expenses
related to the business reorganization of Birks and
Mayor’s, approximately $1.0 million of income
resulting from the settlement of a sales tax liability for less
than the amount previously accrued and the adjustment of other
sales tax contingency estimates, and approximately
$0.1 million of miscellaneous income.
Interest on Long-Term Debt.
Interest on long-term debt
was unchanged at $2.9 million for fiscal 2004 compared to
$2.9 million for fiscal 2003 due to the relatively stable
debt levels and stable interest rates on that debt.
Interest and Other Financial Costs.
Interest and other
financial costs were $5.8 million for fiscal 2004 compared
to $5.3 million for fiscal 2003. This increase was
primarily due to higher average interest bearing debt offset
partially by lower interest rates on that debt and by the impact
of the increase in value of the Canadian dollar compared to the
U.S. dollar on Canadian dollar interest expense.
Minority Interest in Loss of Subsidiary.
Minority
interest in loss of subsidiary includes amounts attributed to
the minority interest in Mayor’s and results from Birks
consolidating the results of operations of Mayor’s, with
losses from Mayor’s operations being allocated on a pro
rata basis between Birks and Mayor’s minority stockholders
based on their relative ownership of Mayor’s common stock,
which represents Mayor’s residual equity. The minority
interest in loss of Birks’ subsidiary was $7.2 million
in fiscal 2003. Due to the significant losses by Mayor’s
subsequent to the investment by Birks, the minority interest
portion of the losses reduced the minority net assets to below
zero. However, their investment is limited to nil since there is
no guarantee of the losses by minority stockholders. In fiscal
2004, even though Mayor’s recorded a profit, the minority
portion did not generate sufficient profit to bring the minority
net assets to zero. Therefore, there is no recognition of the
minority portion of the income on the statement of operations.
99
|
|
|
|
|
Fiscal 2003 Compared to Fiscal 2002
|
The following table sets forth, for fiscal 2003 and fiscal 2002,
the amounts for certain items in Birks’ consolidated
statements of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
($ In thousands)
|
|
|
Net sales
|
|
$
|
216,256
|
|
|
$
|
151,312
|
|
|
Cost of sales
|
|
|
118,861
|
|
|
|
83,698
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
97,395
|
|
|
|
67,614
|
|
|
Selling, general and administrative expenses
|
|
|
93,638
|
|
|
|
63,890
|
|
|
Depreciation and amortization
|
|
|
4,312
|
|
|
|
3,256
|
|
|
Other items
|
|
|
338
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
98,288
|
|
|
|
66,936
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(893
|
)
|
|
|
678
|
|
|
Interest on long-term debt
|
|
|
2,858
|
|
|
|
2,448
|
|
|
Interest and other financial costs
|
|
|
5,312
|
|
|
|
3,486
|
|
|
Loss on sale of Mayor’s common shares
|
|
|
176
|
|
|
|
—
|
|
|
Loss on disposal of Mayor’s warrants
|
|
|
334
|
|
|
|
312
|
|
|
Interest and other income
|
|
|
(184
|
)
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income tax, minority
interest, discontinued operations and extraordinary item
|
|
|
(9,389
|
)
|
|
|
(5,179
|
)
|
|
Income tax benefit
|
|
|
—
|
|
|
|
991
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before minority interest,
discontinued operations and extraordinary item
|
|
|
(9,389
|
)
|
|
|
(4,188
|
)
|
|
Minority interest in loss of subsidiary
|
|
|
7,175
|
|
|
|
8,071
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before discontinued
operations and extraordinary item
|
|
|
(2,214
|
)
|
|
|
3,883
|
|
|
Loss from discontinued operations, net of income tax of nil
|
|
|
—
|
|
|
|
(828
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) income before extraordinary item
|
|
|
(2,214
|
)
|
|
|
3,055
|
|
|
Extraordinary gain, net of income tax of nil
|
|
|
—
|
|
|
|
9,042
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common shareholders
|
|
$
|
(2,214
|
)
|
|
$
|
12,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
($ In thousands)
|
|
|
Net sales — Canada
|
|
$
|
90,825
|
|
|
$
|
78,444
|
|
|
Net sales — United States
|
|
|
125,431
|
|
|
|
72,868
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
216,256
|
|
|
$
|
151,312
|
|
|
|
|
|
|
|
|
|
Net sales were $216.3 million for fiscal 2003 compared to
$151.3 million for fiscal 2002. Of this $65.0 million
increase, approximately 80.9% was due to increases in
U.S. operations. The increase in net sales from
U.S. operations was primarily due to the inclusion of
U.S. operations for the full fiscal year in fiscal 2003
compared to seven months in fiscal 2002, augmented by an
increase in comparable store sales of
100
15.6%. Net sales from Canadian operations increased by
$12.4 million from fiscal 2002 to fiscal 2003. Of this
increase, approximately $11.4 million was due to the
increase in the value of the Canadian dollar compared to the
U.S. dollar and the remaining $1.0 million was due to
increased comparable store sales for fiscal 2003, partially
offset by lower corporate sales. Comparable store sales in
Canadian stores operating under the Birks brand for fiscal 2003
increased 2.5% from fiscal 2002 due primarily to an increase in
average transaction dollars offset by a decrease in comparable
transaction volume. The increase in average transaction dollars
was the result of ongoing efforts to increase average
transaction value to clients. Management believes that the
overall increase in net sales in Canadian and
U.S. operations was also driven by an effective mix of
merchandising, increased focus on core inventory, effective new
product development and enhanced marketing and customer events.
In addition, the improvement in the U.S. and Canadian economies
resulted in increased consumer confidence and spending during
the latter part of fiscal 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
($ In thousands)
|
|
|
Cost of sales — Canada
|
|
$
|
45,434
|
|
|
$
|
37,879
|
|
|
Cost of sales — United States
|
|
|
73,427
|
|
|
|
45,819
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
$
|
118,861
|
|
|
$
|
83,698
|
|
|
|
|
|
|
|
|
|
Cost of sales was $118.9 million for fiscal 2003 compared
to $83.7 million for fiscal 2002. Of this
$35.2 million increase, approximately 78.5%, or
$27.6 million, was due to the inclusion of
U.S. operations for the full fiscal year in fiscal 2003
compared to seven months in fiscal 2002. Cost of sales of
Canadian operations increased by $7.5 million primarily due
to increased volume of sales and the impact of the increase in
the value of the Canadian dollar compared to the
U.S. dollar.
Gross Profit.
Gross profit was $97.4 million for
fiscal 2003 compared to $67.6 million for fiscal 2002.
Gross margin was 45.0% for fiscal 2003 compared to 44.7% for
fiscal 2002. The increase in gross profit was primarily the
result of the inclusion of U.S. operations for the full
fiscal 2003 compared to seven months in fiscal 2002. Gross
profit in Canadian operations increased slightly, primarily due
to impact on Canadian dollar gross profit of the increased value
of the Canadian dollar compared to the U.S. dollar in
fiscal 2003. The modest increase in gross margin primarily
resulted from higher gross margin at Birks’
U.S. operations, which was due to an increase in sales of
higher margin products, including exclusive merchandise, reduced
promotional activity as compared to fiscal 2002, as well as a
negative impact on the fiscal 2002 gross margin that markdowns
had in connection with the liquidation of inventory in the
closing of underperforming stores in the U.S. The
improvement at the U.S. operations was partially offset by
a change in the sales mix due to the inclusion of the
U.S. operations, which carry a lower gross margin than the
Canadian operations, for twelve months in fiscal 2003 versus
seven months in fiscal 2002. Finally, there was a decrease in
gross margin at the Canadian operations, due primarily to
increased promotional activity in the fourth quarter of fiscal
2003 which partially offset the positive factors of the
U.S. operations.
|
|
|
|
|
Selling, General and Administrative.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
($ In thousands)
|
|
|
Selling, general and administrative
expenses — Canada
|
|
$
|
41,355
|
|
|
$
|
34,215
|
|
|
Selling, general and administrative
expenses — United States
|
|
|
52,283
|
|
|
|
29,675
|
|
|
|
|
|
|
|
|
|
|
Total selling, general and administrative expenses
|
|
$
|
93,638
|
|
|
$
|
63,890
|
|
|
|
|
|
|
|
|
|
101
SG&A was $93.6 million, or 43.3% of net sales, for
fiscal 2003 compared to $63.9 million, or 42.2% of net
sales, for fiscal 2002. Approximately 76% of the increase in
SG&A for fiscal 2003 was due to the increase in the
U.S. operations, which was primarily the result of the
inclusion of U.S. operations for the full fiscal year in
fiscal 2003 compared to seven months in fiscal 2002. SG&A
for Canadian operations increased $7.1 million due to the
impact of the increase in the value of the Canadian dollar
compared to the U.S. dollar and, to a lesser extent, an
increase in variable and selling expenses related to the
increase in net sales in fiscal 2003 compared to
fiscal 2002. The increase in SG&A as a percentage of
sales in fiscal 2003 was due to primarily to the impact of the
increase in the value of the Canadian dollar compared to the
U.S. dollar on Canadian dollar expenses in fiscal 2003. In
fiscal 2002, the closure of one store, in Tyson’s Corner,
Virginia was classified as a discontinued operation.
Depreciation and Amortization.
Depreciation and
amortization expenses were $4.3 million for
fiscal 2003 compared to $3.3 million for fiscal 2002.
The increase in depreciation and amortization expenses for
fiscal 2003 was primarily the result of the inclusion of
U.S. operations for a full fiscal year in
fiscal 2003 compared to seven months in 2002, partially
offset by lower depreciation and amortization at the Canadian
operations despite the impact of the increase in the value of
the Canadian dollar compared to the U.S. dollar on Canadian
dollar capitalized expenses in fiscal 2003.
Other items.
There were $0.3 million of other
expenses in fiscal 2003 compared to $0.2 million in other
income in fiscal 2002. The increase in other expenses in fiscal
2003 related primarily to transaction expenses incurred in
connection with the payment of dividends from Mayor’s to
Birks, coupled with income relating to certain tax refunds
received in fiscal 2002 and not received in fiscal 2003.
Interest on Long-term Debt.
Interest on long-term debt
was $2.9 million in fiscal 2003 compared to
$2.4 million in fiscal 2002. This increase in interest was
primarily due to the inclusion of U.S. operations for a
full fiscal year in fiscal 2003 compared to seven months in
fiscal 2002 as well as to increased borrowing at the
U.S. operations.
Interest and Other Financial Costs.
Interest and other
financial costs were $5.3 million in fiscal 2003, compared
to $3.5 million in fiscal 2002. Of this $1.8 million
increase, approximately half was due to the impact of the
increase in the value of the Canadian dollar compared to the
U.S. dollar on Canadian dollar interest expense and
approximately half was due to higher borrowing balances due to
the inclusion of U.S. operations for a full fiscal year in
fiscal 2003 compared to seven months in fiscal 2002.
Interest and Other Income.
Interest and other income was
$0.2 million in fiscal 2003 compared to $0.4 million
in fiscal 2002. Interest income is earned primarily on credit
card receivables from customers in the United States. The
decrease in interest and other income in fiscal 2003 was
primarily due to the disposal of most of the Mayor’s credit
card portfolio in fiscal 2002.
Income Taxes.
There was no income tax benefit in fiscal
2003. The benefit in income taxes for fiscal 2002 of
$1.0 million was primarily a result of a refund claim to
recover previously paid U.S. alternative minimum tax as a
result of a change in tax law.
Loss from Discontinued Operations.
The loss from
discontinued operations for fiscal 2002 of $0.8 million
related to the closing of a Mayors brand store in Tyson’s
Corner, Virginia, in March 2003, which was classified as a
discontinued operation.
Minority Interest in Loss of Subsidiary.
The minority
interest in loss of Birks’ subsidiary was $7.2 million
in fiscal 2003 compared to $8.1 million in
fiscal 2002. This decrease was due primarily to the
improved results of operations of Mayor’s during
fiscal 2003.
Extraordinary gain.
The acquisition of Mayor’s in
August 2002 was accounted for by the purchase method. The excess
of the acquired portion of the net book value of Mayor’s,
excluding the fair value assigned to the warrants, over the fair
value assigned to the preferred shares was classified as
negative goodwill. The negative goodwill was accounted for by
reducing property and equipment by approximately
$12.0 million with a balance of approximately
$9.0 million recorded as an extraordinary gain in
fiscal 2002.
102
Liquidity and Capital Resources
Birks has two credit facilities: (1) a
Cdn$60.0 million working capital credit facility from GMAC
for borrowings in connection with its Canadian operations, which
is referred to as the Birks facility, and (2) a
$58.0 million working capital credit facility from Bank of
America and GMAC for borrowings in connection with its
U.S. operations, which is referred to as the Mayor’s
facility.
The Birks facility bears interest at a floating rate of Prime +
0.50%, which as of March 26, 2005 was 4.75%. Borrowing
availability under the Birks facility is based on the valuation
of certain inventory and accounts receivable. The Birks facility
matures on July 1, 2007, contains customary financial
covenants and is secured by a first priority lien over
substantially all of Birks’ Canadian assets, as well as the
capital stock of Mayor’s.
Under the Birks facility, Birks’ capital expenditures,
excluding capital expenditures by its subsidiaries, during any
fiscal year are limited to:
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•
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$5.0 million in fiscal 2005; and
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•
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$5.0 million in fiscal 2006.
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Under the Birks facility, Birks, excluding its subsidiaries,
must maintain the following minimum EBITDA (as defined in the
Birks facility) for the four most recently completed fiscal
quarters:
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•
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$7.0 million as at March 31, 2005 until the fiscal
quarter ending September 30, 2005; and
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•
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$9.5 million as at the fiscal quarter ending
December 31, 2005 and for each fiscal quarter through
July 1, 2007.
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EBITDA under the Birks facility means Birks’ earnings
during any particular fiscal period before (i) payment or
provision for payment of interest; (ii) payment or
provisions for payment of income taxes; (iii) depreciation;
(iv) amortization; and (v) any other non-recurring
income and expense items, all computed in accordance with
Canadian GAAP. Birks is currently in compliance with all of the
covenants contained in the Birks facility.
The Mayor’s facility bears interest at a floating rate of
Prime + 1.00%, Prime + 0.75% or Prime + 0.50% depending on the
excess borrowing capacity, which as of March 26, 2005 was
6.25%. The Mayor’s facility has been amended several times,
most recently in May 2005, to allow for the interest rate of
Mayor’s revolving credit facility to be based on either a
prime rate plus a specified margin, depending on the level of
borrowing availability, or a LIBOR based rate plus a specified
margin, based on the level of borrowing availability at
Mayor’s election. Borrowing availability under the
Mayor’s facility is determined based on the valuation of
certain inventory and accounts receivable. The Mayor’s
facility matures on August 20, 2006 and is secured by a
first priority lien over substantially all of Mayor’s
assets, including the capital stock of all of its subsidiaries.
Under the Mayor’s facility, Mayor’s capital
expenditures during any fiscal year are limited to
$5.0 million. The Mayor’s facility also contains
limitations on Mayor’s ability to pay dividends or
distribute cash to Birks. Mayor’s is currently in
compliance with all of the covenants contained in the
Mayor’s facility.
103
Birks relies on borrowings under the Birks facility to fund its
day-to-day operations in Canada and it relies on borrowings
under the Mayor’s facility to fund its day-to-day
operations in the United States. Borrowings under the Birks
facility and the Mayor’s facility for the periods indicated
in the table below were as follows:
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Fiscal Year Ended
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March 26,
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March 27,
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March 29,
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2005
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2004
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2003
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($ In thousands)
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Birks Facility
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Borrowing at period end
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$
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40,753
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$
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37,257
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$
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34,803
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Additional borrowings available at period end
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$
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4,033
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$
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2,212
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$
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1,427
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Average outstanding balance during the period
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$
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39,920
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$
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40,763
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$
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32,005
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Weighted average interest rate for period
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4.51
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%
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5.28
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%
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5.11
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%
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Mayor’s Facility
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Borrowing at period end
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$
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33,501
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$
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33,005
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$
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23,283
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Additional borrowings available at period end
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$
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13,300
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$
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16,300
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$
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18,000
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Average outstanding balance during the period
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$
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35,178
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$
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31,004
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$
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34,609
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Weighted average interest rate for period
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5.6
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%
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6.30
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%
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10.2
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%
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In addition to the two working capital credit facilities, Birks
had several other outstanding loans as of March 26, 2005:
(1) a $12.7 million junior secured term loan from Back
Bay Capital to support Birks’ U.S. operations that
bears interest at a fixed rate of 12.75% per year and
matures on August 20, 2006, (2) $1.3 million of
term loans from GMAC that bear interest at rates ranging from
4.87% to 6.75% and mature between November 2005 and October
2006, (3) a $2.6 million term loan from
La Financière du Quebec that bears interest at a rate
of prime + 1.5%, which equated to 5.75% at March 26, 2005,
and matures in May 2010, (4) a $2.1 million
subordinated term loan from Birks’ parent Regaluxe
Investment S.á.r.l. that bears interest at an annual rate
of 12.0% until August 20, 2005, and thereafter at an annual
rate of 14.0%, and matures in February 2006, and (5) a
$0.1 million term loan with Sovereign Bank which bears
interest at a rate of 6.75% and matures in February 2009. Birks
also has $5.0 million convertible notes outstanding, which
are owned by Regaluxe and Prime Investments SA. See
“Related Party Transactions — Convertible
Notes.” Upon consummation of the merger, the convertible
notes will be converted into Birks Class A voting shares
and Birks Class B multiple voting shares.
Net cash flows from continuing operations provided
$6.4 million in fiscal 2004, which was primarily the result
of increased current liabilities and income from operations.
During fiscal 2003, cash flows from continuing operations
activities used $3.0 million in cash. The use of cash for
operating activities was primarily the result of the net loss
for the year, adjusted for non-cash expense items, the increase
of inventories partially offset by the decrease in other assets
and the increase in accrued expenses. During fiscal 2002, cash
flows from continuing operating activities used
$10.4 million in cash which was primarily the result of the
net loss for the year, the increase in inventories due to the
acquisition of Mayor’s and the payout of restructuring
costs partially offset by the reduction of accounts receivable
and increase in accounts payable as well as the sale of
Mayor’s credit card portfolio to Wells Fargo for net
proceeds of $12.1 million.
Net cash used in investing activities was $4.9 million in
fiscal 2004 and primarily related to capital expenditures for
store renovations and information technology. Net cash used in
investing activities was $3.6 million in fiscal 2003,
primarily related to the capital expenditures for leasehold
improvements for the Birks’ head office, one new store and
information systems. Net cash used by investing activities was
$4.5 million in fiscal 2002, primarily related to capital
expenditures for the opening of two new stores, net of the
proceeds from the sale of Mayor’s former corporate
headquarters.
Net cash used in financing activities was $1.4 million for
fiscal 2004, primarily related to payment of bank indebtedness,
term loans and a decrease in borrowings under Mayor’s
facilities. Net cash provided by financing activities was
$7.3 million in fiscal 2003, primarily related to net
borrowings under Birks’ credit
104
facilities less payments of other debt. Net cash provided by
financing activities was $14.7 million in fiscal 2002,
primarily related to proceeds of issuance of preferred shares
and net increase in borrowings under the Mayor’s credit
facilities.
The following table discloses capital expenditures in fiscal
2004, 2003 and 2002.
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Fiscal Year Ended
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March 26,
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March 27,
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March 29,
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2005
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2004
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2003
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Purchase of new property
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$
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1,517
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—
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—
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New stores and remodeling of old stores
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686
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$
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1,571
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$
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3,047
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Other leasehold improvements
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220
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384
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311
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Electronic equipment and computer hardware
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1,126
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1,538
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284
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Furniture and fixtures
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238
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309
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305
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Manufacturing equipment
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448
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53
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11
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Other
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327
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206
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233
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Total capital expenditures
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$
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4,562
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$
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4,062
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$
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4,191
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Capital expenditures for fiscal 2005 are projected to be
approximately $9.0 million and are limited by the Birks
facility and Mayor’s facility as described above. The
projected increase in capital expenditures for fiscal 2005
as compared to fiscal 2004 is due to the planned renovations of
nine stores in fiscal 2005 compared to four stores in fiscal
2004 and the opening of a new store in the Yorkdale Mall in
Toronto, Canada in June 2005.
Management believes that barring a significant external event
that materially adversely affects Birks’ current business
or the current industry trends as a whole, borrowing capacity
under the Birks facility and Mayor’s facility, projected
cash flows from operations and other short term borrowings will
be sufficient to support the Birks’ working capital needs,
capital expenditures and debt service for at least the next
12 months.
Commitments and Contractual Obligations
The following table discloses aggregate information about
Birks’ contractual cash obligations as of March 26,
2005 and the periods in which payments are due:
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Payment Due by Period
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Less Than
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More Than
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Contractual Obligations
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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($ In thousands)
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Debt maturities
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$
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17,592
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$
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2,770
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$
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13,767
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$
|
1,055
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$
|
—
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Capital lease obligations
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14,039
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|
|
306
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353
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322
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13,058
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Employment agreements(1)
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4,067
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1,771
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2,296
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—
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—
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Operating lease obligations(2)
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73,393
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13,080
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22,725
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17,319
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|
|
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20,269
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Fixed rate interest expenses(3)
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|
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21,109
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|
|
|
3,238
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|
|
|
3,391
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|
|
|
2,753
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|
|
|
11,727
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Total
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$
|
130,200
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|
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$
|
21,165
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$
|
42,532
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$
|
21,449
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$
|
45,054
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(1)
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Employment agreements do not include any open-ended employment
contracts.
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(2)
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The operating lease obligations do not include insurance, taxes
and common area maintenance (CAM) charges to which Birks is
obligated. CAM charges were $2,751 in fiscal 2004, $2,448 in
fiscal 2003 and $2,644 in fiscal 2002.
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(3)
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The fixed rate interest expenses do not include floating rate
interest payable on $78.1 million of floating rate debt,
which as of March 26, 2005 bore interest at an average
annual rate of 5.02%.
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105
Off-Balance Sheet Arrangements
As of March 26, 2005, Birks’ only off-balance sheet
arrangements were letters of credit, in the amount of
$0.6 million, issued under Mayor’s credit facilities
primarily to Wells Fargo.
Leases
Birks leases all of its Canadian retail locations under
operating leases with the exception of its Montreal store which
is under a capital lease. Additionally, Birks has operating
leases for certain equipment. The costs of no single lease are
significant to Birks. In addition, Birks leases its
headquarters’ land and building, which includes one store,
under a capital leasing arrangement.
Operating leases for store locations are expensed over the term
of the initial lease period. Lease renewal periods are available
on most leases, however are not included in the accounting lease
term because Birks believes there are no punitive terms or
circumstances associated with non-renewal that would reasonably
assure renewal. The accounting lease term typically includes a
fixturing period which is expensed on a straight-line basis over
the lease term. All reasonably assured rent escalations, rent
holidays, contingent rent and rent concessions are included when
considering the straight-line rent to be expensed. Lease
incentives are recorded as deferred rent and amortized as
reductions to lease expense over the lease term. Contingent rent
payments are expensed as incurred, vary by lease and are based
on a percentage of revenue above a predetermined sales level.
This level is different for each location and includes and
excludes various types of sales.
Leasehold improvements are capitalized and typically include
fixturing and store renovations. Amortization of leasehold
improvements begins on the date the asset was placed in service
and extends to the lesser of the economic life of the leasehold
improvement and the initial lease term. Birks’ lease of its
headquarters’ land and building is accounted for as a
capital lease. Birks entered into a sale-leaseback transaction
on the building which resulted in gross proceeds of $9,474,000
based on the foreign exchange rate on the day of the transaction
(Cdn$14,250,000). The lease is for a 20-year period from the
date of inception, December 12, 2000. The lease allows for
several additional term extensions of the lease; however,
management has only committed for the initial 20-year period.
The implicit interest rate of the long-term debt associated with
the capital lease is 10.74%.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires Birks to make estimates and assumptions
about future events and their impact on amounts reported in the
financial statements and related notes. Since future events and
their impact cannot be determined with certainty, the actual
results may differ from those estimates. These estimates and
assumptions are evaluated on an on-going basis and are based on
historical experience and on various factors that are believed
to be reasonable.
Birks has identified certain critical accounting policies as
noted below.
Sales are recognized at the point of sale when merchandise is
taken or shipped. Shipping and handling fees billed to customers
are included in net sales. Revenues for gift certificate sales
and store credits are recognized upon redemption. Sales of
consignment merchandise are recognized at such time as the
merchandise is sold and are recorded on a gross basis in
accordance with EITF 99-19 because Birks is the primary
obligor of the transaction, has general latitude on setting the
price, has discretion as to the suppliers, is involved in the
selection of the product and has inventory loss risk. Sales are
reported net of returns. Sales are reported net of returns.
Birks generally gives its customers the right to return
merchandise purchased by them within 30 days and records a
provision at the time of sale for the effect of the estimated
returns. Repair sales are recorded at the time the service is
rendered.
106
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|
|
|
|
Allowance for inventory shrink and slow moving
inventory
|
The allowance for inventory shrink is estimated for the period
from the last physical inventory date to the end of the
reporting period on a store by store basis and at Birks’
factories and distribution centers. Such estimates are based on
experience and the shrinkage results from the last physical
inventory. The shrinkage rate from the most recent physical
inventory, in combination with historical experience, is the
basis for providing a shrink allowance.
Birks writes down its inventory for estimated slow moving
inventory equal to the difference between the cost of inventory
and the estimated market value based on assumptions about future
demand and market conditions. If actual market conditions are
less favorable than those projected by management, additional
inventory write-downs may be required.
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|
Allowance for doubtful accounts
|
Birks maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make
required payments. If the financial condition of Birks’
customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be
required.
Long-lived assets held and used by Birks are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.
Measurement of an impairment loss for such long-lived assets
would be based on the fair value of the asset. Long-lived assets
to be disposed of are reported at the lower of the carrying
amount or fair value less cost to sell.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123(R)
“Share-Based Payments” which addresses the accounting
for share-based payment transactions in which an enterprise
receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are
based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such
equity instruments. SFAS No. 123(R) requires an entity
to recognize the grant-date fair-value of stock options and
other equity-based compensation issued to employees in the
income statement. SFAS No. 123(R) generally requires
that an entity account for those transactions using the
fair-value-based method, and eliminates an entity’s ability
to account for share-based compensation transactions using the
intrinsic value method of accounting in APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” which was
permitted under SFAS No. 123, as originally issued.
SFAS No. 123(R) is effective for Birks as of its
fiscal year beginning March 26, 2006. Birks has not yet
determined the impact the adoption of SFAS No. 123(R)
will have on its financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs,” to amend the guidance in
Chapter 4, “Inventory Pricing,” of FASB
Accounting Research Bulletin No. 43, “Restatement
and Revision of Accounting Research Bulletins.”
SFAS No. 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). The Statement requires that those
items be recognized as current-period charges. Additionally,
SFAS No. 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151
is not expected to have a material effect on the financial
position or results of operations of Birks.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Non-Monetary Assets — an Amendment
of APB Opinion No. 29,” to address the accounting for
nonmonetary exchanges of productive assets.
SFAS No. 153 amends APB No. 29, “Accounting
for Nonmonetary Exchanges,” which established a narrow
exception for nonmonetary exchanges of similar productive assets
from fair value measurement. SFAS No. 153 eliminates
that exception and replaces it with an exception for exchanges
that do not have commercial substance. Under
SFAS No. 153 nonmonetary exchanges are required to be
accounted for at fair
107
value, recognizing any gains or losses, if the fair value is
determinable within reasonable limits and the transaction has
commercial substance. It specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective prospectively for
nonmonetary asset exchange transactions in fiscal periods
beginning after June 15, 2005. The adoption of
SFAS No. 153 is not expected to have a material effect
on the financial position or results of operations of Birks.
In March 2005, the FASB issued Interpretation No. 47
(“FIN 47”), Accounting for Conditional Asset
Retirement Obligation to clarify that an entity must recognize a
liability for the fair value of a conditional asset retirement
obligation when incurred if the liability’s fair value can
be reasonably estimated. FIN 47 also defines when an entity
would have sufficient information to reasonably estimate the
fair value of an asset retirement obligation. FIN 47 is
effective no later than the end of fiscal years ending after
December 15, 2005. Retrospective application of interim
financial information is permitted but is not required. Early
adoption of this Interpretation is encouraged. Birks is
evaluating the impact the adoption of FIN 47 would have on
the financial position and result of operations of Birks.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections — a
replacement of APB Opinion No. 20 and FASB Statement
No. 3.
SFAS No. 154 replaces APB Opinion
No. 20,
Accounting Changes
, and FASB Statement
No. 3,
Reporting Accounting Changes in Interim Financial
Statements
, and changes the requirements for the accounting
for and reporting of a change in accounting principle.
SFAS No. 154 requires retrospective application to
prior periods’ financial statements of changes in
accounting principle, unless it is impracticable to do so, in
which case other alternatives are required.
SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after
December 15, 2005. Birks has not yet determined the impact,
if any, the adoption of SFAS No. 154 will have on its
financial position or results of operations.
Inflation
The impact of inflation on Birks’ operations has not been
significant to date. While Birks does not believe its business
is highly sensitive to inflation, there can be no assurance that
a high rate of inflation would not have an adverse impact on its
operations.
Quantitative and Qualitative Disclosures About Market Risk
Birks is exposed to various market risks. Market risk is the
potential loss arising from adverse changes in market prices and
rates. Birks does not enter into derivative or other financial
instruments for trading or speculative purposes.
Birks’ primary market risk exposure is interest rate risk.
Borrowing under the Birks facility, the Mayor’s facility
and the GMAC loans bear interest at floating rates. As of
March 26, 2005, Birks had approximately $78.1 million
of floating-rate debt. Accordingly, Birks’ net income will
be affected by changes in interest rates. Assuming a 1% increase
in the interest rate under Birks’ floating rate debt,
Birks’ interest expense for the 52 weeks ended
March 26, 2005 would have increased by approximately
$0.8 million.
While Birks reports its financial results in U.S. dollars,
a substantial portion of Birks’ sales are earned in
Canadian dollars. For Birks’ operations located in Canada,
non-Canadian currency transactions and assets and liabilities
subject Birks to foreign currency risk. Conversely, for the
operations located in the United States, non-U.S. currency
transactions and assets and liabilities subject Birks to foreign
currency risk. For purposes of Birks’ financial reporting,
Birks’ financial statements are reported in
U.S. dollars by translating, where necessary, net sales and
expenses from Canadian dollars at the average exchange rates
prevailing during the period, while assets and liabilities are
translated at year-end exchange rates, with the effect of such
translation recorded in accumulated other comprehensive income.
As a result, for purposes of Birks’ financial reporting,
108
foreign exchange gains or losses recorded in earnings relate to
non-Canadian dollar transactions of the operations located in
Canada and non-U.S. dollar transactions of the operations
located in the United States. Birks expects to continue to
report its financial results in U.S. dollars in accordance
with U.S. GAAP. Consequently, Birks’ reported earnings
could fluctuate materially as a result of foreign exchange
translation gains or losses. To mitigate the impact of foreign
exchange volatility on its earnings, from time to time Birks may
enter into agreements to fix the exchange rate of
U.S. dollars to Canadian dollars. For example, Birks may
enter into agreements to fix the exchange rate to protect the
principal and interest payments on its Canadian dollar
denominated debt and other liabilities. If it does so, Birks
will not benefit from any increase in the value of the Canadian
dollar compared to the U.S. dollar when these payments
become due.
The nature of Birks’ operations results in exposure to
fluctuations in commodity prices, specifically gold. Birks
monitors and, when appropriate, utilizes derivative financial
instruments and physical delivery contracts to hedge its
exposure to risks related to the change in gold price. Birks is
exposed to credit-related losses in the event of non-performance
by counter-parties to the financial instruments. In addition, if
gold prices decrease below those levels specified in Birks’
various hedging agreements, Birks would lose the value of a
decline in the price of gold. At March 26, 2005 and
March 27, 2004, Birks’ hedging had resulted in an
unrealized gain of approximately $15,740 and $40,690
respectively for outstanding contracts due to strong gold
prices. However, such gains may not be realized in future
periods and Birks’ hedging activities may result in losses,
which could be material. For accounting purposes, the hedging
agreements do not qualify to be treated as accounting hedges
and, accordingly, are marked to market at the end of every
quarter.
109
DESCRIPTION OF BIRKS’ BUSINESS
When used in this section, as in the other sections of
this proxy statement/ prospectus, “Birks” refers to
Henry Birks & Sons Inc. and its subsidiaries, including
Mayor’s.
General
Birks is a leading North American luxury jewelery brand which
designs, develops, makes and retails fine jewelry, time pieces,
sterling silver and gifts. As of March 26, 2005, Birks
operated 66 luxury jewelry stores, 38 stores under the Birks
brand, located in all major cities across Canada, and 28 stores
under the Mayors brand, located in Florida and metropolitan
Atlanta, Georgia. As a luxury jeweler, most of Birks’
jewelry products are constructed of 18 karat gold, platinum or
sterling silver, with or without precious gemstones, with
significant emphasis on quality craftsmanship and design. For
the fiscal year ended March 26, 2005, Birks had net sales
of approximately $239.3 million.
Birks’ predecessor was founded in Montreal in 1879 and
developed over the years into Canada’s premier retailer,
designer and manufacturer of fine jewelry, timepieces, sterling
and plated silverware and gifts. In addition to being a
nationwide retailer with a strong brand identity, Birks is also
highly regarded in Canada as a jewelry manufacturer and provider
of recognition programs, service awards and business gifts.
Birks believes that, through its stores operating under both the
Birks and Mayors brands, it distinguishes itself from many of
its competitors by offering distinctively designed, exclusive
products, a larger selection of distinctive higher quality
merchandise at many different price points, and by placing
substantial emphasis on professionalism and training of its
sales force.
From 1950 through 1990, Birks expanded significantly and by the
early 1990s had approximately 220 stores in Canada and the
United States. A period of rapid expansion undertaken by Birks
in the 1980s was followed in the early 1990s by a period of
declining margins and a significant erosion in consumer spending
coupled with significantly higher indebtedness resulting from a
family buy-out, which combined to cause Birks to experience
significant financial losses. These financial difficulties
ultimately led to the purchase of Birks by Borgosesia
Acquisitions Corporation in 1993, a predecessor of Regaluxe
Investment S.á.r.l., which is referred to in this proxy
statement/ prospectus as Regaluxe. Following the 1993
acquisition of Birks, Birks’ operations were rationalized
and a program of returning Birks to its historic core strength
as the leading Canadian luxury jeweler was initiated. In August
2002, Birks invested $15.05 million to acquire
approximately 72% of the voting control in Mayor’s, which
was experiencing an unsuccessful expansion beyond its core
markets and significant losses. Since then, the operations of
Birks and Mayor’s have been progressively integrated.
Birks is a Canadian corporation. Its corporate headquarters are
located at 1240 Phillips Square, Montreal, Quebec, Canada H3B
3H4. Birks’ telephone number is (514) 397-2511.
Products
Birks offers distinctively designed, exclusive products and a
large selection of distinctive high quality merchandise at many
different price points. This merchandise includes designer
jewelry, diamond, gemstone, and precious metal jewelry, rings,
wedding bands, earrings, bracelets, necklaces, charms, baby
jewelry, timepieces and giftware. Part of Birks’ strategy
is to increase its exclusive private label offerings to its
customers, primarily through bridal, diamond and other fine
jewelry as well as gold and sterling silver jewelry and watches
to leverage the Birks and Mayors brands’ loyalty in their
respective markets and to differentiate its products with unique
and exclusive designs. In addition, Birks sells many of the
finest brand name Swiss timepieces that are often not available
from other jewelers in its markets.
Birks’ Canadian stores, operating under the Birks brand,
carry a large selection of brand name watches, including its own
proprietary watch line as well as watches made by Cartier,
Baume & Mercier, Omega, Tag Heuer, Breitling, Jaeger Le
Coultre, Gucci, Concorde, Rado, Longines, Mont Blanc, Lockman
and Tissot. Birks also carries an exclusive collection of high
quality jewelry and watches that it manufactures. Birks
emphasizes its own jewelry offerings and particularly its
signature designers, Toni Cavelti, Michele della Valle
110
and Esty but also includes designer jewelry made by Roberto
Coin, Kwiat, Ladyheart, which are exclusive to Birks stores in
Canada, and carries a variety of high quality giftware,
including writing instruments and giftware made by Mont Blanc.
Birks’ U.S. stores, operating under the Mayors brand,
carry a large selection of brand name watches, including watches
made by Rolex, Cartier, Patek Philippe, Baume &
Mercier, Omega, Charriol, Tag Heuer, Breitling, Locman, Corum,
Rado, Chopard, Jaeger Le Coultre and Raymond Weil. Designer
jewelry offerings in Birks’ stores operating under the
Mayors brand include jewelry made by David Yurman, Aaron Basha,
Charriol, Roberto Coin and DiModolo and a variety of high
quality giftware, including writing instruments and giftware
made by Correia and Mont Blanc. In addition, stores operating
under the Mayors brand carry Birks brand watches and jewelry
products on an exclusive basis in the United States.
Birks has two primary channels of distribution: the retail sale
division, which accounts for 96.6% of sales, and the corporate
sales division, which accounts for 3.4% of sales. It also
operates secondary distribution channels such as direct
marketing and internet sales.
Product Development and Sourcing
Birks established a product development process that supports
Birks’ strategic mission to further develop and enhance
Birks’ product offering in support of brand development.
The centerpiece of this process is the Design Review Committee,
which ultimately approves all new product introductions.
Products which are not internally manufactured are sourced from
suppliers worldwide, enabling Birks to sell fine quality
merchandise often not available from other jewelers in its
markets. Birks’ staff of buyers procures distinctive high
quality merchandise directly from manufacturers, diamond
cutters, and other suppliers worldwide. Birks’ gemstone
acquisition team, product sourcing team and category managers
specialize in sourcing merchandise in categories such as
diamonds, precious gemstones, pearls, watches, gold jewelry, and
giftware. Retail and merchandising personnel frequently visit
both Birks’ and competitors’ stores to compare value,
selection, and service, as well as to observe client reaction to
merchandise selection and determine future needs and trends.
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Diamond, Gemstone, Pearl and Precious Metal Jewelry
|
In fiscal 2004, revenues from sales of diamond and precious
gemstone and metal jewelry represented approximately 47% of
Birks’ total net sales. Birks purchases unset diamonds,
gemstones and precious jewelry directly from cutters in
international markets, such as Antwerp, Bangkok, Tel Aviv, and
New York, gold jewelry from Italy and pearls from suppliers in
Japan and Canada. These diamonds and other gemstones are
frequently furnished to Birks’ in-house jewelry studios, as
well as independent jewelers and goldsmiths, for setting,
polishing and finishing in order to deliver a distinctive high
quality finished product at the best possible value.
Birks purchases watches from a number of leading manufactures
and suppliers. During fiscal 2004, merchandise supplied by
Rolex, Birks’ largest supplier, accounted for approximately
23% of Birks’ total net sales. Rolex merchandise is carried
only in stores operated under the Mayors brand. Certain brand
name watch manufacturers, including Rolex, have distribution
agreements with Birks that provide, among other things, for
specific sales locations, yearly renewal terms, and early
termination provisions at the manufacturer’s discretion.
Additionally, Birks carries its own proprietary watch line.
In fiscal 2004, Birks purchased jewelry and giftware for sale in
its stores from over 200 suppliers. Many of these suppliers have
long-standing relationships with Birks. Service revenues for
watch and jewelry repairs, remountings, silver replating and
watch battery changes and refurbishments amount to approximately
7% of net sales, and are an important source of traffic to
Birks’ stores.
111
Birks has manufacturing facilities in Montreal, Vancouver, Rhode
Island and Florida that enable Birks to offer unique, exclusive
and high-quality products through an efficient supply chain.
Birks’ manufacturing capabilities provide quality control;
image enhancement by enabling Birks to promote its craftsmanship
and exclusive design and manufacturing capabilities; improved
economics by retaining the margin that would otherwise be paid
to a third party provider; and capability to provide customized
and/or special design jewelry for customers.
The Montreal facility is the largest of Birks’
manufacturing facilities and is involved in all aspects of
manufacturing fine jewelry with the exception of the cutting of
rough diamonds and other precious stones. Its focus is on
manufacturing stone set jewelry. The Rhode Island factory is
involved in the production of silver and gold jewelry as well as
in stone set jewelry, while each of the Vancouver and Florida
facilities focus on specific types of stone set jewelry.
Availability of Products
Although purchases of several critical raw materials, notably
gold and gemstones, are made from a relatively limited number of
sources, Birks believes that there are numerous alternative
sources for all raw materials used in the manufacture of its
finished jewelry, and that the failure of any principal supplier
would not have a material adverse effect on operations. Any
material changes in foreign or domestic laws and policies
affecting international trade may have a material adverse effect
on the availability of the diamonds, other gemstones, precious
metals and non-jewelry products purchased by Birks.
Birks competes with other jewelry retailers for access to
vendors that will provide it with the quality and quantity of
merchandise necessary to operate its business. Birks’
relationships with its primary suppliers, like Rolex, are
generally not pursuant to long-term agreements. Although Birks
believes that alternative sources of supply are available, the
abrupt loss of any of its vendors, especially Rolex, or a
decline in the quality or quantity of merchandise supplied by
its vendors could cause significant disruption in its business.
In fiscal 2004, merchandise supplied by Rolex and sold through
Birks’ stores operating under the Mayors brand accounted
for approximately 23% of Birks’ total net sales. If Rolex
terminated its distribution agreement, such termination would
have a material adverse effect on Birks’ business,
financial condition and operating results. Birks believes that
its relationships with its vendors are good.
Seasonality
Birks’ sales are highly seasonal, with the third fiscal
quarter (which includes the holiday shopping season)
historically contributing significantly higher sales than any
other quarter during the year. Approximately 40% of Birks’
fiscal 2004 net sales were made during the third fiscal
quarter.
Retail Operations, Merchandising and Marketing
Birks believes it distinguishes itself from most of its
competitors by offering distinctively designed, exclusive
products and a selection of distinctive high quality merchandise
at a wide range of price points. Birks keeps the majority of its
inventory on display in its stores rather than at its
distribution facility. Although each store stocks a
representative selection of jewelry, watches, giftware and other
accessories, certain inventory is tailored to meet local tastes
and historical merchandise sales patterns of specific stores.
Birks believes that its stores’ elegant surroundings and
distinctive merchandise displays play an important role in
providing an atmosphere that encourages sales. Birks pays
careful attention to detail in the design and layout of each of
its stores, particularly lighting, colors, choice of materials
and placement of display cases. Birks also uses its window
displays as a means of attracting walk-in traffic and
reinforcing its distinctive image. Birks’ Visual Display
department designs and creates window and store merchandise case
displays for all of its stores. Window displays are frequently
changed to provide variety and to reflect seasonal events such
as Christmas, Valentine’s Day and Mother’s Day.
112
Birks places substantial emphasis on the professionalism of its
sales force to maintain its position as a leading luxury
jeweler. Birks strives to hire only highly motivated,
professional and customer-oriented individuals. All new sales
professionals will attend an intensive training program where
they are trained in technical areas of the jewelry business,
specific service techniques and Birks’ commitment to client
service. Management believes that attentive personal service and
knowledgeable sales professionals are key components to
Birks’ success.
As part of Birks’ commitment to continuous, on-the-job
training, Birks established “Birks University” and
“Mayor’s University,” a formalized system of
in-house training with a primary focus on client service,
selling skills and product knowledge that involves extensive
classroom training, the use of detailed operational manuals,
in-store mentorship programs and product knowledge testing. In
addition, Birks conducts in-house training seminars on a
periodic basis and administers training modules with audits to
(i) enhance the quality and professionalism of all sales
professionals, (ii) measure the level of knowledge of each
sales professional, and (iii) identify needs for additional
training. Birks also provides store management with more
extensive management and client service training that emphasizes
leadership skills, general management skills,
“on-the-job” coaching and training instruction
techniques.
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Advertising and Promotion
|
Birks’ marketing goal is to build on its reputation in its
core markets as a leading luxury jeweler offering high quality
merchandise in an elegant, sophisticated environment. For
example, Birks frequently runs advertisements that associate the
“Birks” and “Mayors” brands with
internationally recognized brand names such as Rolex, Patek
Philippe and Cartier. Advertising and promotions for all stores
are developed by Birks’ personnel in conjunction with
outside creative professionals.
Birks’ advertising reinforces its role as a fashion leader
that aims to deliver a total shopping experience that is as
memorable as its merchandise. Birks’ marketing efforts,
which consist of advertising, billboards, direct mailings,
special events, media relations/ PR, distinctive store design
and elegant displays, are shaped in large part by the brand
positioning strategies as well as demographic and consumer
trends affecting both the jewelry industry generally and the
markets in which Birks operates.
Birks has two private label credit cards, one for each of its
brands. The Canadian operation for stores operating under the
Birks brand is administered by Wells Fargo Canada, a wholly
owned Canadian subsidiary of Wells Fargo. The
U.S. operation for stores operating under the Mayors brand
is administered, principally, by Wells Fargo. In addition,
stores operating under the Mayors brand also have a Mayor’s
private label credit card which is administered by Birks.
Birks’ credit programs are intended to complement its
overall merchandising and sales strategy by encouraging larger
and more frequent sales to a loyal customer base. Sales under
the Birks credit card, which are made with less than 15%
recourse to Birks, accounted for approximately 23% of
Birks’ net retail sales during fiscal 2004, excluding sales
attributable to stores operating under the Mayors brand. Sales
under Mayor’s proprietary credit card and Mayor’s
private label credit card, which are made without recourse to
Birks, together accounted for approximately 27% of Mayor’s
net sales during fiscal 2004.
Customers are also offered the opportunity to utilize
Birks’ layaway plan, which allows them to set aside and pay
for items over a limited period of time with no interest charges.
Distribution
Birks’ retail locations receive the majority of their
merchandise directly from Birks’ distribution warehouses
located in Sunrise, Florida and Montreal, Canada. Merchandise is
shipped from the distribution warehouse utilizing various air
and ground carriers. Birks also transfers merchandise between
retail locations
113
to balance inventory levels and to fulfill client requests, and
a small portion of merchandise is delivered directly to the
retail locations from suppliers.
Competition
The North American retail jewelry industry, which is an
approximately $54 billion annual market, is highly
competitive and fragmented, with a few very large national and
international competitors and many medium and small regional and
local competitors. The market is also fragmented by price and
quality. Although Birks is a luxury jeweler, it competes with
companies within and outside of this segment. Birks’
competitors include national and international jewelry chains as
well as independent regional and local jewelry retailers. Birks
also competes with other types of retailers such as department
stores and, to a lesser extent, catalog showrooms, discounters,
direct mail suppliers, televised home shopping networks, and
Internet sites. Many of these competitors have greater financial
resources than Birks. Birks believes that competition in its
markets is based primarily on trust, quality craftsmanship,
product design and exclusivity, product selection, service
excellence, including after sales service, and, to a certain
extent, price. With the consolidation of the retail industry
that is occurring, Birks believes that competition with other
general and specialty retailers and discounters will continue to
increase. Birks’ success will depend on various factors,
including general economic and business conditions affecting
consumer spending, the performance of national and international
retail operations, the acceptance by consumers of Birks’
merchandising and marketing programs, store locations and
Birks’ ability to properly staff and manage its stores.
Regulation
Birks’ operations are affected by numerous federal,
provincial and state laws that impose disclosure and other
requirements upon the origination, servicing and enforcement of
credit accounts and limitations on the maximum amount of finance
charges that may be charged by a credit provider. In addition to
Birks’ proprietary private label credit cards, credit to
Birks’ clients is primarily through credit cards such as
American Express®, Visa®, Mastercard® and
Discover®, without recourse to Birks based upon a
client’s failure to pay. Any change in the regulation of
credit that would materially limit the availability of credit to
Birks’ traditional customer base could adversely affect
Birks’ results of operations and financial condition.
Birks generally utilizes the services of independent customs
agents to comply with U.S. and Canadian customs laws in
connection with its purchases of gold, diamond and other jewelry
merchandise from foreign sources.
Trademarks and Copyrights
The designations Birks and Mayors, and the Birks and Mayors
logos, are Birks’ principal trademarks and are essential to
Birks’ ability to maintain its competitive position in the
luxury jewelry segment. Birks maintains a program to protect its
trademarks and will institute legal action where necessary to
prevent others from either registering or using marks that are
considered to create a likelihood of confusion with Birks’
trademarks. Birks is also the owner of the original jewelry
designs created by its in-house designers and has entered into
agreements with several outside designers pursuant to which
these designers have assigned to Birks the rights to use
copyrights of designs and products created for Birks.
Employees
As of the date of this proxy statement prospectus, Birks
employed approximately 1,170 persons on a full-time basis. Birks
usually hires a limited number of temporary employees during
each Holiday season. None of its employees are governed by a
collective bargaining agreement. Birks believes its relations
with its employees are good and Birks intends to continue to
place an emphasis on employee training, communication and
involvement in Birks’ future success.
114
Properties
Birks’ head office is in Montreal, Canada. On
December 12, 2000, Birks sold its head office building for
Cdn$14,250,000 to Anglo Canadian Investments, L.P. As a
condition of the transaction, Birks agreed that it would lease,
on a net basis, the entire property from the purchaser, acting
as landlord. Birks entered into a lease agreement pursuant to
which Birks leases the office for a term of 20 years ending
December 11, 2020. The current net annual rental rate is
Cdn$1,512,500 for the period terminating on December 11,
2006, and increases on a compounded basis by 10% on each third
annual anniversary date thereafter. The lease is an absolute net
lease to the landlord, and Birks is responsible for any and all
additional expenses, including, without limitation, taxes and
structural expenses. Subject to specific terms and conditions,
Birks has four options to renew and extend the term of the lease
for four further terms of five years each except for the last
option which is five years less eleven days, terminating on
November 30, 2040. Subject to specific terms and
conditions, Birks also has two options to purchase the premises,
which may be exercised no later than six months prior to the end
of the fifteenth year of the term of the lease and the end of
the twentieth year of the term of the lease, respectively.
Birks’ U.S. operations are managed though a local
headquarters located in Sunrise, Florida.
Birks leases all of its store locations. Birks believes that all
of its facilities are well maintained and in good condition and
are adequate for its current needs. Birks is actively
negotiating all leases that expire in the next 12 months.
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Size
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(Square Feet)
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Expiration of Lease
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Location
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Operating Stores
|
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|
|
|
|
|
|
|
|
|
|
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|
Bayshore Centre
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2,519
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September 2008
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Nepean, ON
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Bloor
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15,620
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|
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September 2014
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Toronto, ON
|
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Carrefour Laval
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3,425
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June 2012
|
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Laval, QC
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Chinook Shopping Centre
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2,342
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March 2015
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Calgary, AB
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Cornwall Centre
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2,349
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|
|
|
April 2010
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Regina, SK
|
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Fairview Mall
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2,115
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|
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|
August 2008
|
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North York, ON
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Fairview Pointe-Claire
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4,210
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January 2007
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Pointe-Claire, QC
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First Canadian Place
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2,243
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May 2008
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Toronto, ON
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Guildford Town Centre
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3,755
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August 2007
|
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Surrey, B.C.
|
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|
Halifax
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3,316
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|
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|
January 2009
|
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Halifax, N.S.
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Hillside Shopping Centre
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3,639
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|
|
|
March 2010(1)
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|
Victoria, B.C.
|
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Lime Ridge Mall
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2,473
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|
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September 2011
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Hamilton, ON
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London Galleria
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5,179
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|
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|
August 2009
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London, ON
|
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Manulife Place
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4,196
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|
|
|
November 2009
|
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|
|
Edmonton, AB
|
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|
Montreal Store
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19,785
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(2)
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|
December 2020
|
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Montreal, QC
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Oakridge Shopping Centre
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2,176
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|
May 2008
|
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Vancouver, B.C.
|
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Oakville Place
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2,729
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|
|
|
March 2010(1)
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Oakville, ON
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Park Royal
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3,537
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|
September 2007
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West Vancouver, B.C.
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Pen Centre
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3,588
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April 2007
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St. Catherines, ON
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Place Ste-Foy
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4,048
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November 2005
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Ste-Foy, QC
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Polo Park Centre
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3,920
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|
|
|
January 2007
|
|
|
|
Winnipeg, MB
|
|
|
Promenades St-Bruno
|
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2,335
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|
|
|
February 2008
|
|
|
|
St-Bruno, QC
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Rideau Centre
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7,233
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|
|
|
April 2009
|
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|
|
Ottawa, ON
|
|
|
Richmond Centre
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1,562
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|
|
|
April 2007(3)
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|
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Richmond, B.C.
|
|
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Rockland Centre
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3,019
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|
|
|
August 2008
|
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Mont Royal, QC
|
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Saskatoon
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4,280
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|
|
|
October 2008
|
|
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Saskatoon, SK
|
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Scarborough Town Centre
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3,709
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|
|
|
May 2008
|
|
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Scarborough, ON
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Sherway Gardens
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4,611
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|
|
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February 2010
|
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Etobicoke, ON
|
|
115
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Size
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|
|
|
|
|
|
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(Square Feet)
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|
|
Expiration of Lease
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Location
|
|
|
|
|
|
|
|
|
|
|
|
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|
Southcentre Shopping Centre
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2,986
|
|
|
|
August 2009
|
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Calgary, AB
|
|
|
Southgate Shopping Centre
|
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|
2,905
|
|
|
|
September 2008
|
|
|
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Edmonton, AB
|
|
|
Square One
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|
|
3,211
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|
|
|
April 2012
|
|
|
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Mississauga, ON
|
|
|
St-John
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|
3,306
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|
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|
Fall 2005(4)
|
|
|
|
St-John, N.B.
|
|
|
Toronto Dominion Square
|
|
|
7,895
|
|
|
|
October 2011
|
|
|
|
Calgary, AB
|
|
|
Toronto Eaton Centre
|
|
|
4,470
|
|
|
|
April 2012
|
|
|
|
Toronto, ON
|
|
|
Vancouver
|
|
|
20,221
|
|
|
|
January 2010
|
|
|
|
Vancouver, B.C.
|
|
|
Victoria
|
|
|
2,460
|
|
|
|
December 2011
|
|
|
|
Victoria, B.C.
|
|
|
West Edmonton Mall
|
|
|
3,730
|
|
|
|
March 2010
|
|
|
|
Edmonton, AB
|
|
|
Whistler
|
|
|
552
|
|
|
|
December 2008
|
|
|
|
Whistler, B.C.
|
|
|
Yorkdale
|
|
|
2,530
|
|
|
|
April 2015
|
|
|
|
Toronto, ON
|
|
|
Altamonte Mall
|
|
|
5,782
|
|
|
|
January 2011
|
|
|
|
Altamonte Springs, FL
|
|
|
Aventura Mall
|
|
|
3,447
|
|
|
|
January 2009
|
|
|
|
N. Miami Beach, FL
|
|
|
Bell Tower
|
|
|
4,578
|
|
|
|
January 2012
|
|
|
|
Fort Myers, FL
|
|
|
Boca Town Center
|
|
|
5,878
|
|
|
|
January 2007
|
|
|
|
Boca Raton, FL
|
|
|
Brandon Town Center
|
|
|
4,110
|
|
|
|
June 2005
|
|
|
|
Brandon, FL
|
|
|
Broward Mall
|
|
|
2,236
|
|
|
|
January 2010
|
|
|
|
Plantation, FL
|
|
|
Buckhead Store
|
|
|
10,000
|
|
|
|
April 2009
|
|
|
|
Atlanta, GA
|
|
|
Citrus Park Town Center
|
|
|
3,953
|
|
|
|
January 2010
|
|
|
|
Tampa, FL
|
|
|
City Place at West Palm Beach
|
|
|
6,113
|
|
|
|
January 2011
|
|
|
|
West Palm Beach, FL
|
|
|
Dadeland Mall
|
|
|
5,700
|
|
|
|
January 2007
|
|
|
|
Miami, FL
|
|
|
The Falls
|
|
|
1,643
|
|
|
|
January 2009
|
|
|
|
Miami, FL
|
|
|
Florida Mall
|
|
|
5,070
|
|
|
|
January 2010
|
|
|
|
Orlando, FL
|
|
|
The Galleria at Fort Lauderdale
|
|
|
3,682
|
|
|
|
January 2005(5)
|
|
|
|
Ft. Lauderdale, FL
|
|
|
International Plaza
|
|
|
5,583
|
|
|
|
January 2012
|
|
|
|
Tampa, FL
|
|
|
Lenox Square Mall
|
|
|
4,587
|
|
|
|
December 2005
|
|
|
|
Atlanta, GA
|
|
|
Lincoln Road
|
|
|
4,250
|
|
|
|
May 2009
|
|
|
|
Miami Beach, FL
|
|
|
Mall of Georgia
|
|
|
3,486
|
|
|
|
January 2010
|
|
|
|
Buford, GA
|
|
|
Mall at Millenia
|
|
|
4,532
|
|
|
|
January 2013
|
|
|
|
Orlando, FL
|
|
|
Mall at Wellington Green
|
|
|
4,001
|
|
|
|
January 2012
|
|
|
|
Wellington, FL
|
|
|
Miami International Mall
|
|
|
3,226
|
|
|
|
January 2006
|
|
|
|
Miami, FL
|
|
|
North Point Mall
|
|
|
4,752
|
|
|
|
January 2012
|
|
|
|
Alpharetta, GA
|
|
|
Perimeter Mall
|
|
|
5,157
|
|
|
|
January 2009
|
|
|
|
Atlanta, GA
|
|
|
PGA Commons(6)
|
|
|
5,197
|
|
|
|
April 2014
|
|
|
|
Palm Beach Gardens, FL
|
|
|
Seminole Towne Center
|
|
|
3,461
|
|
|
|
January 2006
|
|
|
|
Sanford, FL
|
|
|
The Shops at Sunset Place
|
|
|
2,051
|
|
|
|
January 2010
|
|
|
|
South Miami, FL
|
|
|
Southgate Plaza
|
|
|
4,605
|
|
|
|
March 2010
|
|
|
|
Sarasota, FL
|
|
|
Treasure Coast Square
|
|
|
2,506
|
|
|
|
January 2006
|
|
|
|
Jensen Beach, FL
|
|
|
Village of Merrick Park
|
|
|
4,894
|
|
|
|
January 2013
|
|
|
|
Coral Gables, FL
|
|
|
|
|
Other Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rhode Island(8)
|
|
|
19,200
|
|
|
|
March 2025(7)
|
|
|
|
Woonsocket, R.I.
|
|
|
Cavelti Factory(8)
|
|
|
828
|
|
|
|
January 2006
|
|
|
|
Vancouver, B.C.
|
|
|
Overdale Avenue(9)
|
|
|
15,000
|
|
|
|
February 2007
|
|
|
|
Montreal, QC
|
|
116
|
|
|
|
(1)
|
Based on terms and conditions of a negotiated lease that has not
yet been fully executed.
|
|
|
|
(2)
|
This represents the retail square footage. The total area of
Birks’ head office building, which includes the Montreal
store is 78,229 square feet. The remaining area of
58,444 square feet is used for offices, factories and a
distribution center.
|
|
|
|
(3)
|
The lease includes one time option for an early termination of
the lease, in favor of Birks, which can be exercised between
April 2005 and October 2005.
|
|
|
|
(4)
|
Birks sold its St. John store in March 2005 and is planning to
relocate to a new leased location in the fall of 2005. The new
lease is for a 2,038 square foot store and expires in
August 2015.
|
|
|
|
(5)
|
Negotiations are underway for a new lease with additional space.
|
|
|
|
(6)
|
This store opened on April 2, 2004 and was a relocation to
a free standing store format from the previous location within
The Gardens of the Palm Beaches Mall.
|
|
|
|
(7)
|
In March 2005 Birks entered into a 20-year financing lease, at
the end of which Birks will have the option to purchase the
property for $1,000. For tax purposes, Birks is considered the
current owner of the property.
|
|
|
|
(8)
|
Manufacturing facility.
|
|
|
|
(9)
|
Distribution center.
|
Total annual base rent for these locations for the year ended
March 26, 2005 was approximately $12.6 million.
Legal Proceedings
Birks is from time to time involved in litigation incident to
the conduct of its business. Although such litigation of Birks
is routine and incidental, and such litigation can result in
large monetary awards for compensatory or punitive damages,
Birks believes that no litigation that is currently pending or
threatened will have a material adverse effect on Birks’
financial condition. On December 1, 2004, Mayor’s was
notified that the SEC was conducting an informal inquiry
regarding Mayor’s. The SEC has requested documents
primarily relating to the warrants that Mayor’s issued to
Birks in connection with Birks’ equity investment in
Mayor’s in August 2002. Birks is fully cooperating with the
SEC inquiry. See “Summary — Recent
Developments.”
117
MANAGEMENT OF BIRKS
The existing directors and officers of Birks will remain as
directors and officers of Birks immediately following the merger.
Executive Officers and Directors
The following table sets forth information about Birks’
executive officers and directors, and their respective ages and
positions as of the date of this proxy statement/ prospectus:
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position
|
|
|
|
|
|
|
|
|
Dr. Lorenzo Rossi di Montelera
|
|
|
64
|
|
|
Chairman of the Board
|
|
Thomas A. Andruskevich
|
|
|
54
|
|
|
President, Chief Executive Officer, and Director
|
|
Shirley A. Dawe
|
|
|
59
|
|
|
Director
|
|
Margherita Oberti
|
|
|
60
|
|
|
Director
|
|
Peter R. O’Brien
|
|
|
59
|
|
|
Director
|
|
Filippo Recami
|
|
|
54
|
|
|
Director
|
|
Lawrence Litowitz
|
|
|
54
|
|
|
Interim Chief Financial Officer and Principal Accounting Officer
|
|
Daisy Chin-Lor
|
|
|
51
|
|
|
Senior Vice President and Chief Marketing Officer
|
|
Carlo Coda-Nunziante
|
|
|
41
|
|
|
Group Vice President for Strategy and Business Development
|
|
Randolph Dirth
|
|
|
50
|
|
|
Group Vice President, Merchandising
|
|
John C. Orrico
|
|
|
48
|
|
|
Group Vice President, Supply Chain Operations
|
|
Marco I. Pasteris
|
|
|
44
|
|
|
Group Vice President for Finance
|
|
Sabine Bruckert
|
|
|
44
|
|
|
Vice President, General Counsel, and Corporate Secretary
|
|
Jocelyn Désy
|
|
|
53
|
|
|
Vice President, Corporate Sales
|
|
Hélène Messier
|
|
|
45
|
|
|
Vice President, Human Resources
|
|
Albert J. Rahm, II
|
|
|
52
|
|
|
Vice President, Retail Store Operations
|
Directors
Dr. Lorenzo Rossi di Montelera
, age 64, has
served as Chairman of the board of directors of Birks since
1993. He is also on the board of directors of Regaluxe,
Vonwiller S.A. (Geneva), a portfolio management and financial
services firm, Bacardi Martini B.V., Azimut S.p.A. and the
Advisory Board of the Global Leadership Institute of New York.
Dr. Rossi is the father-in-law of Mr. Carlo
Coda-Nunziante who is the Group Vice President-Strategy and
Business Development for Mayor’s.
Thomas A. Andruskevich
, age 54, has been President
and Chief Executive Officer of Birks since June 1996 and joined
the board of directors of Birks in 1999. Since August, 2002, he
has been the President, Chief Executive Officer, and Chairman of
the board of directors of Mayor’s. From 1994 to 1996, he
was President and Chief Executive Officer of the clothing
retailer Mondi of America. From 1989 to 1994, he was Executive
Vice President of International & Trade of
Tiffany & Co., and from 1982 to 1989,
Mr. Andruskevich served as Senior Vice President and Chief
Financial Officer of Tiffany & Co. He also serves on
the board of directors of Brazilian Emeralds, Inc., Mayor’s
and The Robbins Company.
Shirley A. Dawe
, age 59, has been a member of the
board of directors of Birks since 1999. She is also a Corporate
Director and has been President of Shirley Dawe Associates Inc.,
a Toronto-based management consulting company specializing in
the retail sector since 1986. From 1969 to 1985, she held
progressively senior executive positions with Hudson’s Bay
Company. Her expertise in the retail sector led to her
appointment on industry-specific public task forces and to
academic and not-for-profit boards of directors. Her wide
management and consumer marketing experience brought
Ms. Dawe to the boards of directors of
118
numerous public and private companies in Canada and the United
States. She currently serves on the boards of directors of
National Bank of Canada, Oshkosk B’Gosh and The Bon-Ton
Stores, Inc.
Margherita Oberti
, age 60, has been a member of the
board of directors of Birks since 1993. Ms. Oberti was born
near Turin, Italy, and resides in West Vancouver, B.C. Before
coming to Canada, she studied at the University of Turin, where
she obtained a Doctorate in Philosophy, and at the University of
Milan, where she did post-doctoral studies in epistemology.
After coming to Canada she also obtained a doctorate in
classical studies from the University of British Columbia.
Mrs. Oberti has been active in charity work, as a director
of the Vancouver Foundation of Art Justice and Liberty, in
education as a college professor, and in business as a director
and officer of several companies, including Eccom Developments
Ltd., the development company that built and sold two trend
setting residential high rises, Seawalk Place, in West
Vancouver, B.C. and Palais Georgia, in Vancouver.
Peter R. O’Brien
, age 59, has been a director
of Birks since 1993. Mr. O’Brien resides in Montreal,
Canada and is a senior corporate partner in the Montreal office
of Stikeman Elliott LLP, where he has worked since 1971. He has
a varied practice in corporate and commercial law, acquisitions
and real estate. He was the founding chairman of the Canadian
Irish Studies Foundation, is a past chairman of the Montreal
General Hospital Foundation, and is currently Chairman of the
board of directors of the McGill University Health Centre
Foundation.
Filippo Recami
, age 54, has been a director of Birks
since November 1, 1999 and a Managing Director of
Iniziativa S.A. (Luxemborg) since the beginning of 1999.
Mr. Recami has also been the Chief Executive Officer and
Managing Director of Regaluxe since March 1999. He is also on
the Mayor’s board of directors. Between 1978 and 1998,
Mr. Recami had held senior management positions in several
major public European corporations including Fiat S.p.A.
(Italy), Sorin Biomedica S.p.A. (Italy), Sorin France S.p.A.
(France), SNIA S.p.A. (Italy), and Rhône Poulenc S.A.
(France). Mr. Recami holds a Certified Public Accountant
title given by the Ministry of Justice of the Italian Government.
Other Executive Officers
Lawrence Litowitz
, age 54, has served as Interim
Chief Financial Officer and Principal Accounting Officer of
Birks since February 17, 2005. He has held the same
position with Mayor’s since December 16, 2004. For the
five years prior, Mr. Litowitz has also served as a partner
of Tatum CFO Partners, LLP. He has significant experience in
mergers and acquisitions, venture capital, capital raising and
turnaround situations. He has served as Senior Vice-President
and Chief Financial Officer of Master Collision Repair, Inc, a
network of auto repair facilities in Florida, and Chief
Financial Officer of Galen Partners, a venture capital firm with
over $400 million under management. Mr. Litowitz has
also taught accounting at Brooklyn College and served on several
boards of directors. He holds a Bachelor of Science in
accounting from Brooklyn College and a Masters in Business
Administration from New York University.
Daisy Chin-Lor
, age 51, has been Senior Vice
President and Chief Marketing Officer for Birks and Mayor’s
since April 1, 2005. Ms. Chin-Lor has extensive
experience in the international luxury goods environment,
specifically in the area of high-end cosmetics. From 2002 to
2004, Ms. Chin-Lor was the Executive Vice President and
Chief Marketing Officer for Elizabeth Arden Spas. From 2000 to
2001 she was the Executive Director of Russell Reynolds
Associates. Prior to 2000, Ms. Chin-Lor spent two years
establishing a market presence for Chanel in Thailand and spent
nearly 20 years working for Avon Products.
Ms. Chin-Lor holds a Bachelor of Arts from Hunter College
of New York.
Carlo Coda-Nunziante
, age 41, has been the Group
Vice-President for Strategy and Business Development since 2002.
Prior to joining Birks, Mr. Coda-Nunziante worked for A.T.
Kearney in Milano, Italy from 1999 to 2002. From 1994 to 1998
Mr. Coda-Nunziante worked for Whirlpool Corporation in
Italy, the United States and Singapore. He holds a Masters in
Business Administration from Columbia Business School and a
degree in Mechanical Engineering from the Universita Degli Studi
di Firenze, Italy. Mr. Coda-Nunziante is employed directly
by Mayor’s. Mr. Coda-Nunziante is also the son-in-law
of Dr. Rossi.
119
Randolph Dirth
, age 50, has been the Group Vice
President, Merchandising since July 2004, prior to which time he
did merchandising consulting for Birks for 7 months. Before
joining Birks, Mr. Dirth managed, as the founder, Gourmet
Giftmail a web-based food gift business from 1997 to 2003. From
2000 to 2001, he was CEO of Greater Good. Prior to such
position, he held different executive positions in specialty
retailing companies including Brookstone, Williams-Sonoma and
Macy’s. Mr. Dirth graduated from the University of
California at Berkeley with post-graduate business curriculum
and an A.B. in English.
John C. Orrico
, age 48, has been Group Vice
President, Supply Chain Operations since September 2003. In this
role, Mr. Orrico is responsible for Product Development,
Gemstone Operations, Manufacturing as well as the Central Watch
Division. Before joining Birks and Mayor’s, Mr. Orrico
was Group Vice President, Merchandising Supply Chain Operations
at Tiffany & Co. Mr Orrico spent 14 years at
Tiffany & Co. where he developed its manufacturing and
supply chain strategies and oversaw its operations in Cumberland
RI, Cranston RI, Pelham NY, Parsippany NJ and was President of
Judel Products in Salem as well as LeTallec in Paris and the
Swiss Watch Factory, West Virginia.
Marco Pasteris
, age 44, is the Group Vice President
Finance for Birks and has been with Birks since 1993. Since
August 2002, he has held the same position with Mayor’s.
Since 1996, he has served as Chief Operating Officer of Henry
Birks & Sons Holdings Inc. Prior to joining Birks he
spent six years with Gruppo Finanziario Textile, one of the
largest multinational firms in the textile industry active in
production, distribution and retail of such brands as Giorgio
Armani, Ungaro, and Valentino. During his tenure at Gruppo
Finanziario Textile, Mr. Pasteris held several positions in
finance and control, leading to the position of Controller of
International Operations. Mr. Pasteris graduated in 1984
from the Università d’Economia e Commercio in Torino,
Italy with a B. SC. in business and economics. He also holds a
Masters in Business Administration with a specialization in
international business and finance from New York
University’s Graduate School of Business Administration.
Sabine Bruckert
, age 44, is the Vice President and
General Counsel, Corporate Secretary for Birks and has been with
Birks since 1993. Prior to joining Birks, she was a member of
the Paris Bar and had spent six years working with Price
Waterhouse in Paris in the corporate, labour and tax departments
where she gained experience in international transactions.
Ms. Bruckert graduated in 1981 from the Pantheon Sorbonne
University with a Bachelors of Law. Subsequently, she obtained a
Master in Business Law in 1982 and a post-graduate studies
diploma in Commerce Finance and International Taxation Law.
Ms. Bruckert was admitted to the Quebec Bar in 1992.
Jocelyn Désy
, age 53, has been the Vice
President, Corporate Sales since May 2004. Prior to joining
Birks, Mr. Désy spent 2 years as president of a
public software company, 3 years as a Vice President of
Business Development of Kangacom Inc., a joint venture driven by
Bell-Canada, and over 20 years at Bell-Canada as an
assistant Vice President of Sales and Marketing.
Mr. Désy graduated from Montreal Polytechnic in 1974
with a degree in engineering. He is presently studying for a
Masters of Business Administration in Finance. He is a member of
the Order of Engineers of Quebec.
Hélène Messier
, age 45, has been the Vice
President, Human Resources since November 2000. Prior to joining
Birks, Ms. Messier spent 3 years as Assistant General
Manager of the Quebec Milk Producer and 15 years in
different human resources and operation positions with Bell
Canada. Ms. Messier graduated in 1982 from the University
of Quebec with a Bachelor’s Degree in Commerce.
Subsequently, she obtained a Masters of Business Administration
in 1990 from HEC Montreal. She is a member of various
professional associations and participates in different
professional training and seminars in her area of expertise.
Albert J. Rahm, II
, age 52, oversees the retail
operations of Birks as Vice President, Retail Store Operations
and has been employed in that position since May 2004. Since
April 1991, Mr. Rahm has served in various positions at
Mayor’s, and currently serves as Vice President —
Retail. Prior to joining Mayor’s in April 1991,
Mr. Rahm owned and operated three retail jewelry stores for
a fourteen-year period in Shreveport, Louisiana.
120
Board Committees
Upon completion of the merger, Birks will have the following
committees:
The audit committee is currently comprised of Shirley A. Dawe,
Peter R. O’Brien and Filippo Recami. Each member of the
audit committee is financially literate. None of the members of
the audit committee qualify as an “audit committee
financial expert” as defined in the rules of the American
Stock Exchange. The composition of the audit committee will
satisfy the independence requirements of the American Stock
Exchange and the SEC within the prescribed time periods, which
require one independent member upon initial listing, a majority
of independent members within 90 days of listing and a
fully independent committee within one year of listing. The
audit committee will operate under a written charter adopted by
the board of directors. The audit committee will review the
scope and results of the annual audit of Birks’
consolidated financial statements conducted by Birks’
independent auditors, the scope of other services provided by
Birks’ independent auditors, proposed changes in
Birks’ financial accounting standards and principles, and
Birks’ policies and procedures with respect to its internal
accounting, auditing and financial controls. The audit committee
will also examine and consider other matters relating to the
financial affairs and accounting methods of Birks, including
selection and retention of Birks’ independent auditors.
Birks’ board will designate a nominating committee
consisting of at least three directors. The composition of the
nominating committee will satisfy the independence requirements
of the American Stock Exchange within the prescribed time
periods, which require one independent member upon initial
listing, a majority of independent members within 90 days
of listing and a fully independent committee within one year of
listing. The nominating committee will be responsible for
nominating potential nominees to the board of directors.
Birks’ policy with regard to the consideration of any
director candidates recommended by a stockholder is that Birks
will consider such candidates and evaluate such candidates by
the same process as candidates identified by the nominating
committee. The nominating committee will operate under a written
charter adopted by the board of directors.
|
|
|
|
|
Corporate Governance Committee
|
Birks’ board will designate a corporate governance
committee consisting of at least three directors. The
composition of the corporate governance committee will satisfy
the independence requirements of the American Stock Exchange
within the prescribed time periods, which require one
independent member upon initial listing, a majority of
independent members within 90 days of listing and a fully
independent committee within one year of listing. The corporate
governance committee will operate under a written charter
adopted by the board of directors. The corporate governance
committee will be responsible for overseeing all aspects of
Birks’ corporate governance policies. In this regard, the
corporate governance committee will review and approve without
limitation the following: transactions, plans, purchases, sales,
services, dealings, agreements, arrangements and/or
relationships between Birks, Mayor’s and other affiliates.
The corporate governance committee will also be responsible for
the oversight and review of all related party transactions.
Birks’ board will designate a compensation committee
consisting of at least three directors. The composition of the
compensation committee will satisfy the independence
requirements of the American Stock Exchange within the
prescribed time periods, which require one independent member
upon initial listing, a majority of independent members within
90 days of listing and a fully independent committee within
one year of listing. The purpose of the compensation committee
will be to recommend to the board executive compensation,
including base salaries, bonuses and long-term incentive awards
for the Chief Executive Officer and other executive officers of
Birks.
121
Director Compensation
On April 23, 2004, four of Birks’ directors, Lorenzo
Rossi di Montelera, Peter R. O’Brien, Shirley Dawe and
Margherita Oberti were each awarded 5,000 Birks stock options in
lieu of directors’ fees and fees for attending committee
meetings. On July 9, 2005, Ms. Dawe relinquished the
5,000 options and received as consideration a cash payment in
respect of directors’ fees (Cdn$15,000) and committee fees
(Cdn$4,000) for the year ending March 26, 2005.
It is anticipated that upon consummation of the merger, each
non-employee director of Birks will be entitled to receive an
annual fee of $20,000 for serving on Birks’ board of
directors. Directors will also be eligible for annual stock
option awards. The audit committee chairperson will be entitled
to receive an additional annual fee of $10,000. In addition, in
the event Birks forms a special independent committee of
directors, the chairperson of such committee will be entitled to
receive $10,000 for his or her service and the other members of
the committee will each be entitled to receive $5,000 for their
service on such committee. All directors are reimbursed for
travel and other expenses incurred in connection with the
performance of their duties as directors.
Election of Directors
During fiscal 2004, Birks’ board of directors held a total
of 18 board of directors and committee meetings. During such
year all directors attended at least 75% of the meetings of
meetings of Birks’ board of directors and committees of
which they were members.
Executive Compensation
Birks is a foreign private issuer and is not required to
publicly disclose information about executive compensation in
its home jurisdiction. The aggregate compensation paid by Birks
to its executive officers (including those executive officers of
Mayor’s) in fiscal 2004 was approximately $4,858,000
(annual salary and bonus earned). Set forth below is
compensation information for selected members of management for
fiscal 2004.
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Summary Compensation Table for the year ended
March 26, 2005
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The following table presents compensation information for
certain of Birks’ executive officers for fiscal 2004, which
includes compensation received from Mayor’s.
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Annual Compensation
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Awards
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|
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|
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Securities
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|
|
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Other Annual
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Underlying
|
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|
Salary
|
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Bonus
|
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Compensation
|
|
|
Options/SARs
|
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|
Name and Principal Position
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($)
|
|
|
($)(10)
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|
|
($)
|
|
|
(#)
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|
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|
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|
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|
|
|
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Thomas A. Andruskevich
|
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864,000
|
(1)
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882,976
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(2)
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28,760
|
(3)(4)(5)
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—
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President, Chief Executive Officer
and Director
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John D. Ball(5)(6)
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179,400
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35,790
|
(2)
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10,834
|
(7)
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—
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Senior Vice President and
Chief Financial Officer
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Marco I. Pasteris(5)
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153,075
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47,118
|
(2)
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8,310
|
(8)
|
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|
5,000
|
|
|
|
Group Vice President for Finance
|
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|
|
|
|
|
|
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Albert J. Rahm, II
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196,539
|
(1)
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104,794
|
(2)
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17,252
|
(9)
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—
|
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Vice President, Retail Store Operations
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(1)
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Includes amounts paid by Mayor’s. (Mr. Andruskevich
$500,000; Mr. Rahm $196,539).
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(2)
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Includes amounts paid by Mayor’s. (Mr. Andruskevich
$366,742; Mr. Pasteris $31,557; Mr. Rahm $73,894).
|
122
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(3)
|
Includes amounts paid for life insurance, financial services and
retirement benefit contributions. Mr. Andruskevich also
receives non-taxable benefits including reimbursement for club
memberships used for business purposes, a contribution for
long-term disability benefits, reimbursement for an annual
medical checkup and a contribution for medical, dental and life
insurance.
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(4)
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Mr. Andruskevich resides in New Jersey but spends a
significant amount of time working in Montreal, Canada and
Sunrise, Florida in his capacity as President and Chief
Executive Officer of Birks and Mayor’s, respectively.
Instead of reimbursing Mr. Andruskevich for hotel
accommodation and car rental service in Montreal and Sunrise,
Birks provides Mr. Andruskevich with the non-exclusive use
of an apartment and an automobile in each location. The
apartments and automobiles are made available to and utilized by
other employees, customers and suppliers of Birks. Birks does
not account for these expenses as compensation and Birks has
been advised that they are not taxable as benefits to
Mr. Andruskevich. Accordingly, the value of these items is
not included in the table above.
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(5)
|
Includes amounts paid by Birks in Canadian dollars and converted
to U.S. dollars at the average of the inverse of the noon
buying rate quoted by the Federal Reserve Bank of New York for
Canadian dollars during fiscal 2004, which was Cdn$1.00 per
$0.78.
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(6)
|
John D. Ball resigned from his position at Mayor’s in
December 2004 and from his position at Birks in February 2005
but continued to be employed by each company until May 2005.
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(7)
|
Includes amounts paid for car leasing, group benefit plan at
Birks and life insurance. Mr. Ball also received
reimbursement for car maintenance, repairs, insurance and
license and non-taxable benefits including reimbursement for an
annual medical checkup.
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(8)
|
Includes amounts paid for car leasing and group benefit plan at
Birks. Mr. Pasteris also receives reimbursement for car
maintenance, repairs, insurance and license non-taxable benefits
including reimbursement for an annual medical checkup.
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(9)
|
Includes amounts paid for a car allowance and for miscellaneous
retirement benefits. Mr. Rahm also receives non-taxable
benefits including a contribution for medical, dental, life and
disability insurance.
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(10)
|
This corresponds to the bonus earned during the year ended
March 26, 2005, but not paid.
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Option Grants for Birks Class A voting shares in
Fiscal Year Ended March 26, 2005
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Number of
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Total Options
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Name
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Date of Grant
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Vesting Periods
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Granted
|
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Exercise Price
|
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|
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|
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Sabine Bruckert
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April 23, 2004
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4
|
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5,000
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|
$
|
7.73
|
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Helene Messier
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April 23, 2004
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4
|
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5,000
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|
$
|
7.73
|
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Marco Pasteris
|
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|
April 23, 2004
|
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4
|
|
|
|
5,000
|
|
|
$
|
7.73
|
|
|
Shirley Dawe(1)
|
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|
April 23, 2004
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—
|
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5,000
|
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|
$
|
7.73
|
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|
Margherita Oberti
|
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|
April 23, 2004
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—
|
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|
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5,000
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|
$
|
7.73
|
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Peter O’Brien
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|
April 23, 2004
|
|
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|
—
|
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|
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5,000
|
|
|
$
|
7.73
|
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Lorenzo Rossi di Montelera
|
|
|
April 23, 2004
|
|
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|
—
|
|
|
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5,000
|
|
|
$
|
7.73
|
|
|
Randolph Dirth
|
|
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July 1, 2004
|
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4
|
|
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10,000
|
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|
$
|
7.73
|
|
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(1)
|
On July 9, 2005, Ms. Dawe relinquished the 5,000
options and received as consideration a cash payment in respect
of directors’ fees (Cdn$15,000) and committee fees
(Cdn$4,000) for the year ending March 26, 2005.
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123
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Option Exercises in Last Fiscal Year and Year-End Option
Values
|
The following table shows information with respect to
unexercised options to purchase Birks shares held by each of
Birks’ executive officers as of March 26, 2005 and
with respect to options exercised by the named executive
officers during the fiscal year ended March 26, 2005 and
does not include any options or warrants to purchase
Mayor’s common stock.
Aggregated Option Exercises in Fiscal Year Ended
March 26, 2005 and Fiscal
Year-End Option Values
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|
|
|
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|
|
Number of Securities
|
|
|
|
|
|
|
|
|
Underlying Unexercised
|
|
|
|
|
Shares
|
|
|
|
|
Birks Options at
|
|
|
|
|
Acquired on
|
|
|
Value
|
|
|
Fiscal Year-End
|
|
|
|
|
Exercise
|
|
|
Realized
|
|
|
|
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Andruskevich
|
|
|
—
|
|
|
|
—
|
|
|
|
439,532
|
|
|
|
—
|
|
|
John D. Ball
|
|
|
—
|
|
|
|
—
|
|
|
|
20,570
|
|
|
|
—
|
|
|
Marco I. Pasteris
|
|
|
—
|
|
|
|
—
|
|
|
|
9,970
|
|
|
|
7,000
|
|
|
Al Rahm
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Shirley Dawe(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
|
Peter O’Brien
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
|
Lorenzo Rossi di Montelera
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
|
Margherita Oberti
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
|
|
(1)
|
On July 9, 2005, Ms. Dawe relinquished the 5,000
options and received as consideration a cash payment in respect
of directors’ fees (Cdn$15,000) and committee fees
(Cdn$4,000) for the year ending March 26, 2005.
|
Equity Incentive Plans
|
|
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|
|
Birks’ Employee Stock Option Plan
|
Effective May 1, 1997, Birks adopted an Employee Stock
Option Plan (“ESOP”) designed to attract and retain
the services of selected employees or non-employee directors of
Birks or its affiliates who are in a position to make a material
contribution to the successful operation of Birks’
business. The ESOP was amended as of June 20, 2000.
Plan administration.
Birks’ board of directors
administers the ESOP.
Eligibility.
Any employee or non-employee director of
Birks or its affiliates selected by Birks’ board of
directors is eligible for an award of stock options under the
ESOP. Within the limits set by the ESOP, the board in its sole
discretion selects those individuals to whom awards are made
under the ESOP, specifies the number of options awarded, the
option period, the vesting periods and vesting criteria
applicable, if any. The board in its sole discretion may
include, as a condition to the exercise of an option, that Birks
shall have achieved a net profit before taxes with respect to
its most recently completed fiscal year prior to the exercise of
the option.
Option to acquire share under the ESOP.
Shares acquired
under the ESOP are Birks non-voting common shares without
nominal or par value in the capital stock of Birks. If Birks
Class A voting shares are listed on a securities exchange
in Canada or the United States, the non-voting common shares
acquired under the ESOP shall be converted into Birks
Class A voting shares, and all options granted prior to
such listing shall automatically be converted into options for
the acquisition of Class A voting shares. Shares acquired
under the ESOP are treasury shares. The maximum aggregate number
of treasury shares which may be issued under the ESOP shall not
exceed the lesser of 237,907 shares or 10 percent of
the common shares issued and outstanding from time to time. No
reduction in the number of common shares outstanding affects
rights under options previously awarded. The maximum aggregate
number of shares with regard to which awards may be
124
made to any one individual under the ESOP shall not exceed
5 percent of the common shares issued and outstanding
shares of Birks.
The exercise price per share with respect to each option shall
not be less than the fair market value of a share on the date
the option is awarded. The fair market value on a particular
date shall be as determined by a third party as of that date or,
if the shares have been listed on a securities exchange in
Canada or the United States, shall be the closing price on that
date or if no sale have occurred on that date, it shall be the
closing price on the next preceding day on which there was a
sale.
Option Period and Vesting Criteria.
The option period in
respect of a particular award shall be specified by the board,
but in all cases shall end no later than the day preceding the
tenth anniversary of the date of award. The board shall
prescribe the date or dates upon which options become
exercisable and may establish any performance criteria that must
be met by Birks in order for all or any options to become
exercisable.
Material Event.
Upon the occurrence of certain
circumstances such as sale of a majority of the shares of the
share capital of Birks, an amalgamation, merger or consolidation
of Birks with or into another corporation (except if at least
51 percent of the directors of the surviving or resulting
corporation immediately after the transaction were directors of
the Birks immediately prior to the transaction), or a plan of
liquidation or dissolution of Birks all options shall become
exercisable in full immediately.
Exercise and Payment.
The vested options can be exercised
at any time during the option period unless the employee has
ceased to be employed by Birks or the non-employee director has
ceased to be member of Birks’ board. In these situations
the options either expire immediately in the case of resignation
or remain exercisable for 3 months in case of termination
of employment, retirement, disability or death. At the time any
options are exercised, the person exercising the options shall
pay in cash the full exercise price of the shares acquired.
Adherence to shareholders agreement.
It shall be a
condition precedent to the issuance of shares pursuant to an
option that the grantee become party to the shareholders
agreement by and among certain management investors, Borgosesia
Acquisitions Corporation (its successors and assigns) and Birks
made as of August 31, 1998, as the same may be amended from
time to time, except if the shares are listed on a securities
exchange in Canada or the United States of America.
Rights not transferable.
All option rights granted under
the ESOP are non-assignable and non-transferable by the grantee.
Reorganization of share capital.
In the event that Birks
non-voting common shares are subdivided, consolidated, converted
or reclassified by Birks, or that any other action of a similar
nature affecting such shares is taken, then the options held by
each participant in the ESOP shall be appropriately adjusted,
and the number of shares reserved for issuance under the ESOP
shall be adjusted in the same manner.
Interpretation and Amendment.
Birks has the power to
interpret and amend the provisions of the ESOP. However
shareholders holding a majority of the Birks common shares must
ratify any amendment increasing the number of shares which may
be issued under the Plan. Birks cannot alter the provisions of
the ESOP in such a way as to affect the rights and obligations
of option holders to their detriment without the consent of the
individuals affected.
Termination.
The ESOP will terminate following the final
termination of the option periods of all awarded options.
Various.
Each grantee is solely responsible for any tax
which may be payable as a consequence of his or her
participation in the ESOP and for the payment of any brokerage
fees in respect of the sale or transfer of shares acquired under
the ESOP. Birks pays all costs of administering the ESOP. The
ESOP is governed by the laws of the Province of Quebec and the
federal laws of Canada, as applicable.
125
The following table provides information as of March 26,
2005 about Birks Class A voting shares to be issued upon
the exercise of options, warrants and rights under Birks’
Employee Stock Option Plan and through other agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C)
|
|
|
|
|
(A)
|
|
|
|
|
Number of Securities
|
|
|
|
|
Number of Securities
|
|
|
(B)
|
|
|
Remaining Available for
|
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Issuance Under Equity
|
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (A))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation plans approved by shareholders
|
|
|
180,419
|
|
|
Cdn$
|
6.70
|
|
|
|
57,488
|
|
|
Other equity compensation agreements
|
|
|
724,907
|
|
|
Cdn$
|
5.64
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
905,326
|
|
|
Cdn$
|
5.85
|
|
|
|
57,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mayor’s Equity-Incentive Plans
|
Birks also has several equity-incentive plans that provide
compensation in the form of Mayor’s common stock to
Mayor’s employees. See “Description of Mayor’s
Business — Equity Compensation Plan Information.”
Long-Term Incentive Plan
In fiscal 2004, Mayor’s adopted a Long-Term Incentive Plan
to attract and retain the best available personnel for positions
of substantial responsibility, to provide additional incentive
to employees and consultants and to promote the success of
Mayor’s business.
Plan Administration.
The Long-Term Incentive Plan may be
administered by different bodies with respect to different
groups of employees and consultants. In general, the Long-Term
Incentive Plan will be administered by Mayor’s board of
directors or a committee designated by the board of directors.
The plan administrator has the sole authority to, among other
things:
|
|
|
|
|
|
•
|
construe and interpret the Long-Term Incentive Plan and the
awards made under the Long-Term Incentive Plan,
|
|
|
|
|
•
|
make rules and regulations relating to the administration of the
Long-Term Incentive Plan,
|
|
|
|
|
•
|
select grantees and make awards, and
|
|
|
|
|
•
|
establish the terms and conditions of grants and awards.
|
Eligibility.
Any employee or consultant selected by the
administrator is eligible for any type of award provided for
under the Long-Term Incentive Plan, except that incentive stock
options may not be granted to consultants. The selection of the
grantees and the nature and size of grants and awards will be
wholly within the discretion of the administrator. A grantee
must be an employee or consultant of Mayor’s or a
subsidiary continuously from the date a grant is made through
the date of payment or settlement thereof, unless otherwise
provided by the applicable award.
Awards.
The Long-Term Incentive Plan provides for the
grant of incentive stock options that qualify under
Section 422 of the Code and non-statutory options, stock
appreciation rights, restricted stock awards, and performance
unit or share awards, as such terms are defined in the Long-Term
Incentive Plan.
Shares Subject to the Long-Term Incentive Plan.
The
Long-Term Incentive Plan authorizes the issuance of 10,000,000
of shares of Mayor’s common stock. If any shares of
Mayor’s common stock subject to any award under the
Long-Term Incentive Plan are forfeited or the award otherwise
terminates without the issuance of such Mayor’s common
stock, those shares of Mayor’s common stock will again be
available for grant under the Long-Term Incentive Plan.
Likewise, Mayor’s common stock that is tendered to
Mayor’s by a
126
participant as full or partial payment of the exercise price of
any stock option granted under the Long-Term Incentive Plan or
in payment of any withholding tax incurred in connection with
any award under the Long-Term Incentive Plan shall be available
for issuance under the Long-Term Incentive Plan.
The common stock issued under the Long-Term Incentive Plan will
consist of authorized but unissued treasury common stock.
Adjustments.
In the event of a stock dividend, stock
split, reverse stock split, combination or reclassification or
similar transaction or other change in corporate structure
affecting Mayor’s common stock, adjustments will be made to
the Long-Term Incentive Plan, including the maximum number of
shares of Mayor’s common stock subject to the Long-Term
Incentive Plan and the other numerical limitations set forth
herein.
Options.
Options to purchase shares of Mayor’s
common stock may be granted under the Long-Term Incentive Plan,
either alone or in addition to other awards and for no
consideration or for such consideration as the administrator may
determine or as may be required by applicable law. A stock
option may be granted in the form of an incentive stock option
or a non-qualified stock option.
The price at which a share may be purchased under an option will
be determined by the administrator, but for an incentive stock
option the price may not be less than the fair market value of a
share of Mayor’s common stock on the date the option is
granted as defined in the Long-Term Incentive Plan. The
Long-Term Incentive Plan permits the administrator to establish
the term of each option, but no option will be exercisable after
10 years from the grant date of the option. Options will be
exercisable at such time or times as determined by the
administrator at or subsequent to the grant.
The amount of incentive stock options vesting in a particular
year cannot exceed $100,000 per participant (or if greater,
the maximum amount permitted under Section 422 of the
Code), determined using the aggregate fair market value of the
of Mayor’s common stock subject to such options on the date
of grant.
SARS.
Stock appreciation rights entitle a participant to
receive upon exercise an amount equal to the number of shares of
Mayor’s common stock subject to the award multiplied by all
or a portion of the excess of the fair market value of a share
of Mayor’s common stock at the time of exercise over the
exercise price of such stock appreciation right. Stock
appreciation rights may be granted to grantees either alone or
in addition to other awards and may, but need not, relate to a
specific option.
A stock appreciation right related to an option, or the
applicable portion thereof, will terminate and no longer be
exercisable upon the termination or exercise of the related
option. Any option related to a stock appreciation right that is
exercised will cease to be exercisable to the extent the related
stock appreciation right has been exercised.
Restricted Stock.
Restricted stock awards may be issued
to grantees, for no cash consideration or for such minimum
consideration as may be required by applicable law, either alone
or in addition to other awards granted under the Long-term
Incentive Plan. Restricted stock awards may be performance based
or non-performance based.
Performance Awards.
Performance-based awards may be
issued to grantees, for no cash consideration or for such
minimum consideration as may be required by applicable law,
either alone or in addition to other awards granted under the
Long-Term Incentive Plan. The performance criteria to be
achieved during a performance period, as defined in the
Long-Term Incentive Plan, and the length of such performance
period will be determined by the administrator.
With certain exceptions, performance awards will be distributed
only after the end of the relevant performance period.
Performance awards may be paid in cash, shares of Mayor’s
common stock or any combination thereof, in the sole discretion
of the administrator at the time of payment.
Change in Control.
In the event of a change in control of
Mayor’s, the administrator, at its sole discretion, may
determine that all outstanding awards will become fully and
immediately exercisable and vested.
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In the event of dissolution or liquidation of Mayor’s, the
administrator may, at its sole discretion, declare that any
stock option or stock appreciation right shall terminate as of a
date fixed by the administrator and give the grantee the right
to exercise such option or stock option right.
In the event of a merger or asset sale or other change in
control, as defined by the Long-Term Incentive Plan, the
administrator may, in its sole discretion, take any of the
following actions or any other action the administrator deems to
be fair to the holders of the awards:
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Provide that all outstanding awards upon the consummation of
such a merger or sale shall be assumed by, or an equivalent
option or right shall be substituted by, the successor
corporation or parent or subsidiary of such successor
corporation.
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Prior to the occurrence of the change in control, provide that
all outstanding awards to the extent they are exercisable and
vested shall be terminated in exchange for a cash payment equal
to the change in control price; or
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Prior to the occurrence of the change in control, provide for
the grantee to have the right to exercise the award as to all or
a portion of the covered stock, including, if so determined by
the administrator, in its sole discretion, shares as to which it
would not otherwise be exercisable.
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Employee Stock Purchase Plan
Mayor’s also has an Employee Stock Purchase Plan
(“ESPP”), which was approved in June 1987. The ESPP
permits eligible employees, which do not include executives of
Mayor’s, to purchase common stock from Mayor’s at 85%
of its fair market value through regular payroll deductions. A
total of 1,062,500 shares of Mayor’s common stock are
reserved for issuance under the ESPP of which
552,174 shares have been issued as of March 26, 2005,
including 30,285 during fiscal 2004, none in fiscal 2003 and
82,561 in fiscal 2002.
1987 and 1991 Stock Option Plans
Mayor’s also adopted stock option plans in 1987 and 1991 in
order to make option awards to key employees and directors. As
of March 26, 2005 Mayor’s had 3,304,523 shares of
common stock available for grant to its key employees and
directors under its 1987 and 1991 Stock Option Plans. Under
these plans, the option price must be equal to the market price
of the stock on the date of the grant, or in the case of an
individual who owns 10% or more of common stock, the minimum
price must be 110% of the market price. Options granted to date
under these plans generally become exercisable from six months
to three years after the date of grant, provided that the
individual is continuously employed by Mayor’s, or in the
case of directors, remains on the board of directors. All
options generally expire no more than ten years after the date
of grant.
Under the 1991 plan, any option granted to any executive officer
or director of Mayor’s, unless otherwise provided in the
letter of grant, will become immediately exercisable and vested
in full upon the delivery of a written notice to the
stockholders of Mayor’s announcing a stockholders’
meeting at which the stockholders will consider a proposed
merger, proposed sale of substantially all the assets, or
similar proposed reorganization of Mayor’s, provided that
such delivery occurs prior the expiration or termination of the
affected option. The Long-Term Incentive Plan superseded the
1991 Stock Option Plan.
Employment Agreements
Thomas A. Andruskevich is employed by Birks, as well as by its
subsidiary Mayor’s. Accordingly, Birks has two employment
agreements with Mr. Andruskevich, one of which is through
Mayor’s. Both agreements will remain in effect following
consummation of the merger. For total compensation paid pursuant
to these agreements, see “Management of Birks —
Executive Compensation — Summary Compensation Table
for the year ended March 26, 2005” above.
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Effective April 1, 2005, Birks entered into an employment
agreement with Mr. Andruskevich under which
Mr. Andruskevich serves as President and Chief Executive
Officer of Birks for a term continuing until March 31,
2008, unless terminated in accordance with the agreement. This
agreement superseded prior employment agreements with
Mr. Andruskevich, the first of which was entered into on
May 15, 1996. Under this agreement, Mr. Andruskevich
receives an annual base salary and a special net income bonus,
which, in both cases, will be adjusted based upon the
achievement of certain net income goals by Birks in the
preceding year. The goals are set forth in Birks’ annual
profit plan and its strategic plan and are approved annually by
the board of directors. Mr. Andruskevich’s base salary
will vary from $464,000 to $614,000 based on Birks’
performance, and the special net income bonus will be up to
$150,000. Additionally, Mr. Andruskevich will receive an
annual performance bonus based upon the achievement of specific
performance criteria, which are set each year by Birks’
compensation committee and a shareholder representative. The
performance bonus will range from 0% to 150% of his base salary
in a given year. Under his employment agreements since
May 15, 1996, Mr. Andruskevich has received three
separate grants of stock options, each of which is confirmed in
his current employment agreement. In 1996, Mr. Andruskevich
was given the option to subscribe for a number of Birks
Class A voting shares which, immediately following their
issue, would represent 2% of the issued and outstanding shares
in the capital stock of Birks. The number of shares will be
adjusted to represent 2% of the issued and outstanding Birks
Class A voting shares, except that any new stock options or
other new securities exercisable for, convertible into or
exchangeable into capital stock (or shares issued upon exercise,
conversion or exchange thereof), new restricted stock or other
new equity granted or issued for a compensatory purpose
following the consummation of the merger to employees, officers,
directors or consultants shall be disregarded for purposes of
calculating 2% of the issued and outstanding shares in the
capital stock of Birks. In 1998, the option granted in 1996 was
substituted for an option on the same terms except that the
exercise price of the options was fixed at Cdn$6.00 per
share, considered to be the fair market value at that time. Also
in 1998, Mr. Andruskevich was given a second option to
subscribe for a number of Class A voting shares which,
immediately following their issue, would represent 2% of the
issued and outstanding shares in the capital stock of Birks as
of January 1, 1999, namely, 126,272 out of a total of
6,313,618 shares then issued and outstanding. The exercise
price of these options was fixed at Cdn$6.25 per share,
considered to be the fair market value at that time. In 2001,
Mr. Andruskevich was given a third option to subscribe for
a number of Class A voting shares which, immediately
following their issue, would represent 2% of the issued and
outstanding shares in the capital stock of Birks as of
April 1, 2002, namely, 126,266 out of a total of
6,313,300 shares then issued and outstanding. The exercise
price of these options was fixed at Cdn$7.00 per share,
considered to be the fair market value at that time.
Mr. Andruskevich agreed that in the event that he exercised
his second or third option, he will vote the shares issued
pursuant thereto only in accordance with the instructions of
Dr. Rossi. Each of the options Mr. Andruskevich
received under these agreements is exercisable for a period of
twenty-four months after the termination of his employment,
which period was extended from three months effective
April 1, 2005. Additionally, each option is exercisable for
a period of 10 years following retirement. Under his
employment agreement, Mr. Andruskevich is also entitled to
certain benefits such as life insurance, health and dental
insurance, moving expenses and other reasonable expenses. Birks
may terminate Mr. Andruskevich’s employment agreement
with just and sufficient cause for such termination. If Birks
desires not to renew the agreement, Birks must provide
Mr. Andruskevich with notice 12 months prior to the
end of the term of the agreement. In the event that the
agreement terminates as a result of death or non-renewal of the
agreement, Mr. Andruskevich is entitled to the base salary
which shall have accrued to the date of such termination, any
accrued but unpaid vacation pay, and any special net income
bonus and performance bonus earned in connection with each year
ending prior to the date of such termination, as well as
pro-rated bonuses for the number of months in which services
were rendered in the year of the termination. Additionally,
after Birks’ non-renewal of the agreement, Birks will
continue to pay Mr. Andruskevich his base salary for a
period of up to 12 months after the end of his employment
should Mr. Andruskevich be unable to find another suitable
employment position. If Birks terminates Mr. Andruskevich
without just and sufficient cause, Mr. Andruskevich will be
entitled to compensation and benefits provided under the
remainder of the term of the agreement. After termination of the
agreement, Mr. Andruskevich will be prohibited from
competing with Birks in its business for or on behalf of any
entity whose assets are located primarily in Canada for a period
of up 12 months.
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Mayor’s entered into an employment agreement with
Mr. Andruskevich, effective October 1, 2002, which
agreement was amended on June 24, 2004 and February 1,
2005. Under the amended agreement, Mr. Andruskevich serves
as the Chairman of the board of directors of Mayor’s, and
as President and Chief Executive Officer of Mayor’s for a
term continuing until March 31, 2008, unless earlier
terminated in accordance with the agreement. His employment
agreement allows him to continue his employment with Birks.
Under this agreement, Mr. Andruskevich receives an annual
base salary from Mayor’s of $500,000 and has the
opportunity to receive an annual cash bonus based upon the
achievement of objective performance criteria, which are set
each year by the compensation committee and approved by the
board of directors. The amendment provides that
Mr. Anduskevich’s base salary will be increased to
$600,000 on April 1, 2006, provided his and Mayor’s
performance are satisfactory and confirmed by the executive
committee and compensation committee at such time. The amendment
further provides that his target bonus opportunity will increase
annually beginning in Mayor’s fiscal 2005 and that he will
receive an additional long-term incentive compensation award.
The amendment further provides that Mayor’s shall grant
Mr. Andruskevich stock options to
purchase 1,000,000 shares of Mayor’s common stock
(or any successor entity) with an exercise price per share equal
to the fair market value of a share on April 1, 2005 (as
adjusted if necessary for any subsequent events). If
Mayor’s cannot or decides not to grant such stock options,
Mr. Andruskevich will be provided with the equivalent after
tax value of such stock options through an alternative long-term
incentive compensation plan. Mayor’s compensation committee
of the board of directors is in the process of considering the
award to Mr. Andruskevich and has not yet determined what
type of award to grant; however, it expects to do so shortly.
The amendment allows Mayor’s to terminate
Mr. Andruskevich’s employment with or without cause.
In the event Mr. Andruskevich’s employment is
terminated without cause or if he resigns for good reason, he
will receive his annual base salary and financial planning,
health, and dental benefits until March 31, 2008, plus up
to an additional 12 months if he is unable to find another
suitable employment position. Mr. Andruskevich will also be
entitled to a lump sum cash payment equal to the average annual
bonus paid to him for any of the 3 fiscal years ending prior to
the date of the resignation or termination multiplied by a
fraction, the numerator of which is the number of days from the
date of resignation or termination until the end of the term,
and the denominator of which is 365, plus a lump sum cash
payment of $24,000 for disability and life insurance. In the
event Mr. Andruskevich’s employment terminates as a
result of his death, Mr. Andruskevich is entitled to get
all the payments he is entitled to if his employment is
terminated without cause or if he resigns for good reason as
described above except the lump sum cash payment of $24,000 for
disability and life insurance. The amendment prohibits
Mr. Andruskevich from competing with Mayor’s in
certain markets for a period of twelve months after the
termination of the agreement. If Mr. Andruskevich’s
employment is terminated without cause or if he resigns for good
reason within the two year period following a change of control,
Mr. Andruskevich will receive his annual base salary,
annual bonus and financial planning, health, and dental benefits
for the greater of two years or the unexpired portion of the
term plus one year, and Mr. Andruskevich will also be
entitled to certain bonus compensation and a lump sum cash
payment of $24,000 for disability and life insurance.
Birks has an employment contract with Albert J. Rahm, II
through Mayor’s. Mayor’s entered into an employment
agreement with Mr. Rahm, effective May 10, 2001, and
amended as of July 19, 2002. Under the agreement,
Mr. Rahm serves as Vice President, Retail Store Operations
of Mayor’s for a term continuing until May 10, 2002
with such term to automatically renew for successive one-year
renewal terms unless Mayor’s or Mr. Rahm provides the
other with notice of its determination not to renew the
agreement. He receives an annual base salary of $200,000 and has
the opportunity to receive an annual cash bonus based upon the
achievement of objective performance criteria, which are set
each year by Mayor’s. The agreement allows Mayor’s to
terminate Mr. Rahm with or without cause. In the event
Mr. Rahm’s employment is terminated without cause, if
he resigns for good reason, or if Mayor’s fails to renew
his employment agreement, he will receive his annual base
salary, health and dental benefits, and automobile allowance for
one year following the date of his resignation or termination.
Mr. Rahm is also entitled to reimbursement from
Mayor’s for reasonable expenses incurred while seeking
employment with another employer for one year following his
termination or resignation, accelerated vesting of certain stock
options, a pro rata amount
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of any bonus compensation payable to him for that year, and a
lump sum cash payment of $10,000 for disability and life
insurance. The agreement prohibits Mr. Rahm from competing
with Mayor’s for a period of one year after the termination
of the agreement. If Mr. Rahm’s employment is
terminated within the two year period following a change of
control, Mr. Rahm shall receive a severance payment equal
to two times his annual base salary, health and dental benefits
and automobile allowance for a period of two years.
Mr. Rahm will also be entitled to certain bonus
compensation and a lump sum cash payment of $10,000 for
disability and life insurance.
Compensation Committee Interlocks and Insider
Participation
All decisions regarding compensation of Birks’ executive
officers are subject to the review by the compensation
committee. The purpose of the compensation committee is to
recommend to the board the compensation of the Chief Executive
Officer and the other executive officers.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF
BIRKS
Diamond Supply Agreements
On August 15, 2002, Birks entered into a Diamond Inventory
Supply Agreement with Prime Investments SA and a series of
conditional sale agreements with companies affiliated with Prime
Investments SA pursuant to which Prime Investments SA or a
related party is entitled to supply Birks and its subsidiaries
or affiliates with at least 45%, on an annualized cost basis, of
such company’s aggregate loose diamond requirements,
conditional upon the prices remaining competitive relative to
market and needs in terms of quality, cut standards and
specifications being satisfied. During fiscal 2004, Birks
purchased approximately $4.1 million of diamonds, or
approximately 27% of its total diamond purchases, from Prime
Investments SA and related parties. During fiscal 2003, Birks
purchased approximately $1.9 million of diamonds, or
approximately 18% of its total diamond purchases, from Prime
Investments SA and related parties. In addition, Birks purchased
approximatively $1.9 million of finished goods in fiscal
2004 and $0.1 million of finished goods in fiscal 2003 from
Prime Investments SA.
Prime Investments SA owns 12.1% of the issued and outstanding
shares of Birks.
Management Fee Agreement
On April 1, 2003, Birks entered into a management fee
agreement with Iniziativa S.A. Under the management fee
agreement, Birks reimburses Iniziativa for advisory, management
and corporate services provided by Iniziativa to Birks. During
fiscal 2004, Birks paid $0.4 million related to such
services. During fiscal 2003 Birks paid $0.8 million
related to such services. Iniziativa S.A. is, indirectly, the
controlling shareholder of Birks.
Management Consulting Agreement
On April 22, 2004, Mayor’s entered into a management
consulting services agreement with Regaluxe, which became
effective on May 1, 2004. Under the management agreement,
Regaluxe provides advisory, management and corporate services to
Mayor’s. During fiscal 2004, Mayor’s incurred costs of
$0.5 million related to such services.
Shareholders’ Agreements
Birks, Birks’ former parent, Henry Birks & Sons
Holdings Inc., and certain members of Birks management, referred
to in the agreement as the management investors, entered into a
shareholders’ agreement on August 31, 1998, as amended
as of April 5, 2002. Pursuant to the agreement, each
management investor appointed Dr. Rossi as his or her
nominee to act on his or her behalf at any meeting of the
shareholders of Birks. The management investors also agreed
that, except on specified terms, they may not transfer, pledge,
encumber or otherwise dispose in whole or in part, directly or
indirectly, any shares of Birks or any interest therein. If a
management investor desires to sell his or her shares, he or she
must first give both Birks and Henry Birks & Sons
Holdings Inc. a right of first refusal to purchase such shares
on the same terms. If one or more Birks shareholders holding, in
the aggregate, not less than 75% of the outstanding shares of
Birks should receive a bona fide offer from a third party to
purchase all such shares, such shareholder or shareholders must
first offer to sell such shares to the management investors on
the same terms and pursuant to specified procedures. If the
management investors decline to purchase such shares from the
selling majority shareholders, the selling majority shareholders
have the right to require all other shareholders to participate
ratably in such a sale; meanwhile, each management investor has
the right to require that his or her shares be included in such
a sale. Each management investor appointed Mr. Andruskevich
as his or her nominee to represent them in determining when to
exercise their rights of first refusal and co-sale rights. The
agreement provides for what shall happen should a management
investor die, become incapacitated, or otherwise cease to be
employed by Birks. It also provides specific procedures through
which all rights and obligations thereunder will be exercised
and performed. This agreement will be terminated upon
consummation of the merger.
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On August 15, 2002, Birks entered into a shareholders’
agreement with Prime Investments SA, Henry Birks & Sons
Holdings Inc. and Marco Pasteris. Pursuant to the agreement, if
Prime Investments desires to sell any or all of its shares of
Birks or receives an offer to purchase any of its shares of
Birks, Prime Investments will give Birks and Henry
Birks & Sons Holdings Inc. a right of first refusal to
purchase all of its shares on the offered terms. The agreement
also provides that Prime Investments in the event that Henry
Birks & Sons Holdings Inc. desires to sell its shares
to a bona fide third party, and the management investors do not
exercise their rights of first refusal under the
shareholders’ agreement to which they are a party, then
Prime Investments will have a right of first refusal to purchase
the offered shares on the same terms for which the third party
has offered to purchase them. Pursuant to the agreement, Prime
Investments is also subject to drag-along rights and entitled to
tag-along rights on terms similar to those provided in the
shareholders’ agreement among management investors, Birks,
and Henry Birks & Sons Holdings Inc. Prime Investments
is also entitled to certain preemptive rights to purchase
additional equity securities issued by Birks where those
securities are not issued to employees of Birks pursuant to an
employee compensation plan, pursuant to a business combination
or acquisition approved by the board, in an offering registered
under the Securities Act of 1933 or in connection with the
exercise, exchange or conversion of securities of Birks. The
agreement also sets forth specific procedures through which each
of these rights and obligations thereunder will be exercised and
performed.
Arrangements with Directors
On April 23, 2004, four of Birks’ directors, Lorenzo
Rossi di Montelera, Peter R. O’Brien, Shirley Dawe and
Margherita Oberti, and one former director, Rosamond Ivey, were
each awarded 5,000 Birks stock options in lieu of
directors’ fees and fees for attending committee meetings.
On July 9, 2005, Ms. Dawe relinquished the 5,000
options and received as consideration a cash payment in respect
of directors’ fees (Cdn$15,000) and committee fees
(Cdn$4,000) for the year ending March 26, 2005.
Birks retains Pheidias Project Management and Oberti
Architectural & Urban Design for project management and
architectural services. Pheidias Project Management and Oberti
Architectural have been involved in almost all renovations and
new Birks stores since 1993, as well as in the renovation of
Birks’ executive offices. The principal of Pheidias Project
Management and Oberti Architectural is the spouse of Margherita
Oberti, one of Birks’ directors. For fiscal 2004 and fiscal
2003, Pheidias Project Management and Oberti
Architectural & Urban Design as project managers and
architects charged Birks approximately $415,000 and $277,000
respectively, for services rendered.
On a continuing basis, Birks receives Canadian legal services
from the law firm Stikeman Elliott LLP, of which Peter R.
O’Brien is a senior corporate partner. Peter R.
O’Brien is also a director and the chairman of the audit
committee of Birks. For fiscal 2003, Stikeman Elliott LLP
charged Birks approximately $45,000 for services rendered and
expenses. For fiscal 2004, Stikeman Elliott LLP charged Birks
approximately $148,000 for services rendered and expenses.
Separation Agreement
On January 18, 2005 Birks and John D. Ball, Birks’
former Senior Vice President and Chief Financial Officer and
Chief Administrative Officer, entered into a separation
Agreement. The agreement states that John D. Ball will benefit
from a six-and-a-half month working notice period during which
he may continue to be a Birks employee and may continue to
receive his salary and benefits. If Mr. Ball has not found
an alternative employment by June 30, 2005, Birks will
continue to pay a monthly amount equivalent to his salary prior
to his departure, less any gross income he may receive from any
activity (excluding most passive income) for up to one year. In
addition, Birks repurchased 8,093 Birks Class A voting
shares that Mr. Ball beneficially owns, at Cdn$10.00 a
share. Since Mr. Ball remained employed at Birks until
April 1, 2005, he is entitled to participate in Birks’
senior management bonus plan for fiscal 2004. All of
Mr. Ball’s stock options vested on March 25, 2005.
On May 12, 2005, Mr. Ball and Birks entered into an
agreement whereby Birks recommended that Mayor’s repurchase
Mr. Ball’s 501,348 warrants to purchase Mayor’s
common stock for a price of
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US$150,000. Upon payment, Mr. Ball waived certain rights
that he had or may have had including payout of salary after
July 1, 2005 otherwise due under his January 18, 2005
agreement.
On May 26, 2005, Mayor’s entered into a Warrant
Redemption Agreement with Mr. Ball. Under the terms
and conditions of the agreement, Mayor’s agreed to
repurchase all of Mr. Ball’s warrants to purchase
common stock of Mayor’s for US$150,000. Additionally,
Mr. Ball agreed to release Mayor’s from any and all
claims arising from or related to the warrants. In connection
with the purchase of the warrants, Mayor’s received a
waiver from its lenders under the Mayor’s facility.
Convertible Notes
On August 20, 2002, Henry Birks & Sons Holdings
Inc. issued a convertible note of $2.5 million to Regaluxe
secured by Birks’ investment in Mayor’s capital stock.
The note was non-interest bearing until September 29, 2007
and bore 6.0% interest per annum thereafter, payable on the
principal repayment dates. The convertible note was convertible
into common shares of Birks, at the option of the holder. On
March 14, 2005, the convertible note was cancelled, and
Birks issued a new convertible note to Regaluxe, the parent of
Henry Birks & Sons Holdings Inc. and the ultimate
parent of Birks. The new convertible note had the same terms and
conditions as the cancelled convertible note except that the new
convertible note issued to Regaluxe bears 0.25% interest per
annum from the date of issuance until September 29, 2007
and is convertible into 504,876 Birks Class B multiple
voting shares. It is a condition of the merger that the
convertible note issued to Regaluxe be converted into Birks
Class B multiple voting shares.
On September 30, 2002, Birks issued a convertible note of
$2.5 million to Prime Investments SA secured by Birks’
investment in Mayor’s capital stock. The note is
non-interest bearing until September 29, 2007 and bears
6.0% interest per annum thereafter, payable on the principal
repayment dates. The convertible note issued to Prime
Investments SA is, pursuant to an amendment made on
March 14, 2005, convertible into 512,015 Birks Class A
voting shares, at the option of the holder. It is a condition of
the merger that the convertible note issued to Prime Investments
be converted into Birks Class A voting shares.
Registration Rights Agreement
On February 4, 2005, Birks entered into a registration
rights agreement with Prime Investments SA. Pursuant to the
agreement, Prime Investments has certain piggy-back registration
rights in connection with its Birks Class A voting shares.
Specifically, if Birks elects to file a registration statement
for registration of its Class A voting shares, Prime
Investments will generally have a right to demand that Birks
include Class A voting shares owned by Prime Investments
(including such Class A voting shares that Prime
Investments will receive upon conversion of its convertible
note) in such registration statement.
Loans from Regaluxe
Regaluxe issued Birks a loan pursuant to a loan agreement, dated
as of February 16, 2004, as amended as of February 23,
2004, for Cdn$2.5 million. The loan is secured by an
interest in Birks’ moveable property. It is subordinated
and bears net interest, after withholding taxes, of 12.0% per
annum until September 2005, and increasing to 14.0% per annum
thereafter. The loan can be pre-paid by Birks without penalty,
but principal and interest may be repaid only if authorized by
GMAC, the lender under Birks’ credit facility.
On March 1, 2002, Regaluxe also issued Birks a loan for
Cdn$823,695, to be repaid in four annual tranches of
Cdn$205,924, and bearing interest, payable semi-annually, at a
rate of 3.55% per annum. The loan is due on March 1, 2006.
Letter of Credit from Regaluxe
On May 19, 2005, Regaluxe issued a $370,279 (Cdn$450,000)
letter of credit to la Financière du Québec on behalf
of Birks. The letter of credit is a required security for
Birks’ term loan from la Financière du Québec,
bearing interest at an annual rate of prime plus 1.5%, repayable
to June 2010 in 84 equal monthly capital repayments of $44,100
(Cdn$53,600), secured by the assets of Birks (in addition to the
letter of credit). The letter of credit expires on May 19,
2006 and needs to be renewed on yearly basis during the term of
the loan.
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OWNERSHIP OF BIRKS CLASS A VOTING SHARES
The following table sets forth information regarding the
beneficial ownership of Birks Class A voting shares as of
April 1, 2005 by:
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each person or entity who beneficially owns 5% or more of
Birks’ outstanding Class A voting shares;
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each of Birks’ directors and executive officers; and
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all of Birks’ directors and executive officers as a group.
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Unless otherwise indicated in the table, each of the individuals
named below has sole voting and investment power with respect to
the Birks Class A voting shares beneficially owned by them.
Beneficial ownership is determined under rules issued by the
SEC. Under these rules, beneficial ownership includes any Birks
Class A voting shares as to which the individual or entity
has sole or shared voting power or investment power and includes
any shares as to which the individual or entity has the right to
acquire beneficial ownership within 60 days through the
exercise of any warrant, stock option or other right. The
inclusion in this proxy statement/ prospectus of such Birks
Class A voting shares, however, does not constitute an
admission that the named individual is a direct or indirect
beneficial owner of such Birks Class A voting shares. Birks
Class A voting shares that a person has the right to
acquire within 60 days of April 1, 2005 are deemed
outstanding for the purpose of calculating the percentage
ownership of such person, but are not deemed outstanding for the
purpose of calculating the percentage owned by any other person
listed. The applicable percentage of “beneficial
ownership” after the merger is based upon 1,623,644 Birks
Class A voting shares to be outstanding immediately prior
to the merger, as adjusted to reflect the approximately
1,859,738 additional Class A voting shares to be issued
pursuant to the merger.
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|
|
|
|
|
|
|
|
|
|
Before the Merger
|
|
|
After the Merger
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Percentage of
|
|
|
Shares
|
|
|
Percentage of
|
|
|
Name and Address(1) of
|
|
Beneficially
|
|
|
Beneficially
|
|
|
Beneficially
|
|
|
Beneficially
|
|
|
Beneficial Owner(2)
|
|
Owned
|
|
|
Owned
|
|
|
Owned
|
|
|
Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lorenzo Rossi di Montelera and affiliates(3)
|
|
|
8,475,123
|
|
|
|
99.0
|
%
|
|
|
8,227,846
|
|
|
|
70.3
|
%
|
|
Thomas A. Andruskevich(4)
|
|
|
479,998
|
|
|
|
91.4
|
%
|
|
|
779,954
|
|
|
|
18.5
|
%
|
|
Shirley A. Dawe(5)
|
|
|
5,000
|
|
|
|
5.5
|
%
|
|
|
870
|
|
|
|
*
|
|
|
Margherita Oberti(6)
|
|
|
5,000
|
|
|
|
5.5
|
%
|
|
|
5,000
|
|
|
|
*
|
|
|
Peter R. O’Brien(7)
|
|
|
7,529
|
|
|
|
8.3
|
%
|
|
|
7,529
|
|
|
|
*
|
|
|
Filippo Recami(8)
|
|
|
126,672
|
|
|
|
59.7
|
%
|
|
|
126,672
|
|
|
|
3.5
|
%
|
|
Lawrence Litowitz
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Sabine Bruckert(9)
|
|
|
14,780
|
|
|
|
15.0
|
%
|
|
|
14,780
|
|
|
|
*
|
|
|
Albert J. Rahm II
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Marco I. Pasteris(10)
|
|
|
42,693
|
|
|
|
39.6
|
%
|
|
|
97,153
|
|
|
|
2.8
|
%
|
|
Carlo Coda-Nunziante(11)
|
|
|
—
|
|
|
|
—
|
|
|
|
40,955
|
|
|
|
1.2
|
%
|
|
Randolph Dirth(12)
|
|
|
2,500
|
|
|
|
2.8
|
%
|
|
|
24,238
|
|
|
|
*
|
|
|
John C. Orrico(13)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,449
|
|
|
|
*
|
|
|
Hélène Messier(14)
|
|
|
8,250
|
|
|
|
8.8
|
%
|
|
|
8,250
|
|
|
|
*
|
|
|
Jocelyn Désy
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
All executive officers and directors as a Group (15 persons)(15)
|
|
|
8,415,192
|
|
|
|
99.8
|
%
|
|
|
8,836,367
|
|
|
|
72.1
|
%
|
|
5% Shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime Investments SA(16)
|
|
|
1,536,047
|
|
|
|
94.7
|
%
|
|
|
1,536,047
|
|
|
|
30.6
|
%
|
|
|
Saphine Building 1st Floor
63 Boulevard Prince Félix
L1513-Luxembourg
|
|
|
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135
|
|
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|
(1)
|
Unless otherwise provided, the address for each “Beneficial
Owner” is 1240 Square Phillips, Montreal, Quebec, Canada,
H3B 3H4.
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|
|
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|
(2)
|
Unless otherwise noted, each person has sole voting and
investment power over the shares listed opposite his or her name.
|
|
|
|
|
(3)
|
Includes options to purchase (A) 5,000 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days, (B) 752,153 Birks Class A voting
shares or options owned by members of Birks management that such
management agreed to vote with Dr. Rossi,
(C) 5,613,508 Birks Class A voting shares to which
Regaluxe would be entitled upon conversion of the Class B
multiple voting shares owned directly by Regaluxe,
(D) 504,876 Birks Class A voting shares to which
Regaluxe would be entitled upon conversion of a secured
convertible note held directly by Regaluxe into Class B
multiple voting shares and the subsequent conversion of such
Class B multiple voting shares and (E) 1,599,586 Birks
Class A voting shares to which Montrolux would be entitled
upon conversion of the Birks Class B multiple voting shares
owned directly by Montrolux. Regaluxe and Montrolux are
indirectly controlled by Dr. Rossi. After the merger amount
reflects termination of management’s agreement to vote its
shares with Dr. Rossi upon consummation of the merger.
|
|
|
|
|
(4)
|
Includes options to purchase 439,532 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days and 40,466 Birks Class A voting shares.
After the merger the amount additionally includes 262,962 Birks
Class A voting shares underlying options and warrants that
will be converted from options and warrants to purchase
Mayor’s common stock into options and warrants to purchase
Birks Class A voting shares upon consummation of the merger
and an additional 37,194 Birks Class A voting shares that
will underlie Mr. Andruskevich’s option to
purchase 2% of the common stock of Birks as a result of the
issuance of additional Class A voting shares pursuant to
the merger.
|
|
|
|
|
(5)
|
Includes options to purchase 5,000 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days.
|
|
|
|
|
(6)
|
Includes options to purchase 5,000 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days. After the merger amount includes 870 Birks
Class A voting shares underlying options that will be
covered from options to purchase Mayor’s common stock into
options to purchase Birks Class A voting shares upon
consummation of the merger.
|
|
|
|
|
(7)
|
Includes options to purchase 5,000 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days.
|
|
|
|
|
(8)
|
Includes options to purchase 126,672 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days.
|
|
|
|
|
(9)
|
Includes options to purchase 13,095 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days.
|
|
|
|
|
(10)
|
Includes options to purchase 12,220 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days and 10,240 Birks Class A voting shares
issuable upon conversion of Series A preferred shares.
After the merger amount includes 56,878 Birks Class A
voting shares underlying options and warrants that will be
converted from options and warrants to purchase Mayor’s
common stock into options and warrants to purchase Birks
Class A voting shares upon consummation of the merger.
|
|
|
|
(11)
|
After the merger amount includes 40,955 Birks Class A
voting shares underlying options and warrants that will be
converted from options and warrants to purchase Mayor’s
common stock into options and warrants to purchase Birks
Class A voting shares upon consummation of the merger.
|
|
|
|
(12)
|
Includes options to purchase 2,500 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days. After the merger amount includes 21,738
Birks Class A voting shares that will result from the
conversion of 250,000 shares of Mayor’s common stock
into Birks Class A voting shares upon consummation of the
merger.
|
136
|
|
|
|
(13)
|
After the merger amount includes 1,449 Birks Class A voting
shares underlying options and warrants that will be converted
from options and warrants to purchase Mayor’s common stock
into options and warrants to purchase Birks Class A voting
shares upon consummation of the merger.
|
|
|
|
(14)
|
Includes options to purchase 8,250 Birks Class A
voting shares which are currently exercisable or exercisable
within 60 days.
|
|
|
|
(15)
|
Includes 674,030 Birks Class A voting shares issuable upon
the exercise of stock options for all executive officers and
directors.
|
|
|
|
(16)
|
Includes 1,024,032 Birks Class A voting shares issuable
upon conversion of Series A preferred shares and 512,015
Birks Class A voting shares issuable upon conversion of a
secured convertible note held by Prime Investments SA.
|
137
DESCRIPTION OF BIRKS’ CAPITAL STOCK
Birks’ Current Capital Stock
Birks is currently authorized to issue:
|
|
|
|
|
|
•
|
An unlimited number of Class A voting shares without
nominal or par value;
|
|
|
|
|
•
|
An unlimited number of Class B multiple voting shares
without nominal or par value;
|
|
|
|
|
•
|
100,000 Class C multiple voting shares without nominal or
par value;
|
|
|
|
|
•
|
An unlimited number of non-voting common shares; and
|
|
|
|
|
•
|
2,034,578 Series A preferred shares.
|
Each Class A voting share entitles the holder thereof to
one (1) vote at all meetings of the shareholders of Birks
(except meetings at which only holders of another specified
class of shares are entitled to vote pursuant to the provisions
of Birks’ charter or the CBCA). It entitles the holder
thereof to equal status with holders of Class B multiple
voting shares on all other matters, including ranking on
liquidation and the right to receive dividends and
distributions. On the date of this proxy statement/ prospectus
there are 77,357 Class A voting shares issued and
outstanding. Immediately prior to the merger, there will be
1,623,644 Class A voting shares issued and outstanding.
Each Class B multiple voting share entitles the holder
thereof to ten (10) votes at all meetings of the
shareholders of Birks (except meetings at which only holders of
another specified class of shares are entitled to vote pursuant
to the provisions of Birks’ charter or the CBCA). It
entitles the holder thereof to equal status with holders of
Class B multiple voting shares on all other matters,
including ranking on liquidation and the right to receive
dividends and distributions. Each Class B multiple voting
share may at any time and from time to time, at the option of
the holder, be converted into one (1) fully paid and
non-assessable Class A voting share. On the date of this
proxy statement/ prospectus there are 7,213,094 Class B
multiple voting shares issued and outstanding. Immediately prior
to the merger, there will be 7,717,970 Class B multiple
voting shares issued and outstanding.
Each Class C multiple voting share entitles the holder
thereof to one hundred (100) votes at all meetings of the
shareholders of Birks (except meetings at which only holders of
another specified class of shares are entitled to vote pursuant
to the provisions hereof or pursuant to the provisions of the
CBCA). The Class C multiple voting shares may be redeemed
by Birks for a price equal to the consideration received for the
issuance of such shares. On the date of this proxy statement/
prospectus, there are, and immediately prior to the merger,
there will be, no Class C multiple voting shares issued and
outstanding.
Each non-voting common share becomes convertible into one
Class A voting share upon Birks becoming a reporting
issuer, as such term is defined in any securities legislation or
securities regulation applicable to Birks. On the date of this
proxy statement/ prospectus, there are, and immediately prior to
the merger, there will be, no non-voting common shares issued
and outstanding.
Each Series A preferred share entitles its holder to one
(1) vote for each Class A voting share into which such
Series A preferred share could then be converted. The
holders of Series A preferred shares are entitled to share
in any dividends declared and paid upon or set aside for
Class A voting shares, Class B multiple voting shares
or non-voting shares of Birks. Each Series A preferred
share is convertible, at the option of its holder, into
1.01166167621 Class A voting shares. Each Series A
preferred share will also be automatically converted into
1.01166167621 Class A voting shares upon certain events,
including the sale by Birks of its Class A voting shares in
an underwritten public offering raising aggregate net proceeds
of at least $55,000,000. It is a condition of the merger that
the Series A preferred shares be converted into
Class A voting shares. On the date of this proxy statement/
prospectus, there are 1,022,350 Series A preferred shares
issued and outstanding. Immediately prior to the merger, there
will be no Series A preferred shares issued and outstanding.
138
Birks’ Capital Stock Upon Consummation of the Merger
Upon consummation of the merger, Birks’ capital stock will
be as follows. Birks will be authorized to issue:
|
|
|
|
|
|
•
|
An unlimited number of Class A voting shares without
nominal or par value;
|
|
|
|
|
•
|
An unlimited number of Class B multiple voting shares
without nominal or par value; and
|
|
|
|
|
•
|
An unlimited number of preferred shares without nominal or par
value, issuable in series.
|
The Class A voting shares and the Class B multiple
voting shares are referred to in this section of the proxy
statement/ prospectus collectively as the common shares.
The Class A voting shares will have attached thereto the
following rights, privileges, restrictions and conditions:
|
|
|
|
|
|
•
|
Voting.
Each Class A voting share will entitle the
holder thereof to one (1) vote at all meetings of the
shareholders of Birks (except meetings at which only holders of
another specified class of shares are entitled to vote pursuant
to the provisions of Birks’ amended charter or the CBCA).
|
|
|
|
|
•
|
Ranking on Liquidation.
In the event of the liquidation,
dissolution or winding-up of Birks, whether voluntary or
involuntary, or other distribution of assets of Birks among
shareholders for the purpose of winding-up its affairs, subject
to the rights, privileges, restrictions and conditions attaching
to any other class of shares ranking prior to the Class A
voting shares or the Class B multiple voting shares, the
holders of the Class A voting shares and the holders of the
Class B multiple voting shares will be entitled to receive
the remaining property of Birks. The holders of the Class A
voting shares and the holders of the Class B multiple
voting shares will rank equally with respect to the distribution
of assets in the event of the liquidation, dissolution or
winding-up of Birks, whether voluntary or involuntary, or any
other distribution of the assets of Birks among shareholders for
the purpose of winding-up its affairs.
|
|
|
|
|
•
|
Dividends and Distributions.
In addition to any dividend
or distribution declared by the directors of Birks in respect of
Class A voting shares, holders of Class A voting
shares will be entitled to receive a dividend or distribution,
whether cash, non-cash or some combination thereof, equal (on a
per share basis) to any dividend or distribution declared by the
directors of Birks in respect of the Class B multiple
voting shares. Dividends and distributions on Class A
voting shares will be payable on the date fixed for payment of
the dividend or distribution in respect of Class A voting
shares or, if applicable, on the date fixed for payment of any
dividend or distribution in respect of Class B multiple
voting shares.
|
|
|
|
|
•
|
Right of Participation in a Sale Transaction
.
|
|
|
|
|
|
|
•
|
No holder of Class B multiple voting shares or group of
holders of Class B multiple voting shares that are
Affiliates (each a “Controlling Holder” and together
the “Controlling Holders”) will sell, transfer or
otherwise dispose of Class B multiple voting shares if,
immediately following such sale, transfer or disposition of
Class B multiple voting shares, such Controlling Holders
shall control less than a majority of the total voting rights
attached to the common shares issued and outstanding on the date
of such sale, transfer or disposition (a “Sale
Transaction”), unless all other holders of common shares
will have the right (A) to receive the same consideration
(on a per share basis), whether cash, non-cash or some
combination thereof, as that to be received by the Controlling
Holders pursuant to the Sale Transaction and (B) to
participate in such Sale Transaction on the same terms as the
Controlling Holders in all other material respects, including in
respect of the conditions to such Sale Transaction. Written
notice of any Sale Transaction, which notice will specify the
terms of such Sale Transaction and the right of all holders of
common shares to participate in such Sale Transaction, will be
provided to the holders of common shares by first class mail, at
least twenty (20) business days prior to the consummation
of such Sale Transaction.
|
|
|
|
|
•
|
Any Sale Transaction not in compliance with the paragraph above
will be null and void and will not be registered in the books of
Birks.
|
139
|
|
|
|
|
|
•
|
Notwithstanding the foregoing, none of the following shall
constitute a Sale Transaction: (A) any pledge, mortgage,
hypothecation, lien or similar encumbrance, whether by
possession or registration, of Class B multiple voting
shares which creates a security interest in favor of another
person or entity, and (B) any sale, transfer or other
disposition of Class B multiple voting shares to
Affiliates, Associates or shareholders of the transferor of such
Class B multiple voting shares. For purposes of this
section, an “Affiliate” means a person that directly
or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified
person. For purposes of this section, an “Associate”,
when used to indicate a relationship with any person, means
(x) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity and
(y) a spouse or child of such person.
|
|
|
|
|
|
|
•
|
Right of Participation in a Business Combination
.
|
|
|
|
|
|
|
•
|
Birks will not consummate a Business Combination unless the
holders of Class A voting shares will have the right
(A) to receive the same consideration (on a per share
basis), whether cash, non-cash or some combination thereof, as
that to be received by the holders of Class B multiple
voting shares in connection with such Business Combination and
(B) to participate in such Business Combination on the same
terms as the holders of Class B multiple voting shares in
all other material respects, including in respect of the
conditions to such Business Combination.
|
|
|
|
|
•
|
“Business Combination” as used herein will mean,
whether in one or a series of related transactions: (A) any
merger, amalgamation, recapitalization or consolidation
involving Birks, other than a merger, amalgamation,
recapitalization, consolidation or similar transaction with a
wholly-owned subsidiary of Birks or which is solely for the
purpose of continuance of Birks as a corporation in another
jurisdiction; (B) any sale, lease, exchange, transfer or
other disposition involving 50% or more of the assets of Birks
and its subsidiaries, on a consolidated basis; or (C) any
agreement, contract or other arrangement having the same purpose
or effect as the transactions described in (A) and
(B) above.
|
|
|
|
|
|
|
•
|
Transactions or Actions Requiring Special Approval
.
|
|
|
|
|
|
|
•
|
In addition to any other approvals required under the CBCA,
prior to consummating a Related Party Transaction, Birks will
obtain (A) the consent of the majority of a committee of
independent directors of Birks and (B) with respect to
clauses (x) and (y) of the definition of Related
Party Transaction below, the affirmative vote in favor of the
approval of the Related Party Transaction by the majority of the
holders of Class A voting shares (exclusive of Class A
voting shares held by the Related Person (and its Affiliates and
Associates) which is or would be a party to such Related Party
Transaction) that cast a vote, in person or by proxy (but not
including any vote that is not counted as either an affirmative
or negative vote), at the annual or special shareholders meeting
at which such Related Party Transaction is considered.
|
|
|
|
|
•
|
For purposes of this section, (A) “Related Party
Transaction” will mean (x) consummation of a Business
Combination with a Related Person; (y) amending, repealing
or altering in anyway any provision of the amended charter or
the amended by-laws of Birks, except for matters not having an
adverse effect on the holders of Class A voting shares; or
(z) the issuance, sale, exchange, transfer or other
disposition (in one transaction or a series of related
transactions) by Birks or any wholly-owned subsidiary of Birks
of any securities of Birks or of such subsidiary to a Related
Person (other than pursuant to: an employee or director stock
incentive plan or other compensation arrangements approved by
the compensation committee of Birks; an offering made to all
holders of Class A voting shares; or a public offering);
and (B) “Related Person” will mean any individual,
corporation, partnership, group, association or other person or
entity that, together with its Affiliates and Associates,
beneficially owns Class A voting shares and/or Class B
multiple voting shares which, in the aggregate, represent twenty
percent (20%) or more of the total voting rights attached to the
common shares issued and outstanding at the time the definitive
agreement with respect to a Related Party Transaction is
executed.
|
140
|
|
|
|
|
|
•
|
Subdivision, Consolidation, Reclassification or Other
Change.
No subdivision, consolidation or reclassification
of, or other change to, the Class A voting shares will be
carried out, either directly or indirectly unless, at the same
time, the Class B multiple voting shares are subdivided,
consolidated, reclassified or changed in the same manner and on
the same basis.
|
|
|
|
|
•
|
Equal Status.
Except as otherwise expressly provided in
Birks’ amended charter, Class A voting shares and
Class B multiple voting shares will have the same rights
and privileges and will rank equally, share ratably and be equal
in all respects as to all matters.
|
|
|
|
|
•
|
Approval of Issuance.
For so long as the outstanding
Class B multiple voting shares represent a majority of the
total voting rights attached to the common shares,
Birks
shall not issue any Class A voting shares, or any security
convertible into or exercisable or exchangeable for Class A
voting shares, unless such issuance, or the plan or agreement
under which such security is to be issued, has been approved by
(i) a majority of the votes cast at a meeting of the
holders of Class B multiple voting shares or
(ii) unanimous written consent of the holders of
Class B multiple voting shares;
provided, however
,
such approval shall not be required for the issuance of
|
|
|
|
|
|
|
•
|
Class A voting shares, options or warrants under any plan
or agreement approved by Birks prior to June 1, 2005,
including without limitation, the merger agreement; or
|
|
|
|
|
•
|
Class A voting shares upon the exercise of an option or
warrant issued or to be issued under any plan or agreement
approved by Birks prior to June 1, 2005; or
|
|
|
|
|
•
|
Class A voting shares upon the conversion of Class B
multiple voting shares; or
|
|
|
|
|
•
|
Class A voting shares upon the conversion, exercise or
exchange of any security, obligation or other instrument of
Birks for Class A voting shares if the issuance of such
security, obligation or other instrument of Birks was previously
approved pursuant to this paragraph.
|
The Class B multiple voting shares will have attached
thereto the following rights, privileges, restrictions and
conditions:
|
|
|
|
|
|
•
|
Voting.
Each Class B multiple voting share will
entitle the holder thereof to ten (10) votes at all
meetings of the shareholders of Birks (except meetings at which
only holders of another specified class of shares are entitled
to vote pursuant to the provisions of Birks’ amended
charter or the CBCA).
|
|
|
|
|
•
|
Ranking on Liquidation.
In the event of the liquidation,
dissolution or winding-up of Birks, whether voluntary or
involuntary, or other distribution of assets of Birks among
shareholders for the purpose of winding-up its affairs, subject
to the rights, privileges, restrictions and conditions attaching
to any other class of shares ranking prior to the Class B
multiple voting shares or the Class A voting shares, the
holders of the Class B multiple voting shares and the
holders of the Class A voting shares will be entitled to
receive the remaining property of Birks. The holders of the
Class B multiple voting shares and the holders of the
Class A voting shares will rank equally with respect to the
distribution of assets in the event of the liquidation,
dissolution or winding-up of Birks, whether voluntary or
involuntary, or any other distribution of the assets of Birks
among shareholders for the purpose of winding-up its affairs.
|
|
|
|
|
•
|
Dividends and Distributions.
In addition to any dividend
or distribution declared by the directors in respect of
Class B multiple voting shares, holders of Class B
multiple voting shares will be entitled to receive a dividend or
distribution, whether cash, non-cash or some combination
thereof, equal (on a per share basis) to any dividend or
distribution declared by the directors of Birks in respect of
Class A voting shares. Dividends and distributions on
Class B multiple voting shares will be payable on the dated
fixed for payment of the dividend or distribution in respect of
Class B multiple voting shares or, if applicable, on the
date fixed for payment of a dividend or distribution in respect
of Class A voting shares.
|
141
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|
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|
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•
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Conversion by Holder into Class A voting shares.
Each Class B multiple voting share may at any time and from
time to time, at the option of the holder, be converted into one
(1) fully paid and non-assessable Class A voting
share. Such conversion right will be exercised as follows:
|
|
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|
•
|
the holder of Class B multiple voting shares will send to
the transfer agent of Birks a written notice, accompanied by a
certificate or certificates representing the Class B
multiple voting shares in respect of which the holder desires to
exercise such conversion right. Such notice will be signed by
the holder of the Class B multiple voting shares in respect
of which such right is being exercised, or by the duly
authorized representative thereof, and will specify the number
of Class B multiple voting shares which such holder desires
to have converted. The holder will also pay any governmental or
other tax, if any, imposed in respect of such conversion. The
conversion of the Class B multiple voting shares into
Class A voting shares will take effect upon receipt by the
transfer agent of Birks of the conversion notice accompanied by
the certificate or certificates representing the Class B
multiple voting shares in respect of which the holder desires to
exercise such conversion right.
|
|
|
|
|
•
|
upon receipt of such notice and certificate or certificates by
the transfer agent of Birks, Birks will, effective as of the
date of such receipt, issue or cause to be issued a certificate
or certificates representing Class A voting shares into
which Class B multiple voting shares are being converted.
If less than all of the Class B multiple voting shares
represented by any certificate are to be converted, the holder
will be entitled to receive a new certificate representing the
Class B multiple voting shares represented by the original
certificate which are not to be converted.
|
|
|
|
|
|
|
•
|
Subdivision, Consolidation, Reclassification or Other
Change.
No subdivision, consolidation or reclassification
of, or other change to, the Class B multiple voting shares
will be carried out unless, at the same time, the Class A
voting shares are subdivided, consolidated, reclassified or
changed in the same manner and on the same basis.
|
|
|
|
|
•
|
Equal Status.
Except as otherwise expressly provided in
Birks’ amended charter, Class B multiple voting shares
and Class A voting shares will have the same rights and
privileges and will rank equally, share ratably and be equal in
all respects as to all matters.
|
|
|
|
|
•
|
Approval of Issuance.
For so long as the outstanding
Class B multiple voting shares represent a majority of the
total voting rights attached to the common shares, Birks shall
not issue any Class B multiple voting shares, or any
security convertible into or exercisable or exchangeable for
Class B multiple voting shares, unless such issuance has
been approved by a majority of the votes cast at a meeting of
the holders of Class B multiple voting shares;
provided,
however
, such approval shall not be required for the
issuance of Class B multiple voting shares upon the
conversion, exercise or exchange of any security of Birks for
Class B multiple voting shares if the issuance of such
security of Birks was previously approved pursuant to this
paragraph.
|
The preferred shares will have attached thereto, as a class,
the following rights, privileges, restrictions and
conditions:
|
|
|
|
|
|
•
|
Issuance of Preferred Shares, in Series.
The directors of
Birks may, at any time and from time to time, issue preferred
shares in one (1) or more series, each series to consist of
such number of preferred shares as may, before issuance thereof,
be determined by the directors
|
|
|
|
|
•
|
Determination of Rights, Privileges, Restrictions, Conditions
and Limitations Attaching to Series of Preferred Shares.
The
directors of the Corporation may, subject to the following, from
time to time fix, before issuance, the designation, rights,
privileges, restrictions, conditions and limitations to attach
to the preferred shares of each series including, without
limiting the generality of the foregoing,
|
|
|
|
|
|
|
•
|
the rate, amount or method of calculation of preferential
dividends of the preferred shares of such series, if any,
whether cumulative or non-cumulative or partially cumulative,
and whether such rate, amount or method of calculation shall be
subject to change or adjustment in the future, the currency or
currencies of payment, the date or dates and place or places of
payment thereof and the date or dates from which such
preferential dividends shall accrue;
provided, that
, the
dividends payable with respect to any series of preferred
shares, whether cumulative or non-cumulative or partially
|
142
|
|
|
|
|
|
|
cumulative, shall not exceed five (5) percent of the
liquidation preference of such series of preferred shares;
|
|
|
|
|
•
|
the redemption price and terms and conditions of redemption, if
any, of the preferred shares of such series;
provided,
that
, without the approval by a majority of the votes cast
at a meeting of shareholders of Birks duly called, the
redemption price shall not exceed the liquidation preference of
such shares;
|
|
|
|
|
•
|
the rights of retraction, if any, vested in the holders of
preferred shares of such series, and the prices and the other
terms and conditions of any rights of retraction, and whether
any additional rights of retraction may be vested in such
holders in the future;
provided, that
, without the
approval by a majority of the votes cast at a meeting of
shareholders of Birks duly called, the retraction price shall
not exceed the liquidation preference of such shares;
|
|
|
|
|
•
|
the voting rights, if any, of the preferred Shares of such
series;
provided, that
, the approval by a majority of the
votes cast at a meeting of shareholders of Birks duly called
shall be required for the issuance of any series of preferred
shares with voting rights;
|
|
|
|
|
•
|
the conversion rights and terms and conditions of conversion, if
any, of the preferred shares of such series;
provided,
that
, the approval by a majority of the votes cast at a
meeting of shareholders of Birks duly called shall be required
for the issuance of any series of preferred shares which are
convertible into securities with voting rights;
|
|
|
|
|
•
|
any sinking fund, purchase fund or other provisions attaching to
the preferred shares of such series; and
|
|
|
|
|
•
|
any other relative rights, preferences and limitations of the
preferred shares of such series, the whole subject to the issue
of a certificate of amendment in respect of articles of
amendment in the prescribed form to designate a series of
preferred shares.
|
|
|
|
|
|
|
•
|
Cumulative Dividends or Return of Capital Not Paid in
Full.
Pursuant to section 27(2) of the CBCA, when any
cumulative dividends or amounts payable on a return of capital
in respect of a series of preferred shares are not paid in full,
the preferred shares of all series will participate ratably in
respect of such dividends including accumulations, if any, in
accordance with the sums which would be payable on the preferred
shares if all such dividends were declared and paid in full, and
on any return of capital in accordance with the sums which would
be payable on such return of capital if all sums so payable were
paid in full.
|
|
|
|
|
•
|
Payment of Dividends and Other Preferences.
The preferred
shares will be entitled to preference over the Class A
voting shares, the Class B multiple voting shares and any
other shares of Birks ranking junior to the preferred shares
with respect to the payment of dividends, and may also be given
such other preferences over the Class A voting shares, the
Class B multiple voting shares and any other shares of
Birks ranking junior to the preferred shares, as may be fixed by
the directors of Birks, as to the respective series authorized
to be issued.
|
|
|
|
|
•
|
Procedure for Payment of Dividends.
No dividends will at
any time be declared or paid or set apart for payment on any
shares of Birks ranking junior to the preferred shares, unless
all dividends up to and including the dividends payable for the
last completed period for which such dividends will be payable
on each series of preferred shares then issued and outstanding
will have been declared and paid or set apart for payment at the
date of such declaration or payment or setting apart for payment
on such shares of Birks ranking junior to the preferred shares,
nor will Birks call for redemption or redeem or purchase for
cancellation or reduce or otherwise pay off any of the preferred
shares (less than the total amount then outstanding) or any
shares of Birks ranking junior to the preferred shares, unless
all dividends up to and including the dividend payable for the
last completed period for which such dividends will be payable
on each series of the preferred shares then issued and
outstanding will have been declared and paid or set apart for
payment at the date of such call for redemption, purchase,
reduction or other payment.
|
143
|
|
|
|
|
|
•
|
Ranking for Payment of Dividends and Liquidation, Dissolution
or Winding-up.
The preferred shares of each series will rank
on a parity with the preferred shares of every other series with
respect to priority in payment of dividends and in the
distribution of assets in the event of liquidation, dissolution
or winding-up of Birks whether voluntary of involuntary.
|
|
|
|
|
•
|
Liquidation, Dissolution or Winding-up.
In the event of
the liquidation, dissolution or winding-up of Birks or other
distribution of assets of Birks among shareholders for the
purpose of winding-up its affairs, the holders of the preferred
shares will, before any amount will be paid to or any property
or assets of Birks distributed among the holders of the
Class A voting shares, the Class B multiple voting
shares or any other shares of Birks ranking junior to the
preferred shares, be entitled to receive:
|
|
|
|
|
|
|
•
|
an amount equal to the consideration received by Birks upon the
issuance of such shares together with, in the case of cumulative
preferred shares, all unpaid cumulative dividends (which for
such purpose will be calculated as if such cumulative dividends
were accruing from day to day for the period from the expiration
of the last period for which cumulative dividends have been
paid-up to and including the date of distribution) and, in the
case of non-cumulative preferred shares, all declared and unpaid
non-cumulative dividends; and
|
|
|
|
|
•
|
if such liquidation, dissolution, winding-up or distribution
will be voluntary, an additional amount equal to the premium, if
any, which would have been payable on the redemption of the said
preferred shares respectively if they had been called for
redemption by Birks on the date of distribution and, if said
preferred shares could not be redeemed on such date, then an
additional amount equal to the greatest premium, if any, which
would have been payable on the redemption of said preferred
shares respectively.
|
|
|
|
|
|
|
•
|
Purchase by Birks.
The preferred shares of any series may
be purchased for cancellation or made subject to redemption by
Birks at such times and at such prices and upon such other terms
and conditions as may be specified in the rights, privileges,
restrictions and conditions attaching to the preferred shares of
such series as set forth in the articles of amendment relating
to such series.
|
|
|
|
|
•
|
Amendments.
The provisions of this section relating to
preferred shares may be deleted or varied in whole or in part by
a certificate of amendment, but only with the prior approval of
the holders of the preferred shares, given as hereinafter
specified, in addition to any other approval required by the
CBCA (or any other statutory provision of the like or similar
effect, from time to time in force). The approval of the holders
of the preferred shares with respect to any and all matters
hereinbefore referred to, may be given by at least two-thirds
(
2
/
3
)
of the votes cast at a meeting of the holders of the preferred
shares duly called for that purpose and held upon at least
twenty-one (21) days notice at which the holders of a
majority of the outstanding preferred shares are present or
represented by proxy. If at any such meeting the holders of a
majority of the outstanding preferred shares are not present or
represented by proxy within thirty (30) minutes after the
time appointed for such meeting, then the meeting will be
adjourned to such date being not less than thirty (30) days
later and to such time and place as may be determined by the
chairman of the meeting and not less than twenty-one
(21) days notice will be given of such adjourned meeting
but it will not be necessary in such notice to specify the
purpose for which the meeting was originally called. At such
adjourned meeting the holders of preferred shares, present or
represented by proxy, may transact the business for which the
meeting was originally called and a resolution passed thereat by
not less than two-thirds
(
2
/
3
)
of the votes cast at such adjourned meeting, will constitute the
authorization of the holders of the preferred shares referred to
above. The formalities to be observed in respect of the giving
of notice of any such meeting or adjourned meeting and the
conduct thereof will be those from time to time prescribed by
the by-laws of Birks with respect to meetings of shareholders.
On every poll taken at every such meeting or adjourned meeting,
every holder of preferred shares will be entitled to one
(1) vote in respect of each preferred share held.
|
144
SELECTED HISTORICAL FINANCIAL DATA OF MAYOR’S
The following selected historical financial data of Mayor’s
as of and for the years ended March 26, 2005 and
March 27, 2004, have been prepared in accordance with
U.S. GAAP and have been derived from Mayor’s
consolidated financial statements, which are included elsewhere
in this proxy statement/ prospectus, which have been audited by
KPMG LLP, its independent registered public accounting firm. The
selected historical financial data of Mayor’s as of and for
the year ended March 29, 2003, have been prepared in
accordance with U.S. GAAP and have been derived from
Mayor’s consolidated financial statements, which are
included elsewhere in this proxy statement/ prospectus, which
have been audited by Deloitte & Touche LLP,
its independent registered public accounting firm. The selected
historical financial data of Mayor’s as of March 30,
2002 and for the transition period from February 3, 2002 to
March 30, 2002, and the selected historical financial data
as of and for the years ended February 2, 2002 and
February 3, 2001 have been prepared in accordance with
U.S. GAAP and have been derived from Mayor’s audited
consolidated financial statements.
The data presented below should be read in conjunction with the
audited consolidated financial statements of Mayor’s,
including the notes thereto, included elsewhere in this proxy
statement/ prospectus. You should also read “Mayor’s
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
The historical results included below and elsewhere in this
proxy statement/ prospectus are not necessarily indicative of
the future performance of Mayor’s or the combined company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-Two
|
|
|
Fifty-Two
|
|
|
Fifty-Two
|
|
|
Transition
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
|
|
Weeks
|
|
|
Weeks
|
|
|
Weeks
|
|
|
Period
|
|
|
Weeks
|
|
|
Weeks
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
Mar. 26,
|
|
|
Mar. 27,
|
|
|
Mar. 29,
|
|
|
Mar. 30,
|
|
|
Feb. 2,
|
|
|
Feb. 3,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002(1)
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(As restated)(4)
|
|
|
(As restated)(4)
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands except per share data)
|
|
|
INCOME STATEMENT DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
142,710
|
|
|
$
|
125,487
|
|
|
$
|
118,391
|
|
|
$
|
17,856
|
|
|
$
|
160,727
|
|
|
$
|
179,557
|
|
|
Cost of sales
|
|
|
81,715
|
|
|
|
73,427
|
|
|
|
78,740
|
|
|
|
11,966
|
|
|
|
101,179
|
|
|
|
101,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
60,995
|
|
|
|
52,060
|
|
|
|
39,651
|
|
|
|
5,890
|
|
|
|
59,548
|
|
|
|
78,013
|
|
|
Selling, general and administrative expenses (including non-cash
compensation expense, net of $103 and $1,067 for fiscal 2004 and
fiscal 2003, respectively)
|
|
|
53,729
|
|
|
|
52,283
|
|
|
|
53,719
|
|
|
|
9,287
|
|
|
|
76,206
|
|
|
|
69,381
|
|
|
Restructuring, asset impairments and other charges(3)
|
|
|
(1,212
|
)
|
|
|
—
|
|
|
|
2,887
|
|
|
|
305
|
|
|
|
28,214
|
|
|
|
—
|
|
|
Depreciation and amortization
|
|
|
3,289
|
|
|
|
3,358
|
|
|
|
4,177
|
|
|
|
1,102
|
|
|
|
9,564
|
|
|
|
7,942
|
|
|
Goodwill impairment writedown
|
|
|
—
|
|
|
|
—
|
|
|
|
(615
|
)
|
|
|
—
|
|
|
|
22,265
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,189
|
|
|
|
(3,581
|
)
|
|
|
(20,517
|
)
|
|
|
(4,804
|
)
|
|
|
(76,701
|
)
|
|
|
690
|
|
|
Interest and other income
|
|
|
—
|
|
|
|
184
|
|
|
|
1,433
|
|
|
|
41
|
|
|
|
174
|
|
|
|
213
|
|
|
Interest and other financial costs
|
|
|
(4,501
|
)
|
|
|
(4,427
|
)
|
|
|
(6,757
|
)
|
|
|
(538
|
)
|
|
|
(3,788
|
)
|
|
|
(3,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
688
|
|
|
|
(7,284
|
)
|
|
|
(25,841
|
)
|
|
|
(5,301
|
)
|
|
|
(80,315
|
)
|
|
|
(2,547
|
)
|
|
Income tax (benefit) provision
|
|
|
—
|
|
|
|
—
|
|
|
|
(547
|
)
|
|
|
—
|
|
|
|
3,431
|
|
|
|
—
|
|
|
Income (loss) from continuing operations
|
|
|
688
|
|
|
|
(7,824
|
)
|
|
|
(25,294
|
)
|
|
|
(5,301
|
)
|
|
|
(83,746
|
)
|
|
|
(2,547
|
)
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-Two
|
|
|
Fifty-Two
|
|
|
Fifty-Two
|
|
|
Transition
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
|
|
Weeks
|
|
|
Weeks
|
|
|
Weeks
|
|
|
Period
|
|
|
Weeks
|
|
|
Weeks
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
Mar. 26,
|
|
|
Mar. 27,
|
|
|
Mar. 29,
|
|
|
Mar. 30,
|
|
|
Feb. 2,
|
|
|
Feb. 3,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002(1)
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(As restated)(4)
|
|
|
(As restated)(4)
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands except per share data)
|
|
|
Income (loss) from discontinued operations(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,604
|
)
|
|
|
(56
|
)
|
|
|
(112
|
)
|
|
|
13,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
688
|
|
|
$
|
(7,824
|
)
|
|
$
|
(26,898
|
)
|
|
$
|
(5,357
|
)
|
|
$
|
(83,858
|
)
|
|
$
|
10,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock cumulative dividend
|
|
|
(100
|
)
|
|
|
(1,316
|
)
|
|
|
(872
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Preferred stock beneficial conversion, value treated as a
dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relative fair value of warrants, value treated as a dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of the increase in the Series A Preferred conversion
ratio and the additional warrants issued to Birks
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
(441
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common Stockholders
|
|
$
|
571
|
|
|
$
|
(9,140
|
)
|
|
$
|
(35,289
|
)
|
|
$
|
(5,357
|
)
|
|
$
|
(83,858
|
)
|
|
$
|
10,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted common share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(4.31
|
)
|
|
$
|
(0.13
|
)
|
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.80
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(4.32
|
)
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0,01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.72
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(4.31
|
)
|
|
$
|
(0.13
|
)
|
|
|
Discontinued operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.08
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.80
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(4.32
|
)
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
|
March 26,
|
|
|
Mar. 27,
|
|
|
Mar. 29,
|
|
|
Feb. 2,
|
|
|
Feb. 3,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(As restated)(4)
|
|
|
|
|
|
|
|
|
|
|
($ In thousands)
|
|
|
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
35,829
|
|
|
$
|
33,618
|
|
|
$
|
41,533
|
|
|
$
|
37,926
|
|
|
$
|
124,672
|
|
|
Total assets
|
|
|
102,786
|
|
|
|
105,215
|
|
|
|
103,183
|
|
|
|
144,589
|
|
|
|
224,052
|
|
|
Credit facility, less amounts classified as current
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
44,390
|
|
|
Stockholders’ equity
|
|
|
34,291
|
|
|
|
33,484
|
|
|
|
42,427
|
|
|
|
61,107
|
|
|
|
144,259
|
|
|
Long-term obligations
|
|
|
12,878
|
|
|
|
12,668
|
|
|
|
12,668
|
|
|
|
—
|
|
|
|
44,390
|
|
|
|
|
|
(1)
|
The transition period presented is from February 3, 2002
through March 30, 2002 and is presented as a result of
Mayor’s change in fiscal year from the Saturday closest to
January 31 to the Saturday closest to March 31 as reported
on Form 8-K which was filed with the SEC on
January 29, 2003. On July 29, 2003, Mayor’s filed
a Form 8-K with the SEC to change its fiscal year end from
the Saturday closest to March 31, to the last Saturday in
March, effective July 22, 2003.
|
|
|
|
(2)
|
The (loss) income from discontinued operations for the fifty-two
week periods ended March 29, 2003 and February 2,
2002, fifty-three week period ended February 3, 2001 and
the transition period include the
|
146
|
|
|
|
|
discontinued operations of the store at Tysons Galleria in
McLean, Virginia which was closed in March 2003. The (loss)
income from discontinued operations for the fifty-three week
period ended February 3, 2001 include the operations of the
Sam’s Division jewelry counters operated within Sam’s
Wholesale stores prior to the expiration of the agreement.
|
|
|
|
(3)
|
Restructuring, asset impairments and other charges for the
fifty-two weeks ended March 26, 2005 include approximately
($1.2) million of income as a result of a settlement of a
sales tax audit for less than the amount accrued as well as the
adjustment of other sales tax contingency estimates.
|
|
|
|
|
|
Restructuring, asset impairments and other charges for the
fifty-two weeks ended March 29, 2003 consist of one time
charges primarily for professional fees related to the execution
of the Restructuring Plan, reserves related to sales tax
liabilities, severance costs related to the departure of the
former Chief Executive Officer and charges related to the sale
of certain of Mayor’s accounts receivable, net of a
reversal to income of reserves related to the exit of leases for
closed stores.
|
|
|
|
|
Restructuring, asset impairments and other charges for the
fifty-two weeks ended February 2, 2002 include amounts for
the write-down of the fixed assets for the stores that were
scheduled to be closed, a reserve for early termination of the
leases for the stores that were scheduled to be closed, a
write-down of the corporate headquarters building which
Mayor’s placed on the market for sale, consulting fees
related to a strategic cost reduction project, and non-recurring
legal fees associated with stockholder-related matters.
|
|
|
|
|
(4)
|
For a description of the restatement, see Note B to
Mayor’s consolidated financial statements included
elsewhere in this proxy statement/ prospectus.
|
147
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
MAYOR’S
The following Management’s Discussion and Analysis of
Financial Condition and Results of Operations gives effect to
the restatement discussed in Note B to Mayor’s
consolidated financial statements included elsewhere in this
proxy statement/ prospectus.
General
The years ended March 26, 2005, March 27, 2004 and
March 29, 2003 are referred to herein as fiscal 2004,
fiscal 2003 and fiscal 2002, respectively.
Overview
As of March 26, 2005, Mayor’s operated 28 luxury
jewelry stores in South and Central Florida and metropolitan
Atlanta, Georgia. On April 2, 2004, Mayor’s opened its
first free-standing location in Florida at PGA Commons in Palm
Beach Gardens to replace the store in the Gardens of the Palm
Beaches mall which was closed on January 24, 2004. During
the fiscal year ended March 29, 2003, Mayor’s operated
between 29 and 40 stores located in its core market of
South and Central Florida and metropolitan Atlanta, Georgia as
well as stores in non-core areas of Arizona, California,
Illinois, Michigan, Texas and Virginia. The reduction in the
number of stores was a result of the execution in fiscal 2002 of
a restructuring plan that was adopted in fiscal 2001, which
included closing under-performing stores outside of Mayor’s
core market of Florida and Georgia. During fiscal 2002,
Mayor’s operated an average of 36 stores both within its
core marketplace and the non-core areas noted above.
The retail jewelry market is particularly subject to the level
of consumer discretionary income and the subsequent impact on
the type and value of goods purchased. With the consolidation of
the retail industry, Mayor’s believes that competition and
consolidation both within the luxury goods retail industry and
with other competing general and specialty retailers and
discounters will continue to increase. The luxury watch brand
business comprises a significant portion of Mayor’s
business, which management believes is a result of Mayor’s
ability to effectively market high-end watches. During fiscal
2004, watch sales constituted approximately 53% of Mayor’s
total net sales with Rolex sales alone comprising 38% of total
Mayor’s net sales in fiscal 2004.
The success of Mayor’s operations depends to a certain
extent on the ability of mall anchor tenants and other
attractions to generate customer traffic in the vicinity of the
Mayor’s stores. The negative performance of a mall could
have an adverse effect on Mayor’s operations, caused by
events such as the loss of mall anchor tenants in the regional
malls where the Mayor’s stores are located, the opening of
competing regional malls or stores, the occurrence of hurricanes
or terrorist attacks and other economic downturns affecting
customer mall traffic.
One of Mayor’s goals is to increase gross profit and gross
margin. Mayor’s strategy for gross profit and gross margin
improvement is to reduce the cost of merchandise purchased
through leveraging Mayor’s purchasing power and increasing
sales of exclusive and brand merchandise, and to move the mix of
sales towards higher margin jewelry items, including a continued
emphasis on growing the bridal business. In addition,
Mayor’s expects to continue to refine the allocation and
management of inventory in its stores, and as a result, other
direct costs such as the cost of financing inventory and
inventory markdowns are expected to decrease. However, there can
be no assurance that Mayor’s strategy to increase gross
profit and gross margin will be successful. In addition,
Mayor’s is focusing on controlling and decreasing, where
appropriate, operating costs which include the sharing of
services of certain officers and other members of senior
management. The relationship with Birks has brought synergies to
both companies in several areas, including the production of
holiday catalogs, television advertising campaigns and other
marketing efforts; the attainment of favorable terms on its
banking facilities and reduction in insurance premiums; and the
ability to strengthen and/or consolidate supplier relationships
with improved terms as a result of leveraging the credibility
and stronger purchasing power of the combined companies.
148
The retail jewelry business is seasonal in nature with a higher
proportion of sales and a significant portion of earnings
generated during the third fiscal quarter holiday selling
season, which encompassed the thirteen weeks ended
December 25, 2004 for the current fiscal year and the
thirteen weeks ended December 27, 2003 in the prior fiscal
year.
The following table sets forth, for the periods indicated, the
amount and the percentage of net sales for certain items in
Mayor’s consolidated statements of operations, as it
relates to continuing operations, and other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
Mar. 26, 2005
|
|
|
Mar. 27, 2004
|
|
|
Mar. 29, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
142,710
|
|
|
|
100.0
|
%
|
|
$
|
125,487
|
|
|
|
100.0
|
%
|
|
$
|
118,391
|
|
|
|
100.0
|
%
|
|
Cost of sales
|
|
|
81,715
|
|
|
|
57.3
|
|
|
|
73,427
|
|
|
|
58.5
|
|
|
|
78,740
|
|
|
|
66.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
60,995
|
|
|
|
42.7
|
|
|
|
52,060
|
|
|
|
41.5
|
|
|
|
39,651
|
|
|
|
33.5
|
|
|
Selling, general and administrative expenses (including non-cash
compensation expense, net of $103 and $1,067, in fiscal 2004 and
fiscal 2003, respectively)
|
|
|
53,729
|
|
|
|
37.6
|
|
|
|
52,283
|
|
|
|
41.6
|
|
|
|
53,719
|
|
|
|
45.4
|
|
|
Restructuring, asset impairments and other charges
|
|
|
(1,212
|
)
|
|
|
(0.9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
2,887
|
|
|
|
2.4
|
|
|
Depreciation and amortization
|
|
|
3,289
|
|
|
|
2.3
|
|
|
|
3,358
|
|
|
|
2.7
|
|
|
|
4,177
|
|
|
|
3.5
|
|
|
Goodwill impairment writedown
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(615
|
)
|
|
|
(.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,189
|
|
|
|
3.7
|
|
|
|
(3,581
|
)
|
|
|
(2.8
|
)
|
|
|
(20,517
|
)
|
|
|
(17.3
|
)
|
|
Interest and other income
|
|
|
—
|
|
|
|
—
|
|
|
|
184
|
|
|
|
0.1
|
|
|
|
1,433
|
|
|
|
1.2
|
|
|
Interest and other financial costs
|
|
|
(4,501
|
)
|
|
|
(3.2
|
)
|
|
|
(4,427
|
)
|
|
|
(3.5
|
)
|
|
|
(6,757
|
)
|
|
|
(5.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
688
|
|
|
|
0.5
|
|
|
|
(7,824
|
)
|
|
|
(6.2
|
)
|
|
|
(25,841
|
)
|
|
|
(21.8
|
)
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(547
|
)
|
|
|
(.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
688
|
|
|
|
0.5
|
|
|
|
(7,824
|
)
|
|
|
(6.2
|
)
|
|
|
(25,294
|
)
|
|
|
(21.4
|
)
|
|
Income (loss) from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,604
|
)
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
688
|
|
|
|
0.5
|
%
|
|
$
|
(7,824
|
)
|
|
|
(6.2
|
)%
|
|
$
|
(26,898
|
)
|
|
|
(22.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores at year-end
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of Operations
Mayor’s net sales for fiscal 2004 were $142.7 million
compared to $125.5 million and $118.4 million for
fiscal 2003 and fiscal 2002, respectively. Comparable store net
sales for fiscal 2004, which includes stores that were open in
the same periods in both the current and prior year, increased
11.9% compared to fiscal 2003 due in part to a 12.7% increase in
average transaction dollars. Stores are included in
“Comparable store net sales” for the periods that they
are open, which are not necessarily for the entire period
presented. Stores that have been relocated to a different
geographic area and operate in a different store format (i.e.,
mall store to stand-alone) are not included in the
“Comparable store net sales” calculations until their
thirteenth month of operations. Additionally, the
“Comparable store net sales” calculations are not
adjusted for any changes in the square footage of an existing
store from period to period. The increase in net sales for
fiscal 2004 compared to fiscal 2003 was primarily due to the
result of an effective mix of merchandising and an increase of
the units of inventory available for sale in stores, due in part
to the improved financial position of Mayor’s, enhanced
marketing and customer events, and the continued increase in
consumer spending for luxury items compared to the same period
last year as well as a concentrated effort to dispose of certain
slow moving inventory merchandise. Comparable store net sales
for fiscal 2003 increased 15.6% compared to
149
fiscal 2002. The increase in net sales for fiscal 2003
compared to fiscal 2002 was primarily the result of an effective
mix of merchandising and increase of inventory unit offerings in
stores, due in part to the improved financial position of
Mayor’s and enhanced marketing and customer events, despite
the operation of fewer stores compared to fiscal 2002. In
addition, the improvement in the U.S. economy is credited
with increased consumer confidence and spending during the
latter part of fiscal 2003.
|
|
|
|
|
Cost of Sales and Gross Profit
|
Gross profit increased 17% in fiscal 2004 compared to fiscal
2003 driven by Mayor’s ability to increase sales and the
increase in the higher margins realized on sales. Gross profit
as a percentage of net sales (“gross margin”) in
fiscal 2004 was 42.7% compared to 41.5% and 33.5% in fiscal 2003
and fiscal 2002, respectively. Mayor’s believes the
increase in gross margin for fiscal 2004 was primarily due to
the execution of a focused inventory management plan that
included the assessment and disposal of aged inventory at better
than expected results affecting gross margin by approximately
0.9% and the continued success of the previously discussed
merchandising strategies which included sales of higher margin
products. The increase in gross margin for fiscal 2003 primarily
resulted from the ability of Mayor’s to increase its
offering achieve sales of higher margins on its products,
including those exclusive to Mayor’s, through substantially
reduced promotional activity as compared to fiscal 2002,
resulting in the increase of gross margin by approximately
3.2 percentage points, as well as the negative impact on
the fiscal 2002 gross margin that markdowns had in connection
with the liquidation of inventory in the closing of stores,
which negatively affected the fiscal 2002 gross margin by
approximately 4.1 percentage points. Cost of sales includes
direct inbound freight, direct labor related to repair services,
design, creative and the jewelry studio, inventory shrink,
inventory thefts, and jewelry, watch and giftware boxes.
Indirect freight including inter-store transfers, receiving
costs, distribution costs, warehousing costs and quality control
costs are included in selling, general and administrative
expenses. The amounts of these indirect costs included in
selling, general and administrative expenses are approximately
$1.3 million, $1.4 million, and $1.5 million in
fiscal 2004, 2003 and 2002, respectively. Mayor’s
classification of these costs are not necessarily the same as
other companies in our industry, therefore our gross margin
results may not be comparable to other companies’ gross
margin results in our industry.
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Selling, General and Administrative Expenses
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Selling, general and administrative expenses were
$53.7 million for fiscal 2004 compared to
$52.3 million and $53.7 million for fiscal 2003 and
fiscal 2002, respectively. Selling, general and administrative
expenses for fiscal 2004 increased from fiscal 2003. The key
fluctuations included the increase in variable expense of
$0.6 million related to the increase in sales in fiscal
2004 versus fiscal 2003, expanded marketing efforts which
increased costs $0.7 million, $0.7 million of expenses
incurred related to the restatement of certain reports
previously filed with the SEC and approximately
$0.8 million of expenses incurred related to the potential
business combination with Birks offset by $0.6 million
related to the reduction of actuarial based health care accruals
as a result of lower than expected health claims and a net
reduction of all other selling, general and administrative
expenses of $0.8 million. Non-cash compensation expense was
$103,000 for fiscal 2004. Non-cash compensation expense resulted
from 1) the decrease in the intrinsic value of vested
warrants, based on the underlying value of the stock and subject
to variable accounting, issued to certain current or former
employees of Birks or its affiliates, who were or later became
employees of or provided services to Mayor’s in the amount
of approximately ($32,000); and 2) the private sale of
Mayor’s stock owned by Birks which resulted in non-cash
compensation expense of $135,000 recorded by Mayor’s, which
represented the difference between the market value of the stock
and the selling price at the date of the sale. The decrease in
selling, general and administrative expenses as a percentage of
sales for fiscal 2004 to 37.6% from 41.6% in fiscal 2003 was due
to the positive impact of leveraging the incremental sales
against that portion of the operating expenses which are fixed.
The decrease in selling, general and administrative expenses for
fiscal 2003 compared to fiscal 2002 is primarily a result of the
reduction of controllable expenses by $2.2 million,
primarily in salaries, bad debt expense and consulting, which
offset an increase in marketing costs after a significant
reduction in fiscal 2002 due to cash constraints, as well as
costs incurred in fiscal 2002 of $5.0 million related to
the stores closed as part of the Restructuring Plan not incurred
in fiscal 2003, offset by an increase in variable expenses
related to the
150
increase in sales in fiscal 2003 versus fiscal 2002 of
$4.1 million. The decrease in selling, general and
administrative expenses as a percentage of sales is due to the
positive impact of the increase in comparable stores sales which
were able to better absorb fixed costs as compared to fiscal
2002 along with cost reductions. Non-cash compensation expense
was $1.067 million for fiscal 2003. Non-cash compensation
expense resulted from 1) the increase in the intrinsic
value of vested warrants, based on the underlying value of the
stock and subject to variable accounting, issued to certain
current or former employees of Birks or its affiliates, who were
or later became employees of or provided services to
Mayor’s in the amount of approximately $867,000; and
2) $200,000 related to the sale of Mayor’s stock owned
by Birks in a private placement sale to the spouse of one of
Mayor’s directors at less than market value.
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Restructuring, Asset Impairments and Other Charges
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Restructuring, asset impairments and other charges for fiscal
2004 include approximately ($1.2) million of income as a
result of a settlement of a sales tax audit for less than the
amount accrued as well as the adjustment of other sales tax
contingency estimates.
Restructuring, asset impairments and other charges recorded in
fiscal 2002 consist of charges primarily for professional fees
related to the execution of the previously mentioned
restructuring plan of approximately $1.9 million, reserves
related to sales tax liabilities of approximately
$1.9 million, severance costs related to the departure of
the former chief executive officer of approximately
$0.5 million and charges related to the sale of certain of
Mayor’s accounts receivable of approximately
$0.4 million. Additionally, approximately $1.9 million
of reserves recorded in fiscal 2002 related to the exit of
leases for closed stores were reversed to income due to the fact
that the leases were terminated at costs more favorable than
originally estimated.
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Depreciation and Amortization
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Depreciation and amortization expenses were $3.3 million
for fiscal 2004, compared to $3.4 million and
$4.2 million for fiscal 2003 and fiscal 2002, respectively.
The decrease in depreciation and amortization expenses for
fiscal 2004 and 2003 as compared to fiscal 2002 was due to fewer
additions of fixed asset in fiscal 2003 and 2004 resulting in
less incremental depreciation and assets fully depreciated or
written off due to the restructuring plan by the end of fiscal
2002.
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Goodwill Impairment Writedown
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The goodwill impairment income of $0.6 million for fiscal
2002 relates to the reversal of excess tax reserves due to a
settlement with the Internal Revenue Service for less than the
amount reserved. The tax matters existed prior to the
acquisition of Mayor’s Jewelers, Inc. in 1998 and would
have been reversed against goodwill; however, due to the fact
that the goodwill was written off in fiscal 2001 the reversal is
classified in the same line item as the impairment.
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Interest and Other Income and Interest and Other Financial
Costs
|
Interest and other income was $184,000 in fiscal 2003 and
$1.4 million in fiscal 2002. Other income for fiscal 2002
was due to $1.4 million received in connection with a
settlement with former Mayor’s stockholders.
Interest and other financial costs were $4.5 million for
fiscal 2004, compared to $4.4 million and $6.8 million
for fiscal 2003 and fiscal 2002, respectively. The increase in
interest and other financial costs for fiscal 2002 was greater
than fiscal 2004 and 2003 primarily due to the write-off of
financing costs for the former working capital facilities when
the new credit facility and term loan were executed.
The benefit in income taxes for fiscal 2002 of $547,000 is
primarily a result of a refund claim to recover previously paid
alternative minimum tax as a result of a change in tax law
offset by a provision recorded for a settlement related to one
of the Mayor’s subsidiaries.
151
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Loss from Discontinued Operations
|
The loss from discontinued operations for fiscal 2002 is made up
of an approximate $0.4 million loss from operations and a
$1.2 million loss related to the closing of a store that
was outside of Mayor’s core marketplace, and as such was
classified as a discontinued operation.
Liquidity and Capital Resources
As of March 26, 2005, Mayor’s had a $58 million
working capital credit facility with Fleet Retail Group LLC
(formerly known as Fleet Retail Finance) and GMAC and a
$12.7 million junior secured term loan with Back Bay
Capital. On April 29, 2005, Mayor’s paid down
$1 million of the principal balance of the junior secured
term loan without any prepayment penalty. Both of the debt
facilities have a maturity date of August 20, 2006 and are
collateralized by substantially all of Mayor’s assets. On
September 7, 2004, Mayor’s entered into a Fourth
Amendment to the working capital facility and the junior secured
term loan (the “Amended Credit Agreement”). The
Amended Credit Agreement provides for, among other things, an
extended maturity date to August 20, 2006, a 1.25%
reduction of interest on the junior secured term loan, an
interest reduction on the Fleet Retail Group LLC-GMAC portion of
the credit facility, the elimination of two financial covenants
and the increase in the capital expenditures allowed pursuant to
the sole remaining financial covenant to $4.5 million which
is measured annually. Availability under the working capital
facility is determined based upon a percentage formula applied
to certain inventory and accounts receivable as allowed by an
amendment on February 20, 2004, and has certain
restrictions regarding borrowing availability. The interest rate
under the working capital facility as of March 26, 2005 was
6.25% (prime plus 0.5%). On March 4, 2005, the capital
expenditure limit was further increased to $5,000,000 per
fiscal year. Mayor’s was in compliance with the capital
expenditure covenant for fiscal 2004. On May 3, 2005, the
banking facilities were further amended to allow for the
interest rate of Mayor’s revolving credit facility to be
based on either a prime rate plus a specified margin dependent
on the level of excess borrowing availability, or a LIBOR based
rate plus a specified margin, based on the level of borrowing
availability, at Mayor’s election. The junior secured term
loan currently bears an effective interest rate of 12.75% and is
subject to similar restrictions and covenants, including the
capital expenditure covenant, as the working capital facility as
well as certain prepayment penalties.
Based on this, after taking into consideration the foregoing
borrowing restrictions, Mayor’s had approximately
$47.4 million of borrowing capacity under its working
capital facility and term loan at March 26, 2005 and, after
netting the outstanding borrowings of $33.5 million and
letter of credit commitments of $550,000, Mayor’s had
excess borrowing capacity of approximately $13.3 million.
Mayor’s relies on its short-term borrowings under the
credit facility to finance its operations on a day-to-day basis.
Information concerning Mayor’s short-term borrowings
follows. All borrowings under the working capital facility are
considered short term, due to the fact that the borrowing
availability is based on certain inventory and accounts
receivable balances, which are short-term in nature.
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Year Ended
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Year Ended
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Mar. 26,
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Mar. 27,
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2005
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2004
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(Amounts shown in
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thousands)
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Maximum borrowings outstanding during the fiscal year
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$
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48,417
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$
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39,955
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Average outstanding balance during the fiscal year
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$
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35,178
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$
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31,004
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Weighted average interest rate for the fiscal year
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5.6
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%
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6.3
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%
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Mayor’s has various relationships with Birks and the two
companies have the same controlling shareholder group. (See
“Description of Mayor’s Business — Related
Party Transactions” included elsewhere in this proxy
statement/ prospectus). The relationship with Birks has brought
synergies to both companies in several areas, including the
attainment of favorable terms on its banking facilities and the
ability to strengthen and/or consolidate supplier relationships
with improved terms as a result of leveraging the credibility and
152
stronger purchasing power of the combined companies. If the
relationship between Birks and Mayor’s were to cease, it
would negatively impact Mayor’s.
During fiscal 2004, cash flows from continuing operating
activities provided $1.4 million in cash. The cash provided
by operating activities was primarily the result of ongoing
operations and a decrease in working capital, the decrease of
inventories and other assets offset by the decrease in accrued
expenses and accounts payable and increase in inventories.
During fiscal 2003, cash flows from continuing operating
activities used $4.2 million in cash. Cash flows for
discontinued operations used $0.5 million in cash. The use
of cash for operating activities was primarily the result of the
net loss for the year, adjusted for non-cash expense items, the
increase of accounts receivable and inventories offset by the
decrease in other assets and the increase in accrued expenses.
Net cash used in investing activities was $1.8 million in
fiscal 2004, primarily related to the capital expenditures for
leasehold improvements for store renovations and information
systems. Net cash used in investing activities was
$2.1 million in fiscal 2003, primarily related to the
capital expenditures for leasehold improvements for the
corporate headquarters, one new store and information systems.
Net cash provided by financing activities of $0.2 million
in fiscal 2004 is primarily as a result of net borrowings under
the credit facility and payment of banking commitment fees. Net
cash provided by financing activities was $7.2 million in
fiscal 2003 and was primarily related to net borrowings under
the credit facility of $9.7 million offset by the dividend
of $2.2 million paid to Birks.
Management believes that barring a significant external event
that materially adversely affects Mayor’s current business
or the current industry trends as a whole, Mayor’s
borrowing capacity under the credit facility, projected cash
flows from operations and other short term borrowings will be
sufficient to support Mayor’s working capital needs,
capital expenditures and debt service for at least the next
twelve months.
Effects of Inflation
Gold prices are affected by political, industrial and economic
factors and by changing perceptions of the value of gold
relative to currencies. Investors commonly purchase gold and
other precious metals perceived to be rising in value as a hedge
against a perceived increase in inflation and political or
economic instability, thereby bidding up the price of such
metals. Mayor’s sales volume and net operations are
potentially affected by the fluctuations in prices of gold,
diamonds and other precious or semi-precious gemstones as well
as watches and other accessories. Mayor’s does not
currently hedge its gold purchases or inventories. Hedging is
not available with respect to possible fluctuations in the price
of precious and semi-precious gemstones, watches or other
accessories.
Mayor’s cost of sales, selling, general and administrative
expenses are directly affected by inflation resulting in an
increased cost of doing business. Although inflation has not
had, and Mayor’s does not expect it to have, a material
effect on operating results, there is no assurance that
Mayor’s business will not be materially affected by
inflation in the future.
Interest Rate Risk
Mayor’s credit facility accrues interest at floating rates,
currently based upon prime plus 0.5%. Mayor’s manages its
borrowings under this credit facility each day in order to
minimize interest expense. The impact on Mayor’s earnings
per share of a one-percentage point interest rate change on the
outstanding balance as of March 26, 2005 would increase or
decrease earnings per share by approximately $335,000 or
approximately $.01 per share.
Mayor’s extends credit to its Mayor’s customers under
its own revolving charge plan with up to three-year payment
terms. Finance charges are generally currently assessed on
customers’ balances at a rate of 1.5% per month. Since
the interest rate is fixed at the time of sale, market interest
rate changes would not impact Mayor’s finance charge income.
153
Foreign Currency Risk
Mayor’s is party to a Management Consulting Services
Agreement with Regaluxe Investment Sarl which is based in
U.S. currency. The management agreement contains a
provision that requires the parties to reevaluate the fees and
make adjustments to the fees as they deem necessary should the
U.S. to Euro exchange rate increase to and remain above
$1.3U.S./1 Euro or decrease to and remain below $1U.S./1 Euro
for 15 consecutive business days. Pursuant to such provision,
the corporate governance committee of Mayor’s approved
adjustments in the management fee of an additional aggregate of
$2,618 for fiscal 2004. There can be no assurance that the
exchange rate will remain at or below $1.3U.S./1 Euro; and
therefore, Mayor’s may be required to further reevaluate
the management fee in the future. Based on the scale used for
the fiscal 2004 adjustments, for each 10% increase in the
exchange rate above $1.3U.S./1 Euro or 10% decrease in the
exchange rate below $1U.S./1 Euro, the management fee would be
adjusted by approximately $4,200.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires Mayor’s to make estimates and assumptions
about future events and their impact on amounts reported in the
financial statements and related notes. Since future events and
their impact cannot be determined with certainty, the actual
results may differ from those estimates. These estimates and
assumptions are evaluated on an on-going basis and are based on
historical experience and on various factors that are believed
to be reasonable.
Mayor’s accounting policies are more fully discussed in
Note C to the consolidated financial statements contained
elsewhere in this proxy statement/ prospectus. Mayor’s has
identified certain critical accounting policies as noted below.
Reserve for inventory shrink and slow moving inventory. The
reserve for inventory shrink is estimated for the period from
the last physical inventory date to the end of the reporting
period on a store by store basis and at Mayor’s
distribution center. Such estimates are based on experience and
the shrinkage results from the last physical inventory. The
shrinkage rate from the most recent physical inventory, in
combination with historical experience, is the basis for
providing a shrink reserve.
Mayor’s writes down its inventory for estimated slow moving
inventory equal to the difference between the cost of inventory
and the estimated market value based on assumptions about future
demand and market conditions. If actual market conditions are
less favorable than those projected by management, additional
inventory write-downs may be required.
Allowance for doubtful accounts.
Mayor’s maintains
allowances for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments.
If the financial condition of Mayor’s customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
Long-lived Assets.
Long-lived assets held and used by
Mayor’s are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Measurement of an impairment
loss for such long-lived assets would be based on the fair value
of the asset. Long-lived assets to be disposed of are reported
at the lower of the carrying amount or fair value less cost to
sell.
Revenue Recognition.
Sales are recognized at the point of
sale when merchandise is taken by or shipped to a customer.
Shipping and handling fees billed to customers are included in
net sales. Revenues from gift certificate sales and store
credits are recognized upon redemption. Sales of consignment
merchandise are recognized at such time as the merchandise is
sold and recorded on a gross basis in accordance with Emerging
Issues Task Force (“EITF”) 99-19 because Mayor’s
is the primary obligor of the transaction, has general latitude
on setting the price, has discretion as to the suppliers, is
involved in the selection of the product and has inventory loss
risk. Sales are reported net of returns. Mayor’s generally
gives its customers the right to return merchandise purchased by
them within 30 days for jewelry and 10 days for
timepieces and records an accrual at the time of sale for the
effect of the estimated returns.
154
Contractual Commitments
The following summarizes Mayor’s contractual obligations at
March 26, 2005:
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Payments Due by
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Period
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Less Than
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More Than
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Total
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1 Year
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1-3 Years
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3-5 Years
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5 Years
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(In thousands)
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Long-term debt
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$
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12,668
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$
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—
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$
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12,668
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$
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—
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$
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—
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Credit facility
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33,501
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—
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33,501
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—
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—
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Capital leases
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312
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102
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201
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9
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—
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Fixed rate interest payments — term loan (12.75%)
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2,243
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1,615
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628
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—
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—
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Employment Agreements
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2,225
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1,018
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1,207
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—
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—
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Operating leases(1)
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41,717
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7,102
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11,664
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9,816
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13,135
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$
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92,666
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$
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9,837
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$
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59,869
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$
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9,825
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$
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13,135
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(1)
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The operating lease obligations do not include insurance, taxes
and common area maintenance (CAM) charges to which
Mayor’s is obligated. CAM charges were $1.5 million
for fiscal 2004.
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Leases
Lessor incentive amounts on operating leases are deferred and
amortized as a reduction of rent expense over the term of the
lease. Rent expense is recorded on a straight-line basis, which
takes into effect any rent escalations, rent holidays and
fixturing periods. Lease terms are from the inception of the
fixturing period until the end of the initial term and exclude
renewal periods.
Leasehold improvements are capitalized and typically include
fixturing and store renovations. Amortization of leasehold
improvements is based on the date the asset was placed in
service over the lesser of the economic life of the leasehold
improvement and the initial lease term.
Newly Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 123(R)
“Share-Based Payment” which addresses the accounting
for share-based payment transactions in which an enterprise
receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are
based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such
equity instruments. SFAS No. 123(R) requires an entity
to recognize the grant-date fair-value of stock options and
other equity-based compensation issued to employees in the
income statement. SFAS No. 123(R) generally requires
that an entity account for those transactions using the
fair-value-based method, and eliminates an entity’s ability
to account for share-based compensation transactions using the
intrinsic value method of accounting in APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” which was
permitted under SFAS No. 123, as originally issued.
SFAS No. 123(R) is effective for Mayor’s for the
first quarter of fiscal 2006 which ends on June 24, 2006.
The impact of the adoption of SFAS No. 123(R) on the
financial position or results of operations of Mayor’s has
not yet been determined.
In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs,” to amend the guidance in
Chapter 4, “Inventory Pricing,” of FASB
Accounting Research Bulletin No. 43, “Restatement
and Revision of Accounting Research Bulletins.”
SFAS No. 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). The Statement requires that those
items be recognized as current-period charges. Additionally,
SFAS No. 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151
is not expected to have a material effect on the financial
position or results of operations of Mayor’s.
155
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Non-Monetary Assets — an Amendment
of APB Opinion No. 29,” to address the accounting for
non-monetary exchanges of productive assets.
SFAS No. 153 amends APB No. 29, “Accounting
for Non-monetary Exchanges,” which established a narrow
exception for non-monetary exchanges of similar productive
assets from fair value measurement. SFAS No. 153
eliminates that exception and replaces it with an exception for
exchanges that do not have commercial substance. Under
SFAS No. 153 non-monetary exchanges are required to be
accounted for at fair value, recognizing any gains or losses, if
the fair value is determinable within reasonable limits and the
transaction has commercial substance. It specifies that a
non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as
a result of the exchange. SFAS No. 153 is effective
prospectively for non-monetary asset exchange transactions in
fiscal periods beginning after June 15, 2005. The adoption
of SFAS No. 153 is not expected to have a material
effect on the financial position or results of operations of
Mayor’s.
In March 2005, the FASB issued Interpretation No. 47
(“FIN 47”), “Accounting for Conditional
Asset Retirement Obligation” to clarify that an entity must
recognize a liability for the fair value of a conditional asset
retirement obligation when incurred if the liability’s fair
value can be reasonably estimated. FIN 47 also defines when
an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. Retrospective application
of interim financial information is permitted but is not
required. Early adoption of this Interpretation is encouraged.
Mayor’s is evaluating the impact the adoption of
FIN 47 would have on the financial position and result of
operations of Mayor’s.
156
DESCRIPTION OF MAYOR’S BUSINESS
General
Mayor’s Jewelers, Inc. is a premier luxury jeweler of fine
quality jewelry, watches and giftware founded in 1910.
Mayor’s is a Delaware corporation incorporated in 1983 and
as of March 26, 2005, operated 28 stores in South and
Central Florida and metropolitan Atlanta, Georgia. Mayor’s
has a long-established reputation in its core market areas as a
premier luxury jeweler offering fine quality merchandise in an
elegant environment conducive to the purchase of luxury items.
As a premier luxury jeweler, Mayor’s does not sell
“costume” or gold filled jewelry; rather, all of its
jewelry products are constructed of 18 karat gold, platinum, or
sterling silver, with or without precious gemstones, with
significant emphasis on quality craftsmanship and design.
Mayor’s distinguishes itself from most of its competitors
by offering a larger selection of distinctive higher quality
merchandise at many different price points, and by placing
substantial emphasis on professionalism and training of its
sales force. Mayor’s designs, develops, manufactures and
procures distinctive merchandise directly from manufacturers,
diamond cutters and other suppliers throughout the world,
enabling Mayor’s to sell distinctive high quality
merchandise often not available from other jewelers in its
markets. Additionally, because of its strong relationships with
its vendors, Mayor’s is able to secure exclusivity of
certain products on a temporary and permanent basis. Management
believes it has one of the best-trained staff of sales
professionals in the industry as a result of Mayor’s
emphasis on classroom training, in-store training and
participation in industry-recognized educational programs.
Mayor’s corporate headquarters are located at 14051 N.W.
14th Street, Suite 200, Sunrise, Florida 33323,
and Mayor’s telephone number is (954) 846-8000.
Mayor’s entered into a fifteen year lease agreement for a
new corporate headquarters located in Tamarac, Florida to
commence on the later of the completion date or August 1,
2005.
Products
Mayor’s offers a large selection of distinctive high
quality merchandise at many different price points. This
merchandise includes designer jewelry, diamond, gemstone, and
precious metal jewelry, rings, wedding bands, earrings,
bracelets, necklaces, broaches, charms, baby jewelry, timepieces
and giftware. Mayor’s has embarked on a strategic program
of increasing the array of private label offerings to its
customers primarily through bridal, diamond and other fine
jewelry as well as gold and sterling silver jewelry to leverage
the brand loyalty in its markets and to differentiate its
products with unique and exclusive designs. In addition,
Mayor’s is able to offer the finest brand name Swiss
timepieces that are often not available from other jewelers in
its markets. Mayor’s also carries an exclusive collection
of high quality bridal jewelry, fine jewelry and watches
manufactured by Birks.
All of Mayor’s jewelry products are constructed of 18-karat
gold, platinum, or sterling silver with significant emphasis on
quality craftsmanship and unique design. Mayor’s carries a
large selection of brand name watches, including watches made by
Rolex, Cartier, Patek Philippe, Jaeger Le Coultre,
Baume & Mercier, Breitling, Tag Heuer, Omega, Charriol,
Corum, Rado, Chopard, Locman and Raymond Weil. Mayor’s
designer jewelry offerings includes jewelry made by David
Yurman, Aaron Basha, Charriol, Roberto Coin and DiModolo and a
variety of high quality giftware, including writing instruments,
accessories and giftware made by Correia, Mont Blanc, Cartier
and Cristalleries Royales de Champagne. In addition,
Mayor’s has an assortment of fine jewelry designed by its
signature designers: Esty, Michele della Valle and
Toni Cavelti.
During fiscal 2004, product category sales as a percentage of
net sales were as follows: watches — 53%; fine
jewelry — 40%; other — 7%. The Rolex brand,
which is included in watch sales, accounted for approximately
38% of Mayor’s total net sales. In fiscal 2004,
Mayor’s purchased merchandise for sale in Mayor’s
stores from over 200 suppliers. Many of these suppliers have
long-standing relationships with Mayor’s.
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Product Development and Sourcing
One of Mayor’s key strategies is to design, develop, source
and manufacture as much of its product as possible in order to
increase the unique and exclusive items offered by Mayor’s.
Mayor’s staff of category managers and Birks’ gemstone
acquisition team on behalf of Mayor’s, procure distinctive
high quality merchandise directly from manufacturers, diamond
cutters, and other suppliers worldwide, enabling Mayor’s to
sell fine quality merchandise often not available from other
jewelers in its markets. Mayor’s and Birks’ gemstone
acquisition teams, product sourcing teams and category managers
specialize in sourcing merchandise in categories such as
diamonds, precious gemstones, pearls, watches, gold jewelry, and
giftware. Retail and merchandising personnel frequently visit
both Mayor’s and competitors’ stores to compare value,
selection, and service, as well as to observe client reaction to
merchandise selection and determine future needs and trends.
Mayor’s purchases watches from a number of leading
manufacturers and suppliers. During fiscal 2004, merchandise
supplied by Rolex, Mayor’s largest supplier, accounted for
approximately 38% of Mayor’s total net sales. Certain brand
name watch manufacturers, including Rolex, have distribution
agreements with Mayor’s that provide, among other things,
for specific sales locations, yearly renewal terms, and early
termination provisions at the manufacturer’s discretion.
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Diamond, Gemstone, Pearl and Precious Metal Jewelry
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During fiscal 2004, revenues from sales of diamond, gemstone,
pearl and precious metal jewelry represented approximately 40%
of Mayor’s total net sales. Whenever possible,
Mayor’s, directly and through the Birks’ gemstone
acquisition team, purchases unset diamonds, gemstones and
precious metal jewelry directly from cutters in international
markets, such as Antwerp, Bangkok and Tel Aviv, gold jewelry
from Italy, and pearls from suppliers in Japan and Canada. These
diamonds and other gemstones are frequently furnished to
Mayor’s and Birks’ in-house jewelry studios, as well
as independent jewelers and goldsmiths for setting, polishing
and finishing pursuant to Mayor’s instructions in order to
deliver a distinctive high quality finished product at the best
possible value.
In fiscal 2004, Mayor’s also purchased estate timepieces
and giftware and offered jewelry and watch repair services which
comprised approximately 7% of net sales.
Availability of Products
Although purchases of several critical raw materials, notably
gold and gemstones, are made from a relatively limited number of
sources, Mayor’s believes that there are numerous
alternative sources for all raw materials used in the
manufacture of its finished jewelry, and that the failure of any
principal supplier would not have a material adverse effect on
operations. Any material changes in foreign or domestic laws and
policies affecting international trade may have a material
adverse effect on the availability of the diamonds, other
gemstones, precious metals and non-jewelry products purchased by
Mayor’s.
Mayor’s competes with other jewelry retailers for access to
vendors that will provide it with the quality and quantity of
merchandise necessary to operate its business. Mayor’s
relationships with its primary suppliers, including its
relationship with Rolex, are generally not pursuant to long-term
agreements. Although Mayor’s believes that alternative
sources of supply are available, the abrupt loss of any of its
vendors, especially Rolex, or a decline in the quality or
quantity of merchandise supplied by its vendors could cause
significant disruption in its business. If Rolex terminated its
distribution agreement with Mayor’s, it would have a
material adverse effect on Mayor’s business, financial
condition and operating results. Management believes that its
relationships with its vendors are good.
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Changing Prices and Availability
Changes in foreign or domestic laws and policies affecting
international trade may also have an adverse effect on the price
of diamonds, gemstones and precious metals required by
Mayor’s. Because substantially all of Mayor’s purchase
transactions are denominated in U.S. dollars, Mayor’s
currently does not engage in any hedging activities in foreign
currencies. Mayor’s does not speculate in gems or precious
metals or engage in any hedging activity with respect to
possible fluctuations in the prices of these items, since
historically Mayor’s has been able to make compensatory
adjustments in its retail prices as material fluctuations in the
price of supplies have occurred. If such fluctuations should be
unusually large, rapid or prolonged, there is no assurance that
the necessary adjustments could be made quickly enough to
prevent Mayor’s from being adversely affected and
Mayor’s may choose to hedge its purchase requirements to
minimize the potential impact.
Seasonality
Mayor’s jewelry business is highly seasonal, with the third
fiscal quarter (which includes the holiday shopping season)
historically contributing significantly higher sales than any
other quarter during the year. Approximately 40% of Mayor’s
fiscal 2004 net sales were made during the third fiscal
quarter.
Manufacturing and Repair
In addition to Mayor’s purchasing finished jewelry and the
subcontracting of certain fabrication activities to others,
Mayor’s also has a jewelry design studio and manufacturing
and repair facility located in its corporate head office
facility. In keeping with Mayor’s identity as a
full-service premier luxury jeweler, this studio and workshop
offers custom designed jewelry in response to clients’
special requests and manufactures jewelry for retail sale when
it is economical to do so. Mayor’s also provides jewelry
and watch refurbishment and repair services, which are performed
in many of Mayor’s stores or at the Mayor’s
centralized repair facility at its corporate head office. In
addition to repair work, jewelers will perform other work,
including ring sizing on new purchases and repairs covered under
warranty.
Retail Operations, Merchandising and Marketing
Mayor’s distinguishes itself from most of its competitors
by offering an important selection of distinctive higher quality
merchandise at a wide range of price points. Mayor’s keeps
the majority of its inventory on display in its stores rather
than at its distribution facility. Although each store stocks a
representative array of jewelry, watches, giftware and other
accessories, certain inventory is tailored to meet local tastes
and historical merchandise sales patterns of the individual
store.
Mayor’s believes that the elegant ambiance of its stores
and distinctive high quality merchandise displays play an
important role in providing an atmosphere for encouraging sales.
Mayor’s pays careful attention to detail in the design and
layout of each of its stores, particularly lighting, colors,
choice of materials and placement of display cases. Mayor’s
also places substantial emphasis on its window displays as a
means of attracting walk-in traffic and reinforcing its
distinctive image. Mayor’s Visual Display department
designs and creates window and store merchandise case displays
for all of its stores. Window displays are frequently changed to
provide variety and to reflect seasonal events such as
Christmas, Valentine’s Day and Mother’s Day.
Mayor’s places substantial emphasis on the professionalism
of its sales force to maintain its position as a leading luxury
jeweler. Mayor’s strives to hire only highly motivated,
professional and client-oriented individuals. All new sales
professionals attend a course where they are trained in
technical areas of the jewelry business, specific service
techniques and Mayor’s commitment to client service. In
general, Mayor’s trains its sales associates to establish a
personal rapport and relationship with each client, to identify
client preferences with respect to both product and price range,
and to successfully establish a relationship and
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ultimately conclude a sale and acquire a client for life.
Management believes that attentive personal service and
knowledgeable sales professionals are key components to
Mayor’s success.
As part of Mayor’s commitment to training, Mayor’s
established “Mayor’s University,” a formalized
system of in-house training with a primary focus on client
service that involves extensive classroom training, the use of
detailed operational manuals, in-store mentorship programs and
product knowledge testing. In order to retain their employment
with Mayor’s, all attendees must perform satisfactorily on
written tests and quizzes that are administered during the
training program and perform to a high level of standards. In
addition, Mayor’s conducts in-house training seminars on a
periodic basis and administers training modules with audits to
(i) enhance the quality and professionalism of all sales
professionals, (ii) measure the level of knowledge of each
sales professional, and (iii) identify needs for additional
training. Mayor’s also provides store management with more
extensive management and client service training that emphasizes
leadership skills, general management skills,
“on-the-job” coaching and training instruction
techniques.
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Advertising and Promotion
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The intent of Mayor’s marketing department is to build upon
its well-established reputation in its core markets and
strengthen its position in areas that it entered more recently.
In an effort to be recognized as the leading luxury jewelry
brand in the Southeastern United States, all communication
positions Mayor’s as a premier luxury jeweler offering high
quality merchandise in an elegant, sophisticated environment
conducive to the purchase of luxury items. Mayor’s stresses
its role as a fashion leader that aims to deliver a total
shopping experience that is as memorable as its merchandise.
Mayor’s marketing efforts, which consist of advertising,
direct mailings, special events, media relations/public
relations, community relations, distinctive store design and
elegant displays, are shaped in large part by Mayor’s brand
positioning strategy as well as demographic and consumer trends
affecting the jewelry industry, luxury retailing and
Mayor’s itself.
Mayor’s advertisements are designed to communicate
Mayor’s image as a full-service premier luxury jewelry
brand, including its unique and exclusive product design and
product selection, its excellence in customer service and the
total Mayor’s brand experience. In addition, advertisements
frequently associate Mayor’s with internationally
recognized brand names such as Rolex, Cartier and Patek
Philippe. Advertising and promotions for all stores are
developed by Mayor’s personnel at its headquarters in
conjunction with outside creative resources.
Sales under the Mayor’s proprietary credit card
administered by Wells Fargo, which are made without recourse to
Mayor’s, and the private label credit card administered
internally, both accounted for approximately 27% of Mayor’s
net sales during fiscal 2004. Mayor’s credit programs are
intended to complement its overall merchandising and sales
strategy by encouraging larger and more frequent sales to a
loyal client base.
Under both Plans, Wells Fargo and Mayor’s extend credit
solely to qualified Mayor’s clients. Qualified clients
currently may select from four financing plans: the 10 Month
Interest Free Plan, the 5 Month Interest Free Plan, a
30 month plan with a reduced interest rate and a revolving
plan with interest. Finance charges, which are subject to a rate
ceiling imposed by state law, are currently assessed on the
average daily balance method at a rate of 1.5% per month,
unless otherwise controlled by state law.
Mayor’s private label credit card is administered
internally at Mayor’s corporate office. The credit staff
makes all credit decisions; sales personnel or store managers
are not authorized to grant credit. Mayor’s has developed a
detailed creditworthiness analysis on which it bases its credit
decisions. Mayor’s custom-designed, computerized accounts
receivable systems provide credit personnel with on-line
decision making information, including new account processing,
credit authorizations and client inquiries.
Mayor’s has an Accounts Receivable Management Department,
which manages collections from current accounts and also manages
delinquent accounts. Representatives are trained on advanced
account management techniques and programs, which have been
developed in-house by the credit organization. Early stage
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delinquencies are handled with an approach to client goodwill.
If an account continues to progress in delinquency, more
assertive action is taken. Ultimately, if a delinquent account
cannot be collected in-house, outside legal action is undertaken.
All clients may also take advantage of Mayor’s layaway
plan, which allows them to set aside and pay for items over a
limited period of time with no interest charges.
Financial Information
Mayor’s business is not divided into operating segments and
Mayor’s does not have any significant revenues derived from
operations outside of the United States or any significant
assets located outside the United States. For detailed financial
information relating to Mayor’s financial condition and
operations, please refer to “Mayor’s Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and its consolidated financial statements and
related notes included elsewhere within this proxy statement/
prospectus.
Distribution
Mayor’s retail locations receive the majority of their
merchandise directly from Mayor’s distribution warehouse
located in Sunrise, Florida. Merchandise is shipped from the
distribution warehouse utilizing various air and ground
carriers. Presently, a small portion of merchandise is delivered
directly to the retail locations from suppliers. Mayor’s
transfers merchandise between retail locations to balance
inventory levels and to fulfill client requests.
Competition
The retailing industry is highly competitive and particularly
subject to the level of discretionary consumer income and the
subsequent impact on the type and value of goods purchased.
Mayor’s competitors include foreign and domestic guild and
premier luxury jewelers, specialty stores, national and regional
jewelry chains, department stores and, to a lesser extent,
catalog showrooms, discounters, direct mail suppliers, televised
home shopping networks, and jewelry retailers who make sales
through Internet sites, some of whom have greater financial
resources than Mayor’s. Mayor’s believes that
competition in its markets is based primarily on trust, quality
craftsmanship, product design and exclusivity, product
selection, service excellence, including after sales service,
and, to a certain extent, price. With the consolidation of the
retail industry that is occurring, Mayor’s believes that
competition with other general and specialty retailers and
discounters will continue to increase. The success of
Mayor’s will depend on various factors, including general
economic and business conditions affecting consumer spending,
the performance of Mayor’s retail operations, the
acceptance by consumers of Mayor’s merchandising and
marketing programs, store locations and the ability of
Mayor’s to properly staff and manage its stores. Please
refer to “Mayor’s Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
contained elsewhere within this proxy statement/ prospectus for
additional discussion.
Regulation
Mayor’s generally utilizes the services of independent
customs agents to comply with U.S. customs laws in
connection with its purchases of gold, diamond and other jewelry
merchandise from foreign sources.
Mayor’s operations are affected by numerous federal and
state laws that impose disclosure and other requirements upon
the origination, servicing and enforcement of credit accounts
and limitations on the maximum amount of finance charges that
may be charged by a credit provider. In addition to Mayor’s
proprietary private label credit cards, credit to Mayor’s
clients is primarily through bank cards such as American
Express®, Visa®, MasterCard® and Discover®,
without recourse to Mayor’s based upon a client’s
failure to pay. Any change in the regulation of credit that
would materially limit the availability of credit to
Mayor’s traditional customer base could adversely affect
Mayor’s results of operations and financial condition.
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Trademarks
The designations
Mayors
tm
and the Mayor’s logo are the principal trademarks of
Mayor’s. Mayor’s maintains a program to protect its
trademarks and will institute legal action where necessary to
prevent others either from registering or using marks, which are
considered to create a likelihood of confusion with Mayor’s.
Employees
As of July 26, 2005, Mayor’s employed 398 persons on a
full-time basis, including 277 in the sales function, primarily
in the Mayor’s stores, 17 in inventory and distribution and
104 in administrative and support functions. None of its
employees are governed by a collective bargaining agreement.
Mayor’s believes that its relations with its employees are
good, and Mayor’s intends to continue to place an emphasis
on employee communication and involvement.
Related Party Transactions
On August 20, 2002, Mayor’s closed on a
$15.05 million gross equity investment transaction with
Birks. Mayor’s incurred expenses related to the raising of
the capital of approximately $1.5 million, which was netted
against the proceeds in stockholders’ equity. As
consideration for the investment, Birks received
15,050 shares of Series A Convertible Preferred Stock,
referred to as the Series A Preferred, a newly formed class
of stock that was initially convertible into
50,166,667 shares of Mayor’s common stock. The
conversion ratio of the Series A Preferred to common stock
is subject to certain anti-dilution provisions. Birks also
received warrants that were exercisable for
12,424,596 shares of Mayor’s common stock at
$0.30 per share, 12,424,596 shares of Mayor’s
common stock at $0.35 per share and 12,424,595 shares
of Mayor’s common stock at $0.40 per share. The
warrants also contain certain anti-dilution provisions which
upon the occurrence of certain events can increase the number of
warrants and decrease the exercise price. The preferred stock
and warrants were issued by Mayor’s without being
registered, relying on an exemption under 4(2) of the Securities
Act of 1933, as amended. Birks had entered into an Amended and
Restated Registration Rights Agreement with Mayor’s,
whereby Birks has the right to require Mayor’s, on a best
efforts basis, to register all of the shares underlying the
above-described securities issued to Birks.
The proceeds of $15.05 million were assigned to the
Series A Preferred and warrants based on their relative
fair values pursuant to Emerging Issues Task Force, EITF, 00-27
Application of Issue No. 98-5 to Certain Convertible
Instruments in the amount of $11.51 million and
$3.54 million, respectively. The fair value assigned to the
warrants represents a discount on the Series A Preferred
that is treated as a non-cash dividend to Birks. Furthermore,
the value of the common stock that the Series A Preferred
were convertible into at the date of the investment was
$15.05 million which creates a $3.54 million
beneficial conversion feature for the Series A Preferred,
as a result of the fair value assigned to the Series A
Preferred of $11.51 million, and results in an additional
non-cash dividend to Birks at the time of the investment since
the Series A Preferred are convertible immediately. The
dividends have a neutral effect on Mayor’s total
stockholders’ equity; however they increase the net loss
attributed to common stockholders for the year ended
March 29, 2003.
On November 1, 2002 and March 14, 2003, Birks granted
rights to receive 4,250,000 and 500,000, respectively, of its
warrants to certain current or former employees of Birks or its
affiliates, who were, or later became employees of or provided
services to Mayor’s. The rights to receive these warrants
are contingent upon fulfillment of certain time based employment
vesting requirements. The exercise price of the assigned
warrants was $0.29 per share, after certain anti-dilution
adjustments. The granted warrants are subject Mayor’s to
variable accounting rules due to their cashless exercise feature
and vesting schedule which requires compensation expense
(credit) calculated as the increase or decrease in
intrinsic value of the vested warrants, based on the change in
market value of the underlying stock. Non-cash compensation
(credit) expense for the years ended March 26, 2005,
March 27, 2004 and March 29, 2003 related to these
warrants was approximately ($32,000), $867,000 and $0,
respectively. As of March 26, 2005, the number of warrants
increased to 4,776,899, all of which were vested, and the
exercise price was $0.29 as a result of the
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anti-dilution provisions contained in the warrant agreements. On
May 26, 2005, Mayor’s purchased 501,348 of these
warrants from one of the holders for $150,000, the estimated
fair value.
On November 6, 2003, Birks exercised 32,523,787 of the
warrants on a cashless basis based on an average market price of
$0.766, as defined in the warrant agreements. The cashless
feature of exercise resulted in the issuance of
17,352,997 shares of Mayor’s common stock and the
forfeiture of 15,170,790 warrants. Birks had 288,517, 306,317
and 306,317 warrants exercisable at $0.29, $0.34 and $0.39,
respectively, including adjustments for the anti-dilution
provisions as of March 26, 2005. A non-cash dividend of
approximately $83,000 was recognized in the year ended
March 29, 2003 related to the value of the additional
warrants granted to Birks as a result of the anti-dilution
provisions. The value of additional warrants granted to Birks
pursuant to the anti-dilution provisions with a corresponding
increase in additional paid-in capital. The anti-dilution
provisions provide for the increase in the number of warrants
issued to Birks and have potential to decrease the exercise
price and are triggered each time Mayor’s issues common
stock, options or other convertible securities. The value of
additional warrants granted to Birks pursuant to the
anti-diluation provisions for the years ended March 26,
2005 and March 27, 2004, was insignificant.
On June 15, 2004, Birks sold 500,000 and
250,000 shares of Mayor’s common stock to one of
Mayor’s directors and a consultant to Birks, who later
became an employee of Birks, respectively, for $0.50 per
share in a private placement sale. The sale of the
750,000 shares of Mayor’s common stock resulted in
non-cash compensation expense of $135,000 recorded by
Mayor’s which represented the difference between the market
value of the stock and the selling price at the date of the
sale, which is included in selling, general and administrative
expense in the fiscal 2004 Consolidated Condensed Statement of
Operations. On March 22, 2004, Birks sold
1,000,000 shares of Mayor’s common stock at
$0.50 per share in a private placement sale to the spouse
of one of Mayor’s directors. The sale of stock resulted in
non-cash compensation expense of $200,000 recorded by
Mayor’s, which represented the difference between the
market value of the stock and the selling price at the date of
the sale, which is included in selling, general and
administrative expense in the fiscal 2003 Consolidated Statement
of Operations.
Mayor’s Certificate of Designation for the Series A
Preferred provided that the holders of the preferred stock were
entitled to receive dividends on each share of preferred stock
at a rate per annum of $95 per share which equates to
approximately $1.4 million annually, a 9.5% yield on the
$15,050,000 investment. The certificate of designation called
for the dividends to remain unpaid until January 15, 2005
for dividends cumulated through October 14, 2004;
thereafter, all dividends, including cumulative but unpaid, were
to be payable quarterly in arrears on each January 15,
April 15, July 15 and October 15 of each year, commencing
on January 15, 2005 if declared by the board of directors.
The certificate of designation further provided that the
Series A Preferred had a liquidation value of
$1,000 per share.
The certificate of designation also provided that Birks had the
right to elect a percentage of the total authorized directors of
Mayor’s, rounded to the next highest whole number,
corresponding to the percentage of common stock that would be
held by Birks on the record date of such election as if Birks
had converted all of the Series A Preferred then
outstanding into common stock. Currently, Birks has the right to
elect seven of the nine members of Mayor’s board of
directors.
In January 2004, Birks asked Mayor’s to consider paying an
early payment of the cumulative dividends earned by Birks on the
Series A Preferred, which approximated $2,185,755 through
February 28, 2004. Also, in January 2004, Mayor’s
formed a committee of independent directors of its board to
evaluate Birks’ request. The committee retained an
investment-banking firm, Capitalink, L.C. to perform certain
analyses of the structure of the proposed transaction.
Mayor’s determined that in order to effectuate the payment
of an early dividend it would have to issue a new series of
preferred stock to Birks in exchange for its shares of
Series A Preferred. Mayor’s also determined that it
would have to borrow funds from Back Bay Capital Funding LLC to
pay the dividend, on the newly created series of preferred
stock. After extensive discussions, negotiations, deliberations,
and considerations, the committee unanimously recommended to the
Board that it was in the best interests of Mayor’s to
approve the exchange, the payment of the dividend and the loan.
On February 20, 2004, Mayor’s board of directors
unanimously (with the exception of Thomas Andruskevich and
Filippo Recami, who
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abstained from voting, and Dr. Lorenzo Rossi di Montelera,
who was unavailable to attend the board meeting) approved the
transactions.
On February 20, 2004, Mayor’s issued a newly created
Series A-1 Convertible Preferred Stock to Birks in exchange
for its shares of Series A Preferred. The Mayor’s
preferred stock is substantially the same as the Series A
Preferred, with the exception of certain changes primarily to
the provisions regarding the payment of dividends, future
dividend rates, and the conversion rate. Mayor’s entered
into an Exchange Agreement with Birks whereby each share of
Series A Preferred was exchanged for one share of
Mayor’s preferred stock. As of March 26, 2005, the
Mayor’s preferred stock was convertible into
51,499,525 shares of Mayor’s common stock which amount
includes adjustments for the anti-dilution provision of the
Mayor’s preferred stock. The anti-dilution provisions
provide for the increase in the conversion ratio into common
stock and are triggered each time Mayor’s issues common
stock, options or other convertible securities. A non-cash
dividend to Birks of approximately $358,000 was recognized in
the year ended March 29, 2003 related to the value of the
increase in the conversion ratio of Mayor’s preferred stock
into Mayor’s common stock as a result of the anti-dilution
provisions with a corresponding increase in additional paid-in
capital. The value of the increase in the conversion ratio for
the year ended March 27, 2004 was immaterial. The value of
the increase in the conversion ratio for the year ended
March 26, 2005 was approximately $17,000. Upon conversion
of the preferred shares, Birks would own approximately 75.8% of
the then outstanding Mayor’s common stock.
In connection with the exchange for the Mayor’s preferred
stock, Birks agreed to (a) reimburse Mayor’s in full
for all transaction expenses, (b) reduce the dividend rate
from $95 per share to $80 per share per annum,
resulting in a savings in cumulative dividends of approximately
$225,750 annually; and (c) waive the dividend on the
Mayor’s preferred stock for approximately one year.
Capitalink advised the committee that this waiver of one year of
dividends equated to a net savings to Mayor’s of
approximately $920,000, net of interest on the loan of
approximately $280,000. Additionally, if Birks decided to
convert its Mayor’s preferred stock into Mayor’s
common stock before February 28, 2005, the conversion rate
would have decreased so that Mayor’s received the value of
the waived dividend, on a pro rata basis. Although Mayor’s
has no right to redeem the Mayor’s preferred stock, in the
event that Mayor’s were deemed to acquire any shares of its
preferred stock in a business combination or other transaction,
then Birks will pay Mayor’s a cash payment equal to the pro
rata value of the waived dividend.
On June 17, 2005, the board of directors declared and
approved a dividend payment to Birks of $150,500, which
cumulated from March 1, 2005 through April 15, 2005.
In connection with the transactions, Mayor’s received an
opinion of Delaware counsel that the declaration and payment of
the dividend would not contravene Section 170 of the
Delaware General Corporation Law, and an opinion from Capitalink
that the transactions were fair, from a financial point of view,
to the minority stockholders of Mayor’s. Mayor’s also
received various other analyses from Capitalink.
On February 20, 2004, Mayor’s evidenced the loan by
entering into that certain Third Amendment to Revolving Credit,
Tranche B Loan and Security Agreement, Limited Waiver and
Consent, dated as of February 20, 2004, by and among Fleet
Retail Group Inc., GMAC Commercial Finance, LLC, Back Bay
Capital Funding LLC, the domestic subsidiaries of Mayor’s
and Mayor’s. The amended credit agreement provided for,
among other things, effectively increasing the term loan by
$2 million; modifying the calculation of the credit
facilities borrowing formula so as to fully permit the payment
of the dividend without negatively impacting the availability of
borrowings under Mayor’s credit facility or otherwise
creating a material adverse effect on Mayor’s liquidity;
and adjusting the borrowing base to provide for the inclusion of
Mayor’s accounts receivable, up to a maximum of
$3 million.
Mayor’s Chief Executive Officer, Interim Chief Financial
Officer, Group VP-Finance, Chief Marketing Officer, Group
VP-Supply Chain Operations, Group VP-Retail Store Operations,
Group VP-Category Management, Group VP-Strategy and Business
Integration, Group Creative Director and other members of
Mayor’s management serve in similar capacities for Birks.
In addition, Thomas A. Andruskevich, Chairman of the
Mayor’s board of directors, and its President, and Chief
Executive Officer, and Filippo Recami, a Director of
Mayor’s, serve as Directors of Birks.
164
As part of Birks investment in 2002, Mayor’s entered into a
Manufacturing and Sale Agreement and a Management Expense
Reimbursement Agreement with Birks effective August 20,
2002. The Manufacturing and Sale Agreement allows for the
purchase of merchandise from Birks at market prices in
accordance with a purchase plan, which is pre-approved annually
by the corporate governance committee of the board of directors
of Mayor’s. The Management Expense Reimbursement Agreement
allows for Mayor’s to acquire certain management services
from Birks, at its cost, in accordance with a project schedule,
which is pre-approved annually by the corporate governance
committee of the board of directors. At the end of each quarter,
the corporate governance committee reviews and approves all
purchases and expense reimbursement transactions. The terms of
these agreements are one year and automatically renew.
Mayor’s can sell merchandise and provide management
services to Birks under terms similar to those in the agreements.
In fiscal 2004, fiscal 2003 and fiscal 2002, Mayor’s
(charged) incurred approximately ($204,000), $82,000 and
$234,000, respectively, of net costs (to) from Birks
related to advisory, management and corporate services pursuant
to the Management Expense Reimbursement Agreement. Included in
selling, general and administrative expenses in fiscal 2002 is
$390,000 of amounts paid to Birks for merchandising and other
consulting services prior to the equity investment transaction.
Also, during fiscal 2004, fiscal 2003 and fiscal 2002,
Mayor’s purchased approximately $8,966,000, $599,000 and
$407,000, respectively, of merchandise from Birks and Birks
purchased approximately $9,000, $56,000 and $109,000,
respectively, of merchandise from Mayor’s pursuant to the
Manufacturing and Sale Agreement. As of March 26, 2005,
Mayor’s owed Birks $389,000 related to purchases of
inventory, advisory, management and corporate services and for
expenses paid by Birks on behalf of Mayor’s. Mayor’s
also purchased $28,000 and $108,000, respectively, of
merchandise from Cristalleries Royales de Champagne, a company
controlled by the majority owners of Birks until June 18,
2004, during fiscal 2003 and fiscal 2002, respectively.
Effective May 1, 2005, Mayor’s renewed for an
additional year, its Management Consulting Services Agreement
with Regaluxe. Regaluxe is the controlling shareholder of Birks.
Regaluxe, in turn, is controlled by Dr. Lorenzo Rossi di
Montelera, who had been a director of Mayor’s until his
resignation from the board on June 1, 2005. Filippo Recami
is the Chief Executive Officer and managing director of Regaluxe
and continues to serve as a member of Mayor’s board of
directors. The board of directors of Mayor’s waived the
provisions of Mayor’s Code of Conduct relating to related
party transactions when the board of directors approved
Mayor’s entering into the agreement with Regaluxe. Under
the agreement, Regaluxe provides advisory, management and
corporate services to Mayor’s for $125,000 per
calendar quarter plus out of pocket expenses. During fiscal
2004, Mayor’s incurred $528,000 of costs for these services
including out of pocket expenses. The agreement may be renewed
for additional one-year terms by Mayor’s subject to an
annual review and approval by Mayor’s corporate governance
committee.
In September, 2004, Mayor’s received approval from its
lenders to make a one time loan to Birks in an amount not to
exceed $1,500,000 to assist Birks with the payment of costs and
expenses relating to the merger. Such loan will only be made, if
at all, upon the earlier to occur of (i) the closing of the
merger, or (ii) the prior approval of the corporate
governance committee of the board of directors of Mayor’s.
PROPERTIES
Mayor’s corporate headquarters is currently leased through
July 31, 2005, and is located in Sunrise, Florida.
Mayor’s entered into a fifteen year lease agreement for a
new corporate headquarters located in Tamarac, Florida to
commence on the later of the completion date or August 1,
2005.
As of July 26, 2005, Mayor’s had a total of 28 leased
stores, with rent being a fixed minimum base plus, for a
majority of the stores, a percentage of the store’s sales
volume (subject to certain adjustments) over a specified
threshold. Mayor’s lease terms are generally ten years from
inception. Lease rental payments
165
are also subject to annual increases for tax and maintenance.
The following table summarizes all operating store leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Operating Stores
|
|
Square Feet
|
|
|
Expiration
|
|
|
Location
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Altamonte Mall
|
|
|
5,782
|
|
|
|
Jan-2011
|
|
|
|
Altamonte Springs, FL
|
|
|
Aventura Mall
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|
|
3,447
|
|
|
|
Jan-2009
|
|
|
|
N. Miami Beach, FL
|
|
|
Bell Tower
|
|
|
4,578
|
|
|
|
Jan-2012
|
|
|
|
Fort Myers, FL
|
|
|
Boca Town Center
|
|
|
5,878
|
|
|
|
Jan-2007
|
|
|
|
Boca Raton, FL
|
|
|
Brandon Town Center*
|
|
|
4,110
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|
|
|
Jun-2005
|
|
|
|
Brandon, FL
|
|
|
Broward Mall
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|
|
2,236
|
|
|
|
Jan-2010
|
|
|
|
Plantation, FL
|
|
|
Buckhead
|
|
|
10,000
|
|
|
|
Apr-2009
|
|
|
|
Atlanta, GA
|
|
|
Citrus Park Town Center
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|
|
3,953
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|
|
|
Jan-2010
|
|
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|
Tampa, FL
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City Place at West Palm Beach
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6,113
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|
|
|
Jan-2011
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|
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West Palm Beach, FL
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Dadeland Mall
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5,700
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|
|
|
Jan-2007
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|
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Miami, FL
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The Falls
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1,643
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Jan-2009
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Miami, FL
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Florida Mall
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5,070
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Jan-2010
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Orlando, FL
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The Galleria at Fort Lauderdale*
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3,682
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Jan-2005
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Ft. Lauderdale, FL
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International Plaza
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5,583
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Jan-2012
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Tampa, FL
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Lenox Square Mall
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4,587
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Dec-2005
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Atlanta, GA
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Lincoln Road
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4,250
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|
|
|
May-2009
|
|
|
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Miami Beach, FL
|
|
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Mall of Georgia
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|
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3,486
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|
|
|
Jan-2010
|
|
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Buford, GA
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|
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Mall at Millenia
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4,532
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|
|
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Jan-2013
|
|
|
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Orlando, FL
|
|
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Mall at Wellington Green
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4,001
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Jan-2012
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Wellington, FL
|
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Miami International Mall
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3,226
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|
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|
Jan-2006
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Miami, FL
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North Point Mall
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4,752
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Jan-2012
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Alpharetta, GA
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Perimeter Mall
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5,157
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Jan-2009
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|
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Atlanta, GA
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|
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PGA Commons
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|
|
5,197
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|
|
|
Apr-2014
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|
|
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Palm Beach Gardens, FL
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|
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Seminole Towne Center
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|
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3,461
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|
|
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Jan-2006
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|
|
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Sanford, FL
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|
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The Shops at Sunset Place
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2,051
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Jan-2010
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South Miami, FL
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Southgate Plaza
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4,605
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Mar-2010
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|
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Sarasota, FL
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|
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Treasure Coast Square
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2,506
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|
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Jan-2006
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|
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Jensen Beach, FL
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|
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Village of Merrick Park
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4,894
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|
|
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Jan-2013
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|
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Coral Gables, FL
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|
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|
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*
|
All financial terms of the lease are completed and Mayor’s
is in process of finalizing the business terms of the lease.
|
LEGAL PROCEEDINGS
Mayor’s is from time to time involved in litigation
incident to the conduct of its business. Although certain
litigation of Mayor’s is routine and incidental, and such
litigation can result in large monetary awards for compensatory
or punitive damages, Mayor’s believes that no litigation
that is currently pending involving Mayor’s will have a
material adverse effect on Mayor’s financial condition. On
December 1, 2004, Mayor’s was notified that the SEC is
conducting an informal inquiry regarding Mayor’s. The SEC
has requested various documents related to Mayor’s restated
financial statements. Although no formal legal proceedings have
begun, Mayor’s intends to cooperate fully with the SEC in
its inquiry. See “Management’s Discussion and Analysis
of the Financial Condition and Results of Operations of
Mayor’s — Recent Developments.”
166
Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure
On November 6, 2003, the audit committee of Mayor’s
board of directors dismissed
Deloitte & Touche LLP as its principal
accountant. Mayor’s engaged KPMG LLP effective
November 6, 2003. Mayor’s board of directors approved
the recommendation by the audit committee to change accountants.
In connection with the audits of Mayor’s financial
statements for Mayor’s fiscal 2002 and Mayor’s
fiscal 2001, there were no disagreements with Deloitte on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which
disagreements if not resovled to Deloitte’s satisfaction
would have caused Deloitte to make reference in connection with
its opinion to the subject matter of the disagreement. The audit
report of Deloitte on the consolidated financial statements of
Mayor’s and its subsidiaries as of and for the year ended
March 29, 2003, did not contain any adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles. The audit
report of Deloitte on the consolidated financial statements of
Mayor’s and its subsidiaries as of and for the year ended
February 2, 2002, contained an explanatory paragraph that
the financial statements were prepared assuming Mayor’s
continued as a going concern and a paragraph describing a change
in accounting principles. During Mayor’s fiscal 2002 and
Mayor’s fiscal 2001, and the subsequent interim period,
there were no reportable events as defined in
Item 304(a)(1)(v) of Regulation S-K.
During Mayor’s fiscal 2002 and Mayor’s fiscal 2001,
and the subsequent interim period prior to engaging KPMG,
neither Mayor’s nor anyone on its behalf consulted with
KPMG regarding the application of accounting principles to a
specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on Mayor’s
financial statements, and neither a written report nor oral
advice was provided to Mayor’s by KPMG that was an
important factor considered by Mayor’s in reaching a
decision as to any accounting, auditing or financial reporting
issue.
167
MANAGEMENT OF MAYOR’S
Information Regarding Mayor’s Directors and Executive
Officers Upon Consummation of the Merger
Upon consummation of the merger, the existing directors of
Mayor’s will be replaced by the directors of Merger Co.,
Thomas A. Andruskevich, Gerald Berclaz, Davide Barberis Canonico
and Carlo Coda-Nunziante. The existing officers of Mayor’s
will remain as officers of Mayor’s immediately following
the merger.
Information Regarding Mayor’s Directors and Executive
Officers
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Expiration
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Preferred
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Name
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Age
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Position
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of Term
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Stock Director
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Thomas A. Andruskevich(1)
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54
|
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Chairman of the board of directors, President and Chief
Executive Officer
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2006
|
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Yes
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Emily Berlin(2)(3)(4)(5)
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57
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Director
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2005
|
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Yes
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Elizabeth M. Eveillard(1)(5)
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58
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Director
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2005
|
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Yes
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Massimo Ferragamo(3)(4)(5)
|
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47
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Director
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2007
|
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Yes
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Stephen M. Knopik(2)(4)(5)(6)
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49
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Director
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2005
|
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No
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|
Ann Spector Lieff(3)(4)(5)(6)
|
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53
|
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Director
|
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2007
|
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|
Yes
|
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|
Judith R. MacDonald(2)(5)(6)
|
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62
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Director
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2007
|
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No
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Filippo Recami(1)(5)
|
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54
|
|
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Director
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2006
|
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Yes
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Joseph A. Kiefer, III
|
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53
|
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|
Senior Vice President and Chief Operating Officer
|
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Lawrence Litowitz
|
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54
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Interim Chief Financial Officer and Principal Accounting Officer
|
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Daisy Chin-Lor
|
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51
|
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|
Senior Vice President and Chief Marketing Officer
|
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Marc Weinstein
|
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51
|
|
|
Senior Vice President and Chief Administrative Officer
|
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Michael Rabinovitch(7)
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35
|
|
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Senior Vice President & Chief Financial Officer
|
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Carlo Coda-Nunziante(8)
|
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41
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Group Vice President of Strategy and Business Development
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John Orrico
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48
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Group Vice President, Supply Chain Operations
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Marco Pasteris
|
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44
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Group Vice President, Finance
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Aida Alvarez
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42
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Group Vice President Category Management
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Albert J. Rahm, II
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52
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Vice President Retail Store Operations
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Gerald Berclaz(8)
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56
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Director
|
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|
Davide Barberis Canonico(8)
|
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39
|
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Director
|
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|
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(1)
|
Member of the executive committee.
|
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(2)
|
Member of the corporate governance committee, the Chairman of
which is Ms. Berlin.
|
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(3)
|
Member of the compensation committee, the Chairman of which is
Ms. Lieff.
|
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(4)
|
Member of the nominating committee, the Chairman of which is
Mr. Ferragamo.
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(5)
|
Will cease to be a director upon consummation of the merger.
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(6)
|
Member of the audit committee, the Chairman of which is
Mr. Knopik.
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168
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(7)
|
Effective August 1, 2005.
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(8)
|
Will become a director of Mayor’s upon consummation of the
merger.
|
Directors
Thomas A. Andruskevich
, age 54, is Chairman of the
board of directors, President and Chief Executive Officer of
Mayor’s. Mr. Andruskevich has been President and Chief
Executive Officer of Birks since June 1996 and joined the
board of directors of Birks in 1999. From 1994 to 1996, he was
President and Chief Executive Officer of the clothing retailer
Mondi of America. From 1989 to 1994, he was Executive Vice
President of International & Trade of
Tiffany & Co. and from 1982 to 1989,
Mr. Andruskevich served as Senior Vice President and Chief
Financial Officer of Tiffany & Co. He also serves on
the board of directors of Brazilian Emeralds, Inc. and The
Robbins Company. Mr. Andruskevich was elected to
Mayor’s board of directors in August 2002.
Emily Berlin
, age 57, has been Executive Vice
President and Director of Helm Holdings International since
2001. Based in Miami, Florida, the Helm Group of companies is a
diversified privately owned group of approximately
70 companies operating principally in Latin America and the
Caribbean. From 1974 to 2000, she was a member of the law firm
of Shearman & Sterling, becoming a partner in 1981. She
was elected to Mayor’s board of directors in October 2002.
Elizabeth M. Eveillard
, age 58, is an independent
consultant with over 30 years of experience in the
investment banking industry. During 2000-2003, she was a
consultant and Senior Managing Director, Retailing and Apparel
Group, Bear, Stearns & Co., Inc. During 1988-2000, she
served as Managing Director and Head of the Retailing Group,
PaineWebber Incorporated. From 1972 to 1988 she held various
positions at Lehman Brothers, including Managing Director in the
Merchandising Group. She serves on the boards of the following
publicly-held and private companies: Beall’s, Inc.; Too,
Inc.; and Retail Ventures, Inc. In addition to her board seat at
Beall’s, Inc., she is also a member of that company’s
compensation committee. She received a consulting fee of
approximately $112,000 from Bear, Stearns & Co., Inc.
in connection with Birks’ investment in Mayor’s. She
was elected to Mayor’s board of directors in August 2002.
Massimo Ferragamo
, age 47, has been the Chairman of
the board of directors of Ferragamo USA, Inc., which is the
wholly owned subsidiary of Salvatore Ferragamo Italia.
Mr. Ferragamo had held the position of President since 1985
and became Chairman in 2000. Ferragamo USA Inc. imports and
distributes Ferragamo products throughout North America. He also
serves on the board of directors of YUM! Brands, Inc. and the
American Italian Cancer Foundation. He was elected to
Mayor’s board of directors in October 2002.
Stephen M. Knopik
, age 49, has been the President of
Beall’s, Inc. since 1998, the parent company of
Beall’s Department Stores and Beall’s Outlet Stores,
which operates more than 500 retail stores in fourteen
(14) states. Mr. Knopik joined Beall’s as the
Director of Finance in 1984. In December 2003, Mr. Knopik
was elected to the board of directors of Beall’s, Inc. From
1978 to 1984, Mr. Knopik was with KPMG Peat Marwick in
Tampa, Florida and had advanced during this time to the position
of Senior Audit Manager. He was elected to Mayor’s board of
directors in July 2003. Mr. Knopik has decided that he will
not stand for re-election at the special and annual meeting.
Ann Spector Lieff
, age 53, is the founder of The
Lieff Company, established in 1998, which is a Miami-based
consulting group specializing in Chief Executive Officer
mentoring, leadership development, corporate strategies to
assist and expand organizations in the management of their
business practices, and advisory services to corporate boards.
She was Chief Executive Officer of SPEC’s Music from 1980
until 1998. Ms. Lieff currently serves as a member of the
Executive Advisory Board, University of Denver Daniels College
of Business and also serves on the board of directors of
Herzfeld Caribbean Basin Fund, Claire’s Stores, Inc., and
Hastings Entertainment, Inc. She was elected to Mayor’s
board of directors in October 2002.
Judith R. MacDonald
, age 62, has served as a
director of Mayor’s since July, 2003. Ms. MacDonald
has been Managing Director and Counsel at Rothschild Inc. since
1996. She is responsible for providing legal and compliance
advice at Rothschild Inc., an investment banker and broker
dealer, and its investment advisory affiliate, as well as ABN
AMRO Rothschild LLC, a broker dealer involved in the equity
capital markets and
169
underwritings. From 1994 to 1996, Ms. MacDonald was
Managing Director and Director of Compliance at BT
(Banker’s Trust) Securities Corporation.
Filippo Recami
, age 54, has been a director of Birks
since November 1, 1999 and a Managing Director of
Iniziativa S.A. (Luxemborg) since the beginning of 1999.
Mr. Recami has also been the Chief Executive Officer and
Managing Director of Regaluxe since March 1999. He is also on
the Mayor’s board of directors. Between 1978 and 1998,
Mr. Recami had held senior management positions in several
major public European corporations including Fiat S.p.A.
(Italy), Sorin Biomedica S.p.A. (Italy), Sorin France S.p.A.
(France), SNIA S.p.A. (Italy), and Rhône Poulenc S.A.
(France). Mr. Recami holds a Certified Public Accountant
title given by the Ministry of Justice of the Italian Government.
Gerald Berclaz
, age 56, is Managing Director of
Montrolux and a Director of both Regaluxe and Iniziativa SA.
Since 1998, Mr. Berclaz has also been a Director of Gestofi
SA, an Investment and Corporate Advisory Services company
located in Geneva, Switzerland. From 1994 until 1999, he was
Controller and Financial Manager for affiliated companies of
Inizitivia SA.
David Barberis Canonico
, age 39, is a Director of
Regaluxe. Since 1997, he has been Managing Director of
Manifattura di Ponzone Spa, a textile dyeing house in Italy, and
since 1998, he has been Managing Director of Gangia Srl, a real
estate company in Italy. Mr. Barberis Canonico is also a
Director of Deltaleasing Spa, Instituto Editoriale Biellese, Old
Boma Limited and Sinterama Spa, each of which is an Italian
company. He has also been Financial Officer of Unione
Industriale Biellese, an industrial association of Biella,
Italy, since 2003.
Carlo Coda-Nunziante
, age 41, has been the Group
Vice President for Strategy and Business Development of
Mayor’s since 2002. Prior to joining Mayor’s,
Mr. Coda-Nunziante worked for A.T. Kearney from 1999 to
2002. From 1994 to 1998, Mr. Coda-Nunziante worked for
Whirlpool Corporation in Italy, the United States and Singapore.
He holds a Masters in Business Administration from Columbia
Business School and a degree in Mechanical Engineering from the
Universita Degli Studi di Firenze, Italy.
Mr. Coda-Nunziante is also the son-in-law of Dr. Rossi.
Executive Officers
Joseph A. Keifer, III
, age 53, is the Senior
Vice President and Chief Operating Officer of Mayor’s.
Prior to joining Mayor’s, Mr. Keifer held the position
of Vice President Merchandising for Birks from 1998 to 2002.
From 1993 to 1997, Mr. Keifer was the Senior Vice President
of Fine Jewelry Merchandise for Montgomery Ward. Prior to that,
Mr. Keifer spent 21 years with Zale Corporation during
which he held various positions, including Senior Vice President
of Company Operations and President of the Bailey
Banks & Biddle division.
Lawrence Litowitz
, age 54, has served as Interim
Chief Financial Officer and Principal Accounting Officer of
Mayor’s since December 16, 2004. Since
February 17, 2005, he has served in the same position with
Birks. For the past five years, Mr. Litowitz has also
served as a partner of Tatum CFO Partners, LLP.
Mr. Litowitz has significant experience in mergers and
acquisitions, venture capital, capital raising and turnaround
situations. He has served as Senior Vice-President and Chief
Financial Officer of Master Collision Repair, Inc, a network of
auto repair facilities in Florida, and Chief Financial Officer
of Galen Partners, a venture capital firm with over
$400 million under management. Mr. Litowitz has also
taught accounting at Brooklyn College and served on several
boards of directors. He holds a BS in accounting from Brooklyn
College and an MBA from New York University.
Daisy Chin-Lor
, age 51, has been Senior Vice
President and Chief Marketing Officer for Birks and Mayor’s
since April 1, 2005. Ms. Chin-Lor has extensive
experience in the international luxury goods environment,
specifically in the area of high-end cosmetics. From 2002 to
2004, Ms. Chin-Lor was the Executive Vice President and
Chief Marketing Officer for Elizabeth Arden Spas. From 2000 to
2001 she was the Executive Director of Russell Reynolds
Associates. Prior to 2000, Ms. Chin-Lor spent two years
establishing a market presence for Chanel in Thailand and spent
nearly 20 years working for Avon Products.
Ms. Chin-Lor holds a Bachelor of Arts from Hunter College
of New York.
170
Marc Weinstein
, age 51, joined Mayor’s in 1996
and is employed as the Senior Vice President and Chief
Administrative Officer. Prior to joining Mayor’s,
Mr. Weinstein spent approximately 19 years with Burger
King Corporation. During his tenure at Burger King, he gained
extensive retailing, human resource and operations knowledge on
both a domestic and international basis while holding a
multitude of positions such as Vice President Managing Director
in Europe, Vice President Operations and Vice President Human
Resources.
Michael Rabinovitch,
age 35, will become Senior Vice
President & Chief Financial Officer effective
August 1, 2005. Prior to joining Mayor’s,
Mr. Rabinovitch had been Vice President of Finance of
Claire’s Stores, Inc. since 1999. Before joining
Claire’s Stores, Inc., Mr. Rabinovitch was Vice
President of Accounting & Corporate Controller at an
equipment leasing company. Mr. Rabinovitch spent
5 years with Price Waterhouse LLP, most recently as Senior
Auditor. Mr. Rabinovitch graduated in 1992 from Florida
State University with a Bachelor of Science in Accounting and in
Finance. Mr. Rabinovitch is a licensed CPA and is a member
of the American Institute of Certified Public Accountants and
the Florida Institute of Certified Public Accountants.
John C. Orrico
, age 48, has been Mayor’s Group
Vice President, Supply Chain Operations since September 2003. In
this role, Mr. Orrico is responsible for Product
Development, Gemstone Operations, Manufacturing as well as the
Central Watch Division. Before joining Birks and Mayor’s,
Mr. Orrico was Group Vice President, Merchandising Supply
Chain Operations at Tiffany & Co. Mr. Orrico spent
14 years at Tiffany & Co. where he developed its
manufacturing and supply chain strategies and oversaw its
operations in Cumberland RI, Cranston RI, Pelham NY, Parsippany
NJ and was President of Judel Products in Salem as well as
LeTallec in Paris and the Swiss Watch Factory, West Virginia.
Marco Pasteris
, age 44, has been the Group Vice
President Finance for Mayor’s since August 2002. He is also
the Group Vice President Finance for Birks and has been with
Birks since 1993. Since 1996, he has served as Chief Operating
Officer of Henry Birks & Sons Holdings Inc. Prior to
joining Birks, Mr. Pasteris spent six years with Gruppo
Finanziario Textile, one of the largest multinational firms in
the textile industry active in production, distribution and
retail of such brands as Giorgio Armani, Ungaro, and Valentino.
During his tenure at Gruppo Finanziario Textile,
Mr. Pasteris held several positions in finance and control,
leading to the position of Controller of International
Operations. Mr. Pasteris graduated in 1984 from the
Università d’Economia e Commercio in Torino, Italy
with a B. SC. in business and economics. He also holds a Masters
in Business Administration with a specialization in
international business and finance from New York
University’s Graduate School of Business Administration.
Aida Alvarez
, age 42, had been the Vice
President-Merchandising for Mayor’s since February 2001.
She was recently named Group Vice President Category Management.
From August 1989 to February 2001, Ms. Alvarez served as
General Merchandise Manager, Divisional Merchandise Manager and
Head Watch Buyer for Mayor’s. Prior to joining Mayor’s
in August 1989, Ms. Alvarez worked for Zale Corporation as
a group store manager from 1987 to 1989. Since July 2004,
Ms. Alvarez has provided services to Birks related to the
category management of Birks’ branded watch business and
her services have been billed to Birks under the Management
Expense Reimbursement Agreement, dated as of August 20,
2002, between Mayor’s and Birks. See “Certain
Relationships and Related — Party Transactions.”
Albert J. Rahm, II
, age 52, has been with
Mayor’s since April 1991 and currently serves as
Vice President Retail Store Operations. In addition,
Mr. Rahm recently assumed additional responsibility for
overseeing the retail operations of Birks. From April 1991 to
January 2000, Mr. Rahm served in various store management
positions and as Regional Vice President for Mayor’s. Prior
to joining Mayor’s in April 1991, Mr. Rahm owned and
operated three retail jewelry stores for a fourteen-year period
in Shreveport, Louisiana. Since in July 2004, Mr. Rahm has
served in a similar capacity for Birks and his services have
been billed to Birks under the Management Expense Reimbursement
Agreement, dated as of August 20, 2002, between
Mayor’s and Birks. See “Certain Relationships and
Related — Party Transactions.”
171
The Board of Directors and Board Committees
During the fiscal year ended March 26, 2005, the
Mayor’s board of directors held a total of 10 board of
directors meetings and 26 committee meetings. During such year,
all directors attended at least 75 percent of the meetings
of Mayor’s board of directors and committees of which they
were a member. In addition to attending meetings, directors
discharge their responsibilities through review of Mayor’s
reports to directors and correspondence and telephone
conferences with Mayor’s executive officers, key employees,
and others regarding matters of interest to Mayor’s. The
Mayor’s board of directors has determined that the
following directors are independent directors, as determined by
the American Stock Exchange listing standards: Emily Berlin,
Massimo Ferragamo, Stephen M. Knopik, Judith MacDonald, and Ann
Spector Lieff.
Mayor’s has a separately-designated standing audit
committee established in accordance with
Section 3(a)(58)(A) of the Exchange Act. The audit
committee reviews the scope and results of the annual audit of
Mayor’s consolidated financial statements conducted by
Mayor’s independent auditors, the scope of other services
provided by Mayor’s independent auditors, proposed changes
in Mayor’s financial accounting standards and principles,
and Mayor’s policies and procedures with respect to its
internal accounting, auditing and financial controls. The audit
committee also examines and considers other matters relating to
the financial affairs and accounting methods of Mayor’s,
including selection and retention of Mayor’s independent
auditors. During the fiscal year ended March 26, 2005, the
audit committee held 14 meetings, and the Chairman of the audit
committee held several meetings with management and Mayor’s
auditors. Stephen M. Knopik (Chair), Judith R. MacDonald and Ann
Spector Lieff, each of whom is an independent, non-employee
director of Mayor’s, currently constitute the audit
committee. Mayor’s has determined that Stephen M. Knopik is
the audit committee financial expert.
Audit Committee Report.
The audit committee of
Mayor’s is comprised of three independent directors, as
defined by the American Stock Exchange listing requirements, and
operates under a written charter adopted by the board of
directors.
The audit committee has reviewed and discussed the audited
financial statements for the fiscal year ended March 26,
2005, with management and with the independent auditors,
including matters required to be discussed by Statement on
Auditing Standards No. 61, “Communication with Audit
Committees,” as amended.
The audit committee has reviewed the independent auditors’
fees for audit and non-audit services for the fiscal year ended
March 26, 2005. The aggregate fees and expenses billed by
KPMG LLP for professional services rendered for the audit of
Mayor’s annual financial statements included in
Mayor’s Annual Report on Form 10-K for the fiscal year
ended March 26, 2005 and for the review of Mayor’s
financial statements included in Mayor’s Quarterly Report
on Form 10-Q for the each fiscal quarter was approximately
$210,650.
In addition, during fiscal 2004 Mayor’s incurred fees of
$333,400 and $68,300 by KPMG LLP and Deloitte & Touche
LLP, its former independent auditors, respectively, related to
the restatement of reports previously filed with the SEC.
The audit committee has received the written disclosures and the
letter from the independent auditors required by Independence
Standards board of directors Standard No. 1,
“Independence Discussions with Audit Committees,” as
amended, and has discussed with the independent auditors their
independence.
Based on its review of the audited financial statements and the
various discussions noted above, the audit committee recommended
to the board of directors that the audited financial statements
be included in Mayor’s Annual Report on Form 10-K for
the fiscal year ended March 26, 2005, filed with the SEC on
June 24, 2005.
172
The foregoing has been furnished by the audit committee:
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Stephen M. Knopik (Chair)
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Judith R. MacDonald
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Ann Spector Lieff
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Compensation of Independent Auditors.
During fiscal 2004
and fiscal 2003, Mayor’s retained its independent auditors,
KPMG LLP and Deloitte and Touche LLP, its former independent
auditors, to provide services in the following categories and
amounts:
The aggregate fees and expenses billed by KPMG LLP for
professional services rendered for the audit of Mayor’s
annual financial statements included in Mayor’s Annual
Report on Form 10-K for fiscal 2004 and for the review of
Mayor’s financial statements included in Mayor’s
Quarterly Report on Form 10-Q for the each fiscal quarter
was approximately $210,650.
In addition, during fiscal 2004 Mayor’s incurred fees of
$333,400 and $68,300 by KPMG LLP and Deloitte & Touche
LLP, its former independent auditors, respectively, related to
the restatement of reports previously filed with the SEC.
The aggregate fees billed by KPMG LLP for professional services
rendered for the audit of Mayor’s annual financial
statements included in Mayor’s Annual Report on
Form 10-K/ A for fiscal 2003 were approximately $135,000,
and the aggregate fees for the review of Mayor’s financial
statements included in Mayor’s Quarterly Report on
Form 10-Q for the third fiscal quarter ended
December 27, 2003, were approximately $16,500.
During fiscal 2004, Mayor’s independent auditors did not
provide any audit-related services for Mayor’s. During
fiscal 2003, Mayor’s paid its independent auditors
approximately $4,000 related to providing services for the
filing of a Form S-8 registration statement.
During fiscal 2004 and fiscal 2003, Mayor’s independent
auditors did not provide tax services for Mayor’s.
During fiscal 2004, Mayor’s independent auditors did not
provide any other services for Mayor’s. During fiscal 2003,
Deloitte & Touche LLP provided audit services for the
Mayor’s Jewelers, Inc. 401(k) Profit Sharing
Plan & Trust resulting in fees of approximately $20,200.
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Pre Approval Policies and Procedures
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The audit committee has not established a pre-approval policy as
described in Rule 2-01(c)(7)(i)(B) of Regulation S-X.
The audit committee approves in writing, in advance, any audit
or non-audit services provided to Mayor’s by the
independent accountants that are not specifically disallowed by
the Sarbanes-Oxley Act of 2002. None of the services described
in the preceding three sections were approved by the audit
committee pursuant to Rule 2-01(c)(7)(i)(c).
Mayor’s has a standing compensation committee. The
compensation committee operates under a written charter adopted
by the board of directors. The purpose of the compensation
committee is to recommend to the board of directors executive
compensation, including base salaries, bonuses and long-term
incentive
173
awards for the Chief Executive Officer and other executive
officers of Mayor’s. During the fiscal year ended
March 26, 2005, the compensation committee held three
meetings. Ann Spector Lieff (Chair), Emily Berlin, and Massimo
Ferragamo, each of whom is an independent, non-employee director
of Mayor’s, currently constitute the compensation committee.
Mayor’s has a standing nominating committee in accordance
with the new SEC and AMEX rules on nominating committees. The
nominating committee is governed by a written charter, a copy of
which can be found in Mayor’s proxy statement filed with
the SEC on June 28, 2004. The nominating committee is
responsible for nominating potential nominees to the board of
directors. During the fiscal year ended March 26, 2005, the
nominating committee held one meeting. Massimo Ferragamo
(Chair), Emily Berlin, and Ann Spector Lieff, currently
constitute the nominating committee. All members of the
nominating committee are independent as defined by the American
Stock Exchange Listing Standards. Mayor’s policy with
regard to the consideration of any director candidates
recommended by a stockholder is that Mayor’s will consider
such candidates and evaluate such candidates by the same process
as candidates identified by the nominating committee.
Stockholders who would like to recommend a director nominee
candidate to be considered by the nominating committee and
possibly placed on the proxy statement/ prospectus may do so by
submitting the candidate’s resume and other contact
information to the nominating committee at 14051 N.W.
14
th
Street,
Suite 200, Sunrise, Florida 33323 if before August 31,
2005 or 5870 Hiatus Road, Tamarac, Florida 33321 thereafter, not
less than 120 calendar days before the date Mayor’s proxy
statement is released to stockholders in connection with the
next year’s annual meeting.
The nominating committee believes that a director nominee,
whether such candidate was recommended by the nominating
committee or a stockholder, should possess the following minimum
qualifications: independence, integrity, commitment to service
on the board, business judgment, financial literacy, public
company experience, and general/broad business, legal and
investment banking experience. The nominating committee also
believes that the board as a whole should possess the following
attributes: accounting and finance experience, industry
knowledge, diversity and vision and strategy. A detailed
discussion of each of these attributes can be found in the
nominating committee charter. The nominating committee will
identify director nominee candidates from any appropriate source
including stockholder recommendations.
Stephen M. Knopik was recommended for consideration as a
director nominee by the nominating committee as he was a
standing director but has decided not to stand for re-election.
Instead,
[ ]
,
who has been a director elected by holders of Mayor’s
preferred stock, will stand for election.
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Corporate Governance Committee
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Mayor’s has a standing corporate governance committee. The
corporate governance committee is responsible for
(i) overseeing all aspects of Mayor’s corporate
governance policies, and (ii) serving as the independent
committee reflected in that certain Manufacturing and Sale
Agreement, dated as of August 20, 2002 by and between
Mayor’s and Birks and also in that certain Management
Expense Reimbursement Agreement, dated as of August 20,
2002, as amended, by and between Mayor’s and Birks. In this
regard, the corporate governance committee reviews and approves
including, without limitation the following: transactions,
plans, purchases, sales, services, dealings, agreements,
arrangements and/or relationships between Mayor’s, Birks
and other affiliates and the corporate governance committee is
also responsible for the oversight and review of all related
party transactions. During the fiscal year ended March 26,
2005, the corporate governance committee held 4 meetings. The
corporate governance committee of Mayor’s is comprised of
three directors and operates under a written charter adopted by
the board of directors. Emily Berlin (Chair), Judith R.
MacDonald, and Stephen M. Knopik, each of whom is an
independent, non-employee director of Mayor’s, currently
constitute the corporate governance committee.
Corporate Governance Committee Report.
The corporate
governance committee has reviewed and discussed with the board
of directors of Mayor’s the inter-company transactions
between Mayor’s, Birks and
174
other affiliates for the fiscal year ended March 26, 2005,
as well as Mayor’s insider trading policy. The corporate
governance committee reported to the board of directors on their
review relating to the management services billed pursuant to
the Management Expense Reimbursement Agreement and also their
review relating to inquiries made with certain members of
management regarding specific services reflected in the actual
management billings. The corporate governance committee also
reported to the board of directors on the actual sales of
merchandise purchased, as per their review, pursuant to the
Manufacturing and Sale Agreement. Based on its review of the
inter-company transactions, the corporate governance committee
concluded that the inter-company transactions were in compliance
with the terms of the Management Expense Reimbursement Agreement
and the Manufacturing and Sale Agreement.
The foregoing has been furnished by the corporate governance
committee:
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Emily Berlin (Chair)
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Judith R. MacDonald
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Stephen M. Knopik
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Mayor’s has a standing executive committee. The executive
committee operates under a written charter adopted by the board
of directors. The purpose of the executive committee is to
provide a simplified review and approval process in between
board of directors meetings for certain corporate actions. The
intent of the executive committee is to facilitate the efficient
operation of Mayor’s with guidance and direction from the
board of directors. The goal is to provide a mechanism that can
assist in the operations of Mayor’s, including but not
limited to, the supervision of management and the implementation
of policies, strategies and programs.
The executive committee is comprised of at least three members
of the board of directors. Vacancies on the committee are filled
by majority vote of the board of directors at the next meeting
of the board of directors following the occurrence of the
vacancy.
The current members of the executive committee are Filippo
Recami, Thomas A. Andruskevich and Elizabeth M. Eveillard.
During the fiscal year ended March 26, 2005 the executive
committee held 4 meetings.
Compensation of Directors
Each non-employee director of Mayor’s is entitled to
receive an annual fee of $20,000 for serving on Mayor’s
board of directors and the audit committee chairperson is
entitled to receive an additional annual fee of $10,000.
Effective April 20, 2004, the Audit Committee Chairperson
is entitled to receive an additional annual fee of $10,000. In
addition, in the event Mayor’s forms a special independent
committee of directors, the chairperson of such committee shall
be entitled to receive $10,000 for his or service and the other
members of the committee would each be entitled to receive
$5,000 for their service on such committee. The chairperson and
other members of the special committee formed to consider the
merger with Birks will receive $10,000 and $5,000, respectively.
All directors are reimbursed for travel expenses incurred in
connection with the performance of their duties as directors.
In addition, on February 1, 2005, the board of directors of
Mayor’s approved a one-time additional cash payment of
$10,000 to the chairman of the audit committee and $5,000 to
each of the other members of the audit committee for the
extraordinary time, effort and services rendered in connection
with the recent review of Mayor’s accounting treatment of
certain warrants issued to Birks that were later assigned to
certain Birks employees who were, or later became, employees of
Mayor’s or provided services to Mayor’s, and the
concurrent restatement of prior financial statements issued by
Mayor’s.
Each outside director of Mayor’s is granted an option to
purchase 20,000 shares of Mayor’s common stock
upon election to the board of directors, which vests immediately
but is not exercisable for 6 months,
175
and receive an option to purchase 10,000 shares each
January 1 thereafter, which vests immediately but are not
exercisable for 6 months.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires that Mayor’s officers and directors, and persons
who own more than ten percent of a registered class of
Mayor’s equity securities, file reports of ownership and
changes in ownership with the Securities and Exchange
Commission. Such reporting persons are required by SEC
regulation to furnish Mayor’s with copies of all such
reports they file. Based solely on a review of the copies of
such reports Mayor’s received, or written representations
from certain reporting persons, Mayor’s believes that
during the fiscal year ended March 26, 2005, all officers,
directors, and greater than ten percent beneficial owners
complied with all applicable Section 16(a) filing
requirements.
Communication with the Board of Directors and Director
Attendance at Annual Meetings
Mayor’s has a formal policy regarding director attendance
at the annual stockholder meetings. Directors are encouraged to
attend the annual stockholders meeting, all meetings of the
board of directors and all committee meetings of which he/she is
a member. If necessary, directors can attend the meeting via
teleconference. All of the members of the board of directors
attended the 2004 Annual Meeting of Mayor’s Stockholders.
Mayor’s has a formal policy regarding communications with
the board of directors. Stockholders may communicate with the
board of directors by writing to the Chairman of the board of
directors by mail to 14051 N.W.
14
th
Street,
Suite 200, Sunrise, Florida 33323 if before August 31,
2005 or to 5870 Hiatus Road, Tamarac, Florida 33321 thereafter,
by email to tandruskevich@mayors.com, or by fax to
(954) 846-2715. Stockholders should include their contact
information in the communication. The Chairman will ensure that
this communication is delivered to the board of directors or the
specified director, as the case may be.
Code of Ethics
Mayor’s board of directors has adopted a code of ethics
that applies to Mayor’s Chief Executive Officer, Chief
Financial Officer, Interim Chief Financial Officer and Vice
President Finance, as required by the Securities and Exchange
Commission. The current version of such code of ethics can be
found at www.mayors.com.
176
Executive Compensation
The following table summarizes the compensation earned for the
fiscal years ended March 26, 2005, March 27, 2004 and
March 29, 2003, by Mayor’s named executive officers.
Where Mayor’s named executive officers received additional
compensation during a given fiscal year from Birks, such
compensation is not included in the information presented. See
“Management of Birks — Executive
Compensation.”
Summary Compensation Table
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Long-Term Compensation
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Annual Compensation
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Awards
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Payouts
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Other
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Restricted
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Securities
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Annual
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Stock
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Underlying
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LTIP
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All Other
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Fiscal
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Salary
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Bonus
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Compensation
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Award(s)
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Options/SARs
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Payouts
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Compensation
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Name and Principal Position
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Year
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($)
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($)
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($)
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($)
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(#)
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($)
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($)
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Thomas A. Andruskevich
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2004
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500,000
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366,742
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(2)
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15,000
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0
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0
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0
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0
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Chairman of the Board, President and
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2003
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500,000
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265,150
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(9)
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15,000
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0
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0
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0
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0
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Chief Executive Officer(1)
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2002
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228,846
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55,000
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6,343
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0
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1,500,000
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(4)
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0
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0
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Joseph A. Keifer, III
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2004
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380,000
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146,551
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(2)
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27,073
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0
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0
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0
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0
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Chief Operating Officer and
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2003
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380,000
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152,000
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(9)
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21,242
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0
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0
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0
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0
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Senior Vice President(5)
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2002
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173,923
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25,000
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13,341
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0
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500,000
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(6)
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0
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0
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Marc Weinstein
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2004
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240,000
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101,376
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(2)
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29,485
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0
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0
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0
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0
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Chief Administrative Officer
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2003
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238,462
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104,544
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(9)
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24,790
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0
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0
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0
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0
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and Senior Vice President
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2002
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200,000
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115,000
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(3)
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28,580
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0
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100,000
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(7)
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|
|
0
|
|
|
|
0
|
|
|
Albert J. Rahm, II
|
|
|
2004
|
|
|
|
196,539
|
|
|
|
73,894
|
(2)
|
|
|
17,253
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
Vice President-Retail
|
|
|
2003
|
|
|
|
185,000
|
|
|
|
74,000
|
(9)
|
|
|
18,405
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
Store Operations
|
|
|
2002
|
|
|
|
185,000
|
|
|
|
92,500
|
(3)
|
|
|
20,209
|
|
|
|
0
|
|
|
|
30,000
|
(8)
|
|
|
0
|
|
|
|
0
|
|
|
Aida Alvarez
|
|
|
2004
|
|
|
|
171,539
|
|
|
|
50,329
|
(2)
|
|
|
20,297
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
Group Vice President-
|
|
|
2003
|
|
|
|
159,385
|
|
|
|
56,000
|
(9)
|
|
|
24,653
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
Category Management
|
|
|
2002
|
|
|
|
144,000
|
|
|
|
72,000
|
(3)
|
|
|
19,033
|
|
|
|
0
|
|
|
|
20,000
|
(9)
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
(1)
|
Salary for 2002 represents services from October 1, 2002,
the date of commencement of employment, to March 29, 2003.
Mr. Andruskevich resides in New Jersey but spends a
significant amount of time working in Sunrise, Florida in his
capacity as President and Chief Executive Officer of
Mayor’s. Instead of reimbursing Mr. Andruskevich for
hotel accommodation and car rental service in Sunrise,
Mayor’s provides Mr. Andruskevich with the non
exclusive use of an apartment and an automobile. The apartment
and automobile are made available to and utilized by other
employees. Mayor’s does not account for these expenses as
compensation and Mayor’s has been advised that they are not
taxable as benefits to Mr. Andruskevich. Accordingly, the
value of these items is not included in the table above.
|
|
|
|
|
(2)
|
The bonuses were earned during the year ended March 26,
2005, but were not paid until June 2005.
|
|
|
|
|
(3)
|
The bonus of these Executive Officers represent specific
retention bonuses that were established for these specific key
executives in order to incentivize them to remain with
Mayor’s during a time of significant uncertainty regarding
Mayor’s future.
|
|
|
|
|
(4)
|
Mr. Andruskevich’s stock options were granted on
October 1, 2002. In addition to the Mayor’s stock
option grants listed herein, Mr. Andruskevich was assigned
1,500,000 warrants by Birks to purchase shares of Mayor’s
Common Stock at $0.30 per share, vesting over a 3 year
period in 3 equal installments of 500,000 on January 31,
2003, 500,000 on January 31, 2004 and 500,000 on
January 31, 2005.
|
|
|
|
|
(5)
|
Salary for 2002 represents service from October 1, 2002,
the date of commencement of employment, to March 29, 2003.
|
|
|
|
|
(6)
|
Mr. Keifer’s stock options were granted on
October 1, 2002. In addition to the Mayor’s stock
option grants listed herein, Mr. Keifer was assigned
500,000 warrants by Birks to purchase shares of Mayor’s
Common Stock at $0.30 per share, vesting over a 3 year
period in 3 installments: 166,666 on January 31, 2003,
166,666 on January 31, 2004 and 166,608 on January 31,
2005.
|
|
|
|
|
(7)
|
These stock options were granted to Mr. Weinstein as
follows: 100,000 on October 1, 2002.
|
177
|
|
|
|
|
|
(8)
|
These stock options were granted to Mr. Rahm as follows:
30,000 on October 1, 2002.
|
|
|
|
|
(9)
|
These stock options were granted to Ms. Alvarez as follows:
20,000 on October 1, 2002.
|
|
|
|
|
(10)
|
The bonuses were earned during the year ended March 27,
2004, but were not paid until June 25, 2004.
|
|
|
|
|
|
Option Grants in Last Fiscal Year
|
There were no option grants in the year ended March 26,
2005 other than 80,000 granted to the members of Mayor’s
board of directors.
|
|
|
|
|
Aggregated Option Exercises In Last Fiscal Year And
Year-End Option Values
|
The following table provides information about the number of
aggregated option exercises during the last fiscal year and
value of options held by the Named Executive Officers at
March 26, 2005:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Value of Unexercised
|
|
|
|
|
Shares
|
|
|
|
|
Underlying Unexercised
|
|
|
In-the-Money Options at
|
|
|
|
|
Acquired on
|
|
|
Value
|
|
|
Options at Fiscal Year-End
|
|
|
Fiscal Year-End ($)
|
|
|
|
|
Exercise
|
|
|
Realized
|
|
|
|
|
|
|
|
|
Name
|
|
(#)
|
|
|
($)
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Andruskevich
|
|
|
0
|
|
|
|
0
|
|
|
|
1,500,000
|
|
|
|
0
|
|
|
$
|
570,000
|
|
|
$
|
0
|
|
|
Joseph A. Keifer, III
|
|
|
0
|
|
|
|
0
|
|
|
|
333,333
|
|
|
|
166,667
|
|
|
|
127,000
|
|
|
|
63,000
|
|
|
Marc Weinstein
|
|
|
0
|
|
|
|
0
|
|
|
|
253,669
|
|
|
|
33,333
|
|
|
|
25,000
|
|
|
|
13,000
|
|
|
Albert J. Rahm, II
|
|
|
0
|
|
|
|
0
|
|
|
|
120,667
|
|
|
|
10,000
|
|
|
|
7,600
|
|
|
|
3,800
|
|
|
Aida Alvarez
|
|
|
0
|
|
|
|
0
|
|
|
|
112,666
|
|
|
|
6,667
|
|
|
|
5,000
|
|
|
|
2,500
|
|
|
|
|
|
|
Equity Compensation Plan Information
|
The following table provides information as of March 26,
2005 about shares of Mayor’s Common Stock to be issued upon
the exercise of options, warrants and rights under all of
Mayor’s existing equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C)
|
|
|
|
|
(A)
|
|
|
|
|
Number of Securities
|
|
|
|
|
Number of Securities
|
|
|
(B)
|
|
|
Remaining Available for
|
|
|
|
|
to be Issued
|
|
|
Weighted-Average
|
|
|
Issuance Under Equity
|
|
|
|
|
Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in Column (A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation plans approved by Stockholders
|
|
|
10,364,014
|
|
|
$
|
0.76
|
|
|
|
3,304,523
|
|
|
Equity Compensation plans not approved by Stockholders
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,364,014
|
|
|
$
|
0.76
|
|
|
|
3,304,523
|
|
|
|
|
|
|
|
|
|
|
|
|
Mayor’s has three equity-incentive plans, which are
described under “Management of Birks —
Equity-incentive Plans.”
Employment Agreements
Mayor’s entered into an employment agreement with Thomas A.
Andruskevich, effective October 1, 2002, which agreement
was amended on June 24, 2004 and February 1, 2005.
Under the amended agreement, Mr. Andruskevich serves as the
Chairman of the board of directors of Mayor’s, and as
President and Chief Executive Officer of Mayor’s for a term
continuing until March 31, 2008, unless earlier terminated
in
178
accordance with the agreement. His employment agreement allows
him to continue his employment with Birks where he has been
President and Chief Executive Officer since June, 1996. He
receives an annual base salary from Mayor’s of $500,000 and
has the opportunity to receive an annual cash bonus based upon
the achievement of objective performance criteria, which are set
each year by the compensation committee and approved by the
board of directors. The amendment provides that
Mr. Anduskevich’s base salary will be increased to
$600,000 on April 1, 2006, provided his and Mayor’s
performance are satisfactory and confirmed by the executive
committee and compensation committee at such time. The amendment
further provides that his target bonus opportunity will increase
annually beginning in Mayor’s fiscal 2005 and that he will
receive an additional long-term incentive compensation award.
The amendment further provides that Mayor’s shall grant
Mr. Andruskevich stock options to
purchase 1,000,000 shares of Mayor’s common stock
(or any successor entity) with an exercise price per share equal
to the fair market value of a share on April 1, 2005 (as
adjusted if necessary for any subsequent events). If
Mayor’s cannot or decides not to grant such stock options,
Mr. Andruskevich will be provided with the equivalent after
tax value of such stock options through an alternative long term
incentive compensation plan. Mayor’s compensation committee
of the board of directors is in the process of considering the
award to Mr. Andruskevich and has not yet determined what
type of award to grant; however, it expects to do so shortly.
The amendment allows Mayor’s to terminate
Mr. Andruskevich’s employment with or without cause.
In the event Mr. Andruskevich’s employment is
terminated without cause or if he resigns for good reason, he
will receive his annual base salary and financial planning,
health, and dental benefits until March 31, 2008, plus up
to an additional 12 months if he is unable to find another
suitable employment position. Mr. Andruskevich will also be
entitled to a lump sum cash payment equal to the average annual
bonus paid to him for any of the 3 fiscal years ending prior to
the date of the resignation or termination multiplied by a
fraction, the numerator of which is the number of days from the
date of resignation or termination until the end of the term,
and the denominator of which is 365, plus a lump sum cash
payment of $24,000 for disability and life insurance. In the
event Mr. Andruskevich’s employment terminates as a
result of his death, Mr. Andruskevich is entitled to get
all the payments he is entitled to if his employment is
terminated without cause or if he resigns for good reason as
described above except the lump sum cash payment of $24,000 for
disability and life insurance. The amendment prohibits
Mr. Andruskevich from competing with Mayor’s in
certain markets for a period of twelve (12) months after
the termination of the agreement for certain reasons. If
Mr. Andruskevich’s employment is terminated without
cause or if he resigns for good reason within the two year
period following a change of control, Mr. Andruskevich will
receive his annual base salary, annual bonus and financial
planning, health, and dental benefits for the greater of two
(2) years or the unexpired portion of the term plus one
year, and Mr. Andruskevich will also be entitled to certain
bonus compensation and a lump sum cash payment of $24,000 for
disability and life insurance. This agreement, and an additional
empl oyment agreement with Birks, will remain in effect
following consummation of the merger.
Mayor’s entered into an employment agreement with Joseph A.
Keifer, III, effective October 1, 2002. Under the
agreement, Mr. Keifer has served as Senior Vice President
and Chief Operating Officer of Mayor’s for a term
continuing until October 1, 2003, with such term
automatically renewing for successive one-year renewal terms
unless Mayor’s or Mr. Keifer provides the other with
notice of its determination not to renew the agreement. He
receives an annual base salary of $380,000 and has the
opportunity to receive an annual cash bonus based upon the
achievement of certain objective performance criteria, which are
set each year by Mayor’s. Each year, the compensation
committee will consider Mr. Keifer for an award of stock
options. The agreement allows Mayor’s to terminate
Mr. Keifer with or without cause. In the event
Mr. Keifer’s employment is terminated without cause or
if he resigns for good reason, he will receive his annual base
salary, financial planning, health, and dental benefits, and
automobile allowance for six months following the date of his
resignation or termination. Mr. Keifer is also entitled to
a pro rata amount of any bonus compensation payable to him for
that year. The agreement prohibits Mr. Keifer from
competing with Mayor’s for a period of six months after the
termination of the agreement.
179
Mayor’s entered into an employment agreement with Marc
Weinstein, effective October 26, 2001, and amended as of
July 19, 2002 and March 31, 2003. Under the agreement,
Mr. Weinstein has served as Senior Vice President and Chief
Administrative Officer of Mayor’s for a term continuing
until October 26, 2003, with such term to automatically
renewing for successive one-year renewal terms unless
Mayor’s or Mr. Weinstein provides the other with
notice of its determination not to renew the agreement. He
receives an annual base salary of $240,000 and has the
opportunity to receive an annual cash bonus based upon the
achievement of objective performance criteria, which are set
each year by Mayor’s. Each year, the compensation committee
will consider Mr. Weinstein for an award of stock options.
The agreement allows Mayor’s to terminate
Mr. Weinstein with or without cause. In the event
Mr. Weinstein’s employment is terminated without
cause, if he resigns for good reason or if Mayor’s fails to
renew his employment agreement, he will receive his annual base
salary, financial planning, health, and dental benefits, and
automobile allowance for one year following the date of his
resignation or termination. Mr. Weinstein is also entitled
to reimbursement from Mayor’s for reasonable expenses
incurred while seeking employment with another employer for one
year following his termination or resignation, accelerated
vesting of certain stock options, a pro rata amount of any bonus
compensation payable to him for that year, and a lump sum cash
payment of $10,000 for disability and life insurance. The
agreement prohibits Mr. Weinstein from competing with
Mayor’s for a period of one year after the termination of
the agreement. If Mr. Weinstein’s employment is
terminated within the two year period following a change of
control, Mr. Weinstein will receive a severance payment
equal to two times his annual base salary, financial planning,
health, and dental benefits and automobile allowance for a
period of two years. Mr. Weinstein will also be entitled to
certain bonus compensation and a lump sum cash payment of
$20,000 for disability and life insurance.
Mayor’s entered into an employment agreement with Albert J.
Rahm, II, effective May 10, 2001, and amended as of
July 19, 2002. Under the agreement, Mr. Rahm initially
served as Vice President of Stores for a term continuing until
May 10, 2002, with such term to automatically renew for
successive one-year renewal terms unless Mayor’s or
Mr. Rahm provides the other with notice of its
determination not to renew the agreement. Mr Rahm currently
serves as Vice President Retail Store Operations. He receives an
annual base salary of $200,000 and has the opportunity to
receive an annual cash bonus based upon the achievement of
objective performance criteria, which are set each year by
Mayor’s. The agreement allows Mayor’s to terminate
Mr. Rahm with or without cause. In the event
Mr. Rahm’s employment is terminated without cause, if
he resigns for good reason, or if Mayor’s fails to renew
his employment agreement, he will receive his annual base
salary, health and dental benefits, and automobile allowance for
one year following the date of his resignation or termination.
Mr. Rahm is also entitled to reimbursement from
Mayor’s for reasonable expenses incurred while seeking
employment with another employer for one year following his
termination or resignation, accelerated vesting of certain stock
options, a pro rata amount of any bonus compensation payable to
him for that year, and a lump sum cash payment of $10,000 for
disability and life insurance. The agreement prohibits
Mr. Rahm from competing with Mayor’s for a period of
one year after the termination of the agreement. If
Mr. Rahm’s employment is terminated within the two
year period following a change of control, Mr. Rahm will
receive a severance payment equal to two times his annual base
salary, health and dental benefits and automobile allowance for
a period of two years. Mr. Rahm will also be entitled to
certain bonus compensation and a lump sum cash payment of
$10,000 for disability and life insurance.
Mayor’s entered into an employment agreement with Aida
Alvarez, effective May 10, 2001, and amended as of
July 19, 2002. Under the agreement, Ms. Alvarez
initially served as Vice President Merchandising and Marketing
for a term continuing until May 10, 2002, with such term to
automatically renew for successive one-year renewal terms unless
Mayor’s or Ms. Alvarez provides the other with notice
of its determination not to renew the agreement.
Ms. Alvarez now serves as Group Vice President Category
Management for Mayor’s. She receives an annual base salary
of $175,000 and has the opportunity to receive
180
an annual cash bonus based upon the achievement of certain
objective performance criteria, which are set each year by
Mayor’s. The agreement allows Mayor’s to terminate
Ms. Alvarez with or without cause. In the event
Ms. Alvarez’s employment is terminated without cause,
if she resigns for good reason, or if Mayor’s fails to
renew her employment agreement, she will receive her annual base
salary, health and dental benefits, and automobile allowance for
one year following the date of her resignation or termination.
Ms. Alvarez is also entitled to reimbursement from
Mayor’s for reasonable expenses incurred while seeking
employment with another employer for one year following her
termination or resignation, accelerated vesting of certain stock
options, a pro rata amount of any bonus compensation payable to
her for that year, and a lump sum cash payment of $10,000 for
disability and life insurance. The agreement prohibits
Ms. Alvarez from competing with Mayor’s for a period
of one year after the termination of the agreement. If
Ms. Alvarez’s employment is terminated within the two
year period following a change of control, Ms. Alvarez will
receive a severance payment equal to two times her annual base
salary, health and dental benefits and automobile allowance for
a period of two years. Ms. Alvarez will also be entitled to
certain bonus compensation and a lump sum cash payment of
$10,000 for disability and life insurance.
Ten-year Option Repricings
There were no option repricings for the executive officers of
Mayor’s during the fiscal year ended March 26, 2005.
Compensation Committee Interlocks and Insider
Participation
All decisions regarding compensation of Mayor’s executive
officers are subject to the review by the compensation
committee. The purpose of the compensation committee is to
recommend to the board of directors the compensation of the
Chief Executive Officer and the other executive officers. Ann
Spector Lieff (Chair), Massimo Ferragamo and Emily Berlin, each
of whom is an independent, non-employee director of
Mayor’s, constitute the compensation committee.
Board of Directors Compensation Committee Report on Executive
Compensation
The compensation committee is responsible for determining
compensation levels, including bonuses, for the officers of
Mayor’s other than the executive officers, awarding stock
options to such officers, and for recommending to the board of
directors the cash and equity compensation of Mayor’s
executive officers.
|
|
|
|
|
Compensation Committee Report on Chief Executive Officer
Compensation for Fiscal 2004
|
Mr. Andruskevich’s compensation for fiscal 2004 is
governed by the terms of an employment agreement effective
October 1, 2002, amended June 24, 2004. During fiscal
2004, Mr. Andruskevich’s annual salary was $500,000,
and he received an annual discretionary bonus of $366,742.
Mr. Andruskevich’s annual salary is established in his
employment agreement and subject to increases as determined by
the board of directors based upon his performance. In fiscal
2004, Mr. Andruskevich’s target bonus was $300,000 and
could have been as high as $450,000. The compensation committee
determined Mr. Andruskevich’s bonus for fiscal 2004
according to the level of his achievement of certain performance
criteria established by the committee at the beginning of the
fiscal year, including the overall financial performance of
Mayor’s, specifically, Mayor’s net income (loss),
EBITDA and cash flow for fiscal 2004; divisional objectives
including, disposal of slow moving inventory and the gross
profit of the Bridal and Fine Jewelry division; and Mayor’s
success in achieving certain strategic goals in connection with
new product sales and integration savings.
The committee believes that both the compensation and benefits
programs provided for the executive officers is generally
competitive with similar organizations within the luxury jewelry
and retail industry. In determining the compensation of
Mayor’s executive officers, the committee takes into
account all factors that it considers relevant, including
business conditions in general and Mayor’s performance
during the year in light of such conditions, the market
compensation for executives of similar background and
experience, and
181
the performance of the specific executive officer under
consideration and the business area of Mayor’s for which
such executive officer is responsible. Regarding Chief Executive
Officer compensation, the committee considers many of the same
factors looked at for the other executive officers. Some of the
key company performance measures that are considered
specifically for the Chief Executive Officer are sales, gross
profit, overall profitability, cash flow and other key strategic
and financial objectives as outlined in Mayor’s Profit and
Strategic Plans.
The committee believes that the cash bonus portion of the
executive officers’ compensation, or the “at
risk” component, should vary according to the executive
officer’s level of responsibility and individual
performance and be based upon the overall financial performance
of Mayor’s. The committee believes that this portion of the
executive officer’s compensation is critical in order to
ensure that such executive officer’s interests are aligned
with the interests of the stockholders of Mayor’s. At the
present time, the bonus targets for executive officers range
from 5% to 60% of their respective base annual salary. For
example, most management bonuses are paid out at 75% of target
if 100% of the annual planned earnings before taxes is achieved,
100% of target if 125% of the annual planned earnings before
taxes is achieved and a maximum 110% of target if 135% of the
annual planned earnings before taxes is achieved.
Executive officers may be granted options to purchase
Mayor’s common stock or other equity-based incentives on an
annual basis. It is believed that providing this type of
incentive, one which links a portion of the executive
officer’s compensation to the long-term interests of the
stockholders, is a valuable consideration and will create an
even greater focus on the part of the executive officers to
balance short and long-term decision making.
The amount of the grants take into consideration such factors as
the executive officer’s level of responsibility, their
level of performance and contribution to Mayor’s results
and their potential for growth and ongoing contribution within
Mayor’s.
|
|
|
|
|
Ann Spector Lieff (Chair)
|
|
|
Massimo Ferragamo
|
|
|
Emily Berlin
|
182
Performance Graph
The following graph compares the five-year cumulative total
shareholder return on Mayor’s common stock, with the
cumulative total stockholder return of the companies comprising
the NASDAQ Stock Market (“NASDAQ”) Market Value Stock
Index and the total stockholder return of a peer group of
companies comprising the S&P Specialty Stores Index.
Mayor’s will provide stockholders, upon request, with a
list of companies included in the S&P Specialty Stores
Index. The graph assumes an initial investment of $100 and
reinvestment of all dividends.
COMPARISON OF 62 MONTH CUMULATIVE TOTAL RETURN*
AMONG MAYOR’S JEWELERS, INC., THE AMEX MARKET VALUE
(U.S. & FOREIGN) INDEX
AND THE S & P SPECIALTY STORES INDEX
|
|
|
|
*
|
$100 invested on 1/31/00 in stock or index-including
reinvestment of dividends. Indexes calculated on month-end basis.
|
Copyright© 2002, Standard & Poor’s, a division of
The McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
Comparison of 62 month cumulative total
returns
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Year Ended,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
February 3,
|
|
February 2,
|
|
March 29,
|
|
March 27,
|
|
March 26,
|
|
Company/Index
|
|
Date*
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mayor’s
|
|
$
|
100
|
|
|
$
|
121.74
|
|
|
$
|
41.39
|
|
|
$
|
8.70
|
|
|
$
|
25.39
|
|
|
$
|
22.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NASDAQ Stock Market
|
|
$
|
100
|
|
|
$
|
69.82
|
|
|
$
|
44.22
|
|
|
$
|
24.28
|
|
|
$
|
42.45
|
|
|
$
|
41.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P Specialty Stores Index
|
|
$
|
100
|
|
|
$
|
113.40
|
|
|
$
|
142.20
|
|
|
$
|
123.01
|
|
|
$
|
170.12
|
|
|
$
|
184.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Reflects $100 invested in Mayor’s common stock and in each
index, including reinvestment of dividends, January 31,
2000.
|
183
OWNERSHIP OF MAYOR’S VOTING SECURITIES
The following table sets forth certain information with respect
to beneficial ownership of Mayor’s common stock as of
June 10, 2005, by: (i) each person known to
Mayor’s to beneficially own more than 5% of the common
stock; (ii) Mayor’s Named Executive Officers (as
defined below) and directors; and (iii) all directors and
executive officers of Mayor’s as a group. The calculation
of the percentage of outstanding shares is based on
36,991,592 shares outstanding on June 10, 2005,
adjusted, where appropriate, for shares of stock beneficially
owned but not yet issued. Named Executive Officers means
Mayor’s Chief Executive Officer and the four other highest
paid Executive Officers of Mayor’s during the fiscal year
ended March 26, 2005. Except as otherwise indicated, each
stockholder named has sole voting and investment power with
respect to such stockholder’s shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Name and Address(1) of
|
|
Number of Shares
|
|
|
Outstanding
|
|
|
Beneficial Owner(2)
|
|
Beneficially Owned
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Andruskevich(3)
|
|
|
3,009,018
|
|
|
|
7.5
|
%
|
|
Aida Alvarez(4)
|
|
|
112,666
|
|
|
|
*
|
|
|
Emily Berlin(5)
|
|
|
550,000
|
|
|
|
1.5
|
%
|
|
Elizabeth M. Eveillard(6)
|
|
|
1,140,000
|
|
|
|
3.1
|
%
|
|
Massimo Ferragamo(7)
|
|
|
50,000
|
|
|
|
*
|
|
|
Joseph A. Keifer, III(8)
|
|
|
843,339
|
|
|
|
2.2
|
%
|
|
Judith MacDonald(9)
|
|
|
40,000
|
|
|
|
*
|
|
|
Ann Spector Lieff(10)
|
|
|
100,000
|
|
|
|
*
|
|
|
Stephen M. Knopik(11)
|
|
|
40,000
|
|
|
|
*
|
|
|
Filippo Recami(12)
|
|
|
1,559,018
|
|
|
|
4.0
|
%
|
|
Albert J. Rahm, II(13)
|
|
|
120,667
|
|
|
|
*
|
|
|
Dr. Lorenzo Rossi di Montelera(14)
|
|
|
68,053,673
|
|
|
|
76.1
|
%
|
|
Marc Weinstein(15)
|
|
|
254,019
|
|
|
|
*
|
|
|
All executive officers and directors as a Group (13 persons)(16)
|
|
|
75,872,400
|
|
|
|
80.8
|
%
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
Regaluxe Investments Sarl(17)
|
|
|
68,053,673
|
|
|
|
76.1
|
%
|
|
|
25 A. Boulevard Royal
|
|
|
|
|
|
|
|
|
|
|
2449 Luxembourg
|
|
|
|
|
|
|
|
|
|
Henry Birks & Sons Inc.(18)
|
|
|
68,053,673
|
|
|
|
76.1
|
%
|
|
|
1240 Phillips Square
|
|
|
|
|
|
|
|
|
|
|
Montreal, Quebec, Canada H3B 3H4
|
|
|
|
|
|
|
|
|
|
Eliahu Ben-Shmual(19)
|
|
|
1,840,101
|
|
|
|
5.0
|
%
|
|
|
16300 N.E. 19TH Avenue, Suite 206
|
|
|
|
|
|
|
|
|
|
|
Miami Beach, Florida 33162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unless otherwise provided, the address for each “Beneficial
Owner” is 14051 N.W. 14th Street, Suite 200,
Sunrise, Florida 33323.
|
|
|
|
|
(2)
|
Unless otherwise noted, each person has sole voting and
investment power over the shares listed opposite his or her name.
|
|
|
|
|
(3)
|
Includes options to purchase 1,500,000 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days and warrants to
purchase 1,509,018 shares of Mayor’s common stock
at $0.29 per share.
|
|
|
|
|
(4)
|
Includes options to purchase 112,666 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days.
|
184
|
|
|
|
|
|
(5)
|
Includes 500,000 shares of Mayor’s common stock and
options to purchase 50,000 shares of Mayor’s
common stock which are currently exercisable or exercisable
within 60 days.
|
|
|
|
|
(6)
|
Includes options to purchase 50,000 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days, 90,000 shares held of
record and 1,000,000 shares in which Mrs. Eveillard
has an indirect ownership interest through her husband.
|
|
|
|
|
(7)
|
Includes options to purchase 50,000 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days.
|
|
|
|
|
(8)
|
Includes options to purchase 333,333 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days, warrants to
purchase 503,006 shares of Mayor’s common stock
at $0.29 per share, and 7,000 shares in which
Mr. Keifer has an indirect ownership interest.
|
|
|
|
|
(9)
|
Includes options to purchase 40,000 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days.
|
|
|
|
|
(10)
|
Includes 50,000 shares of Mayor’s common stock and
options to purchase 50,000 shares of Mayor’s
common stock which are currently exercisable or exercisable
within 60 days.
|
|
|
|
(11)
|
Includes options to purchase 40,000 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days.
|
|
|
|
(12)
|
Includes warrants to purchase 1,509,018 shares of
Mayor’s common stock at $0.29 per share and options to
purchase 50,000 shares of Mayor’s common stock
which are currently exercisable or exercisable within
60 days.
|
|
|
|
(13)
|
Includes options to purchase 120,667 shares of
Mayor’s common stock which are currently exercisable or
exercisable within 60 days.
|
|
|
|
(14)
|
Includes beneficial indirect ownership through Birks of warrants
to purchase 901,151 shares of Mayor’s common
stock at $0.29 per share, 51,499,525 shares of common
stock if the Mayor’s preferred stock is converted,
15,602,997 shares held of record and direct ownership of
options to purchase 50,000 shares of Mayor’s
common stock which are currently exercisable or exercisable
within 60 days.
|
|
|
|
(15)
|
Includes 350 shares of Mayor’s common stock and
options to purchase 253,669 shares of Mayor’s
common stock which are currently exercisable or exercisable
within 60 days.
|
|
|
|
(16)
|
Includes 2,700,335 shares issuable upon the exercise of
stock options for all executive officers and directors,
1,557,350 shares in which the directors and executive
officers have an indirect beneficial ownership interest,
90,000 shares, warrants to
purchase 3,521,042 shares of Mayor’s common stock
at $0.29 per share, as well as the beneficial indirect
ownership through Birks of 288,517, 306,317 and 306,317 warrants
to purchase shares of Mayor’s common stock at $0.29, $0.34
and $0.39 per share, respectively, 51,499,525 shares
of Mayor’s common stock if the Mayor’s preferred stock
is converted and 15,602,997 shares.
|
|
|
|
(17)
|
Includes beneficial indirect ownership through Birks of warrants
to purchase 901,151 shares of Mayor’s common
stock at $0.29 per share and 51,499,525 shares of
Mayor’s common stock if the Mayor’s preferred stock is
converted and 15,602,997 shares.
|
|
|
|
(18)
|
Includes direct ownership of warrants to
purchase 901,151 shares of Mayor’s common stock
at $0.29 per share and 51,499,525 shares of
Mayor’s common stock if the Mayor’s preferred stock is
converted and 15,602,997 shares.
|
|
|
|
(19)
|
Includes all shares held by Eliahu Ben-Shmuel, E.P. Family
Partners, Hay Foundation and Tropical Time, Inc. as reported in
its Schedule 13D dated as of September 21, 2001.
|
Birks currently owns 15,602,997 shares of Mayor’s
common stock and 15,050 shares of Mayor’s preferred
stock convertible into 51,499,525 shares of Mayor’s
common stock. Birks has pledged all 15,602,997 shares of
Mayor’s common stock and 15,050 shares of Mayor’s
preferred stock as security for certain promissory notes. In an
event of default of such pledge, there may be a change in
control of the voting and dispositive power over such preferred
stock and therefore a change of control over Mayor’s.
185
LEGAL MATTERS
Certain legal matters relating to U.S. law will be passed
upon for Birks by Shearman & Sterling LLP, Toronto,
Canada, U.S. counsel to Birks. The legality of the issuance
of Birks Class A voting shares offered hereby will be
passed upon for Birks by Stikeman Elliott LLP, Montreal, Canada,
Canadian counsel to Birks. Certain legal matters relating to
U.S. law will be passed upon for Mayor’s by
Holland & Knight LLP, Miami, Florida, U.S. counsel
to Mayor’s. Holland & Knight LLP will also deliver
an opinion to Mayor’s concerning the U.S. federal
income tax consequences of the merger.
EXPERTS
The consolidated financial statements of Henry Birks &
Sons Inc. and subsidiaries as of March 26, 2005 and
March 27, 2004 and for the years ended March 26, 2005,
March 27, 2004 and March 29, 2003 have been included
herein and in the registration statement in reliance upon the
report of KPMG LLP, independent registered public accounting
firm, appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements and schedule of
Mayor’s Jewelers, Inc. and subsidiaries as of
March 26, 2005 and March 27, 2004 and for the years
ended March 26, 2005 and March 27, 2004 have been
included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent registered public
accounting firm, appearing elsewhere herein and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements and schedule of
Mayor’s Jewelers, Inc. and subsidiaries for the fiscal year
ended March 29, 2003 included in this proxy statement/
prospectus have been audited by Deloitte & Touche LLP,
independent registered public accounting firm, as stated in
their report appearing herein and elsewhere in the registration
statement, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
In order to have been considered for inclusion in Mayor’s
proxy statement for the meeting, stockholder proposals must have
been received at Mayor’s principal executive offices at
14051 N.W.
14
th
Street,
Suite 200, Sunrise, Florida 33323, by
[ ],
2005 and otherwise comply with the requirements of
Rule 14a-8 under the Exchange Act. In addition, for
business to be properly brought before Mayor’s 2006 annual
meeting of stockholders (other than stockholder proposals
submitted pursuant to Rule 14a-8 of the Exchange Act),
should such a meeting take place, stockholders must give notice
of the proposed business to the Secretary of Mayor’s at
Mayor’s principal executive offices not less than
90 days nor more than 120 days prior to the date of
the first anniversary date of the this year’s annual
meeting. If the date of Mayor’s annual meeting is advanced
or delayed by more than 30 days, stockholders must give
notice of the proposed business to the Secretary of Mayor’s
at Mayor’s principal executive offices not earlier than
120 days prior to the annual meeting and not later than the
close of business on the later of the ninetieth day prior to the
annual meeting or the tenth day following the first public
announcement of the date of the annual meeting. Such notice must
include a brief description of the business desired to be
brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such
business of such stockholder, the stockholder’s name and
address and the class and the number of shares of Mayor’s
which are owned beneficially and of record by such stockholder.
ENFORCEABILITY OF CIVIL LIABILITIES
Birks is a corporation governed by the Canada Business
Corporation Act. A substantial portion of Birks’ assets are
located outside the United States, and some of Birks’
directors and officers and the experts named in this proxy
statement/ prospectus are residents outside of the United
States. As a result, it may be difficult for investors to effect
service within the United States upon Birks and those directors,
officers and experts, or
186
to realize in the United States upon judgments of courts of the
United States predicated upon civil liability of Birks and such
directors, officers or experts under the United States federal
securities laws. There is doubt as to the enforceability in
Canada by a court in original actions, or in actions to enforce
judgments of United States courts, of the civil liabilities
predicated upon the United States federal securities laws.
WHERE YOU CAN FIND MORE INFORMATION
Birks filed a registration statement on Form F-4 (together
with all amendments and supplements thereto) with the SEC under
the United States Securities Act of 1933, as amended, to
register the Birks Class A voting shares to be issued
pursuant to the merger. This proxy statement/ prospectus is a
part of that registration statement, and constitutes a
prospectus of Birks, as well as being a proxy statement of
Mayor’s. As allowed by the SEC rules, this proxy statement/
prospectus does not contain all the information you can find in
the registration statement or the exhibits to the registration
statement. For further information with respect to Birks,
Mayor’s, the merger and the Birks Class A voting
shares to be issued pursuant to the merger, reference is made to
the registration statement and to the exhibits filed therewith.
Statements contained in this proxy statement/ prospectus as to
the contents of certain documents are not necessarily complete
and, in each instance, reference is made to the copy of the
document filed as an exhibit to the registration statement. Each
such statement is qualified in its entirety by such reference.
The registration statement and the exhibits can be inspected and
copied at SEC’s Public Reference Room or through the
SEC’s website referred to below.
At the time of the merger, Birks will be subject to the
informational requirements of the United States Securities
Exchange Act of 1934, as amended, the Exchange Act, and in
accordance therewith will file reports and other information
with the SEC. As a foreign private issuer, Birks is exempt from
the rules under the Exchange Act prescribing the furnishing and
content of proxy statements to shareholders. Because Birks is a
foreign private issuer, Birks, its directors and its officers
are also exempt from the shortswing profit recovery and
disclosure regime of Section 16 of the Exchange Act.
Birks’ reports and other information filed with the SEC can
be inspected and copied at the SEC’s Public Reference Room,
Room 5080, Station Place, 100F Street, N.E.,
Washington, D.C. 20549 at prescribed rates. Information on
the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. You may also retrieve these
materials at the SEC’s website at http://www.sec.gov.
Mayor’s is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports, proxy
statements and other information with the SEC. Such reports,
proxy statements and other information filed by Mayor’s may
be inspected and copied at the SEC’s Public Reference Room
or through the SEC’s website referred to above.
Neither Birks nor Mayor’s has authorized anyone to give any
information or make any representation about the merger that is
different from, or in addition to, that contained in this proxy
statement/ prospectus or in any of the materials that are
incorporated by reference into this proxy statement/ prospectus.
Therefore, if anyone does give you information of this sort, you
should not rely on it. If you are in a jurisdiction where offers
to exchange or sell, or solicitations of offers to exchange or
purchase, the securities offered by this proxy statement/
prospectus are unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer
presented in this proxy statement/ prospectus does not extend to
you. The information contained in this proxy statement/
prospectus speaks only as of the date of this document unless
the information specifically indicates that another date applies.
187
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF BIRKS AND
MAYOR’S
|
|
|
|
|
|
|
Henry Birks & Sons Inc. and subsidiaries
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-8
|
|
|
Mayor’s Jewelers, Inc. and subsidiaries
|
|
|
|
|
|
|
|
|
F-35
|
|
|
|
|
|
F-36
|
|
|
|
|
|
F-37
|
|
|
|
|
|
F-38
|
|
|
|
|
|
F-39
|
|
|
|
|
|
F-40
|
|
|
|
|
|
F-41
|
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Henry Birks & Sons Inc.
We have audited the accompanying consolidated balance sheets of
Henry Birks & Sons Inc. and subsidiaries as of
March 26, 2005 and March 27, 2004, and the related
consolidated statements of operations, stockholders’ equity
and comprehensive income, and cash flows for the years ended
March 26, 2005, March 27, 2004 and March 29,
2003. These consolidated financial statements are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Henry Birks & Sons Inc. and subsidiaries as
of March 26, 2005 and March 27, 2004 and the results
of their operations and their cash flows for the years ended
March 26, 2005, March 27, 2004 and March 29, 2003
in conformity with US generally accepted accounting principles.
Montréal, Canada
July 4, 2005
KPMG, a Canadian limited liability partnership is the Canadian
member firm of KPMG International, a Swiss cooperative.
F-2
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 26, 2005 and March 27, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in
|
|
|
|
|
thousands of US dollars)
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,762
|
|
|
$
|
1,656
|
|
|
|
Accounts receivable (net of allowance for doubtful accounts of
$1,015; 2004 - $1,086) (note 4)
|
|
|
9,805
|
|
|
|
8,272
|
|
|
|
Inventories (note 5)
|
|
|
136,999
|
|
|
|
134,422
|
|
|
|
Other current assets
|
|
|
2,951
|
|
|
|
3,162
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
151,517
|
|
|
|
147,512
|
|
|
Property and equipment, net (note 6)
|
|
|
30,117
|
|
|
|
29,108
|
|
|
Goodwill
|
|
|
15,463
|
|
|
|
15,365
|
|
|
Intangible assets, net of accumulated amortization of $35 (2004
- $17)
|
|
|
262
|
|
|
|
216
|
|
|
Other assets
|
|
|
2,362
|
|
|
|
1,179
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
199,721
|
|
|
$
|
193,380
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness (note 7)
|
|
$
|
74,254
|
|
|
$
|
70,262
|
|
|
|
Accounts payable
|
|
|
22,571
|
|
|
|
21,220
|
|
|
|
Accrued liabilities
|
|
|
11,665
|
|
|
|
11,409
|
|
|
|
Other taxes payable
|
|
|
3,633
|
|
|
|
6,177
|
|
|
|
Loans for leasehold improvements and term loans (note 8)
|
|
|
1,262
|
|
|
|
2,725
|
|
|
|
Current portion of long-term debt (note 9)
|
|
|
3,076
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
116,461
|
|
|
|
112,782
|
|
|
Long-term debt (note 9)
|
|
|
28,555
|
|
|
|
28,563
|
|
|
Convertible notes (note 10)
|
|
|
5,000
|
|
|
|
5,000
|
|
|
Other long-term liabilities
|
|
|
4,456
|
|
|
|
4,797
|
|
|
Minority interest
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
154,473
|
|
|
|
151,143
|
|
|
Convertible preferred stock (note 16)
|
|
|
5,050
|
|
|
|
10,050
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
Common stock (note 16)
|
|
|
36,364
|
|
|
|
31,405
|
|
|
|
Additional paid-in capital
|
|
|
16,867
|
|
|
|
15,518
|
|
|
|
Accumulated deficit
|
|
|
(13,760
|
)
|
|
|
(14,927
|
)
|
|
|
Accumulated other comprehensive income
|
|
|
727
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
40,198
|
|
|
|
32,187
|
|
|
Commitments and contingencies (notes 17 and 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
199,721
|
|
|
$
|
193,380
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
HENRY BIRKS AND SONS INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended March 26, 2005, March 27, 2004 and
March 29, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands of
|
|
|
|
|
US dollars)
|
|
|
Net sales
|
|
$
|
239,301
|
|
|
$
|
216,256
|
|
|
$
|
151,312
|
|
|
Cost of sales, including depreciation of $440, $307 and $220
|
|
|
130,037
|
|
|
|
118,861
|
|
|
|
83,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
109,264
|
|
|
|
97,395
|
|
|
|
67,614
|
|
|
Selling, general and administrative expenses (including non-cash
compensation expense of $599, $1,745 and $66)
|
|
|
95,764
|
|
|
|
93,638
|
|
|
|
63,890
|
|
|
Depreciation and amortization
|
|
|
4,749
|
|
|
|
4,312
|
|
|
|
3,256
|
|
|
Other items
|
|
|
(1,181
|
)
|
|
|
338
|
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
99,332
|
|
|
|
98,288
|
|
|
|
66,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
9,932
|
|
|
|
(893
|
)
|
|
|
678
|
|
|
Other expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on long-term debt
|
|
|
2,906
|
|
|
|
2,858
|
|
|
|
2,448
|
|
|
|
Interest and other financial costs
|
|
|
5,759
|
|
|
|
5,312
|
|
|
|
3,486
|
|
|
|
(Gain) loss on sale of Mayor’s common shares
|
|
|
(232
|
)
|
|
|
176
|
|
|
|
—
|
|
|
|
Loss on disposal of Mayor’s warrants
|
|
|
332
|
|
|
|
334
|
|
|
|
312
|
|
|
|
Interest and other income
|
|
|
—
|
|
|
|
(184
|
)
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,765
|
|
|
|
8,496
|
|
|
|
5,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income tax,
minority interest, discontinued operations and extraordinary item
|
|
|
1,167
|
|
|
|
(9,389
|
)
|
|
|
(5,179
|
)
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before minority
interest, discontinued operations and extraordinary item
|
|
|
1,167
|
|
|
|
(9,389
|
)
|
|
|
(4,188
|
)
|
|
Minority interest in loss of subsidiary (note 2)
|
|
|
—
|
|
|
|
7,175
|
|
|
|
8,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before discontinued
operations and extraordinary item
|
|
|
1,167
|
|
|
|
(2,214
|
)
|
|
|
3,883
|
|
|
Loss from discontinued operations, net of income tax of nil
(note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
(828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before extraordinary item
|
|
|
1,167
|
|
|
|
(2,214
|
)
|
|
|
3,055
|
|
|
Extraordinary gain, net of income tax of nil (note 2)
|
|
|
—
|
|
|
|
—
|
|
|
|
9,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
1,167
|
|
|
$
|
(2,214
|
)
|
|
$
|
12,097
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
HENRY BIRKS AND SONS INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income
Years ended March 26, 2005, March 27, 2004 and
March 29, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
|
|
|
Voting
|
|
|
Additional
|
|
|
|
|
Other
|
|
|
|
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-in
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands of US dollars)
|
|
|
Balance at March 30, 2002
|
|
|
6,313,308
|
|
|
$
|
31,405
|
|
|
$
|
356
|
|
|
$
|
(23,743
|
)
|
|
$
|
(465
|
)
|
|
$
|
7,553
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,097
|
|
|
|
—
|
|
|
|
12,097
|
|
|
Cumulative translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
317
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,414
|
|
|
Compensation resulting from warrants granted to management
|
|
|
—
|
|
|
|
—
|
|
|
|
312
|
|
|
|
—
|
|
|
|
—
|
|
|
|
312
|
|
|
Purchase accounting adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,067
|
)
|
|
|
—
|
|
|
|
(1,067
|
)
|
|
Stock options granted to management and non-employees
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
|
|
—
|
|
|
|
—
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2003
|
|
|
6,313,308
|
|
|
|
31,405
|
|
|
|
734
|
|
|
|
(12,713
|
)
|
|
|
(148
|
)
|
|
|
19,278
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,214
|
)
|
|
|
—
|
|
|
|
(2,214
|
)
|
|
Cumulative translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
339
|
|
|
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,875
|
)
|
|
Compensation resulting from warrants granted to management
|
|
|
—
|
|
|
|
—
|
|
|
|
1,070
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,070
|
|
|
Exercise of Mayor’s warrants, purchase accounting
(note 2)
|
|
|
—
|
|
|
|
—
|
|
|
|
13,292
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,292
|
|
|
Stock options granted to a lender
|
|
|
—
|
|
|
|
—
|
|
|
|
331
|
|
|
|
—
|
|
|
|
—
|
|
|
|
331
|
|
|
Compensation resulting from sale of shares to related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
88
|
|
|
|
—
|
|
|
|
—
|
|
|
|
88
|
|
|
Stock options granted to management and non-employees
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 27, 2004
|
|
|
6,313,308
|
|
|
|
31,405
|
|
|
|
15,518
|
|
|
|
(14,927
|
)
|
|
|
191
|
|
|
|
32,187
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,167
|
|
|
|
—
|
|
|
|
1,167
|
|
|
Cumulative translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
536
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,703
|
|
|
Compensation resulting from warrants granted to management
|
|
|
—
|
|
|
|
—
|
|
|
|
278
|
|
|
|
—
|
|
|
|
—
|
|
|
|
278
|
|
|
Compensation resulting from sale of shares to related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
135
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135
|
|
|
Stock options granted to management and non-employees
|
|
|
—
|
|
|
|
—
|
|
|
|
550
|
|
|
|
—
|
|
|
|
—
|
|
|
|
550
|
|
|
Stock options granted to a lender
|
|
|
—
|
|
|
|
—
|
|
|
|
419
|
|
|
|
—
|
|
|
|
—
|
|
|
|
419
|
|
|
Repurchase of shares
|
|
|
(10,290
|
)
|
|
|
(41
|
)
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(74
|
)
|
|
Conversion of common and preferred shares (note 16(b))
|
|
|
995,526
|
|
|
|
5,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 26, 2005
|
|
|
7,298,544
|
|
|
$
|
36,364
|
|
|
$
|
16,867
|
|
|
$
|
(13,760
|
)
|
|
$
|
727
|
|
|
$
|
40,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended March 26, 2005, March 27, 2004 and
March 29, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands of
|
|
|
|
|
US dollars)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,167
|
|
|
$
|
(2,214
|
)
|
|
$
|
12,097
|
|
|
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary gain
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,042
|
)
|
|
|
|
Minority interest in loss of subsidiary
|
|
|
—
|
|
|
|
(7,175
|
)
|
|
|
(8,071
|
)
|
|
|
|
Depreciation and amortization
|
|
|
5,172
|
|
|
|
4,611
|
|
|
|
3,473
|
|
|
|
|
Amortization of debt costs
|
|
|
688
|
|
|
|
484
|
|
|
|
193
|
|
|
|
|
Amortization of intangible assets
|
|
|
17
|
|
|
|
8
|
|
|
|
3
|
|
|
|
|
Unrealized foreign exchange gain on convertible notes
|
|
|
(401
|
)
|
|
|
(552
|
)
|
|
|
(314
|
)
|
|
|
|
Loss on disposal of private label credit card receivables
|
|
|
—
|
|
|
|
—
|
|
|
|
412
|
|
|
|
|
Loss on disposal of warrants
|
|
|
332
|
|
|
|
334
|
|
|
|
312
|
|
|
|
|
Non-cash compensation expense
|
|
|
957
|
|
|
|
1,745
|
|
|
|
66
|
|
|
|
|
Net proceeds from sale of private label credit cards
|
|
|
—
|
|
|
|
—
|
|
|
|
12,147
|
|
|
|
|
(Gain) loss on sale of Mayor’s shares
|
|
|
(232
|
)
|
|
|
176
|
|
|
|
—
|
|
|
|
|
Gain on sale of property and equipment
|
|
|
(114
|
)
|
|
|
(66
|
)
|
|
|
—
|
|
|
|
|
Write-off of leasehold improvements
|
|
|
127
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Accretion of interest on sale-leaseback obligation
|
|
|
65
|
|
|
|
128
|
|
|
|
121
|
|
|
|
|
(Increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,338
|
)
|
|
|
464
|
|
|
|
(1,505
|
)
|
|
|
|
|
Inventories
|
|
|
1,994
|
|
|
|
(3,065
|
)
|
|
|
(13,655
|
)
|
|
|
|
|
Other current assets
|
|
|
374
|
|
|
|
1,935
|
|
|
|
(993
|
)
|
|
|
|
Increase (decrease) in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities and other long-term liabilities
|
|
|
(54
|
)
|
|
|
1,881
|
|
|
|
(7,807
|
)
|
|
|
|
|
Accounts payable
|
|
|
470
|
|
|
|
(1,651
|
)
|
|
|
1,658
|
|
|
|
|
|
Other taxes payable
|
|
|
(2,869
|
)
|
|
|
(66
|
)
|
|
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
6,355
|
|
|
|
(3,023
|
)
|
|
|
(10,433
|
)
|
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
828
|
|
|
|
Net cash used in discontinued operations
|
|
|
—
|
|
|
|
(527
|
)
|
|
|
(408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operations
|
|
|
6,355
|
|
|
|
(3,550
|
)
|
|
|
(10,013
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(3,679
|
)
|
|
|
(3,749
|
)
|
|
|
(4,008
|
)
|
|
|
Additions to intangible assets
|
|
|
(58
|
)
|
|
|
(14
|
)
|
|
|
(4
|
)
|
|
|
Additions to other assets
|
|
|
(1,725
|
)
|
|
|
(364
|
)
|
|
|
(79
|
)
|
|
|
Costs of acquisition of subsidiary
|
|
|
—
|
|
|
|
—
|
|
|
|
(449
|
)
|
|
|
Net proceeds from sale of property and equipment
|
|
|
190
|
|
|
|
74
|
|
|
|
—
|
|
|
|
Net proceeds from disposal of Mayor’s shares
|
|
|
349
|
|
|
|
484
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(4,923
|
)
|
|
|
(3,569
|
)
|
|
|
(4,540
|
)
|
F-6
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Consolidated Statements of Cash
Flows — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands of
|
|
|
|
|
US dollars)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in bank indebtedness
|
|
$
|
737
|
|
|
$
|
(1,453
|
)
|
|
$
|
4,178
|
|
|
|
Proceeds from loans for leasehold improvements and term loans
|
|
|
—
|
|
|
|
—
|
|
|
|
630
|
|
|
|
Repayment of loans for leasehold improvements and term loans
|
|
|
(1,604
|
)
|
|
|
(1,701
|
)
|
|
|
(1,488
|
)
|
|
|
Repayment of obligations under capital leases
|
|
|
(241
|
)
|
|
|
(305
|
)
|
|
|
(207
|
)
|
|
|
Repurchase of capital stock
|
|
|
(74
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
Proceeds from employee stock plans
|
|
|
16
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Proceeds from issuance of preferred shares
|
|
|
—
|
|
|
|
—
|
|
|
|
10,050
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
Repayment of long-term debt
|
|
|
(672
|
)
|
|
|
(4,026
|
)
|
|
|
—
|
|
|
|
Repayment of loan payable to shareholder
|
|
|
(168
|
)
|
|
|
(152
|
)
|
|
|
(133
|
)
|
|
|
Proceeds from long-term debt
|
|
|
99
|
|
|
|
5,175
|
|
|
|
—
|
|
|
|
Net increase (decrease) in borrowings under line of credit of
Mayor’s
|
|
|
496
|
|
|
|
9,722
|
|
|
|
(3,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(1,411
|
)
|
|
|
7,260
|
|
|
|
14,734
|
|
|
Effect of exchange rate on cash
|
|
|
85
|
|
|
|
33
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
106
|
|
|
|
174
|
|
|
|
218
|
|
|
Cash of subsidiary acquired
|
|
|
—
|
|
|
|
—
|
|
|
|
752
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
1,656
|
|
|
|
1,482
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,762
|
|
|
$
|
1,656
|
|
|
$
|
1,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
7,563
|
|
|
$
|
8,187
|
|
|
$
|
5,344
|
|
|
|
Non-cash transactions from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment additions acquired through capital leases
|
|
|
1,600
|
|
|
|
372
|
|
|
|
156
|
|
|
|
|
Property and equipment additions included in accounts payable
and accrued liabilities
|
|
|
9
|
|
|
|
664
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended March 26, 2005, March 27, 2004 and
March 29, 2003
Henry Birks & Sons Inc. (the “Company”) was
incorporated under the Canada Business Corporations Act. The
principal business activities of the Company and its
subsidiaries are the manufacture and retail of fine jewelry,
timepieces and giftware.
The Company’s consolidated financial statements are
prepared on a 52/53-week retail fiscal year basis as follows:
fifty-two weeks ended March 26, 2005
,
fifty-two weeks
ended March 27, 2004 and fifty-two weeks ended
March 29, 2003.
|
|
|
|
1.
|
Basis of presentation:
|
These consolidated financial statements include the accounts of
the Canadian parent company (“Birks”) and its
wholly-owned subsidiary, Henry Birks & Sons US Inc.,
and its subsidiary through control, Mayor’s Jewelers Inc.
(“Mayor’s”), a publicly traded company on the
American Stock Exchange. All significant intercompany accounts
and transactions have been eliminated in the consolidation.
|
|
|
|
2.
|
Acquisition of subsidiary:
|
On August 20, 2002, the Company made an investment of
$15,050,000 in Mayor’s. The investment consisted of
15,050 shares of Series A convertible voting preferred
stock (Series A preferred), convertible into
3,333.33 shares of common stock for each share of $1,000
preferred stock with an allocated fair value of $11,250,000 at
the acquisition date. The Company also received 37,273,787
warrants to purchase common stock as follows: one third at
$0.30, one third at $0.35 and one third at $0.40. A fair value
of $3,800,000 has been allocated to the warrants. The preferred
stock carried an annual cumulative dividend of $95 per
share, with dividends cumulative through October 15, 2004
to remain unpaid until January 15, 2005 and payable
quarterly in arrears on January 15, April 15, July 15
and October 15 of each year, if declared by Mayor’s Board
of Directors. Additionally, the preferred stock and the warrants
contained anti-dilution provisions which provide for the
increase in the number of warrants and preferred shares and have
potential to decrease the exercise price of the warrants and are
triggered each time Mayor’s issues common stock, options or
other securities.
At the investment date, the conversion of the preferred stock
would have given the Company a 71.9% equity interest in the
common stock of Mayor’s. The Company also obtained the
right to elect a majority of the Board of Directors of
Mayor’s. The Company has voting control and therefore
consolidates the accounts of Mayor’s using the purchase
method of accounting. The results of operations of Mayor’s
are included in the consolidated results of the Company from the
date of acquisition. As the preferred stock is
non-participating, the net loss of Mayor’s is allocated to
minority interest until the shares are converted into
participating common shares or the minority interest is reduced
to nil.
The purchase of 71.9% voting interest in Mayor’s was
accounted for by the purchase method. The excess of 71.9% of the
net book value of Mayor’s over the fair value assigned to
the preferred shares, amounting to $21,249,000, has been
classified as negative goodwill. Such negative goodwill has been
accounted for by reducing property and equipment by $12,207,000
with the balance of $9,042,000 recorded as an extraordinary
gain. The favorable purchase price reflected Mayor’s poor
financial condition at the date of the investment.
F-8
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
The Company allocated the consideration paid to the net assets
of Mayor’s as at August 20, 2002 as follows:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Current assets:
|
|
|
|
|
|
|
Inventories
|
|
$
|
48,700
|
|
|
|
Other
|
|
|
17,800
|
|
|
|
|
|
|
|
|
|
|
66,500
|
|
|
Property and equipment
|
|
|
12,207
|
|
|
Other
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
79,300
|
|
|
Less current liabilities
|
|
|
(40,922
|
)
|
|
Other liabilities
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
|
|
|
(43,622
|
)
|
|
|
|
|
|
|
|
|
|
35,678
|
|
|
Deduct 71.9% of the fair value assigned to the warrants
|
|
|
(2,730
|
)
|
|
|
|
|
|
|
|
|
|
32,948
|
|
|
Consideration paid including expenses of $449
|
|
|
(11,699
|
)
|
|
|
|
|
|
|
Negative goodwill
|
|
$
|
21,249
|
|
|
|
|
|
|
|
The negative goodwill has been accounted for as follows:
|
|
|
|
|
|
Property and equipment written down
|
|
$
|
12,207
|
|
|
Extraordinary gain
|
|
|
9,042
|
|
|
|
|
|
|
|
|
|
$
|
21,249
|
|
|
|
|
|
|
The negative goodwill credited to property and equipment
resulted in a reduction of consolidated depreciation and
amortization expense for the year ended March 26, 2005, of
$1,673,000 (2004 - $2,075,000; 2003 - $1,228,000).
On November 6, 2003, the Company exercised 32,523,787 of
the warrants on a cashless basis based on an average market
price of $0.77, as defined in the warrant agreements. The
exercise of the cashless feature resulted in the acquisition of
17,352,997 shares of common stock and the forfeiture of
15,170,790 warrants. As a result of this transaction, the
Company acquired an additional 5.6% voting interest in
Mayor’s common stock increasing its voting control to 77.5%
which it accounted for using the purchase method of accounting.
This also increased its equity interest to 46.9%. The fair value
of the consideration paid of $13,292,000 was determined based on
the market price of the shares received by Birks.
F-9
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
The Company allocated the purchase price to the net assets of
Mayor’s as of November 6, 2003 as follows:
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Current assets:
|
|
|
|
|
|
|
Inventories
|
|
$
|
5,100
|
|
|
|
Other
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
5,600
|
|
|
Property and equipment
|
|
|
800
|
|
|
Goodwill
|
|
|
13,124
|
|
|
Trade name and trademarks
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
19,692
|
|
|
Less current liabilities
|
|
|
(5,500
|
)
|
|
Other liabilities
|
|
|
(900
|
)
|
|
|
|
|
|
|
|
|
|
(6,400
|
)
|
|
|
|
|
|
|
Consideration paid
|
|
$
|
13,292
|
|
|
|
|
|
|
In February 2004, the Company negotiated the early payment of
the cumulative dividends on the Series A preferred stock of
Mayor’s earned by the Company through February 28,
2004, resulting in intercompany dividend income to the Company
of $1,880,000, net of certain incremental costs incurred by
Mayor’s, but paid for by the Company, related to its early
dividend payment. These costs of $338,000 are included in other
items in the consolidated statement of operations. The dividend
income has been eliminated on consolidation, which resulted in
increasing the minority interest in loss of subsidiary in the
prior years by approximately $1,385,000 ($511,000 in 2004 and
$874,000 in 2003). As a concession for the early dividend
payment, the Company has agreed to reduce its entitlement to all
future dividends from $95 per share to $80 per share
and to waive the dividend for one year on the preferred stock.
To effect the transaction, the Company exchanged its shares of
Series A preferred stock of Mayor’s to a newly created
Series A-1 convertible preferred stock (Series A-1
preferred) of Mayor’s which are substantially identical to
the Series A preferred with the exception of certain
changes, primarily related to the provisions regarding the
payment of dividends, future dividend rates and the conversion
rate.
On March 22, 2004, the Company sold 1,000,000 shares
of Mayor’s common stock at $0.50 per share in a
private placement sale to the spouse of one of Mayor’s
Directors. The sale of stock resulted in non-cash compensation
expense of $200,000, which represented the difference between
the market value of the stock and the selling price at the date
of the sale and was recorded in selling, general and
administrative expenses in 2004. Additionally, the sale of stock
resulted in a decrease in the Company’s voting control of
Mayor’s of 1.2%.
On June 15, 2004, Birks sold 500,000 and
250,000 shares of Mayor’s common stock to one of the
Company’s directors and a consultant of Birks, who later
became an employee of Birks, respectively, for $0.50 per
share in a private placement sale. The sale of the
750,000 shares of common stock resulted in non-cash
compensation expense of $135,000, recorded by Mayor’s which
represented the difference between the market value of the stock
and the selling price at the date of the sale, which is included
in selling, general and administrative expenses in the 2005
consolidated statement of operations. Additionally, the sale of
stock resulted in a decrease in the Company’s voting
control of Mayor’s of 0.8%.
As of March 26, 2005, the Series A-1 preferred of
Mayor’s are convertible into 51,499,525 shares of
common stock of Mayor’s which amount includes adjustments
for the anti-dilution provision of the
F-10
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
Series A-1 preferred. If the preferred stock of
Mayor’s were converted to common stock on March 26,
2005, Birks would own approximately 75.8% of the outstanding
common stock of Mayor’s.
As of March 26, 2005, Birks had 288,517, 306,317 and
306,317 warrants of Mayor’s exercisable at $0.29, $0.34 and
$0.39, respectively, including adjustments for the anti-dilution
provisions, as described above.
|
|
|
|
3.
|
Significant accounting policies:
|
Sales are recognized at the point of sale when merchandise is
taken or shipped to a customer. Shipping and handling fees
billed to customers are included in net sales. Revenues for gift
certificate sales and store credits are recognized upon
redemption. Sales of consignment merchandise are recognized at
such time as the merchandise is sold and are recorded on a gross
basis because the Company is the primary obligor of the
transaction, has general latitude on setting the price, has
discretion as to the suppliers, is involved in the selection of
the product and has inventory loss risk. Sales are reported net
of returns. The Company generally gives its customers the right
to return merchandise purchased by them from 10 to 30 days
and records a provision at the time of sale for the effect of
the estimated returns. Revenues for repair services are
recognized when the service is rendered.
Cost of sales includes direct inbound freight, direct labor
related to repair services, design and creative, the jewelry
studio, inventory shrink, inventory thefts, and boxes (jewelry,
watch and giftware). Indirect freight including inter-store
transfers, purchasing and receiving costs, distribution costs,
warehousing costs and quality control costs are included in
selling, general and administrative expenses. Purchase discounts
are recorded as a reduction of inventory cost and are recorded
to cost of sales as the items are sold. Mark down dollars
received from vendors are recorded as a reduction of inventory
costs to the specific items to which they apply and are
recognized in cost of sales once the items are sold. Other
vendor allowances, primarily related to the achievement of
certain milestones, are infrequent and insignificant and are
recognized upon achievement of the specified milestone in cost
of sales.
|
|
|
|
(c)
|
Cash and cash equivalents:
|
The Company considers all highly liquid investments purchased
with original maturities of three months or less and amounts
receivable from external credit card issuers to be cash
equivalents. Amounts receivable from credit card issuers are
typically converted to cash within 2 to 4 days of the
original sales transaction. These amounts totaled
$1.6 million and $1.5 million as of March 26,
2005 and March 27, 2004, respectively.
Accounts receivable arise primarily from customers’ use of
the Mayor’s credit card and sales to Birks corporate
customers. Several installment sales plans are offered to the
Mayor’s credit card holders which vary as to repayment
terms and finance charges assessed. Finance charges, when
applicable, accrue at rates ranging from 9.9% to 18% per
annum. Finance charge income was $0.2 million for the year
ended March 26, 2005, $0.3 million for the year ended
March 27, 2004 and $1.5 million for the year ended
March 29, 2003, and is recorded in net sales. The Company
maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required
payments.
F-11
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
Retail inventories and inventories of raw materials are valued
at the lower of average cost or net realizable value.
Inventories of work in progress and Company manufactured
finished goods are valued at the lower of average cost (which
includes material, labour and overhead costs) or net realizable
value.
The Company records provisions for lower of cost or market,
damaged goods, and slow-moving inventory. The cost of inbound
freight is included in the carrying value of the inventories.
|
|
|
|
(f)
|
Property and equipment:
|
Property and equipment are recorded at cost. Maintenance and
repair costs are charged to selling, general and administrative
expenses as incurred, while expenditures for major renewals and
improvements are capitalized. Depreciation and amortization are
computed using the straight-line method based on the estimated
useful lives of the assets as follows:
|
|
|
|
|
|
|
Asset
|
|
Period
|
|
|
|
|
|
|
|
Building
|
|
|
20 years
|
|
|
Leasehold improvements
|
|
|
Lower of term of the
|
|
|
|
|
|
lease or the useful life of asset
|
|
|
Software
|
|
|
3-7 years
|
|
|
Electronic equipment
|
|
|
3-10 years
|
|
|
Molds
|
|
|
5-25 years
|
|
|
Furniture and fixtures
|
|
|
5-8 years
|
|
|
Manufacturing equipment
|
|
|
8 years
|
|
|
Automobiles and trucks
|
|
|
3 years
|
|
|
|
|
|
(g)
|
Goodwill and intangible assets:
|
Goodwill is not amortized but is tested for impairment annually,
or more frequently, if events or changes in circumstances
indicate that the asset might be impaired. The Company has
selected the Company’s fiscal year-end as the measurement
date for the impairment test, which was performed and the
goodwill amount was not considered impaired.
Trademarks and the fair value attributable to Mayor’s trade
name are being amortized using the straight-line method over a
period of 15 to 20 years.
|
|
|
|
(h)
|
Deferred financing costs:
|
The Company amortizes deferred financing costs incurred in
connection with its financing agreements using the effective
interest method over the related period of the financing. Such
deferred costs are included in other assets in the accompanying
consolidated balance sheets.
The Company generally warranties its jewelry and watches for
periods extending up to three years and has a battery
replacement policy for its private label watches. The Company
accrues a liability based on its historical repair costs.
F-12
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (“SFAS”)
No. 109,
Accounting for Income Taxes.
Under
SFAS 109, deferred income taxes reflect the net tax effects
of (a) temporary differences between the carrying amounts
of assets and liabilities for financial statement reporting
purposes and the bases for income tax purposes, and
(b) operating losses and tax credit carryforwards. Deferred
income tax assets are evaluated and, if realization is not
considered to be more likely than not, a valuation allowance is
provided.
Monetary assets and liabilities denominated in foreign
currencies are translated at the rates of exchange in effect at
the balance sheet date. Other balance sheet items denominated in
foreign currencies are translated at the rates prevailing at the
respective transaction dates. Revenue and expenses denominated
in foreign currencies are translated at average rates prevailing
during the year. Gains on foreign exchange of $176,000, $503,000
and $321,000 are recorded in cost of goods sold, and $401,000,
$552,000 and $314,000 are recorded in interest on long-term debt
for the years ended March 26, 2005, March 27, 2004 and
March 29, 2003, respectively.
Birks’ functional currency is the Canadian dollar and the
reporting currency is the US dollar. The assets and liabilities
of Birks are translated for reporting purposes at exchange rates
in effect at the balance sheet dates. Revenue and expense items
are translated at average exchange rates prevailing during the
periods. The resulting gains and losses are accumulated in other
comprehensive income.
|
|
|
|
(l)
|
Stock-Based Compensation:
|
The Company applies Accounting Principles Board Opinion
No. 25,
Accounting for Stock Issued to Employees
and
related interpretations in accounting for its stock-based
compensation plans. Accordingly, compensation expense has been
recognized for such plans where variable accounting applies. Had
compensation expense for the Company’s stock-based
compensation plans been determined using the fair value method
described in SFAS No. 123,
Accounting for
Stock-Based Compensation
, as amended by
SFAS No. 148
Accounting for Stock-Based
Compensation — Transition and Disclosure
, the
Company’s net income (loss) would have been increased or
reduced to the proforma amounts presented below for the years
ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Net income (loss) as reported
|
|
$
|
1,167
|
|
|
$
|
(2,214
|
)
|
|
$
|
12,097
|
|
|
Employee compensation expense recorded
|
|
|
450
|
|
|
|
1,235
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)
|
|
|
1,617
|
|
|
|
(979
|
)
|
|
|
12,163
|
|
|
Stock-based employee compensation expense determined under
fair-value based method for all awards, net of tax
|
|
|
(447
|
)
|
|
|
(1,249
|
)
|
|
|
(531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma net income (loss)
|
|
$
|
1,170
|
|
|
$
|
(2,228
|
)
|
|
$
|
11,632
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option granted by Birks was estimated as
of the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for
grants issued in the year ended March 26, 2005 and the year
ended March 29, 2003: expected volatility of 59% and 58%,
respectively, risk-free interest rate of 3.74% and 3.06%,
respectively, expected lives of 6 years and a dividend
yield of zero for both periods. The weighted average fair values
of options granted during the year ended March 26, 2005 and
the year ended March 29, 2003 were $3.32 (CAN$4.51) and
$3.01 (CAN$4.38), respectively. No options were granted in the
year ended March 27, 2004.
F-13
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
The fair value of each of Mayor’s warrants granted by Birks
was estimated as of the date of grant in the year ended
March 29, 2003 using the Black-Scholes pricing model with
the following weighted average assumptions: expected volatility
49.2%, risk-free interest rate 4.48%, expected lives of
approximately twenty years and a dividend yield of zero. The
weighted average fair value of the warrants is $0.26.
The fair value of each option granted by Mayor’s was
estimated as of the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions
used for grants in the years ended March 26, 2005,
March 27, 2004 and March 29, 2003: expected volatility
of 94%, 97% and 90%, respectively; risk-free interest rate of
3.61%, 2.80% and 2.53%, respectively; expected lives of
approximately five years and a dividend yield of zero for all
three years presented. The weighted average fair values of
options granted during the years ended March 26, 2005,
March 27, 2004 and March 29, 2003 were $0.45, $0.51
and $0.28, respectively.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from
those estimates.
Long-lived assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.
Measurement of an impairment loss for such long-lived assets is
based on the difference between the carrying value and the fair
value of the asset. Long-lived assets to be disposed of are
reported at the lower of the carrying amount or fair value less
cost to sell.
Advertising costs are generally charged to expense as incurred.
However, certain expenses such as those related to catalogs are
expensed at the time such catalogs are shipped to recipients.
The Company and its vendors participate in cooperative
advertising programs in which the vendors reimburse the Company
for a portion of certain specific advertising costs which are
netted against advertising expense in selling, general and
administrative expenses and amounted to $3.3 million,
$2.8 million and $1.1 million in the years ended
March 26, 2005, March 27, 2004 and March 29,
2003, respectively. Advertising expense, net of vendor
cooperative advertising allowances, amounted to
$9.1 million, $10.0 million and $5.7 million in
the years ended March 26, 2005, March 27, 2004 and
March 29, 2003, respectively.
|
|
|
|
(p)
|
Pre-opening expenses:
|
Pre-opening expenses related to the opening of new and relocated
stores are expensed as incurred.
|
|
|
|
(q)
|
Comprehensive income (loss):
|
Comprehensive income (loss) includes all changes in equity
during a period except those resulting from investments by
owners and distributions to owners.
All material lessor incentive amounts on operating leases are
deferred and amortized as a reduction of rent expense over the
term of the lease. Rent expense is recorded on a straight-line
basis, which takes into
F-14
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
effect any rent escalations, rent holidays and fixturing
periods. Lease terms are from the inception of the fixturing
period until the end of the initial lease term and generally
exclude renewal periods.
|
|
|
|
(s)
|
Newly issued accounting standards:
|
In December 2004, the FASB issued SFAS No. 123(R),
Share-Based Payments
, which addresses the accounting for
share-based payment transactions in which an enterprise receives
employee services in exchange for (a) equity instruments of
the enterprise or (b) liabilities that are based on the
fair value of the enterprise’s equity instruments or that
may be settled by the issuance of such equity instruments.
SFAS No. 123(R) requires an entity to recognize the
grant-date fair-value of stock options and other equity-based
compensation issued to employees in the income statement.
SFAS No. 123(R) generally requires that an entity
account for those transactions using the fair-value-based
method, and eliminates an entity’s ability to account for
share-based compensation transactions using the intrinsic value
method of accounting in APB Opinion No. 25,
Accounting
for Stock Issued to Employees
, which was permitted under
SFAS No. 123, as originally issued.
SFAS No. 123(R) is effective for the Company as of its
fiscal year beginning March 26, 2006. The Company has not
yet determined the impact the adoption of
SFAS No. 123(R) will have on the Company’s
financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs
, to amend the guidance in Chapter 4,
Inventory Pricing
, of FASB Accounting Research
Bulletin No. 43,
Restatement and Revision of
Accounting Research Bulletins.
SFAS No. 151
clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material
(spoilage). SFAS No. 151 requires that those items be
recognized as current-period charges. Additionally,
SFAS No. 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151
is not expected to have a material effect on the Company’s
financial position or results of operations.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Non-Monetary Assets — an Amendment of
APB Opinion No. 29
, to address the accounting for
non-monetary exchanges of productive assets.
SFAS No. 153 amends APB No. 29,
Accounting for
Non-Monetary Exchanges
, which established a narrow exception
for non-monetary exchanges of similar productive assets from
fair value measurement. SFAS No. 153 eliminates that
exception and replaces it with an exception for exchanges that
do not have commercial substance. Under SFAS No. 153
non-monetary exchanges are required to be accounted for at fair
value, recognizing any gains or losses, if the fair value is
determinable within reasonable limits and the transaction has
commercial substance. It specifies that a non-monetary exchange
has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the
exchange. SFAS No. 153 is effective prospectively for
non-monetary asset exchange transactions in fiscal periods
beginning after June 15, 2005. The adoption of
SFAS No. 153 is not expected to have a material effect
on the Company’s financial position or results of
operations.
In March 2005, the FASB issued Interpretation No. 47
(“FIN 47”),
Accounting for Conditional Asset
Retirement Obligation
, to clarify that an entity must
recognize a liability for fair value of a conditional asset
retirement obligation when incurred if the liability’s fair
value can be reasonably estimated. FIN 47 also defines when
an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation.
FIN 47 is effective for fiscal years ending after
December 15, 2005. Retrospective application of interim
financial information is permitted but is not required. Early
adoption of this Interpretation is encouraged. The Company is
evaluating the impact the adoption of FIN 47 would have on
its financial position and results of operations.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections — a
replacement of APB Opinion No. 20 and FASB Statement
No. 3.
SFAS 154 replaces APB Opinion No. 20,
Accounting Changes
, and FASB Statement No. 3,
Reporting Accounting Changes in Interim Financial
F-15
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
Statements
, and changes the requirements for the
accounting for and reporting of a change in accounting
principle. SFAS 154 requires retrospective application to
prior periods’ financial statements of changes in
accounting principles, unless it is impracticable to do so, in
which case other alternatives are required. SFAS 154 is
effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. Birks
has not yet determined the impact, if any, the adoption of
SFAS No. 154 will have on its financial position or
results of operations.
Accounts receivable consist of the following as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Trade
|
|
$
|
8,756
|
|
|
$
|
7,506
|
|
|
Other
|
|
|
1,049
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,805
|
|
|
$
|
8,272
|
|
|
|
|
|
|
|
|
|
Continuity of the allowance for doubtful accounts and allowance
for sales returns is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
|
|
|
Allowance for
|
|
|
|
|
Doubtful Accounts
|
|
|
Sales Returns
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Balance March 30, 2002
|
|
$
|
50
|
|
|
$
|
47
|
|
|
Additional provision recorded
|
|
|
2,324
|
|
|
|
8,379
|
|
|
Deductions
|
|
|
(1,031
|
)
|
|
|
(8,025
|
)
|
|
|
|
|
|
|
|
|
|
Balance March 29, 2003
|
|
|
1,343
|
|
|
|
401
|
|
|
Additional provision recorded
|
|
|
221
|
|
|
|
10,075
|
|
|
Deductions
|
|
|
(478
|
)
|
|
|
(10,207
|
)
|
|
|
|
|
|
|
|
|
|
Balance March 27, 2004
|
|
|
1,086
|
|
|
|
269
|
|
|
Additional provision recorded
|
|
|
127
|
|
|
|
11,675
|
|
|
Deductions
|
|
|
(198
|
)
|
|
|
(11,643
|
)
|
|
|
|
|
|
|
|
|
|
Balance March 26, 2005
|
|
$
|
1,015
|
|
|
$
|
301
|
|
|
|
|
|
|
|
|
|
Certain sales plans relating to customers’ use of
Mayor’s credit cards provide for revolving lines of credit
under which the payment terms exceed one year. These
receivables, amounting to approximately $1.6 million and
$1.4 million at March 26, 2005 and March 27,
2004, respectively, are included in accounts receivable in the
accompanying consolidated balance sheets.
On October 1, 2002, Mayor’s sold $13.1 million of
its $18.5 million credit card portfolio to Wells Fargo on a
non-recourse basis. A charge on disposal of the portfolio of
$413,000 related to the sale is included in other items in the
consolidated statement of operations for the year ended
March 29, 2003. The Company retained gross receivables of
$5.4 million representing customers with balances greater
than an agreed upon amount and certain accounts that Wells Fargo
did not wish to purchase.
F-16
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Raw materials
|
|
$
|
4,409
|
|
|
$
|
5,907
|
|
|
Work in progress
|
|
|
1,910
|
|
|
|
1,178
|
|
|
Retail inventories and manufactured finished goods
|
|
|
130,680
|
|
|
|
127,337
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
136,999
|
|
|
$
|
134,422
|
|
|
|
|
|
|
|
|
|
Additionally, the Company held consignment inventory with a
purchase value of approximately $28,589,000 and $23,389,000 at
March 26, 2005 and March 27, 2004, respectively.
|
|
|
|
6.
|
Property and equipment:
|
The components of property and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Depreciation and
|
|
|
Net Book
|
|
|
|
|
Depreciation and
|
|
|
Net Book
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Land
|
|
$
|
5,663
|
|
|
$
|
—
|
|
|
$
|
5,663
|
|
|
$
|
4,994
|
|
|
$
|
—
|
|
|
$
|
4,994
|
|
|
Buildings
|
|
|
7,444
|
|
|
|
1,775
|
|
|
|
5,669
|
|
|
|
5,736
|
|
|
|
1,453
|
|
|
|
4,283
|
|
|
Leasehold improvements
|
|
|
26,109
|
|
|
|
14,191
|
|
|
|
11,918
|
|
|
|
24,136
|
|
|
|
10,854
|
|
|
|
13,282
|
|
|
Software and electronic equipment
|
|
|
11,739
|
|
|
|
8,211
|
|
|
|
3,528
|
|
|
|
10,158
|
|
|
|
6,543
|
|
|
|
3,615
|
|
|
Molds
|
|
|
3,401
|
|
|
|
2,186
|
|
|
|
1,215
|
|
|
|
2,818
|
|
|
|
1,707
|
|
|
|
1,111
|
|
|
Furniture and fixtures
|
|
|
3,564
|
|
|
|
2,042
|
|
|
|
1,522
|
|
|
|
3,052
|
|
|
|
1,456
|
|
|
|
1,596
|
|
|
Manufacturing equipment
|
|
|
1,055
|
|
|
|
455
|
|
|
|
600
|
|
|
|
538
|
|
|
|
336
|
|
|
|
202
|
|
|
Automobiles and trucks
|
|
|
11
|
|
|
|
9
|
|
|
|
2
|
|
|
|
37
|
|
|
|
12
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,986
|
|
|
$
|
28,869
|
|
|
$
|
30,117
|
|
|
$
|
51,469
|
|
|
$
|
22,361
|
|
|
$
|
29,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, having a cost of $13,002,000 and a net
book value of $9,484,000 as of March 26, 2005, and a cost
of $10,305,000 and a net book value of $7,603,000 as of
March 27, 2004, are under capital leasing arrangements.
Bank indebtedness consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Birks(a)
|
|
$
|
40,753
|
|
|
$
|
37,257
|
|
|
Mayor’s(b)
|
|
|
33,501
|
|
|
|
33,005
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,254
|
|
|
$
|
70,262
|
|
|
|
|
|
|
|
|
|
F-17
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
(a)
|
Birks had a loan agreement with GMAC which expired on
July 31, 2004. Effective July 1, 2004, Birks entered
into an amendment and restatement of its loan with GMAC for a
further three-year period. The principal elements of the
facility remained unchanged:
|
|
|
|
|
|
|
(i)
|
Birks may draw down on the facility to a maximum of $49,370,500
(CAN$60,000,000). A clause in Birks’ facility allows it to
draw up to $53,485,000 (CAN$65,000,000) during a certain period
of the year. The short-term borrowings bear interest at an
annual rate of prime plus 0.5%. Effective July 1, 2004, an
unused line fee of 0.25% is applicable.
|
|
|
|
|
(ii)
|
As security for borrowings under the credit facility, Birks has
pledged assets as disclosed in note 9. In addition, the
bank agreement contains customary financial covenants and other
conditions.
|
|
|
|
|
(iii)
|
Should Birks terminate the agreement prior to July 31,
2007, Birks has committed to pay the lender fees of $617,000
(CAN$750,000), except if:
|
|
|
|
|
|
|
•
|
Approximately $16,457,000 (CAN$20,000,000) of new funds (net of
all investment banker, underwriter, brokerage or other fees and
costs associated therewith) have been received by Birks either
as new loans subordinated in favor of the lender or to any
lender or as newly issued capital stock of Birks; and
|
|
|
|
|
•
|
The lender has been furnished with complete details of any bona
fide, legitimate unrelated offer to replace Birks financing and
the lender does not agree to match the terms and conditions of
such offer within fourteen days of receipt of such details.
|
The information concerning Birks’ bank indebtedness is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
CAN
|
|
|
US
|
|
|
CAN
|
|
|
US
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Maximum borrowings outstanding during the year
|
|
$
|
62,601
|
|
|
$
|
52,495
|
|
|
$
|
64,049
|
|
|
$
|
49,106
|
|
|
Average outstanding balance during the year
|
|
$
|
51,026
|
|
|
$
|
39,920
|
|
|
$
|
55,140
|
|
|
$
|
40,763
|
|
|
Weighted average interest rate for the year
|
|
|
4.51
|
%
|
|
|
4.51
|
%
|
|
|
5.28
|
%
|
|
|
5.28
|
%
|
|
Effective interest rate at year-end
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
|
|
4.5
|
%
|
|
|
4.5
|
%
|
|
|
|
|
(b)
|
As of March 26, 2005, Mayor’s had a $58 million
working capital credit facility with Fleet Retail Group LLC
(formerly known as Fleet Retail Finance) and GMAC and a
$12.7 million junior secured term loan with Back Bay
Capital. The junior secured term loan is included in long-term
debt (see note 9). Both of the debt facilities have a
maturity date of August 20, 2006 and are collateralized by
substantially all of Mayor’s assets. All borrowings under
the working capital facility are considered bank indebtedness,
due to the fact that the borrowing availability is based on
certain inventory and accounts receivable balances which are
short-term in nature. On September 7, 2004, Mayor’s
entered into a Fourth Amendment to the working capital facility
and the junior secured term loan (the “Amended Credit
Agreement”). The Amended Credit Agreement provides for,
among other things, an extended maturity date to August 20,
2006, a 1.25% reduction of interest on the junior secured term
loan, an interest reduction on the Fleet Retail Group LLC-GMAC
portion of the credit facility, the elimination of two financial
covenants and the increase to $4.5 million in the capital
expenditures allowed pursuant to the sole remaining financial
covenant which is measured annually. Availability under the
working capital facility is determined based upon a percentage
formula applied to certain inventory and accounts receivable as
allowed by an amendment on February 20, 2004, and has
certain restrictions regarding borrowing availability. The
interest rate under the working capital facility as of
March 26, 2005 was 6.25% (prime plus 0.5%). On
March 4, 2005, the capital expenditure limit was further
increased to $5,000,000 per fiscal year. Mayor’s was
in compliance with the capital expenditure covenant for 2005.
|
F-18
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
The junior secured term loan currently bears an effective
interest rate of 12.75% and is subject to similar restrictions
and covenants as the working capital facility, including the
capital expenditure covenant, as well as certain prepayment
penalties.
|
After taking into consideration the foregoing borrowing
restrictions, Mayor’s had approximately $47.4 million
of borrowing capacity under its working capital facility and
term loan at March 26, 2005 and, after netting the
outstanding borrowings of $33.5 million and letter of
credit commitments of $550,000, Mayor’s had excess
borrowing capacity of approximately $13.3 million.
On April 29, 2005, the Company paid down $1 million
of the principal balance of the junior secured term loan without
any prepayment penalty.
On May 3, 2005, the banking facilities were further
amended to allow for the interest rate of Mayor’s revolving
credit facility to be based on either a prime rate plus a
specified margin dependent on the level of excess borrowing
availability, or a LIBOR based rate (“Eurodollar”)
plus a specified margin, based on the level of borrowing
availability, at Mayor’s election.
Information concerning Mayor’s credit facility follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Maximum borrowings outstanding during the year
|
|
$
|
48,417
|
|
|
$
|
39,955
|
|
|
Average outstanding balance during the year
|
|
$
|
35,178
|
|
|
$
|
31,004
|
|
|
Weighted average interest rate for the year
|
|
|
5.6
|
%
|
|
|
6.3
|
%
|
|
Effective interest rate at year-end
|
|
|
6.25
|
%
|
|
|
5.25
|
%
|
F-19
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
8.
|
Loans for leasehold improvements and term loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Loan for leasehold improvements, to a maximum of $2,469
(CAN$3,000), repayable on demand but, prior to demand, by way of
60 equal and consecutive minimum monthly capital repayments of
$41.1 (CAN$50), maturing in September 2006, bearing interest at
an annual rate of prime plus 2.5%, covered under the security
disclosed in note 9 and the leasehold improvements
|
|
$
|
408
|
|
|
$
|
831
|
|
|
Loan for leasehold improvements, to a maximum of $2,469
(CAN$3,000), repayable on demand but, prior to demand, by way of
60 equal and consecutive minimum monthly capital repayments of
$41.1 (CAN$50), maturing in September 2006, bearing interest at
an annual rate of prime plus 0.625%, covered under the security
disclosed in note 9 and the leasehold improvements.
Garantie Québec has guaranteed the lender repayment of 65%
of any loss which may be sustained by the lender in connection
with the loan in exchange for an annual fee of 2% of the
outstanding balance
|
|
|
741
|
|
|
|
1,138
|
|
|
Term loan repayable on demand but, prior to demand, by way of 60
equal and consecutive minimum monthly capital repayments of $5.5
(CAN$6.7), bearing interest at an annual rate of prime plus
2.5%, maturing in October 2005
|
|
|
38
|
|
|
|
96
|
|
|
Non-revolving demand loan, repayable in monthly capital
repayments of $1.48 (CAN$1.8), bearing interest at an
annual rate of prime plus 1%, maturing in May 2009. Certain
equipment and leasehold improvements of a store have been
pledged as security
|
|
|
75
|
|
|
|
84
|
|
|
Loan for leasehold improvements repayable on demand but, prior
to demand, by way of 60 equal and consecutive minimum monthly
capital repayments of $68.5 (CAN$83.3), maturing in December
2004, bearing interest at an annual rate of prime plus 0.375%,
covered under the security disclosed in note 9 and the
leasehold improvements. Garantie Québec has guaranteed the
lender repayment of 30% of any loss which may be sustained by
the lender in connection with this loan in exchange for an
annual fee of 1% of the outstanding balance
|
|
|
—
|
|
|
|
576
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,262
|
|
|
$
|
2,725
|
|
|
|
|
|
|
|
|
|
F-20
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
(a) Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Birks(b):
|
|
|
|
|
|
|
|
|
|
Sovereign Bank term loan, bearing interest at an annual rate of
6.75%, repayable to February 2010 in 57 monthly capital and
interest installments of $2.0, secured by Henry Birks &
Sons US Inc. equipment with a cost of $293
|
|
$
|
100
|
|
|
$
|
—
|
|
|
Term loan from La Financière du Québec, bearing
interest at an annual rate of prime plus 1.5%, repayable to June
2010 in 84 equal monthly capital repayments of $44.1 (CAN$53.6),
secured by the assets of the Company, ranking second to the
Company’s bank indebtedness, and by a $370 (CAN$450) Letter
of Credit issued by Regaluxe Investment S.à.r.l. on behalf
of Birks (note 20(d))
|
|
|
2,598
|
|
|
|
3,048
|
|
|
Subordinated loan from the Company’s parent, Regaluxe
Investment S.à.r.l., bearing annual interest, after
withholding taxes, of 12% to August 2005 and 14% thereafter,
repayable in March 2006 following its renewal by the Company for
an additional twelve months with repayment privilege subject to
the approval of the Company’s principal lender
|
|
|
2,057
|
|
|
|
1,896
|
|
|
Obligation under capital lease on land and building, bearing
annual interest of 5%, repayable in monthly capital installments
of $5.4, maturing in March 2025, secured by the property, second
position on other assets of Henry Birks & Sons US Inc.
and a guarantee by the Company subordinated to all pre-existing
debt
|
|
|
1,300
|
|
|
|
—
|
|
|
Obligations under capital leases, at annual interest rates
between 5.8% and 9.7%, secured by equipment, maturing at various
dates from June 2005 to March 2010
|
|
|
478
|
|
|
|
389
|
|
|
Obligation under capital lease on land and buildings, pursuant
to a sale-leaseback transaction (note 11). The term loan is
being amortized using an implicit annual interest rate of 10.74%
over the term of the lease of 20 years with a balloon
payment
|
|
|
12,261
|
|
|
|
11,239
|
|
|
Loan payable to Regaluxe Investment S.à.r.l., bearing
interest at 3.55% per annum, net of withholding taxes,
maturing March 1, 2006
|
|
|
169
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,963
|
|
|
|
16,884
|
|
|
Mayor’s:
|
|
|
|
|
|
|
|
|
|
Junior secured term loan (note 7(b))
|
|
|
12,668
|
|
|
|
12,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,631
|
|
|
|
29,552
|
|
|
Current portion
|
|
|
3,076
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,555
|
|
|
$
|
28,563
|
|
|
|
|
|
|
|
|
|
(b) As security for the bank indebtedness, loans for
leasehold improvements and term loans and long-term debt, Birks
has provided the lenders the following:
|
|
|
|
|
(i) general assignment of all accounts receivable and other
receivables;
|
|
|
|
|
(ii) inventory security under Section 427 of the
Canadian Bank Act and under an act respecting bills of lading,
receipts and transfers of property in stock;
|
F-21
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
(iii) general security agreements;
|
|
|
|
|
(iv) insurance on physical assets in a minimum amount
equivalent to the indebtedness, assigned to the lenders;
|
|
|
|
|
(v) a mortgage on moveable property (general) under
the Civil Code (Québec) of $65,824,000 (CAN$80,000,000), an
additional mortgage of $13,165,000 (CAN$16,000,000) and a third
mortgage of $13,165,000 (CAN$16,000,000);
|
|
|
|
|
(vi) lien on machinery, equipment and molds and
dies; and
|
|
|
|
|
(vii) the securitization and subordination of all present
and future indebtedness owing by the Company to Regaluxe
Investment S.à.r.l.
|
(c) Future minimum lease payments for capital leases
required in the following five years and thereafter are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mayor’s
|
|
|
Birks
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Year ending March:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
119
|
|
|
$
|
1,595
|
|
|
(CAN $
|
1,938
|
)
|
|
$
|
1,714
|
|
|
|
2007
|
|
|
83
|
|
|
|
1,491
|
|
|
(CAN $
|
1,812
|
)
|
|
|
1,574
|
|
|
|
2008
|
|
|
81
|
|
|
|
1,491
|
|
|
(CAN $
|
1,812
|
)
|
|
|
1,572
|
|
|
|
2009
|
|
|
56
|
|
|
|
1,488
|
|
|
(CAN $
|
1,808
|
)
|
|
|
1,544
|
|
|
|
2010
|
|
|
9
|
|
|
|
1,519
|
|
|
(CAN $
|
1,845
|
)
|
|
|
1,528
|
|
|
|
Thereafter
|
|
|
—
|
|
|
|
24,785
|
|
|
(CAN $
|
30,121
|
)
|
|
|
24,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
|
32,369
|
|
|
|
|
|
|
|
32,717
|
|
|
Less imputed interest
|
|
|
36
|
|
|
|
18,642
|
|
|
|
|
|
|
|
18,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
312
|
|
|
$
|
13,727
|
|
|
|
|
|
|
$
|
14,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Principal payments on long-term debt required in the
following five years and thereafter, including obligations under
capital leases, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mayor’s
|
|
|
Birks
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Year ending March:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
102
|
|
|
$
|
2,974
|
|
|
(CAN $
|
3,615
|
)
|
|
$
|
3,076
|
|
|
|
2007
|
|
|
12,741
|
|
|
|
650
|
|
|
(CAN $
|
790
|
)
|
|
|
13,391
|
|
|
|
2008
|
|
|
74
|
|
|
|
655
|
|
|
(CAN $
|
796
|
)
|
|
|
729
|
|
|
|
2009
|
|
|
54
|
|
|
|
661
|
|
|
(CAN $
|
803
|
)
|
|
|
715
|
|
|
|
2010
|
|
|
9
|
|
|
|
653
|
|
|
(CAN $
|
794
|
)
|
|
|
662
|
|
|
|
Thereafter
|
|
|
—
|
|
|
|
13,058
|
|
|
(CAN $
|
15,870
|
)
|
|
|
13,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,980
|
|
|
$
|
18,651
|
|
|
|
|
|
|
$
|
31,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) On September 30, 2002, the Company issued a
convertible note of $2,500,000 to a preferred shareholder,
secured by the Company’s investment in Mayor’s stock
(present and future). The note is non-interest bearing until
September 29, 2007 and bears 6% interest per annum
thereafter, payable on the principal repayment dates.
F-22
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
The note is convertible into 512,015 Class A voting shares
of the Company, at the option of the holder. Furthermore, the
holder has committed to convert concurrently with the
consummation of the merger with Mayor’s (see note 22).
If the note has not been converted by September 30, 2007,
the unpaid principal balance shall be repaid in three equal
instalments on September 30, 2007, 2008 and 2009 including
any accrued unpaid interest. Interest expense on the convertible
note is accrued based on the effective rate of 1% computed based
on the assumption that the note is not repaid or converted by
September 30, 2007.
(b) On September 30, 2002, the Company issued a
convertible note of $2,500,000 to Henry Birks and Sons Holdings
Inc. In March 2005, as a consequence of the liquidation of Henry
Birks and Sons Holdings Inc. into Birks (see note 16 (a)),
Birks issued, in replacement, a convertible note of $2,500,000.
Regaluxe Investment S.à.r.l (controlling shareholder of the
Company), secured by the Company’s investment in
Mayor’s stock (present and future). The note bears interest
at 0.25%, payable annually at each anniversary date of the note
until September 29, 2007 and bears 6.25% interest per annum
thereafter, payable on the principal repayment dates.
The note is convertible into 504,876 Class B multiple
voting shares of the Company, at the option of the holder.
Furthermore, the holder has committed to convert concurrently
with the consummation of the merger with Mayor’s (see
note 22). If the note has not been converted by
September 30, 2007, the unpaid principal balance shall be
repaid in three equal instalments on September 30, 2007,
2008 and 2009 including any accrued unpaid interest. Interest
expense on the convertible note is accrued based on the
effective rate of 1.25% computed based on the assumption that
the note is not repaid or converted by September 30, 2007.
|
|
|
|
11.
|
Sale-leaseback transaction:
|
On December 12, 2000, the Company entered into a
sale-leaseback transaction involving certain land and buildings.
The transaction resulted in gross proceeds of $9,474,000
(CAN$14,250,000 at the exchange rate on the date of the
transaction). This transaction resulted in a financing lease
with no deferred gain or loss recorded on the transaction, with
long-term debt of $9,474,000 (CAN$14,250,000) being amortized
using an implicit interest rate of 10.74% over the term of the
lease. The balance of the debt is $12,261,080 at March 26,
2005.
|
|
|
|
12.
|
Discontinued operations:
|
Mayor’s closed its store at Tysons Galleria in McLean,
Virginia in March 2003 in order to concentrate its merchandising
and marketing efforts in its core Florida and Georgia
marketplace. The closing of the store is classified as a
discontinued operation. Costs related to the discontinued
operation of $828,000 include operating losses, costs to exit
the lease, write-off of fixed assets and severance costs offset
by the write-off of deferred revenue from landlord inducements.
The net assets of the store were not significant.
|
|
|
|
13.
|
Allowance for restructuring:
|
The continuity of the allowance for restructuring of
Mayor’s included in accrued liabilities is as follows:
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Balance August 20, 2002
|
|
$
|
3,149
|
|
|
Deductions
|
|
|
(3,149
|
)
|
|
|
|
|
|
|
Balance March 29, 2003
|
|
$
|
—
|
|
|
|
|
|
|
Other items within total operating expenses for the year ended
March 26, 2005 consist primarily of $1.2 million of
income as a result of a settlement by Mayor’s of a sales
tax audit for less than the amount accrued as well as an
adjustment of other sales tax contingency estimates.
F-23
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
Other items within total operating expenses for the year ended
March 29, 2003 consist primarily of reserves by
Mayor’s related to sales tax liabilities of approximately
$1.0 million, charges of $0.4 million related to the
sale of certain of Mayor’s accounts receivable, offset by
the reversal of approximately $1.9 million of reserves
recorded by Mayor’s prior to its acquisition by Birks
related to the exit of leases for closed stores as the leases
were terminated at costs more favorable than originally
estimated.
No additional restructuring allowances were recorded in the
years ended March 26, 2005 and March 27, 2004.
|
|
|
|
14.
|
Benefit plans and stock-based compensation:
|
|
|
|
|
(a)
|
Stock option plans and arrangements:
|
(i) Birks has an employee stock option plan and has
authorized 237,907 shares or 10% of non-voting common stock
for issuance under this plan. The granting of options, the price
and the related vesting period are at the discretion of the
Board of Directors. The life of these options shall not exceed
10 years. Options vest generally pro-rata over four years.
(ii) The Company has also entered into separate agreements
to issue options to purchase 439,532 shares of common
stock (not specifically defined) of the Company to the
Company’s chief executive officer and 143,339 non-voting
common shares to a director of the Company and a director of the
parent company. The options are at prices ranging from CAN$6.00
to $7.00 per share. At March 26, 2005, all these
options are exercisable and expire over a period of ten years
from the grant date. The life of these options shall not exceed
a period of three months after service terminates, except in
certain specific situations. Effective April 1, 2005,
439,532 of these options were modified to extend the
post-termination period from three months to two years or
10 years after retirement. The compensation expense
recorded in selling, general and administrative expenses for the
year ended March 26, 2005 is $495,566 (CAN$653,107);
(March 27, 2004 - $2,857 (CAN$3,865)); (March 29,
2003 -$65,775 (CAN$101,748)).
(iii) On April 23, 2004, the Company granted to
members of its Board of Directors in lieu of directors fees and
committee attendance fees, 25,000 options to acquire non-voting
common stock of the Company for a purchase price of CAN$7.73
exercisable at any time to April 23, 2014. One director
waived the options and subsequently resigned. The option holders
are entitled to require the Company to redeem the shares at any
time that Birk’s is not a public company. The compensation
expense recorded in selling, general and administrative expenses
in 2005 is $28,342 (CAN$37,350).
The following is a summary of the activity of Birks’ stock
option plans and arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
(CAN dollars)
|
|
|
Outstanding, March 30, 2002
|
|
|
704,562
|
|
|
$
|
6.54
|
|
|
Granted
|
|
|
91,836
|
|
|
|
6.58
|
|
|
Forfeited/cancelled
|
|
|
(14,095
|
)
|
|
|
6.99
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 29, 2003
|
|
|
782,303
|
|
|
|
6.42
|
|
|
Forfeited/cancelled
|
|
|
(2,475
|
)
|
|
|
7.23
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 27, 2004
|
|
|
779,828
|
|
|
|
6.42
|
|
|
Granted
|
|
|
45,000
|
|
|
|
7.73
|
|
|
Forfeited/cancelled
|
|
|
(41,538
|
)
|
|
|
7.24
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 26, 2005
|
|
|
783,290
|
|
|
$
|
6.45
|
|
|
|
|
|
|
|
|
|
F-24
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
A summary of the status of Birks’ stock options as of
March 26, 2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Exercise Price
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(CAN dollars)
|
|
(CAN dollars)
|
|
|
$6.00
|
|
|
259,560
|
|
|
|
3.1
|
|
|
$
|
6.00
|
|
|
|
259,560
|
|
|
$
|
6.00
|
|
|
$6.25
|
|
|
292,786
|
|
|
|
3.9
|
|
|
|
6.25
|
|
|
|
292,786
|
|
|
|
6.25
|
|
|
$7.00
|
|
|
162,194
|
|
|
|
6.3
|
|
|
|
7.00
|
|
|
|
162,194
|
|
|
|
7.00
|
|
|
$7.73
|
|
|
68,750
|
|
|
|
8.0
|
|
|
|
7.73
|
|
|
|
36,587
|
|
|
|
7.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783,290
|
|
|
|
4.5
|
|
|
$
|
6.45
|
|
|
|
751,127
|
|
|
$
|
6.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) On January 31, 2003 and March 14, 2003, Birks
assigned rights to receive 4,250,000 and 500,000, respectively,
of its warrants in Mayor’s common stock to certain current
or former employees of Birks or its affiliates, who were, or
later became, employees of or provided services to Mayor’s.
The right to receive these warrants is contingent upon
fulfillment of certain time-based employment vesting
requirements. The initial exercise price of the warrants was
$0.30 per share. The warrants granted to employees are
subject to variable accounting due to their cashless exercise
feature, which requires compensation expense
(credit) calculated as the increase or decrease in
intrinsic value of the warrants, to the extent vested, based on
the change in market value of the underlying Mayor’s common
stock. Non-cash compensation expense (credit) included in
selling, general and administrative expenses for the year ended
March 26, 2005 related to these warrants was approximately
($60,200), (2004 - $1,541,700; 2003 - $0). As of March 26,
2005, the number of warrants had increased to 4,776,899, all of
which were vested, and the exercise price was $0.29 as a result
of the anti-dilution provisions contained in the warrant
agreements as described in note 2. On May 26, 2005,
Mayor’s purchased 501,348 of these warrants from one of the
holders for $150,000, the estimated fair value.
(c) In connection with its term loan agreement with
La Financière du Québec, the lender is entitled
to 75,191 options to purchase common shares of the Company at
$2.52 (CAN$3.06) per share or 99,428 options at $3.72 (CAN$4.52)
per share if the Series A preferred shares of the Company
are converted into common shares prior to the full repayment of
the term loan.
The options were issued on May 13, 2003 and each option had
a fair value of $4.29 (CAN$5.97) for a total fair value of
$323,300 (CAN$449,000). As at March 26, 2005, each option
had a fair value of $6.00 (CAN$7.29) for a total value of
$451,000 (CAN$548,000). Total compensation expense recorded in
interest on long-term debt in 2005 is $70,140 (CAN$90,119) (2004
- $39,500 (CAN$53,443)).
(d) Birks’ former parent company has granted to a
lending institution the option to purchase approximately
11,896 shares of common stock of the Company (adjusted so
as to equal 0.50% of all then issued and outstanding shares of
all classes and categories in the Company’s share capital)
for the purchase price of CAN$1.00 per share, to a maximum
of CAN$12,000, exercisable by the lending institution prior to
April 30, 2008.
On March 14, 2005, the option agreement was amended whereby
this lending institution received from the Company 46,845
options to acquire common stock of the Company for a purchase
price of CAN$0.26 per share, exercisable at any time on or
prior to April 30, 2008 and the original option was
cancelled. The fair value of the options resulted in
compensation expense of $342,483 (CAN$419,919), included in
interest on long-term debt.
F-25
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
(e)
|
Employee stock purchase plan:
|
In June 1987, the Board of Directors of Mayor’s approved an
Employee Stock Purchase Plan (“ESPP”), which permits
eligible employees, which does not include executives of
Mayor’s, to purchase common stock from Mayor’s at 85%
of its fair market value through regular payroll deductions. At
the Annual Mayor’s Stockholders Meeting for the year ended
March 29, 2003, the stockholders of Mayor’s approved
500,000 additional shares of common stock to be allocated to the
ESPP.
A total of 1,062,500 shares are reserved for issuance under
the ESPP, of which 552,174 shares have been issued as of
March 26, 2005, including 30,285 issued during the year
ended March 26, 2005, none during the year ended
March 27, 2004, and 38,452 during the period from
August 20, 2002 to March 29, 2003.
In December 1992, the Board of Directors of Mayor’s
approved the Mayor’s Jewelers, Inc. 401(k) Profit Sharing
Plan & Trust (the “Plan”), which permits
eligible employees to make contributions to the Plan on a pretax
salary reduction basis in accordance with the provisions of
Section 401(k) of the Internal Revenue Code. Mayor’s
makes a cash contribution of 25% of the employee’s pretax
contribution, up to 4% of Mayor’s employee’s
compensation, in any calendar year. The employer match amounted
to $88,633 for the year ended March 26, 2005, $74,313 for
the year ended March 27, 2004 and $44,623 for the period
from August 20, 2002 to March 29, 2003.
(g) As of March 26, 2005, Mayor’s had
3,304,523 shares of common stock available for grant to its
key employees and directors under its 1987 and 1991 Stock Option
Plans. Under these plans, the option price must be equal to the
market price of the stock on the date of the grant or, in the
case of an individual who owns 10% or more of common stock, the
minimum price must be 110% of the market price.
Options granted to date generally become exercisable from six
months to three years after the date of grant, provided that the
individual is continuously employed by Mayor’s, or in the
case of directors, remains on the Board of Directors. All
options generally expire no more than ten years after the date
of grant.
The following is a summary of the activity of Mayor’s stock
option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding August 20, 2002
|
|
|
4,074,882
|
|
|
$
|
4.04
|
|
|
Granted
|
|
|
2,650,000
|
|
|
|
0.28
|
|
|
Forfeited/cancelled
|
|
|
(366,412
|
)
|
|
|
6.56
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 29, 2003
|
|
|
6,358,470
|
|
|
|
2.33
|
|
|
Granted
|
|
|
170,000
|
|
|
|
0.70
|
|
|
Forfeited/cancelled
|
|
|
(496,673
|
)
|
|
|
5.53
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 27, 2004
|
|
|
6,031,797
|
|
|
|
2.02
|
|
|
Granted
|
|
|
80,000
|
|
|
|
0.62
|
|
|
Forfeited/cancelled
|
|
|
(1,425,834
|
)
|
|
|
4.21
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 26, 2005
|
|
|
4,685,963
|
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
F-26
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
A summary of the status of the option plans as of March 26,
2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Remaining
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.23 - $ 0.34
|
|
|
2,645,000
|
|
|
|
7.5
|
*
|
|
$
|
0.28
|
|
|
|
2,330,001
|
|
|
$
|
0.28
|
|
|
$0.35 - $ 0.52
|
|
|
45,000
|
|
|
|
8.3
|
|
|
|
0.42
|
|
|
|
43,333
|
|
|
|
0.42
|
|
|
$0.53 - $ 0.79
|
|
|
210,000
|
|
|
|
9.1
|
|
|
|
0.72
|
|
|
|
96,667
|
|
|
|
0.78
|
|
|
$0.80 - $ 1.20
|
|
|
263,333
|
|
|
|
6.8
|
|
|
|
0.94
|
|
|
|
263,333
|
|
|
|
0.94
|
|
|
$1.21 - $ 1.81
|
|
|
162,500
|
|
|
|
5.8
|
|
|
|
1.53
|
|
|
|
162,500
|
|
|
|
1.53
|
|
|
$1.82 - $ 2.73
|
|
|
705,629
|
|
|
|
3.4
|
|
|
|
2.41
|
|
|
|
705,629
|
|
|
|
2.41
|
|
|
$2.74 - $ 4.11
|
|
|
474,833
|
|
|
|
5.4
|
|
|
|
3.65
|
|
|
|
474,833
|
|
|
|
3.65
|
|
|
$4.12 - $ 6.18
|
|
|
98,002
|
|
|
|
3.5
|
|
|
|
4.68
|
|
|
|
98,002
|
|
|
|
4.68
|
|
|
$6.19 - $ 9.28
|
|
|
20,000
|
|
|
|
0.3
|
|
|
|
6.44
|
|
|
|
20,000
|
|
|
|
6.44
|
|
|
$9.29 - $13.94
|
|
|
61,666
|
|
|
|
7.2
|
|
|
|
12.99
|
|
|
|
61,666
|
|
|
|
12.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.23 - $13.94
|
|
|
4,685,963
|
|
|
|
6.5
|
|
|
$
|
1.33
|
|
|
|
4,255,964
|
|
|
$
|
1.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
1,500,000 of these options were granted to the Chief Executive
Officer and expire either after ten years or two years after
termination of employment. For purposes of the information
herein, a term of ten years is used.
|
(a) The significant items comprising the Company’s net
deferred taxes as of March 26, 2005 and March 27, 2004
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Birks
|
|
|
Mayor’s
|
|
|
Total
|
|
|
Birks
|
|
|
Mayor’s
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and tax credit carry forwards
|
|
$
|
2,889
|
|
|
$
|
28,331
|
|
|
$
|
31,220
|
|
|
$
|
305
|
|
|
$
|
27,025
|
|
|
$
|
27,330
|
|
|
|
Difference between book and tax basis of property and equipment
|
|
|
3,022
|
|
|
|
8,449
|
|
|
|
11,471
|
|
|
|
5,019
|
|
|
|
8,403
|
|
|
|
13,422
|
|
|
|
Local tax carry forwards
|
|
|
—
|
|
|
|
3,697
|
|
|
|
3,697
|
|
|
|
—
|
|
|
|
3,351
|
|
|
|
3,351
|
|
|
|
Inventory allowances
|
|
|
—
|
|
|
|
1,401
|
|
|
|
1,401
|
|
|
|
—
|
|
|
|
2,578
|
|
|
|
2,578
|
|
|
|
Other reserves not currently deductible
|
|
|
89
|
|
|
|
1,784
|
|
|
|
1,873
|
|
|
|
189
|
|
|
|
2,502
|
|
|
|
2,691
|
|
|
|
Deferred gain on sale-leaseback
|
|
|
1,606
|
|
|
|
—
|
|
|
|
1,606
|
|
|
|
1,423
|
|
|
|
—
|
|
|
|
1,423
|
|
|
|
Expenses not currently deductible
|
|
|
1,239
|
|
|
|
—
|
|
|
|
1,239
|
|
|
|
1,084
|
|
|
|
—
|
|
|
|
1,084
|
|
|
|
Other
|
|
|
143
|
|
|
|
798
|
|
|
|
941
|
|
|
|
180
|
|
|
|
848
|
|
|
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance
|
|
|
8,988
|
|
|
|
44,460
|
|
|
|
53,448
|
|
|
|
8,200
|
|
|
|
44,707
|
|
|
|
52,907
|
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(53,448
|
)
|
|
|
|
|
|
|
|
|
|
|
(52,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance increased in 2005 by $537,000, due
primarily to increased operating losses and increases in the
differences between book and tax basis of property and
equipment. The valuation allowance
F-27
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
has been recorded to reduce the net deferred tax asset to the
amount that the Company believes, after evaluating the currently
available evidence, will more likely than not be realized.
The Company’s provision (benefit) for income taxes varies
from the amount computed by applying the statutory income tax
rates for the reasons summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory rate
|
|
|
33.8
|
%
|
|
|
35.2
|
%
|
|
|
37.1
|
%
|
|
Increase in valuation allowance
|
|
|
(36.0
|
)%
|
|
|
(69.6
|
)%
|
|
|
(18.0
|
)%
|
|
Local and Federal NOL adjustments
|
|
|
(8.0
|
)%
|
|
|
44.0
|
%
|
|
|
—
|
|
|
Warrants
|
|
|
21.7
|
%
|
|
|
2.0
|
%
|
|
|
—
|
|
|
Changes in tax rates
|
|
|
(11.3
|
)%
|
|
|
(7.0
|
)%
|
|
|
3.5
|
%
|
|
Other
|
|
|
(0.2
|
)%
|
|
|
(4.6
|
)%
|
|
|
(3.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
19.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Details of the Company’s benefit for income taxes is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Current tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(989
|
)
|
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(991
|
)
|
|
Deferred tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefit for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(b) Birks has non-capital losses of $7,570,000 and
investment tax credits (“ITC’s”) of $95,000 which
expires as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Capital
|
|
|
|
|
|
|
Losses
|
|
|
ITC’s
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
2006
|
|
$
|
697
|
|
|
$
|
—
|
|
|
2007
|
|
|
250
|
|
|
|
—
|
|
|
2008
|
|
|
252
|
|
|
|
—
|
|
|
2009
|
|
|
237
|
|
|
|
—
|
|
|
2010
|
|
|
30
|
|
|
|
—
|
|
|
2012
|
|
|
—
|
|
|
|
|
|
|
2013
|
|
|
—
|
|
|
|
50
|
|
|
2014
|
|
|
46
|
|
|
|
20
|
|
|
2015
|
|
|
6,058
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,570
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
(c) Mayor’s has federal and state net operating losses
carry forward of approximately $80.4 million and
$79.9 million, respectively. Due to Section 382
limitations from the change in ownership for the year ended
March 29, 2003, the utilization of approximately
$41.3 million of the pre-acquisition net operating loss
carry forward is limited to $953,490 on an annuapl basis,
resulting in a valuation allowance of approximately
F-28
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
$23 million for pre-acquisition net operating loss carry
forwards that will more than likely not be realized. The federal
net operating loss carry forward expires beginning in fiscal
2009 through fiscal 2022 and the state net operating loss carry
forward expires beginning in fiscal 2008 through fiscal 2022.
Mayor’s also has an alternative minimum tax credit carry
forward of approximately $0.8 million to offset future
federal income taxes.
(d) Henry Birks & Sons US Inc. has non-capital
losses totaling $431,000 at March 26, 2005 which will
expire between 2020 and 2022.
(a) In March 2005, the Company merged with its parent,
Henry Birks & Sons Holdings Inc., and reorganized such
that the Company became the surviving entity. The consolidated
financial statements reflect the merger as if it occurred on
March 30, 2002. The impact of the merger was not
significant.
(b) In March 2005, the Company amended its articles of
incorporation and entered into the following transactions:
|
|
|
|
|
|
•
|
created new Class A voting shares;
|
|
|
|
|
•
|
created new Class B multiple voting shares having
substantially the same rights as the Class A voting shares
but with 10 votes per share;
|
|
|
|
|
•
|
created new Class C multiple voting shares with 100 votes
per share;
|
|
|
|
|
•
|
converted all common shares into Class A voting shares on a
1 for 1.01166 basis and, subsequently, cancelled the common
shares;
|
|
|
|
|
•
|
Regaluxe Investment S.à.r.l. and Montrolux S.A. subscribed
for Class C shares;
|
|
|
|
|
•
|
Regaluxe Investment S.à.r.l. and Montrolux S.A. transferred
their respective Class A shares of Henry Birks and Sons
Holdings Inc. to Birks for consideration equal to Class B
multiple voting shares of Birks;
|
|
|
|
|
•
|
amended the Series A preferred share conversion feature to
provide for the conversion into Class A voting shares
instead of common shares on a 1 for 1.01166 basis rounded to the
nearest whole number;
|
|
|
|
|
•
|
the Class A voting shares as well as the Series A
preferred shares held by Henry Birks and Sons Holdings Inc. were
cancelled;
|
|
|
|
|
•
|
amended the conversion feature of the convertible notes to
provide for conversion into Class A voting and Class B
multiple voting shares instead of common shares;
|
|
|
|
|
•
|
Class C shares held by Regaluxe Investment S.à.r.l.
and Montrolux S.A. were cancelled.
|
At March 26, 2005, authorized and issued capital stock of
the Company is as follows:
|
|
|
|
|
Class A voting shares, unlimited number of shares without
nominal or par value
|
|
|
|
|
Class B multiple voting shares, unlimited number of shares
without nominal or par value
|
|
|
|
|
100,000 Class C multiple voting shares
|
|
|
|
|
2,034,578 preferred shares
|
|
|
|
|
Unlimited number of non-voting common shares
|
F-29
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Total
|
|
|
Series A
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Preferred Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
Number
|
|
|
|
|
Number
|
|
|
|
|
Number
|
|
|
|
|
Number
|
|
|
|
|
|
|
of Shares
|
|
|
Amount
|
|
|
of Shares
|
|
|
Amount
|
|
|
of Shares
|
|
|
Amount
|
|
|
of Shares
|
|
|
Amount
|
|
|
of Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Balance March 30, 2002, March 29, 2003 and
March 27, 2004
|
|
|
6,313,308
|
|
|
$
|
31,405
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
6,313,308
|
|
|
$
|
31,405
|
|
|
|
2,034,578
|
|
|
$
|
10,050
|
|
|
Repurchase of shares
|
|
|
(10,290
|
)
|
|
|
(41
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,290
|
)
|
|
|
(41
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Exchange of common shares for Class A and Class B
shares
|
|
|
(6,303,018
|
)
|
|
|
(31,364
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,303,018
|
)
|
|
|
(31,364
|
)
|
|
|
—
|
|
|
|
—
|
|
|
Issuance of Class A shares in exchange for common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
85,450
|
|
|
|
336
|
|
|
|
—
|
|
|
|
—
|
|
|
|
85,450
|
|
|
|
336
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance of Class B shares in exchange for the Class A
shares of Henry Birks and Sons Holdings Inc. and cancellation of
the Series A preferred shares held by Henry Birks and Sons
Holdings Inc.
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,213,094
|
|
|
|
36,028
|
|
|
|
7,213,094
|
|
|
|
36,028
|
|
|
|
(1,012,228
|
)
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 26, 2005
|
|
|
—
|
|
|
$
|
—
|
|
|
|
85,450
|
|
|
$
|
336
|
|
|
|
7,213,094
|
|
|
$
|
36,028
|
|
|
|
7,298,544
|
|
|
$
|
36,364
|
|
|
|
1,022,350
|
|
|
$
|
5,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Series A preferred shares are convertible into
Class A common shares on a 1 to 1.01166 basis. The
Series A preferred shares have a liquidation preference at
its original issue price plus any declared but unpaid dividends,
of which there are none.
The Company leases all of its retail stores under operating
leases with the exception of one Birks location. The rental
costs are based on minimum annual rentals and a percentage of
sales. Such percentage of sales varies by location. These
contingent rents are generally less than 0.5% of total sales on
average. In addition, most leases are subject to annual
adjustment for increases in real estate taxes and common area
maintenance costs. In December 2000, the Company entered into a
sale-leaseback transaction involving certain land and buildings
(note 11).
Future minimum lease payments for the next five years and
thereafter are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mayor’s
|
|
|
Birks
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in 000’s)
|
|
|
Year ending March:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
$
|
7,102
|
|
|
$
|
5,978
|
|
|
(CAN$
|
7,266
|
)
|
|
$
|
13,080
|
|
|
|
2007
|
|
|
6,141
|
|
|
|
5,836
|
|
|
(CAN$
|
7,092
|
)
|
|
|
11,977
|
|
|
|
2008
|
|
|
5,523
|
|
|
|
5,225
|
|
|
(CAN$
|
6,349
|
)
|
|
|
10,748
|
|
|
|
2009
|
|
|
5,484
|
|
|
|
4,236
|
|
|
(CAN$
|
5,148
|
)
|
|
|
9,720
|
|
|
|
2010
|
|
|
4,332
|
|
|
|
3,267
|
|
|
(CAN$
|
3,970
|
)
|
|
|
7,599
|
|
|
|
Thereafter
|
|
|
13,135
|
|
|
|
7,134
|
|
|
(CAN$
|
8,671
|
)
|
|
|
20,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,717
|
|
|
$
|
31,676
|
|
|
|
|
|
|
$
|
73,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense for the Company was approximately
$18.8 million, including $1 million of contingent rent
for the year ended March 26, 2005, $17.4 million,
including $0.8 million of contingent rent for the year
ended March 27, 2004 and $12.8 million, including
$0.3 million of contingent rent for the year ended
March 29, 2003.
F-30
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
(a) The Company and its subsidiaries, in the normal course
of business, become involved from time to time in litigation and
claims. While the final outcome with respect to claims and legal
proceedings pending at March 26, 2005 cannot be predicted
with certainty, management believes that adequate provisions
have been recorded in the accounts where required and that the
financial impact, if any, from claims related to normal business
activities will not be material.
(b) From time to time, the Company guarantees a portion of
its private label credit card sales to its credit card vendor.
As at March 26, 2005, the amount guaranteed under such
arrangements is approximately $814,000 (2004 - $800,000). The
bad debt experience under these guarantees has been minimal and
it is not probable that the Company will be required to make
significant payments under these guarantees.
(c) The Company has employment agreements with certain
employees for varying terms through various dates, some of which
automatically renew for one-year terms as well as certain term
agreements. The contractual obligations for these agreements
aggregated to $4,067,000 as of March 26, 2005. These
agreements allow either party to terminate the employment
relationship or resign at any time. Under certain conditions, if
employment is terminated or resignation occurs, the agreements
provide for severance compensation of varying amounts and
restrict the employee from competing with the Company for
varying terms after the employment term ends. Some of these
agreements also provide for severance and other benefits under
certain conditions in the event of a change of control of
Mayor’s as defined in the agreements. The Chief Executive
Officer’s employment agreement with Mayor’s provides
that Mayor’s shall grant to the Chief Executive Officer
stock options to purchase 1,000,000 shares of
Mayor’s common stock (or any successor entity) with an
exercise price per share equal to the fair market value of a
share on April 1, 2005 (as adjusted if necessary for any
subsequent events). These options have not yet been granted to
the Chief Executive Officer as of the date of these financial
statements. If Mayor’s cannot or decides not to grant such
stock options, the Chief Executive Officer will be provided with
the equivalent after tax value of such stock options through an
alternative long-term incentive compensation plan.
(d) On December 1, 2004, Mayor’s was notified
that the Securities and Exchange Commission (“SEC”)
was conducting an informal inquiry regarding Mayor’s. The
SEC has requested documents primarily relating to the warrants
that Mayor’s issued to the Company in connection with the
Company’s equity investment in Mayor’s in August 2002.
The Company is fully cooperating with the SEC investigation.
|
|
|
|
19.
|
Segmented information:
|
The Company and its subsidiaries have two geographic segments
which operate 38 stores in eight Canadian provinces under the
Birks brand, and 28 stores in South and Central Florida and
metropolitan Atlanta, Georgia, under the Mayor’s brand, in
one industry segment, the manufacture and retail of fine
jewelry, timepieces and giftware.
F-31
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
The two segments are managed and evaluated separately based on
operating profit. The accounting policies used for each of the
segments are the same as those used for the consolidated
financial statements. Inter-segment sales are made at amounts of
consideration agreed upon between the two segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Birks
|
|
|
Mayor’s
|
|
|
Consolidation
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands of dollars)
|
|
|
Sales to external customers
|
|
$
|
96,600
|
|
|
$
|
90,825
|
|
|
$
|
78,444
|
|
|
$
|
142,701
|
|
|
$
|
125,431
|
|
|
$
|
72,868
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
239,301
|
|
|
$
|
216,256
|
|
|
$
|
151,312
|
|
|
Inter-segment sales
|
|
|
8,852
|
|
|
|
638
|
|
|
|
413
|
|
|
|
9
|
|
|
|
56
|
|
|
|
192
|
|
|
|
(8,861
|
)
|
|
|
(694
|
)
|
|
|
(605
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Depreciation and amortization of property and equipment and
intangible assets
|
|
|
3,565
|
|
|
|
3,332
|
|
|
|
2,896
|
|
|
|
1,624
|
|
|
|
1,287
|
|
|
|
580
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,189
|
|
|
|
4,619
|
|
|
|
3,476
|
|
|
Operating income (loss) from continuing operations
|
|
|
3,305
|
|
|
|
968
|
|
|
|
3,543
|
|
|
|
6,853
|
|
|
|
(1,512
|
)
|
|
|
(2,802
|
)
|
|
|
(226
|
)
|
|
|
(349
|
)
|
|
|
(63
|
)
|
|
|
9,932
|
|
|
|
(893
|
)
|
|
|
678
|
|
|
Financial costs
|
|
|
4,164
|
|
|
|
3,743
|
|
|
|
3,379
|
|
|
|
4,501
|
|
|
|
4,427
|
|
|
|
2,555
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,665
|
|
|
|
8,170
|
|
|
|
5,934
|
|
|
Extraordinary gain
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,042
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,042
|
|
|
Property and equipment
|
|
|
23,429
|
|
|
|
22,602
|
|
|
|
21,585
|
|
|
|
6,688
|
|
|
|
6,506
|
|
|
|
5,670
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,117
|
|
|
|
29,108
|
|
|
|
27,255
|
|
|
Goodwill
|
|
|
2,727
|
|
|
|
2,514
|
|
|
|
2,258
|
|
|
|
12,736
|
|
|
|
12,851
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,463
|
|
|
|
15,365
|
|
|
|
2,258
|
|
|
Additions to property and equipment
|
|
|
2,764
|
|
|
|
1,934
|
|
|
|
2,409
|
|
|
|
1,798
|
|
|
|
2,128
|
|
|
|
1,782
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,562
|
|
|
|
4,062
|
|
|
|
4,191
|
|
|
Additions to goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,124
|
|
|
|
—
|
|
|
Additions to intangible assets
|
|
|
74
|
|
|
|
14
|
|
|
|
4
|
|
|
|
—
|
|
|
|
168
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
74
|
|
|
|
182
|
|
|
|
4
|
|
|
|
|
|
20.
|
Related party transactions:
|
(a) The Company is a member of the Iniziativa S.A. group
and all related party transactions with companies under its
common control and balances are disclosed in the financial
statements except the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in 000’s)
|
|
|
Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of inventory from supplier related to preferred
shareholder
|
|
$
|
5,999
|
|
|
$
|
1,993
|
|
|
$
|
711
|
|
|
|
Purchases of inventory from a company under common control
|
|
|
—
|
|
|
|
85
|
|
|
|
200
|
|
|
|
Management fees to Iniziativa S.A. and Regaluxe Investment
S.à.r.l.
|
|
|
916
|
|
|
|
842
|
|
|
|
614
|
|
|
|
Interest expense on convertible note payable to the parent
company and preferred shareholder
|
|
|
50
|
|
|
|
50
|
|
|
|
26
|
|
|
|
Interest expense on subordinated loan from Regaluxe Investment
S.à.r.l.
|
|
|
203
|
|
|
|
7
|
|
|
|
—
|
|
|
|
Interest expense on loan payable to shareholder
|
|
|
11
|
|
|
|
22
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
Balances:
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,104,000
|
|
|
$
|
1,761,000
|
|
(b) Management fee paid by Birks to Iniziativa S.A. is
payable monthly and renewable annually.
(c) On April 22, 2004, Mayor’s entered into a
Management Consulting Services Agreement (the
“Agreement”) with Regaluxe Investment S.à.r.l.
Regaluxe is the controlling shareholder of the Company which in
turn is the controlling shareholder of Mayor’s. The initial
term of the Agreement began on May 1, 2004 and ended on
March 31, 2005. The Agreement may be renewed for additional
one-year terms by Mayor’s, subject to an annual review and
approval by the Mayor’s Corporate Governance Committee.
Effective May 1, 2005, the Agreement was renewed for an
additional year. Under the Agreement, Regaluxe is
F-32
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
to provide advisory management and corporate services to
Mayor’s for approximately $125,000 per calendar
quarter, plus out-of-pocket expenses. In the year ended
March 26, 2005, the Company paid $518,000 under this
Agreement.
(d) Regaluxe Investment S.à.r.l. issued a $370,000
(CAN$450,000) Letter of Credit to La Financière du
Québec on behalf of Birks, as a security for the term loan
from La Financière du Québec (note 9 (a)).
The Letter of Credit expires on May 19, 2006 and requires
renewal on an annual basis during the term of the loan.
(e) For the years ended March 26, 2005, March 27,
2004 and March 29, 2003, the Company incurred approximately
$148,000, $45,000 and $82,000 in legal fees to a Canadian law
firm, of which a director and chairperson of the audit committee
of the Company is a senior corporate partner.
(f) The Company retains Pheidas Project Management and
Oberti Architectural & Urban Design for project
management and architectural services. Pheidas Project
Management and Oberti Architectural & Urban Design have
been involved in almost all renovations and new stores since
1993, as well as in the renovation of the Company’s
executive offices. The principal of Pheidas Project Management
and Oberti Architectural & Urban Design is the spouse
of one of the Company’s directors. Pheidas Project
Management and Oberti Architectural & Urban Design, as
project managers and architects, charged the Company
approximately $415,000 for services rendered in the year ended
March 26, 2005, $277,000 in the year ended March 27,
2004 and $249,000 in the year ended March 29, 2003.
|
|
|
|
21.
|
Financial instruments:
|
During the year ended March 26, 2005, approximately 23.0%
(2004 - 21.5%; 2003 - 13%) of consolidated sales and 38% of
Mayor’s sales (2004 - 37%; period from August 20, 2002
to March 29, 2003 - 28.4%) were of merchandise purchased
from Mayor’s largest supplier.
|
|
|
|
(b)
|
Concentration of credit risk:
|
The Company has a diversified customer base. Credit risk results
from the possibility that a loss may occur from the failure of
another party to perform according to the terms of the contract.
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of trade
receivables. The Company regularly monitors the credit risk
exposure and takes steps to mitigate the likelihood of these
exposures resulting in actual loss. The Company’s extension
of credit is based on an evaluation of the customer’s
financial condition. Allowances are maintained for potential
credit losses consistent with the credit risk, historical
trends, general economic conditions and other information.
The majority of the Company’s borrowings are at a floating
interest rate. The Company does not use any interest rate
derivative instruments.
|
|
|
|
(d)
|
Fair value of financial instruments:
|
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of SFAS No. 107,
Disclosure About Fair
Value Financial Instruments.
The estimated fair value
amounts have been determined by the Company, using available
market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting
market data and/or estimation methodologies which may have a
material effect on the estimated fair value amounts.
F-33
HENRY BIRKS & SONS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements — (Continued)
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that would be realized in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
The Company has determined that the carrying value of its
accounts receivable and accounts payable and accrued liabilities
approximates fair values as at the balance sheet date because of
the short-term maturity of those instruments. For bank
indebtedness and loans for leasehold improvements and term loans
bearing interest at variable rates, the fair value is considered
to approximate the carrying value.
The fair value of the long-term debt and convertible notes
approximates their carrying value. The fair value was calculated
using the present value of future payments of principal and
interest discounted at the current market rates of interest
available to the Company for the same or similar debt
instruments with the same remaining maturities.
|
|
|
|
(e)
|
Commodity and currency risk:
|
The Company has exposure to market risk related to gold
purchases and foreign exchange risk. The Company periodically
enters into gold futures contracts and foreign exchange forward
contracts to economically hedge a portion of these risks. The
Company has elected not to apply hedge accounting and,
therefore, the contracts have been market to market each period,
with changes recorded in the statement of operations. Contracts
outstanding at March 26, 2005 are not significant.
On April 18, 2005, Birks and Mayor’s entered into an
Agreement and Plan of Merger and Reorganization (the
“Merger Agreement”) by and among Birks, Mayor’s
and Birks Merger Corporation, a Delaware corporation and
wholly-owned subsidiary of Birks (the “Merger Sub”),
pursuant to which the Merger Sub will be merged with and into
Mayor’s, with Mayor’s surviving and becoming a
wholly-owned subsidiary of Birks (the “Merger”).
Upon the consummation of the Merger, each outstanding share of
Mayor’s common stock not currently owned by Birks will be
converted into 0.08695 Class A voting shares of Birks. As a
result of the Merger, Mayor’s common stock will no longer
be listed for trading on the American Stock Exchange (the
“AMEX”) although Birks intends to apply to list its
Class A voting shares on the AMEX under the trading symbol
“BMJ”.
Consummation of the Merger remains subject to certain
conditions, including the approval of Mayor’s disinterested
stockholders, a registration statement with respect to
Birks’ securities being declared effective by the
Securities and Exchange Commission and the listing of
Birks’ Class A shares on the AMEX. The foregoing
description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by the provisions of
the Merger Agreement, which has previously been filed with the
Commission by Mayor’s on Form 8-K.
F-34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Mayor’s Jewelers, Inc.
We have audited the accompanying consolidated balance sheets of
Mayor’s Jewelers, Inc. and subsidiaries as of
March 26, 2005 and March 27, 2004 and the related
consolidated statements of operations, stockholders’
equity, and cash flows for the fiscal years ended March 26,
2005 and March 27, 2004. In connection with our audits of
the consolidated financial statements, we also have audited the
March 26, 2005 and March 27, 2004 financial statement
schedule listed as Schedule II. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above presented fairly, in all material respects, the
financial position of Mayor’s Jewelers, Inc. and
subsidiaries as of March 26, 2005 and March 27, 2004,
and the results of their operations and their cash flows for the
fiscal years ended March 26, 2005 and March 27, 2004
in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.
Miami, Florida
June 24, 2005
F-35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Mayor’s Jewelers, Inc.
Sunrise, Florida
We have audited the accompanying consolidated statements of
operations, stockholders’ equity, and cash flows for the
fiscal year ended March 29, 2003 of Mayor’s Jewelers,
Inc. (the “Company”). Our audits also included the
financial statement schedule listed as Schedule II as it
relates to the fiscal year ended March 29, 2003. These
financial statements and financial statement schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the results of Mayor’s
Jewelers, Inc. and Subsidiaries’ operations and their cash
flows for the fiscal year ended March 29, 2003 in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to such basic
consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth
therein.
As discussed in Note B, the consolidated financial
statements for the year ended March 29, 2003 have been
restated.
|
|
|
|
|
/s/ DELOITTE & TOUCHE LLP
|
|
|
Certified Public Accountants
|
Miami, Florida
June 6, 2003, (June 22, 2005 as to the effects of
Note B)
F-36
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in
|
|
|
|
|
thousands except share and
|
|
|
|
|
per share data)
|
|
|
ASSETS
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,220
|
|
|
$
|
1,448
|
|
|
Accounts receivable (net of allowance for doubtful accounts of
$962 and $999, at March 26, 2005 and March 27, 2004,
respectively)
|
|
|
6,936
|
|
|
|
6,446
|
|
|
Inventories
|
|
|
80,439
|
|
|
|
80,825
|
|
|
Other current assets
|
|
|
632
|
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
89,227
|
|
|
|
89,913
|
|
|
|
|
|
|
|
|
|
|
Property, net
|
|
|
13,143
|
|
|
|
14,634
|
|
|
Other assets
|
|
|
416
|
|
|
|
668
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
13,559
|
|
|
|
15,302
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
102,786
|
|
|
$
|
105,215
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
13,139
|
|
|
$
|
13,833
|
|
|
Accrued expenses
|
|
|
6,786
|
|
|
|
9,457
|
|
|
Credit facility
|
|
|
33,501
|
|
|
|
33,005
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
53,426
|
|
|
|
56,295
|
|
|
|
|
|
|
|
|
|
|
Term loan
|
|
|
12,668
|
|
|
|
12,668
|
|
|
Other long term liabilities
|
|
|
2,401
|
|
|
|
2,768
|
|
|
|
|
|
|
|
|
|
|
|
Total long term liabilities
|
|
|
15,069
|
|
|
|
15,436
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes M and N)
|
|
|
—
|
|
|
|
—
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
Series A-1 convertible preferred stock, $.001 par
value, 15,050 authorized, issued and outstanding at
March 26, 2005 and March 27, 2004, liquidation value
of $15,050,000
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $.0001 par value, 50,000,000 shares
authorized, 46,975,546 and 46,945,261 shares issued, at
March 26, 2005 and March 27, 2004, respectively
|
|
|
5
|
|
|
|
5
|
|
|
Additional paid-in capital
|
|
|
207,100
|
|
|
|
206,981
|
|
|
Accumulated deficit
|
|
|
(143,414
|
)
|
|
|
(144,102
|
)
|
|
Less: 9,983,954 shares of treasury stock, at cost
|
|
|
(29,400
|
)
|
|
|
(29,400
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
34,291
|
|
|
|
33,484
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
102,786
|
|
|
$
|
105,215
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-37
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(As restated,
|
|
|
|
|
|
|
|
|
see note B)
|
|
|
|
|
(Amounts shown in thousands except share and
|
|
|
|
|
per share data)
|
|
|
Net sales
|
|
$
|
142,710
|
|
|
$
|
125,487
|
|
|
$
|
118,391
|
|
|
Cost of sales
|
|
|
81,715
|
|
|
|
73,427
|
|
|
|
78,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
60,995
|
|
|
|
52,060
|
|
|
|
39,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses (including non-cash
compensation expense, net of $103 and $1,067 for Fiscal 2004 and
Fiscal 2003, respectively
|
|
|
53,729
|
|
|
|
52,283
|
|
|
|
53,719
|
|
|
Restructuring, asset impairments and other charges
|
|
|
(1,212
|
)
|
|
|
—
|
|
|
|
2,887
|
|
|
Depreciation and amortization
|
|
|
3,289
|
|
|
|
3,358
|
|
|
|
4,177
|
|
|
Goodwill impairment writedown
|
|
|
—
|
|
|
|
—
|
|
|
|
(615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
55,806
|
|
|
|
55,641
|
|
|
|
60,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,189
|
|
|
|
(3,581
|
)
|
|
|
(20,517
|
)
|
|
Interest and other income
|
|
|
—
|
|
|
|
184
|
|
|
|
1,433
|
|
|
Interest and other financial costs
|
|
|
(4,501
|
)
|
|
|
(4,427
|
)
|
|
|
(6,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
688
|
|
|
|
(7,824
|
)
|
|
|
(25,841
|
)
|
|
Income tax benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
(547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
688
|
|
|
|
(7,824
|
)
|
|
|
(25,294
|
)
|
|
Loss from discontinued operations, net of income tax expense of
$393 in Fiscal 2002
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
688
|
|
|
|
(7,824
|
)
|
|
|
(26,898
|
)
|
|
Preferred stock cumulative dividend
|
|
|
(100
|
)
|
|
|
(1,316
|
)
|
|
|
(872
|
)
|
|
Preferred stock beneficial conversion, value treated as a
dividend (See Note B)
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
Relative fair value of warrants, value treated as a dividend
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
Value of the increase in the Series A Preferred conversion
ratio and the additional warrants issued to Birks
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
571
|
|
|
$
|
(9,140
|
)
|
|
$
|
(35,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,968,296
|
|
|
|
26,377,886
|
|
|
|
19,568,006
|
|
|
|
Diluted
|
|
|
93,177,445
|
|
|
|
26,377,886
|
|
|
|
19,568,006
|
|
|
Income (loss) per share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.72
|
)
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share, diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.72
|
)
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-38
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Convertible
|
|
|
Common
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Preferred
|
|
|
Shares
|
|
|
Common
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Loss) Income
|
|
|
Stock
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in thousands except share data)
|
|
|
BALANCE AT MARCH 30, 2002
|
|
|
0
|
|
|
$
|
0
|
|
|
|
19,525,749
|
|
|
$
|
3
|
|
|
$
|
194,527
|
|
|
$
|
(109,380
|
)
|
|
|
|
|
|
$
|
(29,400
|
)
|
|
$
|
55,750
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26,898
|
)
|
|
$
|
(26,898
|
)
|
|
|
—
|
|
|
|
(26,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to Employee Stock Purchase Plan
|
|
|
—
|
|
|
|
—
|
|
|
|
82,561
|
|
|
|
—
|
|
|
|
23
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
23
|
|
|
Sale of Series A Convertible Preferred Stock and warrants,
net (See Note L)
|
|
|
15,050
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,552
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
13,552
|
|
|
Recognition of relative fair value of warrants (as Restated)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,539
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
3,539
|
|
|
Non-cash dividend for relative fair value of warrants (as
Restated)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
Recognition of beneficial conversion value of Series A
Convertible Preferred Stock (as Restated)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,539
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
3,539
|
|
|
Non-cash dividend for beneficial conversion feature of
Series A (as Restated)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
Recognition of the value of the increase in the Series A
Preferred conversion ratio and the additional warrants issued to
Birks (as Restated)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
441
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
441
|
|
|
Non-cash dividend for the value of the increase in the
Series A Preferred conversion ratio and the additional
warrants (as Restated)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(441
|
)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 29, 2003
|
|
|
15,050
|
|
|
|
0
|
|
|
|
19,608,310
|
|
|
|
3
|
|
|
|
208,102
|
|
|
|
(136,278
|
)
|
|
|
|
|
|
|
(29,400
|
)
|
|
|
42,427
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,824
|
)
|
|
$
|
(7,824
|
)
|
|
|
—
|
|
|
|
(7,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
17,352,997
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Non-cash compensation expense related to warrants and Birks sale
of stock (See Note L)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,067
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
1,067
|
|
|
Exchange of Series A Convertible Preferred Stock
|
|
|
(15,050
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance of Series A-1 Convertible Preferred Stock
|
|
|
15,050
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
Dividend payment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,186
|
)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(2,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 27, 2004
|
|
|
15,050
|
|
|
|
0
|
|
|
|
36,961,307
|
|
|
|
5
|
|
|
|
206,981
|
|
|
|
(144,102
|
)
|
|
|
|
|
|
|
(29,400
|
)
|
|
|
33,484
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
688
|
|
|
$
|
688
|
|
|
|
—
|
|
|
|
688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to Employee Stock Purchase Plan
|
|
|
—
|
|
|
|
—
|
|
|
|
30,285
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
16
|
|
|
Non-cash compensation (credit) related to warrants and
Birks sale of stock, net (See Note L)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
103
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
103
|
|
|
Recognition of the value of the increase in the Series A
Preferred conversion ratio and the additional warrants issued to
Birks
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
17
|
|
|
Non-cash dividend for the value of the increase in the
Series A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred conversion ratio and the additional warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 26, 2005
|
|
|
15,050
|
|
|
$
|
0
|
|
|
|
36,991,592
|
|
|
$
|
5
|
|
|
$
|
207,100
|
|
|
$
|
(143,414
|
)
|
|
|
|
|
|
$
|
(29,400
|
)
|
|
$
|
34,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-39
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(As restated,
|
|
|
|
|
|
|
|
|
see note B)
|
|
|
|
|
(Amounts shown in thousands)
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
688
|
|
|
$
|
(7,824
|
)
|
|
$
|
(26,898
|
)
|
|
Deduct loss from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
688
|
|
|
|
(7,824
|
)
|
|
|
(25,294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,289
|
|
|
|
3,358
|
|
|
|
4,177
|
|
|
|
Amortization of debt costs
|
|
|
604
|
|
|
|
432
|
|
|
|
531
|
|
|
|
Provision for doubtful accounts
|
|
|
274
|
|
|
|
269
|
|
|
|
2,785
|
|
|
|
Goodwill impairment writedown
|
|
|
—
|
|
|
|
—
|
|
|
|
(615
|
)
|
|
|
Closing stores asset writedown
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,935
|
)
|
|
|
Write-off of deferred financing costs
|
|
|
—
|
|
|
|
—
|
|
|
|
2,055
|
|
|
|
Non-cash compensation expense related to warrants and Birks sale
of stock, net
|
|
|
103
|
|
|
|
1,067
|
|
|
|
—
|
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of private label credit card receivables
|
|
|
—
|
|
|
|
—
|
|
|
|
12,147
|
|
|
|
Accounts receivable
|
|
|
(764
|
)
|
|
|
(938
|
)
|
|
|
3,148
|
|
|
|
Inventories
|
|
|
386
|
|
|
|
(4,072
|
)
|
|
|
615
|
|
|
|
Other assets
|
|
|
567
|
|
|
|
1,770
|
|
|
|
(1,517
|
)
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(694
|
)
|
|
|
35
|
|
|
|
2,598
|
|
|
|
Accrued expenses and other long term liabilities
|
|
|
(3,038
|
)
|
|
|
1,745
|
|
|
|
1,527
|
|
|
|
Accrued restructuring
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
|
|
1,415
|
|
|
|
(4,158
|
)
|
|
|
(6,332
|
)
|
|
Net cash used in discontinued operations
|
|
|
—
|
|
|
|
(527
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
1,415
|
|
|
|
(4,685
|
)
|
|
|
(6,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of fixed assets
|
|
|
18
|
|
|
|
74
|
|
|
|
5,547
|
|
|
|
Capital expenditures, net
|
|
|
(1,816
|
)
|
|
|
(2,194
|
)
|
|
|
(2,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,798
|
)
|
|
|
(2,120
|
)
|
|
|
3,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under line of credit
|
|
|
143,593
|
|
|
|
136,434
|
|
|
|
160,913
|
|
|
|
Line of credit repayments
|
|
|
(143,097
|
)
|
|
|
(126,712
|
)
|
|
|
(172,656
|
)
|
|
|
Principal borrowings on term loan
|
|
|
—
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
Principal payment on term loan
|
|
|
—
|
|
|
|
(2,000
|
)
|
|
|
—
|
|
|
|
Proceeds from issuance of preferred convertible stock and
warrants, net
|
|
|
—
|
|
|
|
—
|
|
|
|
13,552
|
|
|
|
Proceeds from sale of stock under employee purchase plans
|
|
|
16
|
|
|
|
—
|
|
|
|
23
|
|
|
|
Payment of commitment fee
|
|
|
(357
|
)
|
|
|
(341
|
)
|
|
|
(650
|
)
|
|
|
Dividend paid to preferred stockholders
|
|
|
—
|
|
|
|
(2,186
|
)
|
|
|
—
|
|
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
155
|
|
|
|
7,195
|
|
|
|
1,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(228
|
)
|
|
|
390
|
|
|
|
(1,704
|
)
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,448
|
|
|
|
1,058
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,220
|
|
|
$
|
1,448
|
|
|
$
|
1,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,597
|
|
|
$
|
4,383
|
|
|
$
|
4,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes received
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquired with debt
|
|
$
|
311
|
|
|
$
|
130
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value of 17,352,997 shares of common stock issued
pursuant to cashless exercise of warrants
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash dividend for relative fair value of warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash dividend for beneficial conversion feature of Series a
Convertible Preferred Stock
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash dividend for the value of the increase in the Series a
Preferred conversion ratio and the additional warrants issued to
Birks
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-40
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Years Ended March 26, 2005, March 27, 2004
and March 29, 2003
Mayor’s Jewelers, Inc. and subsidiaries
(“Mayor’s” or the “Company”) is
primarily engaged in the sale of jewelry, timepieces and other
consumer products, within Mayor’s luxury jewelry stores.
The Company operates 28 stores with locations in South and
Central Florida and metropolitan Atlanta, Georgia.
The Company’s consolidated financial statements are
prepared on a 52/53-week retail fiscal year basis. The fifty-two
weeks ended March 26, 2005, March 27, 2004 and
March 29, 2003 are referred to herein as Fiscal 2004,
Fiscal 2003 and Fiscal 2002, respectively.
Subsequent to the issuance of the Company’s financial
statements, management determined that the consolidated
financial statements for the fiscal year ended March 29,
2003 should be restated to properly account for the following:
The Company corrected the allocation of the proceeds from the
investment from Henry Birks & Sons Inc,
(“Birks”) to a relative fair value basis which
resulted in the allocation of $11.51 million to the
Series A Preferred and $3.539 million to the warrants
from $11.25 million and $3.80 million, respectively,
previously based on a residual value method. Additionally, the
fair value assigned to the warrants is being recognized as a
dividend to Birks and the previously recognized beneficial
conversion feature of $3.80 million is reduced to
$3.54 million as a result of the change in valuation of the
warrants. The dividends have a neutral effect on the
Company’s total stockholders’ equity; however they
increase the net loss attributed to common stockholders for the
year ended March 29, 2003.
The Company recognized as a non-cash dividend to Birks, the
value of the increase in the conversion ratio of the number of
common stock shares Birks would receive upon conversion of the
Series A Preferred into common stock and the increase in
warrants issued to Birks that were not granted to certain
current or former employees of Birks or its affiliates, who
were, or later became employees of or provided services to the
Company, as a result of the anti-dilution provisions of the
Series A Preferred and the warrants. The dividends have a
neutral effect on the Company’s total stockholders’
equity; however they increase the net loss attributed to common
stockholders for the year ended March 29, 2003.
The Company reclassified the net proceeds received from the sale
of private label credit card receivables from financing
activities to operating activities in the consolidated statement
of cash flows for the year ended March 29, 2003.
The following information presents a summary of the impact of
the adjustments on the Company’s financial information as
previously reported in Amendment No. 1, Form 10-K/ A
for the year ended March 29, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
March 29, 2003
|
|
|
|
|
|
|
|
|
|
(As Previously
|
|
|
|
|
|
|
Reported)
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(26,898
|
)
|
|
$
|
(26,898
|
)
|
|
Preferred stock cumulative dividend
|
|
|
(872
|
)
|
|
|
(872
|
)
|
|
Preferred stock beneficial conversion, value treated as dividend
|
|
|
(3,797
|
)
|
|
|
(3,539
|
)
|
|
Relative fair value of warrants, value treated as dividend
|
|
|
—
|
|
|
|
(3,539
|
)
|
|
Value of the increase in the Series A Preferred conversion
ratio and the additional warrants issued to Birks
|
|
|
—
|
|
|
|
(441
|
)
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(31,567
|
)
|
|
$
|
(35,289
|
)
|
|
|
|
|
|
|
|
|
|
|
Loss per share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(1.53
|
)
|
|
$
|
(1.72
|
)
|
|
|
|
Discontinued operations
|
|
|
(0.08
|
)
|
|
|
0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.61
|
)
|
|
$
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
F-41
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
March 29, 2003
|
|
|
|
|
|
|
|
|
|
(As Previously
|
|
|
|
|
|
|
Reported)
|
|
|
(As Restated)
|
|
|
|
|
|
|
|
|
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of private label credit card receivables
|
|
|
—
|
|
|
|
12,147
|
|
|
Net cash (used in) provided by continuing operations
|
|
|
(18,479
|
)
|
|
|
(6,332
|
)
|
|
Net cash (used in) provided by operating activities
|
|
|
(18,607
|
)
|
|
|
(6,460
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sale of private label credit card receivables
|
|
|
12,147
|
|
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
|
|
13,370
|
|
|
|
1,223
|
|
|
|
|
|
C.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
|
(1)
Principles of Consolidation
— The
consolidated financial statements include the accounts of
Mayor’s and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
the consolidation.
(2)
Significant Estimates
— The
preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
(3)
Concentration of Risk
— During Fiscal
2004, merchandise supplied by Rolex, the Company’s largest
supplier, accounted for approximately 38% of Mayor’s total
net sales.
(4)
Revenue Recognition
— Sales are
recognized at the point of sale when merchandise is taken by or
shipped to a customer. Shipping and handling fees billed to
customers are included in net sales. Revenues from gift
certificate sales and store credits are recognized upon
redemption. Sales of consignment merchandise are recognized at
such time as the merchandise is sold and recorded on a gross
basis in accordance with Emerging Issues Task Force
(“EITF”) 99-19 because Mayor’s is the primary
obligor of the transaction, has general latitude on setting the
price, has discretion as to the suppliers, is involved in the
selection of the product and has inventory loss risk. Sales are
reported net of returns. Mayor’s generally gives its
customers the right to return merchandise purchased by them
within 30 days for jewelry and 10 days for timepieces
and records an accrual at the time of sale for the effect of the
estimated returns.
(5)
Cash and Cash Equivalents
— The
Company considers all highly liquid investments purchased with
original maturities of three months or less and amounts
receivable from credit card issuers to be cash equivalents.
Amounts receivable from credit card issuers are typically
converted to cash within 2 to 4 days of the original sales
transaction. These amounts totaled approximately
$1.1 million as of March 26, 2005 and March 27,
2004.
(6)
Accounts Receivable
— Accounts
receivable arise primarily from customers’ use of the
Mayor’s credit cards. Several installment sales plans are
offered which vary as to repayment terms and finance charges
assessed. Finance charges, when applicable, accrue at rates
ranging from 9.9% to 18% per annum. The Company maintains
allowances for doubtful accounts for estimated losses resulting
from the inability of its customers to make required payments.
Finance charge income was $0.2 million for Fiscal 2004,
$0.3 million for Fiscal 2003 and $1.5 million for
Fiscal 2002 and is recorded in net sales in the accompanying
Consolidated Statements of Operations.
F-42
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Certain sales plans of Mayor’s provide for revolving lines
of credit and/or installment plans under which the payment terms
may exceed one year. In accordance with industry practice, these
receivables are included in current assets in the accompanying
Consolidated Balance Sheets. The portion of these receivables as
of March 26, 2005 that is not scheduled to be collected
during the year ending March 25, 2006 is approximately
$1.6 million or 22% of Mayor’s chargecard receivable.
(7)
Inventories
— Mayor’s inventories
are valued using the first in, first out method
(“FIFO”). The Company records provisions for lower of
cost or market, damaged goods, and slow-moving inventory. The
cost of inbound freight is included in the carrying value of the
inventories. Purchase discounts are recorded as a reduction of
inventory cost and are recorded to cost of sales as the items
are sold. Mark down dollars received from vendors are recorded
as a reduction of inventory costs to the specific items to which
they apply and are recognized in cost of sales once the items
are sold. Other vendor allowances, primarily related to the
achievement of certain milestones, are infrequent and
insignificant and are recognized upon achievement of the
specified milestone in cost of sales. The changes in the level
of discounts between comparative periods are not significant.
(8)
Property
— Property is stated at cost
net of accumulated depreciation and is depreciated using the
straight-line method over the following estimated useful lives
of the respective assets:
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Asset
|
|
Useful Life
|
|
|
|
|
|
|
|
Furniture and fixtures
|
|
|
5 years
|
|
|
Automobiles and trucks
|
|
|
3 years
|
|
|
Computer hardware and software
|
|
|
3 years
|
|
Leasehold improvements are amortized over the shorter of the
term of the respective lease or the useful life of the asset.
Maintenance and repair costs are charged to selling, general and
administrative expenses as incurred while expenditures for major
renewals and improvements are capitalized. Upon the disposition
of property, the accumulated depreciation is deducted from the
original cost, and any gain or loss is recorded in the
Consolidated Statements of Operations.
(9)
Leases —
Lessor incentive amounts on
operating leases are deferred and amortized as a reduction of
rent expense over the term of the lease. Rent expense is
recorded on a straight-line basis, which takes into effect any
rent escalations, rent holidays and fixturing periods. Lease
terms are from the inception of the fixturing period until the
end of the initial term and exclude renewal periods.
(10)
Income Taxes
— The Company accounts
for income taxes in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 109,
“Accounting for Income Taxes.” Under SFAS 109,
deferred income taxes reflect the net tax effects of
(a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
bases for income tax purposes, and (b) operating loss and
tax credit carryforwards.
(11)
Long-lived Assets
— Long-lived assets
held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. Measurement
of an impairment loss for such long-lived assets would be based
on the fair value of the asset. Long-lived assets to be disposed
of are reported generally at the lower of the carrying amount or
fair value less cost to sell.
(12)
Deferred Financing Costs
— The
Company amortizes deferred financing costs incurred in
connection with its financing agreements using the effective
interest method over the related period. Such deferred costs are
included in other assets in the accompanying Consolidated
Balance Sheets.
F-43
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(13)
Cost of Sales
— Cost of sales
includes direct inbound freight, direct labor related to repair
services, design, creative and the jewelry studio, inventory
shrink, inventory thefts, and jewelry, watch and giftware boxes.
Indirect freight including inter-store transfers, receiving
costs, distribution costs, warehousing costs and quality control
costs are included in selling, general and administrative
expenses.
(14)
Advertising Costs
— Advertising costs
are charged to expense as incurred. The Company and its vendors
participate in cooperative advertising programs in which the
vendors reimburse the Company for a portion of certain specific
advertising costs which are netted against advertising expense
in the selling, general and administrative expenses within the
Consolidated Statements of Operations and amounted to
$2.7 million, $2.3 million and $1.5 million in
Fiscal 2004, Fiscal 2003 and Fiscal 2002, respectively.
Advertising expense, net of vendor cooperative advertising
allowances, amounted to $5.2 million, $4.5 million and
$3.1 million in Fiscal 2004, Fiscal 2003 and Fiscal 2002,
respectively.
(15)
Pre-opening Expenses
— Pre-opening
expenses related to the opening of new and relocated stores are
expensed as incurred.
(16)
Comprehensive Income (Loss)
—
Comprehensive income (loss) includes all changes in equity
during a period except those resulting from investments by
owners and distributions to owners.
(17)
Reclassifications
— Certain amounts
in the prior years’ financial statements have been
reclassified to conform to the current year presentation.
(18)
Accounting for Stock-Based
Compensation
— The Company applies Accounting
Principles Board Opinion No. 25,
“Accounting for
Stock Issued to Employees,”
and related interpretations
in accounting for its stock-based compensation plans.
Accordingly, no stock-based compensation cost has been
recognized for such plans. Had compensation cost for the
Company’s stock-based compensation plans been determined
using the fair value method described in SFAS No. 123,
“Accounting for Stock-Based Compensation,”
as
amended by SFAS No. 148
“Accounting for
Stock-Based Compensation — Transition and
Disclosure,”
at the grant dates for awards granted in
Fiscal 2004, Fiscal 2003 and Fiscal 2002 under these plans, the
Company’s net income (loss) attributable to common stock
and income (loss) per share would have been reduced to the
proforma amounts presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
571
|
|
|
$
|
(9,140
|
)
|
|
$
|
(29,963
|
)
|
|
Discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders as reported
|
|
|
571
|
|
|
|
(9,140
|
)
|
|
|
(31,567
|
)
|
|
Adjust for non-cash compensation expense for warrants recorded
pursuant to APB 25
|
|
|
(32
|
)
|
|
|
867
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income (loss)
|
|
|
539
|
|
|
|
(8,273
|
)
|
|
|
(31,567
|
)
|
|
Stock-based employee compensation expense determined under
fair-value-based method for all awards, net of tax
|
|
|
(232
|
)
|
|
|
(1,495
|
)
|
|
|
(733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma net income (loss)
|
|
$
|
307
|
|
|
$
|
(9,768
|
)
|
|
$
|
(32,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.53
|
)
|
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
F-44
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
Fiscal
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.53
|
)
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.08
|
)
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.61
|
)
|
|
Proforma basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.01
|
|
|
$
|
(0.37
|
)
|
|
$
|
(1.57
|
)
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.37
|
)
|
|
$
|
(1.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.00
|
|
|
$
|
(0.37
|
)
|
|
$
|
(1.57
|
)
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.00
|
|
|
$
|
(0.37
|
)
|
|
$
|
(1.65
|
)
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option grant was estimated as of the date
of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in Fiscal
2004, Fiscal 2003 and Fiscal 2002: expected volatility of 94%,
97% and 90%, respectively, risk-free interest rate of 3.61%,
2.80% and 2.53%, respectively, expected lives of approximately
five years and a dividend yield of zero for all three fiscal
years presented. The weighted average fair values of options
granted during Fiscal 2004, Fiscal 2003 and Fiscal 2002
were $0.45, $0.51 and $0.28, respectively. The fair value of
each warrant grant was estimated as of the date of grant (see
Note L) using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants:
expected volatility of 49.2%, risk-free interest rate of 4.48%,
expected lives of approximately twenty years and a dividend
yield of zero. The weighted average fair values of warrants
granted during Fiscal 2002 were $0.26.
(19)
Newly Issued Accounting Standards
—
In December 2004, the Financial Accounting Standards Board
(“FASB”) issued SFAS No. 123(R)
“Share-Based Payment” which addresses the accounting
for share-based payment transactions in which an enterprise
receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are
based on the fair value of the enterprise’s equity
instruments or that may be settled by the issuance of such
equity instruments. SFAS No. 123(R) requires an entity
to recognize the grant-date fair-value of stock options and
other equity-based compensation issued to employees in the
income statement. SFAS No. 123(R) generally requires
that an entity account for those transactions using the
fair-value-based method, and eliminates an entity’s ability
to account for share-based compensation transactions using the
intrinsic value method of accounting in APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” which was
permitted under SFAS No. 123, as originally issued.
SFAS No. 123(R) is effective for the Company for the
first quarter of Fiscal 2006 which ends on June 24, 2006.
The impact of the adoption of SFAS No. 123(R) on the
financial position or results of operations of Mayor’s has
not yet been determined.
In November 2004, the FASB issued SFAS No. 151,
“Inventory Costs,” to amend the guidance in
Chapter 4, “Inventory Pricing,” of FASB
Accounting Research Bulletin No. 43, “Restatement
and Revision of Accounting Research Bulletins.”
SFAS No. 151 clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). The Statement requires that those
items be recognized as current-period charges. Additionally,
SFAS No. 151 requires that allocation of fixed
production overheads to the costs of conversion be based on the
normal capacity of the production facilities.
SFAS No. 151 is effective for fiscal years beginning
after June 15, 2005. The adoption of SFAS No. 151
is not expected to have a material effect on the financial
position or results of operations of Mayor’s.
F-45
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Non-Monetary Assets — an Amendment
of APB Opinion No. 29,” to address the accounting for
non-monetary exchanges of productive assets.
SFAS No. 153 amends APB No. 29, “Accounting
for Non-monetary Exchanges,” which established a narrow
exception for non-monetary exchanges of similar productive
assets from fair value measurement. SFAS No. 153
eliminates that exception and replaces it with an exception for
exchanges that do not have commercial substance. Under
SFAS No. 153 non-monetary exchanges are required to be
accounted for at fair value, recognizing any gains or losses, if
the fair value is determinable within reasonable limits and the
transaction has commercial substance. It specifies that a
non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as
a result of the exchange. SFAS No. 153 is effective
prospectively for non-monetary asset exchange transactions in
fiscal periods beginning after June 15, 2005. The adoption
of SFAS No. 153 is not expected to have a material
effect on the financial position or results of operations of
Mayor’s.
In March 2005, the FASB issues Interpretation No. 47
(“FIN 47”), Accounting for Conditional Asset
Retirement Obligation to clarify that an entity must recognize a
liability for the fair value of a conditional asset retirement
obligation when incurred if the liability’s fair value can
be reasonably estimated. FIN 47 also defines when an entity
would have sufficient information to reasonably estimate the
fair value of an asset retirement obligation. FIN 47 is
effective no later than the end of fiscal years ending after
December 15, 2005. Retrospective application of interim
financial information is permitted but is not required. Early
adoption of this Interpretation is encouraged. The Company is
evaluating the impact the adoption of FIN 47 would have on
the financial position and result of operations of Mayor’s.
(20)
Earnings (Loss) Per Share
— Earnings
(loss) per share is calculated based upon the weighted average
number of shares outstanding during each period. Diluted
earnings (loss) per share is not presented as the assumed
conversion of options and warrants would be anti-dilutive.
|
|
|
|
D.
|
RESTRUCTURING, ASSET IMPAIRMENTS AND OTHER CHARGES:
|
Other charges for Fiscal 2004 are comprised of approximately
($1.2) million of income as a result of a settlement of a
sales tax audit for less than the amount accrued as well as the
adjustment of other sales tax contingency estimates.
Restructuring, asset impairments and other charges recorded in
Fiscal 2002 consist of charges primarily for professional fees
related to the execution of the previously mentioned
Restructuring Plan of approximately $1.9 million, reserves
related to sales tax liabilities of approximately
$1.9 million, severance costs related to the departure of
the former Chief Executive Officer of approximately
$0.5 million and charges related to the sale of certain of
the Company’s accounts receivable of approximately
$0.4 million. Additionally, approximately $1.9 million
of reserves recorded in Fiscal 2002 related to the exit of
leases for closed stores were reversed to income due to the fact
that the leases were terminated at costs more favorable than
originally estimated.
|
|
|
|
E.
|
GOODWILL IMPAIRMENT WRITEDOWN:
|
The goodwill impairment income of $0.6 million for Fiscal
2002 relates to the reversal of excess tax reserves due to a
settlement with the Internal Revenue Service for less than the
amount reserved. The tax matters existed prior to the
acquisition of Mayor’s Jewelers, Inc. and would have been
reversed against goodwill, however due to the fact that the
goodwill was written off in Fiscal 2001 the reversal is
classified in the same line item as the impairment.
F-46
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
F.
|
DISCONTINUED OPERATIONS:
|
The Company closed its store at Tysons Galleria in McLean,
Virginia in March 2003 in order to concentrate its merchandising
and marketing efforts in its core Florida and Georgia
marketplace. In accordance with SFAS No. 144, the
closing of the store is classified as a discontinued operation.
Net losses for discontinued operations related to this store for
Fiscal 2002 were $0.4 million. The loss on disposal of the
store due to closure was approximately $1.2 million and
related primarily to costs to exit the lease, write-off of fixed
assets and severance offset by the write-off of deferred revenue
from landlord inducements. Store sales for Fiscal 2002 were
$1.5 million.
|
|
|
|
G.
|
SALE OF ACCOUNTS RECEIVABLE:
|
On October 1, 2002, the Company sold, in accordance with
SFAS No. 140, $13.1 million of its
$18.5 million credit card portfolio to Wells Fargo on a
non-recourse basis. A charge on disposal of the portfolio of
$413,000 related to the sale is included in other charges in the
Consolidated Statement of Operations for Fiscal 2002. The
proceeds from the sale are included in operating cash flows in
the Fiscal 2002 Consolidated Statement of Cash Flows. The
Company retained gross receivables of $5.4 million
representing customers with balances greater than an agreed upon
amount and certain accounts that Wells Fargo did not wish to
purchase. The Company continues to provide Wells Fargo the
opportunity to purchase accounts receivable at a discount and on
a non-recourse basis going forward.
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Company
|
|
|
|
|
Owned
|
|
|
Owned
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in
|
|
|
|
|
thousands)
|
|
|
Raw materials
|
|
$
|
893
|
|
|
$
|
1,415
|
|
|
Finished goods
|
|
|
79,546
|
|
|
|
79,410
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,439
|
|
|
$
|
80,825
|
|
|
|
|
|
|
|
|
|
In addition, the Company held inventory on consignment at
March 26, 2005 and March 27, 2004 with a cost of
approximately $14,198,000 and $11,460,000, respectively.
The components of property are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in
|
|
|
|
|
thousands)
|
|
|
Furniture and fixtures
|
|
$
|
5,701
|
|
|
$
|
5,532
|
|
|
Leasehold improvements
|
|
|
27,951
|
|
|
|
27,266
|
|
|
Computer hardware and software
|
|
|
7,020
|
|
|
|
6,734
|
|
|
Automobiles and trucks
|
|
|
15
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,687
|
|
|
|
39,615
|
|
|
Less accumulated depreciation
|
|
|
(27,544
|
)
|
|
|
(24,981
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,143
|
|
|
$
|
14,634
|
|
|
|
|
|
|
|
|
|
F-47
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Depreciation expense for Fiscal 2004, Fiscal 2003 and Fiscal
2002 was approximately $3.3 million, $3.4 million and
$4.2 million, respectively.
|
|
|
|
J.
|
TERM LOAN AND CREDIT FACILITY:
|
As of March 26, 2005, the Company had a $58 million
working capital credit facility with Fleet Retail Group LLC
(formerly known as Fleet Retail Finance) and GMAC and a
$12.7 million junior secured term loan with Back Bay
Capital. On April 29, 2005, the Company paid down
$1 million of the principal balance of the junior secured
term loan without any prepayment penalty. Both of the debt
facilities have a maturity date of August 20, 2006 and are
collateralized by substantially all of the Company’s
assets. On September 7, 2004, the Company entered into a
Fourth Amendment to the working capital facility and the junior
secured term loan (the “Amended Credit Agreement”).
The Amended Credit Agreement provides for, among other things,
an extended maturity date to August 20, 2006, a 1.25%
reduction of interest on the junior secured term loan, an
interest reduction on the Fleet Retail Group LLC-GMAC portion of
the credit facility, the elimination of two financial covenants
and the increase in the capital expenditures allowed pursuant to
the sole remaining financial covenant to $4.5 million which
is measured annually. Availability under the working capital
facility is determined based upon a percentage formula applied
to certain inventory and accounts receivable as allowed by an
amendment on February 20, 2004, and has certain
restrictions regarding borrowing availability. The interest rate
under the working capital facility as of March 26, 2005 was
6.25% (prime plus 0.5%). On March 4, 2005, the capital
expenditure limit was further increased to $5,000,000 per
fiscal year. The Company was in compliance with the capital
expenditure covenant for Fiscal 2004. On May 3, 2005, the
banking facilities were further amended to allow for the
interest rate of the Company’s revolving credit facility to
be based on either a prime rate plus a specified margin
dependant on the level of excess borrowing availability, or a
LIBOR based rate (“Eurodollar”) plus a specified
margin, based on the level of borrowing availability, at the
Company’s election. The junior secured term loan currently
bears an effective interest rate of 12.75% and is subject to
similar restrictions and covenants, including the capital
expenditure covenant, as the working capital facility as well as
certain prepayment penalties.
Based on this, after taking into consideration the foregoing
borrowing restrictions, the Company had approximately
$47.4 million of borrowing capacity under its working
capital facility and term loan at March 26, 2005 and, after
netting the outstanding borrowings of $33.5 million and
letter of credit commitments of $550,000, the Company had excess
borrowing capacity of approximately $13.3 million. The
Company relies on its short-term borrowings under the credit
facility to finance its operations on a day-to-day basis.
Information concerning the Company’s short-term borrowings
follows. All borrowings under the working capital facility are
considered short term, due to the fact that the borrowing
availability is based on certain inventory and accounts
receivable balances which are short-term in nature.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
Mar. 26,
|
|
|
Mar. 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in
|
|
|
|
|
thousands)
|
|
|
Maximum borrowings outstanding during the fiscal year
|
|
$
|
48,417
|
|
|
$
|
39,955
|
|
|
Average outstanding balance during the fiscal year
|
|
$
|
35,178
|
|
|
$
|
31,004
|
|
|
Weighted average interest rate for the fiscal year
|
|
|
5.6
|
%
|
|
|
6.3
|
%
|
F-48
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The significant items comprising the Company’s net deferred
taxes as of March 26, 2005 and March 27, 2004 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 26,
|
|
|
March 27,
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in
|
|
|
|
|
thousands)
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
|
Difference between book and tax basis of property
|
|
$
|
4,799
|
|
|
$
|
4,339
|
|
|
|
Compensation expense on warrants
|
|
|
322
|
|
|
|
335
|
|
|
|
Sales returns and doubtful accounts allowances not currently
deductible
|
|
|
436
|
|
|
|
472
|
|
|
|
Inventory reserves not currently deductible
|
|
|
1,401
|
|
|
|
2,578
|
|
|
|
Federal net operating loss and tax credit carryforward
|
|
|
28,331
|
|
|
|
27,025
|
|
|
|
State net operating loss carryforward
|
|
|
3,697
|
|
|
|
3,351
|
|
|
|
Other reserves not currently deductible
|
|
|
1,784
|
|
|
|
2,502
|
|
|
|
Purchase accounting differences in basis of sales returns
allowances acquired
|
|
|
40
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,810
|
|
|
|
40,642
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance
|
|
|
40,810
|
|
|
|
40,642
|
|
|
|
Valuation allowance
|
|
|
(40,810
|
)
|
|
|
(40,642
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
There were no current or deferred provisions for income taxes in
Fiscal 2004, Fiscal 2003 or Fiscal 2002.
The provision (benefit) for income taxes varies from the amount
computed by applying the Federal income tax statutory rate of
34% for the reasons summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
March 26, 2005
|
|
|
March 27, 2004
|
|
|
March 29, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
|
|
|
Rate
|
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
Increase in valuation allowance
|
|
|
(24.6
|
)%
|
|
|
(80.6
|
)%
|
|
|
(35.4
|
)%
|
|
State income taxes, net of Federal tax benefit
|
|
|
(17.9
|
)%
|
|
|
0.0
|
%
|
|
|
2.7
|
%
|
|
Sec. 382 Federal and state NOL adjustment
|
|
|
0.0
|
%
|
|
|
52.6
|
%
|
|
|
0.0
|
%
|
|
Nondeductible compensation expense on private stock sale
|
|
|
6.7
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Foreign operations
|
|
|
1.5
|
%
|
|
|
0.0
|
%
|
|
|
(1.8
|
)%
|
|
Other
|
|
|
0.3
|
%
|
|
|
(6.0
|
)%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a Federal net operating loss carryforward of
approximately $80.4 million and state net operating loss
carryforward of approximately $79.9 million. Due to
Section 382 limitations resulting from the change in
ownership in Fiscal 2002, the utilization of approximately
$41.3 million of the preacquistion net operating loss
carryforward is limited to $953,490 on an annual basis,
resulting in a valuation allowance of approximately
$23.0 million for preacquistion net operating loss
carryforwards that will more than likely not be realized. The
Federal net operating loss carryforward expires beginning in
Fiscal 2009 through Fiscal 2022
F-49
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and the state net operating loss carryforward expires beginning
in Fiscal 2008 through Fiscal 2022. The Company also has an
alternative minimum tax credit carryforward of approximately
$0.8 million to offset future Federal income taxes. The
valuation allowance has been recorded to reduce the net deferred
tax asset to the amount that the Company believes, after
evaluating the currently available evidence, will more likely
than not be realized.
|
|
|
|
L.
|
RELATED PARTY TRANSACTIONS:
|
On August 20, 2002, the Company closed on a
$15.05 million gross equity investment transaction with
Henry Birks & Sons Inc. (“Birks”). The
Company incurred expenses related to the raising of the capital
of approximately $1.5 million, which was netted against the
proceeds in stockholders’ equity. As consideration for the
investment, Birks received 15,050 shares of Series A
Convertible Preferred Stock (“Series A
Preferred”), a newly formed class of stock that was
initially convertible into 50,166,667 shares of common
stock. The conversion ratio of the Series A Preferred to
common stock is subject to certain anti-dilution provisions.
Birks also received warrants that were exercisable for
12,424,596 shares of common stock at $0.30 per share,
12,424,596 shares of common stock at $0.35 per share
and 12,424,595 shares of common stock at $0.40 per
share. The warrants also contain certain anti-dilution
provisions which upon the occurrence of certain events can
increase the number of warrants and decrease the exercise price.
The preferred stock and warrants were issued by the Company
without being registered, relying on an exemption under 4(2) of
the Securities Act of 1933, as amended. Birks had entered into
an Amended and Restated Registration Rights Agreement with the
Company, whereby Birks has the right to require the Company, on
a best efforts basis, to register all of the shares underlying
the above-described securities issued to Birks.
The proceeds of $15.05 million were assigned to the
Series A Preferred and warrants based on their relative
fair values pursuant to Emerging Issues Task Force,
(“EITF”) 00-27
Application of Issue No. 98-5
to Certain Convertible Instruments
in the amount of
$11.51 million and $3.54 million, respectively. The
fair value assigned to the warrants represents a discount on the
Series A Preferred that is treated as a non-cash dividend
to Birks. Furthermore, the value of the common stock that the
Series A Preferred were convertible into at the date of the
investment was $15.05 million which creates a
$3.54 million beneficial conversion feature for the
Series A Preferred, as a result of the fair value assigned
to the Series A Preferred of $11.51 million, and
results in an additional non-cash dividend to Birks at the time
of the investment since the Series A Preferred are
convertible immediately. The dividends have a neutral effect on
the Company’s total stockholders’ equity; however they
increase the net loss attributed to common stockholders for the
year ended March 29, 2003.
On November 1, 2002 and March 14, 2003, Birks granted
rights to receive 4,250,000 and 500,000, respectively, of its
warrants to certain current or former employees of Birks or its
affiliates, who were, or later became employees of or provided
services to the Company. The rights to receive these warrants
are contingent upon fulfillment of certain time based employment
vesting requirements. The exercise price of the assigned
warrants was $0.29 per share, after certain anti-dilution
adjustments. The granted warrants subject Mayor’s to
variable accounting rules due to their cashless exercise feature
and vesting schedule which requires compensation expense
(credit) calculated as the increase or decrease in
intrinsic value of the vested warrants, based on the change in
market value of the underlying stock. Non-cash compensation
(credit) expense for the years ended March 26, 2005,
March 27, 2004 and March 29, 2003 related to these
warrants was approximately ($32,000), $867,000 and $0,
respectively. As of March 26, 2005, the number of warrants
increased to 4,776,899, all of which were vested, and the
exercise price was $0.29 as a result of the anti-dilution
provisions contained in the warrant agreements. On May 26,
2005, the Company purchased 501,348 of these warrants from one
of the holders for $150,000, the estimated fair value.
On November 6, 2003, Birks exercised 32,523,787 of the
warrants on a cashless basis based on an average market price of
$0.766, as defined in the warrant agreements. The cashless
feature of exercise
F-50
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
resulted in the issuance of 17,352,997 shares of common
stock and the forfeiture of 15,170,790 warrants. Birks had
288,517, 306,317 and 306,317 warrants exercisable at $0.29,
$0.34 and $0.39, respectively, including adjustments for the
anti-dilution provisions as of March 26, 2005. A non-cash
dividend of approximately $83,000 was recognized in the year
ended March 29, 2003 related to the value of the additional
warrants granted to Birks as a result of the anti-dilution
provisions with a corresponding increase in additional paid-in
capital. The anti-dilution provisions provide for the increase
in the number of warrants issued to Birks and have potential to
decrease the exercise price and are triggered each time the
Company issues common stock, options or other convertible
securities. The value of additional warrants granted to Birks
pursuant to the anti-dilution provisions for the years ended
March 26, 2005 and March 27, 2004 was insignificant.
On June 15, 2004, Birks sold 500,000 and
250,000 shares of Mayor’s common stock to one of the
Company’s Directors and a consultant to Birks, who later
became an employee of Birks, respectively, for $0.50 per
share in a private placement sale. The sale of the
750,000 shares of common stock resulted in non-cash
compensation expense of $135,000 recorded by Mayor’s which
represented the difference between the market value of the stock
and the selling price at the date of the sale, which is included
in selling, general and administrative expense in the Fiscal
2004 Consolidated Condensed Statement of Operations. On
March 22, 2004, Birks sold 1,000,000 shares of
Mayor’s common stock at $0.50 per share in a private
placement sale to the spouse of one of the Company’s
Directors. The sale of stock resulted in non-cash compensation
expense of $200,000 recorded by Mayor’s, which represented
the difference between the market value of the stock and the
selling price at the date of the sale, which is included in
selling, general and administrative expense in the Fiscal 2003
Consolidated Statement of Operations.
The Company’s Certificate of Designation (the
“Certificate”) for the Series A Preferred
provided that the holders of the preferred stock were entitled
to receive dividends on each share of preferred stock at a rate
per annum of $95 per share which equates to approximately
$1.4 million annually, a 9.5% yield on the $15,050,000
investment. The Certificate called for the dividends to remain
unpaid until January 15, 2005 for dividends cumulated
through October 14, 2004; thereafter, all dividends,
including cumulative but unpaid, were to be payable quarterly in
arrears on each January 15, April 15, July 15 and
October 15 of each year, commencing on January 15, 2005 if
declared by the Board of Directors. The Certificate further
provided that the Series A Preferred had a liquidation
value of $1,000 per share.
The Certificate also provided that Birks had the right to elect
a percentage of the total authorized Directors of the Company,
rounded to the next highest whole number, corresponding to the
percentage of common stock that would be held by Birks on the
record date of such election as if Birks had converted all of
the Series A Preferred then outstanding into common stock.
Currently, Birks has the right to elect seven of the nine
members of the Company’s Board of Directors.
In January 2004, Birks asked the Company to consider paying an
early payment of the cumulative dividends earned by Birks on the
Series A Preferred, which approximated $2,185,755 through
February 28, 2004. Also, in January 2004, the Company
formed a committee of independent directors of its Board (the
“Committee”) to evaluate Birks’ request. The
Committee retained an investment-banking firm, Capitalink, L.C.
(“Capitalink”) to perform certain analyses of the
structure of the proposed transaction.
The Company determined that in order to effectuate the payment
of an early dividend it would have to issue a new series of
preferred stock to Birks in exchange for its shares of
Series A Preferred (the “Exchange”). The Company
also determined that it would have to borrow funds from Back Bay
Capital Funding LLC to pay the dividend, (the “Loan”),
on the newly created series of preferred stock (the
“Dividend”). After extensive discussions,
negotiations, deliberations, and considerations, the Committee
unanimously recommended to the Board that it was in the best
interests of the Company to approve the Exchange, the payment of
the Dividend, and the Loan (collectively, the
“Transaction”). On February 20, 2004, the
Company’s Board of Directors unanimously (with the
exception of Thomas Andruskevich and
F-51
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Filippo Recami, who abstained from voting, and Dr. Lorenzo
Rossi di Montelera, who was unavailable to attend the Board
meeting) approved the Transaction.
On February 20, 2004, the Company issued a newly created
Series A-1 Convertible Preferred Stock
(“Series A-1 Preferred”) to Birks in exchange for
its shares of Series A Preferred. The Series A-1
Preferred is substantially identical to the Series A
Preferred, with the exception of certain changes primarily to
the provisions regarding the payment of dividends, future
dividend rates, and the conversion rate. The Company entered
into an Exchange Agreement with Birks whereby each share of
Series A Preferred was exchanged for one share of
Series A-1 Preferred. As of March 26, 2005, the
Series A-1 Preferred were convertible into
51,499,525 shares of common stock of the Company which
amount includes adjustments for the anti-dilution provision of
the Series A-1 Preferred. The anti-dilution provisions
provide for the increase in the conversion ratio into common
stock and are triggered each time the Company issues common
stock, options or other convertible securities. A non-cash
dividend to Birks of approximately $358,000 was recognized in
the year ended March 29, 2003 related to the value of the
increase in the conversion ratio of the preferred stock into
common stock as a result of the anti-dilution provisions with a
corresponding increase in additional paid-in capital. The value
of the increase in the conversion ratio for the year ended
March 27, 2004 was immaterial. The value of the increase in
the conversion ratio for the year ended March 26, 2005 was
approximately $17,000. Upon conversion of the preferred shares,
Birks would own approximately 75.8% of the then outstanding
common stock in Mayor’s.
In connection with the Exchange, Birks agreed to
(a) reimburse the Company in full for all Transaction
expenses, (b) reduce the dividend rate from $95 per
share to $80 per share per annum on the Series A-1
Preferred, resulting in a savings in cumulative dividends of
approximately $225,750 annually; and (c) waive the dividend
on the Series A-1 Preferred for approximately one year.
Capitalink advised the Committee that this waiver of one year of
dividends equated to a net savings to the Company of
approximately $920,000 since the Company would have to pay
interest on the Loan of approximately $280,000. Additionally, if
Birks decided to convert its Series A-1 Preferred into
common stock before February 28, 2005, the conversion rate
would have decreased so that the Company received the value of
the waived dividend, on a pro rata basis. Although the Company
has no right to redeem the shares of its outstanding
Series A-1 Preferred, in the event that the Company were
deemed to acquire any shares of its Series A-1 Preferred in
a business combination or other transaction, then Birks will pay
the Company a cash payment equal to the pro rata value of the
waived dividend.
On June 17, 2005, the Board of Directors declared and
approved a dividend payment to Birks of $150,500 which cumulated
from March 1, 2005 through April 15, 2005.
In connection with the Transaction, the Company received an
opinion of Delaware counsel that the declaration and payment of
the Dividend would not contravene Section 170 of the
Delaware General Corporation Law, and an opinion from Capitalink
that the Transaction was fair, from a financial point of view,
to the minority stockholders of the Company. The Company also
received various other analyses from Capitalink.
On February 20, 2004, the Company evidenced the Loan by
entering into that certain Third Amendment to Revolving Credit,
Tranche B Loan and Security Agreement, Limited Waiver and
Consent (the “Amended Credit Agreement”), dated as of
February 20, 2004, by and among Fleet Retail Group Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, the
domestic subsidiaries of the Company and the Company. The
Amended Credit Agreement provided for, among other things,
effectively increasing the term loan by $2 million;
modifying the calculation of the credit facilities borrowing
formula so as to fully permit the payment of the Dividend
without negatively impacting the availability of borrowings
under the Company’s credit facility or otherwise creating a
material adverse effect on the Company’s liquidity; and
adjusting the borrowing base to provide for the inclusion of the
Company’s accounts receivable, up to a maximum of
$3 million.
F-52
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Mayor’s Chief Executive Officer, Interim Chief Financial
Officer, Group VP-Finance, Chief Marketing Officer, Group
VP-Supply Chain Operations, Group VP-Retail Store Operations,
Group VP-Category Management, Group VP-Strategy and Business
Integration, Group Creative Director and other members of
Mayor’s management serve in similar capacities for Birks.
In addition, Thomas A. Andruskevich, Chairman of the
Mayor’s Board of Directors, and its President, and Chief
Executive Officer, and Filippo Recami, a Director of
Mayor’s, serve as Directors of Birks. Lorenzo Rossi di
Montelera, a Director of Mayor’s through June 1, 2005
at which date he resigned, serves as the Chairman of the Board
of Directors of Birks.
As part of Birks investment in 2002, the Company entered into a
Manufacturing & Sale Agreement and a Management Expense
Reimbursement Agreement with Birks effective August 20,
2002. The Manufacturing & Sale Agreement allows for the
purchase of merchandise from Birks at market prices in
accordance with a purchase plan, which is pre-approved annually
by the Corporate Governance Committee of the Board of Directors
of the Company. The Management Expense Reimbursement Agreement
allows for the Company to acquire certain management services
from Birks, at its cost, in accordance with a project schedule,
which is pre-approved annually by the Corporate Governance
Committee of the Board of Directors. At the end of each quarter,
the Corporate Governance Committee reviews and approves all
purchases and expense reimbursement transactions. The terms of
these agreements are one year and automatically renew. The
Company can sell merchandise and provide management services to
Birks under terms similar to those in the agreements.
In Fiscal 2004, Fiscal 2003 and Fiscal 2002, Mayor’s
(charged) incurred approximately ($204,000), $82,000 and
$234,000, respectively, of net costs (to) from Birks
related to advisory, management and corporate services pursuant
to the Management Expense Reimbursement Agreement. Included in
selling, general and administrative expenses in Fiscal 2002 is
$390,000 of amounts paid to Birks for merchandising and other
consulting services prior to the equity investment transaction.
Also, during Fiscal 2004, Fiscal 2003 and Fiscal 2002,
Mayor’s purchased approximately $8,966,000, $599,000 and
$407,000, respectively, of merchandise from Birks and Birks
purchased approximately $9,000, $56,000 and $109,000,
respectively, of merchandise from Mayor’s pursuant to the
Manufacturing & Sale Agreement. As of March 26,
2005, the Company owed Birks $389,000 related to purchases of
inventory, advisory, management and corporate services and for
expenses paid by Birks on behalf of Mayor’s. Mayor’s
also purchased $28,000 and $108,000, respectively, of
merchandise from Cristalleries Royales de Champagne, a company
controlled by the majority owners of Birks until June 18,
2004, during Fiscal 2003 and Fiscal 2002, respectively.
Effective May 1, 2005, the Company renewed for an
additional year, its Management Consulting Services Agreement
(the “Agreement”) with Regaluxe Investment Sarl, a
company incorporated under the laws of Luxembourg
(“Regaluxe”). Under the Agreement, Regaluxe provides
advisory, management and corporate services to the Company for
$125,000 per calendar quarter plus out of pocket expenses.
During Fiscal 2004, the Company incurred $528,000 of costs for
these services including out of pocket expenses. The Agreement
may be renewed for additional one-year terms by the Company
subject to an annual review and approval by the Company’s
Corporate Governance Committee.
Regaluxe is the controlling shareholder of Birks. Two of the
Company’s directors, Filippo Recami and Dr. Lorenzo
Rossi di Montelera, are affiliated with Regaluxe. Dr. Rossi
resigned from the Board effective June 1, 2005.
Mr. Recami is the Chief Executive Officer and managing
director of Regaluxe and Dr. Rossi is a member of the Board
of Directors of Regaluxe. Furthermore, Dr. Rossi shares
joint voting control over the shares of Iniziativa S.A., which
owns 100% of the outstanding stock of Regaluxe. The Board of
Directors of the Company waived the provisions of the
Company’s Code of Conduct relating to related party
transactions when the Board of Directors approved the Company
entering into the Agreement with Regaluxe.
On April 18, 2005, Mayor’s and Birks entered into an
Agreement and Plan of Merger and Reorganization (the
“Merger Agreement”) by and among Birks, the Company
and Birks Merger Corporation, a Delaware corporation and
wholly-owned subsidiary of Birks (the “Merger Sub”),
pursuant to which the
F-53
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Merger Sub will be merged with and into the Company, with the
Company surviving and becoming a wholly-owned subsidiary of
Birks (the “Merger”).
Upon the consummation of the Merger, each outstanding share of
the Company’s common stock not currently owned by Birks
will be converted into 0.08695 Class A voting shares of
Birks. As a result of the Merger, the Company’s common
stock will no longer be listed for trading on the American Stock
Exchange (the “AMEX”) although Birks intends to apply
to list its Class A voting shares on the AMEX under the
trading symbol “BMJ.”
Consummation of the Merger remains subject to certain
conditions, including the approval of the Company’s
disinterested stockholders, a registration statement with
respect to Birks’ securities being declared effective by
the Securities and Exchange Commission and the listing of
Birks’ Class A voting shares on the AMEX. The Merger
is expected to close in the third calendar quarter of 2005. The
foregoing description of the Merger Agreement does not purport
to be complete and is qualified in its entirety by the
provisions of the Merger Agreement, which has previously been
filed with the Commission by the Company on Form 8-K.
|
|
|
|
M.
|
COMMITMENTS AND CONTINGENCIES:
|
In connection with prior financing arrangements, there are
outstanding warrants to purchase 519,756 shares of
common stock at $2.25 per share which expired unexercised
on May 31, 2005 and warrants to
purchase 234,000 shares of common stock at prices
ranging from $3.25 to $4.00 per share which expired
unexercised on May 1, 2005.
Operating Leases.
The Company leases all of its retail
stores under operating leases. The rentals are based primarily
on a percentage of sales with required minimum annual rentals.
In addition, most leases are subject to annual adjustment for
increases in real estate taxes and maintenance costs. Since the
sale of its corporate building in July 2002, the Company’s
corporate facility has been leased. The Company entered into a
fifteen year lease agreement for a new corporate headquarters
located in Tamarac, Florida to commence on the later of the
completion date or August 1, 2005. The Company also has
non-cancelable operating leases for certain equipment including
copiers, postage machines, and computer equipment. At
March 26, 2005, the Company was obligated for the following
minimum annual rentals under non-cancelable operating leases:
|
|
|
|
|
|
|
|
|
Amounts
|
|
|
Fiscal Year
|
|
In Thousands
|
|
|
|
|
|
|
|
2005
|
|
$
|
7,102
|
|
|
2006
|
|
|
6,141
|
|
|
2007
|
|
|
5,523
|
|
|
2008
|
|
|
5,484
|
|
|
2009
|
|
|
4,332
|
|
|
Thereafter
|
|
|
13,135
|
|
|
|
|
|
|
|
|
|
$
|
41,717
|
|
|
|
|
|
|
Rent expense for the Mayor’s stores was approximately
$9.8 million including $1.0 million of contingent rent
for Fiscal 2004, $9.2 million including $0.7 million
of contingent rent for Fiscal 2003 and $10.4 million
including $0.3 million of contingent rent for Fiscal 2002.
Employment Agreements.
The Company has employment
agreements with certain employees for varying terms through
various dates, some of which automatically renew for one-year
terms as well as certain term agreements. The contractual
obligation for these agreements aggregated to $2,225,000 as of
March 26, 2005. These agreements allow either party to
terminate the employment relationship or resign at any time.
Under certain conditions, if employment is terminated or
resignation occurs, the agreements provide for
F-54
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
severance compensation of varying amounts and restrict the
employee from competing with the Company for varying terms after
the employment term ends. Some of these agreements also provide
for severance and other benefits under certain conditions in the
event of a change of control of the Company as defined in the
agreements. The Chief Executive Officer’s employment
agreement provides that the Company shall grant to the Chief
Executive Officer stock options to
purchase 1,000,000 shares of Mayor’s common stock
(or any successor entity) with an exercise price per share equal
to the fair market value of a share on April 1, 2005 (as
adjusted if necessary for any subsequent events). These options
have not yet been granted to the Chief Executive Officer as of
the date of this filing. If the Company cannot or decides not to
grant such stock options, the Chief Executive Officer will be
provided with the equivalent after tax value of such stock
options through an alternative long term incentive compensation
plan.
The Company is involved in litigation arising from the normal
course of business. The Company believes the facts and the law
supports its position and those matters should not materially
affect the Company’s financial position; however, there can
be no assurance as to the final result of such legal matters.
|
|
|
|
O.
|
INCOME (LOSS) PER SHARE:
|
The following provides a reconciliation of the basic and diluted
income (loss) per share amounts for Fiscal 2004, Fiscal 2003 and
Fiscal 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
March 26, 2005
|
|
|
March 27, 2004
|
|
|
March 29, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
except share data
|
|
|
Income (loss) from continuing operations attributable to common
stockholders
|
|
$
|
571
|
|
|
$
|
(7,824
|
)
|
|
$
|
(33,685
|
)
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) attributable to common stockholders
|
|
|
571
|
|
|
|
(7,824
|
)
|
|
|
(35,289
|
)
|
|
Plus: cumulative preferred stock dividends
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
Plus: value of the increase in the Series A Preferred
conversion ratio and the additional warrants issued to Birks
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) from continuing operations
|
|
$
|
688
|
|
|
$
|
(7,824
|
)
|
|
$
|
(35,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,968,296
|
|
|
|
26,377,886
|
|
|
|
19,568,006
|
|
|
|
Diluted
|
|
|
93,177,445
|
|
|
|
26,377,886
|
|
|
|
19,568,006
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.72
|
)
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.72
|
)
|
|
|
Discontinued operations
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
$
|
(0.35
|
)
|
|
$
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
F-55
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
P.
|
EMPLOYEE BENEFIT PLANS:
|
|
|
|
|
|
Employee Stock Purchase Plan
|
In June 1987, the Board of Directors approved an Employee Stock
Purchase Plan (“ESPP”), which permits eligible
employees, which do not include executives of the Company, to
purchase common stock from the Company at 85% of its fair market
value through regular payroll deductions. At the Fiscal 2002
Annual Stockholders Meeting, the stockholders of the Company
approved 500,000 additional shares of Common Stock to be
allocated to the ESPP.
A total of 1,062,500 shares are reserved for issuance under
the ESPP of which 552,174 shares have been issued as of
March 26, 2005, including 30,285 during Fiscal 2004, none
in Fiscal 2003 and 82,561 during Fiscal 2002.
In December 1992, the Board of Directors approved the
Mayor’s Jewelers, Inc. 401(k) Profit Sharing
Plan & Trust (the “Plan”), which permits
eligible employees to make contributions to the Plan on a pretax
salary reduction basis in accordance with the provisions of
Section 401(k) of the Internal Revenue Code. The Company
makes cash contribution of 25% of the employee’s pretax
contribution, up to 4% of the employee’s compensation, in
any calendar year. The employer match for Fiscal 2004, Fiscal
2003 and Fiscal 2002 were $88,633, $74,313 and $77,402,
respectively.
As of March 26, 2005 the Company had 3,304,523 shares
of common stock available for grant to its key employees and
directors under its 1987 and 1991 Stock Option Plans. Under
these plans, the option price must be equal to the market price
of the stock on the date of the grant, or in the case of an
individual who owns 10% or more of common stock, the minimum
price must be 110% of the market price.
Options granted to date generally become exercisable from six
months to three years after the date of grant, provided that the
individual is continuously employed by the Company, or in the
case of directors, remains on the Board of Directors. All
options generally expire no more than ten years after the date
of grant.
The following is a summary of the activity in the option plans
during Fiscal 2004, Fiscal 2003 and Fiscal 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004
|
|
|
Fiscal 2003
|
|
|
Fiscal 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
Exercise
|
|
|
|
|
Exercise
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
6,031,797
|
|
|
$
|
2.02
|
|
|
|
6,358,470
|
|
|
$
|
2.33
|
|
|
|
6,561,220
|
|
|
$
|
3.47
|
|
|
Granted
|
|
|
80,000
|
|
|
|
0.62
|
|
|
|
170,000
|
|
|
|
0.70
|
|
|
|
2,650,000
|
|
|
|
0.28
|
|
|
Canceled/ Expired
|
|
|
(1,425,834
|
)
|
|
|
4.21
|
|
|
|
(496,673
|
)
|
|
|
5.53
|
|
|
|
(2,852,750
|
)
|
|
|
2.73
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
4,685,963
|
|
|
$
|
1.33
|
|
|
|
6,031,797
|
|
|
$
|
2.02
|
|
|
|
6,358,470
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of the status of the option plans as of March 26,
2005 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Contractual Life
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
(In Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.23 - $ 0.34
|
|
|
2,645,000
|
|
|
|
7.5*
|
|
|
$
|
0.28
|
|
|
|
2,330,001
|
|
|
$
|
0.28
|
|
|
$0.35 - $ 0.52
|
|
|
45,000
|
|
|
|
8.3
|
|
|
$
|
0.42
|
|
|
|
43,333
|
|
|
$
|
0.42
|
|
|
$0.53 - $ 0.79
|
|
|
210,000
|
|
|
|
9.1
|
|
|
$
|
0.72
|
|
|
|
96,667
|
|
|
$
|
0.78
|
|
|
$0.80 - $ 1.20
|
|
|
263,333
|
|
|
|
6.8
|
|
|
$
|
0.94
|
|
|
|
263,333
|
|
|
$
|
0.94
|
|
|
$1.21 - $ 1.81
|
|
|
162,500
|
|
|
|
5.8
|
|
|
$
|
1.53
|
|
|
|
162,500
|
|
|
$
|
1.53
|
|
|
$1.82 - $ 2.73
|
|
|
705,629
|
|
|
|
3.4
|
|
|
$
|
2.41
|
|
|
|
705,629
|
|
|
$
|
2.41
|
|
|
$2.74 - $ 4.11
|
|
|
474,833
|
|
|
|
5.4
|
|
|
$
|
3.65
|
|
|
|
474,833
|
|
|
$
|
3.65
|
|
|
$4.12 - $ 6.18
|
|
|
98,002
|
|
|
|
3.5
|
|
|
$
|
4.68
|
|
|
|
98,002
|
|
|
$
|
4.68
|
|
|
$6.19 - $ 9.28
|
|
|
20,000
|
|
|
|
0.3
|
|
|
$
|
6.44
|
|
|
|
20,000
|
|
|
$
|
6.44
|
|
|
$9.29 - $13.94
|
|
|
61,666
|
|
|
|
7.2
|
|
|
$
|
12.99
|
|
|
|
61,666
|
|
|
$
|
12.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.23 - $13.94
|
|
|
4,685,963
|
|
|
|
6.5
|
|
|
$
|
1.33
|
|
|
|
4,255,964
|
|
|
$
|
1.42
|
|
|
|
|
|
*
|
1,500,000 of these options were granted to the Chief Executive
Officer and expire either after ten years or two years after
termination of employment. For purposes of the information
herein, a term of ten years is used.
|
|
|
|
|
Q.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS:
|
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of SFAS No. 107,
“Disclosures
About Fair Value of Financial Instruments.”
The
Company, using available market information and appropriate
valuation methodologies, has determined the estimated fair value
amounts. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that would be realized in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
The following methods and assumptions were used to estimate fair
value:
|
|
|
|
|
|
•
|
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate
fair value because of their short-term nature.
|
|
|
|
|
•
|
The fair value of the Company’s long-term debt approximates
carrying value based on the quoted market prices for the same or
similar issues.
|
F-57
MAYOR’S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
R.
|
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
|
|
|
|
|
June 26,
|
|
|
Sep. 25,
|
|
|
Dec. 25,
|
|
|
Mar. 26,
|
|
|
|
|
2004
|
|
|
2004
|
|
|
2004
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Net Sales
|
|
$
|
29,138
|
|
|
$
|
25,483
|
|
|
$
|
57,237
|
|
|
$
|
30,851
|
|
|
Gross Profit
|
|
|
12,153
|
|
|
|
10,602
|
|
|
|
24,859
|
|
|
|
13,381
|
|
|
Net (loss) income from continuing operations
|
|
|
(2,472
|
)
|
|
|
(2,226
|
)
|
|
|
6,243
|
|
|
|
(857
|
)
|
|
Basic (loss) earnings per common share from continuing operations
|
|
|
(0.07
|
)
|
|
|
(0.06
|
)
|
|
|
0.17
|
|
|
|
(0.02
|
)
|
|
Diluted (loss) earnings per common share from continuing
operations
|
|
|
(0.07
|
)
|
|
|
(0.06
|
)
|
|
|
0.07
|
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
|
|
|
|
|
June 28,
|
|
|
Sep. 27,
|
|
|
Dec. 27,
|
|
|
Mar. 27,
|
|
|
|
|
2003
|
|
|
2003
|
|
|
2003
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
Net Sales
|
|
$
|
24,505
|
|
|
$
|
23,834
|
|
|
$
|
50,318
|
|
|
$
|
26,860
|
|
|
Gross Profit
|
|
|
9,904
|
|
|
|
9,501
|
|
|
|
21,248
|
|
|
|
11,407
|
|
|
Net (loss) income from continuing operations
|
|
|
(3,789
|
)
|
|
|
(5,175
|
)
|
|
|
4,065
|
|
|
|
(2,925
|
)
|
|
Basic (loss) earnings per common share from continuing operations
|
|
|
(0.21
|
)
|
|
|
(0.28
|
)
|
|
|
0.13
|
|
|
|
(0.09
|
)
|
|
Diluted (loss) earnings per common share from continuing
operations
|
|
|
(0.21
|
)
|
|
|
(0.28
|
)
|
|
|
0.04
|
|
|
|
(0.09
|
)
|
F-58
SCHEDULE II
MAYOR’S JEWELERS, INC. VALUATION AND QUALIFYING
ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Cost and
|
|
|
|
|
Ending
|
|
|
Description
|
|
Balance
|
|
|
Expenses
|
|
|
Deductions
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts shown in thousands)
|
|
|
Fiscal year ended March 29, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
$
|
1,487
|
|
|
$
|
2,366
|
(1)
|
|
$
|
2,590
|
|
|
$
|
1,263
|
|
|
|
Allowance for Restructuring
|
|
|
8,574
|
|
|
|
—
|
|
|
|
8,574
|
|
|
|
—
|
|
|
|
Allowance for Sales Returns
|
|
|
350
|
|
|
|
5,125
|
|
|
|
5,125
|
|
|
|
350
|
|
|
Fiscal year ended March 27, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
1,263
|
|
|
|
193
|
|
|
|
457
|
|
|
|
999
|
|
|
|
Allowance for Sales Returns
|
|
|
350
|
|
|
|
6,706
|
|
|
|
6,844
|
|
|
|
212
|
|
|
Fiscal year ended March 26, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
|
|
|
999
|
|
|
|
148
|
|
|
|
185
|
|
|
|
962
|
|
|
|
Allowance for Sales Returns
|
|
|
212
|
|
|
|
8,326
|
|
|
|
8,370
|
|
|
|
168
|
|
F-59
APPENDIX A
Agreement and Plan of Merger and Reorganization
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among
HENRY BIRKS & SONS INC.,
BIRKS MERGER CORPORATION
and
MAYOR’S JEWELERS, INC.
Dated as of
April 18, 2005
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Certificate 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
|
|
|
3
|
|
|
SECTION
2.03
|
|
Stock Transfer Books
|
|
|
5
|
|
|
SECTION
2.04
|
|
Company Stock Options
|
|
|
5
|
|
|
SECTION
2.05
|
|
Restricted Stock
|
|
|
6
|
|
|
SECTION
2.06
|
|
Company Warrants
|
|
|
6
|
|
|
SECTION
2.07
|
|
No Appraisal Rights
|
|
|
7
|
|
|
SECTION
2.08
|
|
Affiliates
|
|
|
7
|
|
|
|
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
|
SECTION
3.01
|
|
Authority Relative to this Agreement
|
|
|
7
|
|
|
SECTION
3.02
|
|
No Conflict; Required Filings and Consents
|
|
|
7
|
|
|
SECTION
3.03
|
|
Board Approval; Vote Required
|
|
|
8
|
|
|
SECTION
3.04
|
|
[Reserved]
|
|
|
8
|
|
|
SECTION
3.05
|
|
Opinion of Financial Advisor
|
|
|
8
|
|
|
SECTION
3.06
|
|
Brokers
|
|
|
8
|
|
|
|
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
|
|
SECTION
4.01
|
|
Corporate Organization
|
|
|
9
|
|
|
SECTION
4.02
|
|
Certificate of Amalgamation and By-laws
|
|
|
9
|
|
|
SECTION
4.03
|
|
Capitalization
|
|
|
9
|
|
|
SECTION
4.04
|
|
Authority Relative to this Agreement
|
|
|
10
|
|
|
SECTION
4.05
|
|
No Conflict; Required Filings and Consents
|
|
|
10
|
|
|
SECTION
4.06
|
|
Permits; Compliance
|
|
|
11
|
|
|
SECTION
4.07
|
|
SEC Filings
|
|
|
11
|
|
|
SECTION
4.08
|
|
Financial Statement; Undisclosed Liabilities
|
|
|
11
|
|
|
SECTION
4.09
|
|
Absence of Certain Changes or Events
|
|
|
12
|
|
|
SECTION
4.10
|
|
Internal Controls
|
|
|
12
|
|
|
SECTION
4.11
|
|
Absence of Litigation
|
|
|
12
|
|
|
SECTION
4.12
|
|
Employee Benefit Plans
|
|
|
12
|
|
|
SECTION
4.13
|
|
Labor and Employment Matters
|
|
|
13
|
|
|
SECTION
4.14
|
|
Real Property; Title to Assets
|
|
|
13
|
|
|
SECTION
4.15
|
|
Intellectual Property
|
|
|
14
|
|
i
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
SECTION
4.16
|
|
Taxes
|
|
|
15
|
|
|
SECTION
4.17
|
|
Environmental Matters
|
|
|
15
|
|
|
SECTION
4.18
|
|
Material Contracts
|
|
|
15
|
|
|
SECTION
4.19
|
|
Insurance
|
|
|
16
|
|
|
SECTION
4.20
|
|
Customers and Suppliers
|
|
|
16
|
|
|
SECTION
4.21
|
|
Certain Business Practices
|
|
|
16
|
|
|
SECTION
4.22
|
|
Interested Party Transactions
|
|
|
17
|
|
|
SECTION
4.23
|
|
No Vote Required
|
|
|
17
|
|
|
SECTION
4.24
|
|
Accounts Receivable
|
|
|
17
|
|
|
SECTION
4.25
|
|
Inventories
|
|
|
17
|
|
|
SECTION
4.26
|
|
Operations of Merger Sub
|
|
|
17
|
|
|
SECTION
4.27
|
|
Brokers
|
|
|
17
|
|
|
|
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
|
|
SECTION
5.01
|
|
Conduct of Business by the Company Pending the Merger
|
|
|
18
|
|
|
SECTION
5.02
|
|
Conduct of Business by Parent Pending the Merger
|
|
|
18
|
|
|
|
ARTICLE VI
ADDITIONAL AGREEMENTS
|
|
SECTION
6.01
|
|
Registration Statement; Proxy Statement
|
|
|
19
|
|
|
SECTION
6.02
|
|
Company Stockholders’ Meeting
|
|
|
21
|
|
|
SECTION
6.03
|
|
Access to Information; Confidentiality
|
|
|
21
|
|
|
SECTION
6.04
|
|
Directors’ and Officers’ Indemnification and Insurance
|
|
|
21
|
|
|
SECTION
6.05
|
|
Notification of Certain Matters
|
|
|
22
|
|
|
SECTION
6.06
|
|
Company Affiliates
|
|
|
22
|
|
|
SECTION
6.07
|
|
Further Action; Reasonable Efforts
|
|
|
22
|
|
|
SECTION
6.08
|
|
Plan of Reorganization
|
|
|
22
|
|
|
SECTION
6.09
|
|
Obligations of Merger Sub
|
|
|
23
|
|
|
SECTION
6.10
|
|
Consents of Accountants
|
|
|
23
|
|
|
SECTION
6.11
|
|
AMEX Listing
|
|
|
23
|
|
|
SECTION
6.12
|
|
Public Announcements
|
|
|
23
|
|
|
SECTION
6.13
|
|
Board of Directors of Parent
|
|
|
23
|
|
|
SECTION
6.14
|
|
Company Stock Held by Parent
|
|
|
23
|
|
|
|
ARTICLE VII
CONDITIONS TO THE MERGER
|
|
SECTION
7.01
|
|
Conditions to the Obligations of Each Party
|
|
|
23
|
|
|
SECTION
7.02
|
|
Conditions to the Obligations of Parent and Merger Sub
|
|
|
24
|
|
|
SECTION
7.03
|
|
Conditions to the Obligations of the Company
|
|
|
24
|
|
ii
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
|
|
SECTION
8.01
|
|
Termination
|
|
|
26
|
|
|
SECTION
8.02
|
|
Effect of Termination
|
|
|
27
|
|
|
SECTION
8.03
|
|
Fees and Expenses
|
|
|
27
|
|
|
SECTION
8.04
|
|
Amendment
|
|
|
27
|
|
|
SECTION
8.05
|
|
Waiver
|
|
|
27
|
|
|
|
ARTICLE IX
GENERAL PROVISIONS
|
|
SECTION
9.01
|
|
Non-Survival of Representations, Warranties and Agreements
|
|
|
27
|
|
|
SECTION
9.02
|
|
Notices
|
|
|
28
|
|
|
SECTION
9.03
|
|
Certain Definitions
|
|
|
29
|
|
|
SECTION
9.04
|
|
Severability
|
|
|
32
|
|
|
SECTION
9.05
|
|
Entire Agreement; Assignment
|
|
|
32
|
|
|
SECTION
9.06
|
|
Parties in Interest
|
|
|
32
|
|
|
SECTION
9.07
|
|
Specific Performance
|
|
|
32
|
|
|
SECTION
9.08
|
|
Governing Law
|
|
|
33
|
|
|
SECTION
9.09
|
|
Waiver of Jury Trial
|
|
|
33
|
|
|
SECTION
9.10
|
|
Headings
|
|
|
33
|
|
|
SECTION
9.11
|
|
Counterparts
|
|
|
33
|
|
|
SECTION
9.12
|
|
Special Committee
|
|
|
33
|
|
iii
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of
April 18, 2005 (this “
Agreement
”), among
Henry Birks & Sons Inc., a Canadian corporation
(“
Parent
”), Birks Merger Corporation, a
Delaware corporation and a wholly owned subsidiary of Parent
(“
Merger Sub
”), and Mayor’s Jewelers,
Inc., a Delaware corporation (the “
Company
”).
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of
the State of Delaware (the “
DGCL
”), Parent and
the Company will enter into a business combination transaction
pursuant to which Merger Sub will merge with and into the
Company (the “
Merger
”);
WHEREAS, the Board of Directors of the Company (the
“
Company Board
”) has established a special
committee composed of independent members of the Company Board
(the “
Special Committee
”) to review and
evaluate the terms and conditions, and determine the
advisability, of a possible business combination with Parent;
WHEREAS, the Special Committee has negotiated the terms and
conditions of this Agreement on behalf of the Company and has
(i) determined that the Merger is consistent with and in
furtherance of the long-term business strategy of the Company
and advisable, fair to, and in the best interests of the
stockholders of the Company (other than Parent and its
affiliates and associates) and (ii) recommended the
approval and adoption of this Agreement by the Company Board;
WHEREAS, the Company Board has, based upon the recommendation of
the Special Committee, (i) determined that the Merger is
consistent with and in furtherance of the long-term business
strategy of the Company and advisable, fair to, and in the best
interests of the stockholders of the Company (other than Parent
and its affiliates and associates), (ii) approved and
adopted this Agreement and declared its advisability and
approved the Merger and the other transactions contemplated by
this Agreement and (iii) recommended the approval and
adoption of this Agreement by the stockholders of the Company;
WHEREAS, the Board of Directors of Parent (the “
Parent
Board
”) has determined that the Merger is consistent
with and in furtherance of the long-term business strategy of
Parent and fair to, and in the best interests of, Parent and its
stockholders and has approved and adopted this Agreement, the
Merger and the other transactions contemplated by this
Agreement; and
WHEREAS, for federal income tax purposes, the Merger is intended
to qualify as a reorganization under the provisions of
Section 368(a) of the United States Internal Revenue Code
of 1986, as amended (the “
Code
”);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be
legally bound hereby, Parent, Merger Sub and the Company hereby
agree as follows:
ARTICLE I
THE MERGER
Section
1.01
The
Merger
.
Upon the terms of this Agreement and subject to
the conditions set forth in Article VII, and in accordance
with the DGCL, at the Effective Time (as defined in
Section 1.02), Merger Sub shall be merged with and into the
Company. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the
“
Surviving Corporation
”).
Section
1.02
Effective
Time; Closing
.
As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set
forth in Article VII (but in no event earlier than
August 21, 2005), the parties hereto shall cause the Merger
to be consummated by filing a certificate of merger (the
“
Certificate of Merger
”) with the Secretary of
State of the State of Delaware, in such form as is required by,
and executed in accordance with, the relevant provisions of the
DGCL (the date and time of such filing of the Certificate of
Merger (or such later time as may be agreed by each of the
parties hereto and specified in the
Certificate of Merger) being the “
Effective
Time
”). Immediately prior to such filing of the
Certificate of Merger, a closing (the
“
Closing
”) shall be held at the offices of
Shearman & Sterling LLP, 599 Lexington Avenue, New
York, New York 10022, or such other place as the parties shall
agree, for the purpose of confirming the satisfaction or waiver,
as the case may be, of the conditions set forth in
Article VII.
Section
1.03
Effect
of the Merger
.
At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and
duties of each of the Company and Merger Sub shall become the
debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.
Section
1.04
Certificate
of Incorporation; By-laws
.
(a) At the Effective
Time the Certificate of Incorporation of the Company shall be
amended and restated to be the same as the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to
the Effective Time until thereafter amended as provided by law
and such Certificate of Incorporation;
provided
,
however
, that, at the Effective Time, Article I of
the Certificate of Incorporation of the Surviving Corporation
shall read as follows: “The name of the corporation is
Mayor’s Jewelers, Inc.”
(b) Unless otherwise determined by Parent prior to the
Effective Time, and subject to Section 6.04(a), at the
Effective Time, the By-laws of the Company shall be amended and
restated to be the same as the By-laws of Merger Sub, as in
effect immediately prior to the Effective Time until thereafter
amended as provided by law, the Certificate of Incorporation of
the Surviving Corporation and such By-laws.
Section
1.05
Directors
and Officers
.
The directors of Merger Sub immediately
prior to the Effective Time shall be the initial directors of
the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and By-laws of the
Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and
qualified or until their earlier death, resignation or approval.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section
2.01
Conversion
of Securities
.
At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the
Company or the holders of any of the following securities:
|
|
|
|
|
(a) each share of common stock, par value $0.0001 per
share (“
Company Common Stock
”), of the Company
issued and outstanding immediately prior to the Effective Time,
excluding any shares of Company Common Stock (i) held
directly by Parent and (ii) to be canceled pursuant to
Section 2.01(b), being hereinafter collectively referred to
as the “
Shares
”, shall be canceled and shall be
converted automatically, subject to Section 2.02, into the
right to receive 0.08695 (the “
Exchange Ratio
”)
Class A Voting Shares (“
Parent Common
Stock
”) of Parent (the “
Merger
Consideration
”), payable upon surrender, in the manner
provided in Section 2.02, of the certificate that formerly
evidenced such Share;
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(b) each share of Company Common Stock held in the treasury
of the Company and each share of Company Common Stock held by
any direct or indirect subsidiary of the Company immediately
prior to the Effective Time shall be canceled without any
conversion thereof and no payment or distribution shall be made
with respect thereto; and
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(c) each share of common stock, par value $0.01 per
share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be canceled and shall be converted
automatically into the right to receive one share of Company
Common Stock, and no payment or distribution shall be made with
respect thereto.
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2
Section
2.02
Exchange
of Certificates
.
(a)
Exchange Agent.
Parent
shall deposit, or shall cause to be deposited, with SunTrust
Bank or such other bank or trust company that may be designated
by Parent and is reasonably satisfactory to the Company (the
“
Exchange Agent
”), for the benefit of the
holders of Shares, for exchange in accordance with this
Article II through the Exchange Agent, certificates
representing the shares of Parent Common Stock issuable pursuant
to Section 2.01 as of the Effective Time, and cash, from
time to time as required to make payments in lieu of any
fractional shares pursuant to Section 2.02(e) (such cash
and certificates for shares of Parent Common Stock, together
with any dividends or distributions with respect thereto, being
hereinafter referred to as the “
Exchange
Fund
”). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the shares of Parent Common
Stock contemplated to be issued pursuant to Section 2.01
out of the Exchange Fund. Except as contemplated by
Section 2.02(g) hereof, the Exchange Fund shall not be used
for any other purpose.
(b)
Exchange Procedures
.
As promptly as
practicable after the Effective Time, (but in no event later
than five (5) business days after the Effective Time),
Parent shall cause the Exchange Agent to mail to each person who
was, at the Effective Time, a holder of record of Shares
entitled to receive the Merger Consideration pursuant to
Section 2.01(a): (i) a letter of transmittal (which
shall be in customary form and shall specify that delivery shall
be effected, and risk of loss and title to the certificates
evidencing such Shares (the “
Certificates
”)
shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and (ii) instructions for use in effecting
the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of
transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may
be required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent
Common Stock which such holder has the right to receive in
respect of the Shares formerly represented by such Certificate
(after taking into account all Shares then held by such holder),
cash in lieu of any fractional shares of Parent Common Stock to
which such holder is entitled pursuant to Section 2.02(e)
and any dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c), and the Certificate
so surrendered shall forthwith be cancelled. In the event of a
transfer of ownership of Shares that is not registered in the
transfer records of the Company, a certificate representing the
proper number of shares of Parent Common Stock, cash in lieu of
any fractional shares of Parent Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and any
dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c) may be issued to a
transferee if the Certificate representing such Shares is
presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.02, each
Certificate shall be deemed at all times after the Effective
Time to represent only the right to receive upon such surrender
the certificate representing shares of Parent Common Stock, cash
in lieu of any fractional shares of Parent Common Stock to which
such holder is entitled pursuant to Section 2.02(e) and any
dividends or other distributions to which such holder is
entitled pursuant to Section 2.02(c).
(c)
Distributions with Respect to Unexchanged Shares
of Parent Common Stock
.
No dividends or other
distributions declared or made after the Effective Time with
respect to the Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock
represented thereby, and no cash payment in lieu of any
fractional shares shall be paid to any such holder pursuant to
Section 2.02(e), until the holder of such Certificate shall
surrender such Certificate. Subject to the effect of escheat,
tax or other applicable Laws, following surrender of any such
Certificate, there shall be paid to the holder of the
certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest,
(i) promptly, the amount of any cash payable with respect
to a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.02(e) and the
amount of dividends or other distributions with a record date
after the Effective Time and theretofore paid with respect to
such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but
prior to surrender and a payment date occurring after surrender,
payable with respect to such whole shares of Parent Common Stock.
3
(d)
No Further Rights in Shares
.
All shares
of Parent Common Stock issued upon conversion of the Shares in
accordance with the terms hereof (including any cash paid
pursuant to Section 2.02(c) or (e)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to
such Shares.
(e)
No Fractional Shares
.
No certificates or
scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of Certificates,
and such fractional share interests will not entitle the owner
thereof to vote or to any other rights of a shareholder of
Parent. Each holder of a fractional share interest shall be paid
an amount in cash (without interest and subject to the amount of
any withholding taxes as contemplated in Section 2.02(i))
equal to the product obtained by multiplying (i) such
fractional share interest held, directly or indirectly, by such
holder (after taking into account all fractional share interests
then held, directly or indirectly, by such holder) by
(ii) the average closing price of a share of Parent Common
Stock as reported by the American Stock Exchange (the
“
AMEX
”) in the
twenty (20) consecutive trading days beginning on (and
including) the trading day immediately following the date of the
Effective Time. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to
holders of fractional share interests, the Exchange Agent shall
so notify Parent, and Parent shall deposit such amount with the
Exchange Agent and shall cause the Exchange Agent to forward
payments to such holders of fractional share interests subject
to and in accordance with the terms of Sections 2.02(b)
and (c).
(f)
Adjustments to Exchange Ratio
.
The
Exchange Ratio shall be adjusted to reflect appropriately the
effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock),
extraordinary cash dividends, reorganization, recapitalization,
reclassification, combination, exchange of shares or other like
change with respect to Parent Common Stock or Company Common
Stock occurring on or after the date hereof and prior to the
Effective Time.
(g)
Termination of Exchange Fund
.
Any portion
of the Exchange Fund that remains undistributed to the holders
of Shares for one year after the Effective Time shall be
delivered to Parent, upon demand, and any holders of Shares who
have not theretofore complied with this Article II shall
thereafter look only to Parent for the shares of Parent Common
Stock, any cash in lieu of fractional shares of Parent Common
Stock to which they are entitled pursuant to
Section 2.02(e) and any dividends or other distributions
with respect to the Parent Common Stock to which they are
entitled pursuant to Section 2.02(c). Any portion of the
Exchange Fund remaining unclaimed by holders of Shares as of a
date which is immediately prior to such time as such amounts
would otherwise escheat to or become property of any government
entity shall, to the extent permitted by applicable Law, become
the property of Parent free and clear of any claims or interest
of any person previously entitled thereto.
(h)
No Liability
.
None of the Exchange Agent,
Parent or the Surviving Corporation shall be liable to any
holder of Shares for any such Shares (or dividends or
distributions with respect thereto), or cash delivered to a
public official pursuant to any abandoned property, escheat or
similar Law.
(i)
Withholding Rights
.
Each of the Exchange
Agent, the Surviving Corporation and Parent shall be entitled to
deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Shares such amounts
as it is required to deduct and withhold with respect to the
making of such payment under the Code, the Income Tax Act
(Canada) (the “
ITA
”), or any provision of
state, provincial, local or other, United States or foreign, tax
Law. To the extent that amounts are so deducted or withheld by
the Exchange Agent, the Surviving Corporation or Parent, as the
case may be, such deducted or withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the
holder of Shares in respect of which such deduction and
withholding was made by the Exchange Agent, the Surviving
Corporation or Parent, as the case may be.
(j)
Lost Certificates
.
If any Certificate
shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate
to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond, in
such reasonable amount as the Surviving Corporation may direct,
as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the
shares
4
of Parent Common Stock, any cash in lieu of fractional shares of
Parent Common Stock to which the holders thereof are entitled
pursuant to Section 2.02(e) and any dividends or other
distributions to which the holders thereof are entitled pursuant
to Section 2.02(c).
Section
2.03
Stock
Transfer Books
.
At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be
no further registration of transfers of Shares thereafter on the
records of the Company. From and after the Effective Time, the
holders of Certificates representing Shares outstanding
immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares, except as otherwise provided
in this Agreement or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Parent for any
reason shall be converted into shares of Parent Common Stock,
any cash in lieu of fractional shares of Parent Common Stock to
which the holders thereof are entitled pursuant to
Section 2.02(e) and any dividends or other distributions to
which the holders thereof are entitled pursuant to
Section 2.02(c).
Section
2.04
Company
Stock Options
.
(a) All options to purchase shares
of Company Common Stock (the “
Company Stock
Options
”) outstanding, whether or not exercisable and
whether or not vested, at the Effective Time, issued under the
Company’s 1991 Stock Option Plan, the Company’s 2004
Long-Term Incentive Plan and any other plan or agreement
pursuant to which Company Stock Options have been issued, in
each case as such may have been amended, supplemented or
modified (collectively, the “
Company Stock Option
Plans
”), shall remain outstanding following the
Effective Time. At the Effective Time, the Company Stock Options
shall, by virtue of the Merger and without any further action on
the part of the Company or the holder thereof, be assumed by
Parent in such manner that Parent (i) is a corporation
“assuming a stock option in a transaction to which
Section 424(a) applies” within the meaning of
Section 424 of the Code and the regulations thereunder or
(ii) to the extent that Section 424 of the Code does
not apply to any such Company Stock Options, would be such a
corporation were Section 424 of the Code applicable to such
Company Stock Options. From and after the Effective Time, all
references to the Company in the Company Stock Option Plans and
the applicable stock option agreements issued thereunder shall
be deemed to refer to Parent, which shall have assumed the
Company Stock Option Plans as of the Effective Time by virtue of
this Agreement and without any further action. Each Company
Stock Option assumed by Parent (each, a “
Substitute
Option
”) shall be exercisable upon the same terms and
conditions as under the applicable Company Stock Option Plan and
the applicable option agreement issued thereunder, except that
(A) each such Substitute Option shall be exercisable for,
and represent the right to acquire, that whole number of shares
of Parent Common Stock (rounded downward to the nearest whole
share) equal to the number of shares of Company Common Stock
subject to such Company Stock Option multiplied by the Exchange
Ratio; and (B) the option price per share of Parent Common
Stock shall be an amount equal to the option price per share of
Company Common Stock subject to such Company Stock Option in
effect immediately prior to the Effective Time divided by the
Exchange Ratio (the option price per share, as so determined,
being rounded upward to the nearest full cent). Such Substitute
Option shall otherwise be subject to the same terms and
conditions as such Company Stock Option. For illustrative
purposes only, if, immediately prior to the Effective Time, a
holder owns 100 Company Stock Options, each of which represents
the right to acquire one (1) share of Company Common Stock
at an exercise price of $0.50 per share of Company Common
Stock, at the Effective Time such holder’s Company Stock
Options shall be converted into eight (8) Substitute
Options, each of which will represent the right to acquire one
(1) share of Parent Common Stock at an exercise price of
$5.76 per share of Parent Common Stock.
(b) As soon as practicable after the Effective Time, Parent
shall deliver, or cause to be delivered, to each holder of a
Substitute Option an appropriate notice setting forth such
holder’s rights pursuant thereto and such Substitute Option
shall continue in effect on the same terms and conditions
(including any antidilution provisions, and subject to the
adjustments required by this Section 2.04 after giving
effect to the Merger). Parent shall comply with the terms of all
such Substitute Options and ensure, to the extent required by,
and subject to the provisions of, the Company Stock Option
Plans, that Substitute Options that qualified as incentive stock
options under Section 422 of the Code prior to the
Effective Time continue to qualify as incentive stock options
after the Effective Time. Parent shall take all corporate action
necessary to reserve for issuance a sufficient number of shares
of Parent Common Stock for delivery upon exercise of Substitute
5
Options pursuant to the terms set forth in this
Section 2.04. As soon as practicable after the Effective
Time, the shares of Parent Common Stock subject to Substitute
Options will be covered by an effective registration statement
on Form S-8 (or any successor form) or another appropriate
form, and Parent shall use its reasonable best efforts to
maintain the effectiveness of such registration statement or
registration statements for so long as Substitute Options remain
outstanding. In addition, Parent shall use its reasonable best
efforts to cause the shares of Parent Common Stock subject to
Substitute Options to be listed on the AMEX and such other
exchanges as Parent shall determine.
(c) On or after the date of this Agreement and prior to the
Effective Time, each of Parent and the Company shall take all
necessary action such that, with respect to each member of the
Company Board and each employee of the Company that is subject
to Section 16 of the Exchange Act (as defined in
Section 3.02(b)) the acquisition by such person of Parent
Common Stock or Substitute Options in the Merger and the
disposition by any such person of Company Common Stock or
Company Stock Options pursuant to the transactions contemplated
by this Agreement shall be exempt from the short-swing profit
liability rules of Section 16(b) of the Exchange Act
pursuant to Rule 16b-3 promulgated thereunder.
Section
2.05
Restricted
Stock
.
At the Effective Time, any shares of Company
Common Stock outstanding immediately prior to the Effective Time
that are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under the Company Stock Option
Plans or any applicable restricted stock purchase agreement or
other agreement with the Company (a “
Company Restricted
Stock Award
”) shall be exchanged for shares of Parent
Common Stock pursuant to Section 2.01 that shall be
unvested and subject to the same repurchase option, risk of
forfeiture or other condition to which the applicable Company
Restricted Stock Award is subject, and the certificates
representing such shares of Parent Common Stock may accordingly
be marked with appropriate legends. The Company shall take all
actions that may be necessary to ensure that, from and after the
Effective Time, Parent or the Surviving Corporation is entitled
to exercise any such repurchase options or other rights set
forth in any such restricted stock purchase or other agreement.
Section
2.06
Company
Warrants
.
(a) All warrants to purchase shares of
Company Common Stock, excluding any warrants to purchase shares
of Company Common Stock held directly by Parent (the
“
Company Warrants
”) outstanding at the
Effective Time shall remain outstanding following the Effective
Time. At the Effective Time, the Company Warrants shall, by
virtue of the Merger and without any further action on the part
of the Company or the holder thereof, be assumed by Parent. From
and after the Effective Time, all references to the Company in
the applicable warrant agreements pursuant to which such Company
Warrants were issued (the “
Company Warrant
Agreements
”) shall be deemed to refer to Parent, which
shall have assumed the Company Warrants and Company Warrant
Agreements as of the Effective Time by virtue of this Agreement
and without any further action. Each Company Warrant assumed by
Parent (each, a “
Substitute Warrant
”) shall be
exercisable upon the same terms and conditions as under the
applicable Company Warrant Agreements, except that (A) each
such Substitute Warrant shall be exercisable for, and represent
the right to acquire, that whole number of shares of Parent
Common Stock (rounded downward to the nearest whole share) equal
to the number of shares of Company Common Stock subject to such
Company Warrant multiplied by the Exchange Ratio; and
(B) the exercise price per share of Parent Common Stock
shall be an amount equal to the exercise price per share of
Company Common Stock subject to such Company Warrant in effect
immediately prior to the Effective Time divided by the Exchange
Ratio (the exercise price per share, as so determined, being
rounded upward to the nearest full cent). Such Substitute
Warrants shall otherwise be subject to the same terms and
conditions as such Company Warrants. For illustrative purposes
only, if, immediately prior to the Effective Time, a holder owns
100 Company Warrants, each of which represents the right to
acquire one (1) share of Company Common Stock at an
exercise price of $0.50 per share of Company Warrant, at
the Effective Time such holder’s Company Warrants shall be
converted into eight (8) Substitute Warrants, each of which
will represent the right to acquire one (1) share of Parent
Common Stock at an exercise price of $5.76 per share of
Parent Common Stock.
(b) As soon as practicable after the Effective Time, Parent
shall deliver, or cause to be delivered, to each holder of a
Substitute Warrant an appropriate notice setting forth such
holder’s rights pursuant thereto and such Substitute
Warrant shall continue in effect on the same terms and
conditions (including any antidilution provisions, and subject
to the adjustments required by this Section 2.06 after
giving effect to the Merger).
6
Parent shall comply with the terms of all such Substitute
Warrants. Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent
Common Stock for delivery upon exercise of Substitute Warrants
pursuant to the terms set forth in this Section 2.06.
Parent shall use its reasonable best efforts to cause the shares
of Parent Common Stock subject to Substitute Warrants to be
listed on the AMEX and such other exchanges as Parent shall
determine.
Section
2.07
No
Appraisal Rights
.
In accordance with Section 262 of
the DGCL, no appraisal rights shall be available to holders of
shares of Company Common Stock in connection with the Merger.
Section
2.08
Affiliates
.
Notwithstanding anything to the contrary herein, no Merger
Consideration shall be delivered to a Company Affiliate (as
defined in Section 6.06) until such person has executed and
delivered to Parent an executed copy of the affiliate letter
contemplated in Section 6.06 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Parent and Merger Sub to enter into this
Agreement, the Company hereby represents and warrants to Parent
and Merger Sub that:
Section
3.01
Authority
Relative to this Agreement
.
The Company has all
necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement
(collectively, the “
Transactions
”). The
execution and delivery of this Agreement by the Company and the
consummation by the Company of the Transactions have been duly
and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the
Transactions (other than the Required Company Vote and the
Disinterested Stockholder Vote, each as defined herein, and the
filing and recordation of appropriate merger documents as
required by the DGCL). This Agreement has been duly and validly
executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub,
constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms, subject to the effect of any applicable bankruptcy,
insolvency (including, without limitation, all Laws relating to
fraudulent transfers), reorganization, moratorium or similar
Laws affecting creditors’ rights generally and subject to
the effect of general principles of equity (regardless of
whether considered in a proceeding at law or in equity).
Pursuant to Section 203(b)(2) of the DGCL, in
Article 7, Section 7 of the Company’s By-laws,
the Company has validly elected not to be governed by
Section 203 of the DGCL. To the knowledge of the Company,
no other state takeover statute is applicable to the Merger or
the other transactions contemplated by this Agreement.
Section
3.02
No
Conflict; Required Filings and Consents
.
(a) Except
those set forth in the Company Disclosure Schedule (the
“
Company Disclosure Schedule
”), which has been
prepared by the Company and delivered by the Company to Parent
and Merger Sub prior to the execution and delivery of this
Agreement, the execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the
Company will not, (i) conflict with or violate the
Certificate of Incorporation or By-laws or any equivalent
organizational documents of the Company or any of its
subsidiaries, (ii) assuming that all consents, approvals,
authorizations and other actions described in
Section 3.02(b) have been obtained and all filings and
obligations described in Section 3.02(b) have been made,
conflict with or violate any United States, non-Canadian or
non-United States or Canadian statute, law, ordinance,
regulation, rule, code, executive order, injunction, judgment,
decree or other order (“
Law
”) applicable to the
Company or any of its subsidiaries or by which any property or
asset of the Company or any of its subsidiaries is bound or
affected, or (iii) 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 any
property or asset of the Company or any of its subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or
any property or asset of either of them is bound or affected,
7
except, with respect to clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other
occurrences which would not, individually or in the aggregate,
prevent or materially delay consummation of any of the
Transactions or otherwise prevent or materially delay the
Company from performing its obligations under this Agreement and
would not, individually or in the aggregate, have a Company
Material Adverse Effect (as defined in Section 9.03(a)).
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the
Company will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any United
States federal, state, county or local or non-United States
government, governmental, regulatory or administrative
authority, agency, instrumentality or commission or any court,
tribunal, or judicial or arbitral body (a “
Governmental
Authority
”), except (i) for applicable
requirements, if any, of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder
(the “
Exchange Act
”), state and provincial
securities or “blue sky” Laws (“
Blue Sky
Laws
”) and, filing and recordation of appropriate
merger documents as required by the DGCL, and (ii) where
the failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications, would not,
individually or in the aggregate, prevent or materially delay
consummation of any of the Transactions or otherwise prevent or
materially delay the Company from performing its obligations
under this Agreement, and would not, individually or in the
aggregate, have a Company Material Adverse Effect.
Section
3.03
Board
Approval; Vote Required
.
(a) The Special Committee,
by resolutions duly adopted by unanimous vote of those voting at
a meeting duly called and held and not subsequently rescinded or
modified in any way, has duly (i) determined that the
Merger is advisable, fair to, and in the best interests of the
stockholders of the Company (other than Parent and its
affiliates and associates), and (ii) recommended the
approval and adoption of this Agreement by the Company Board.
(b) The Company Board, by resolutions duly adopted by
unanimous vote of those voting at a meeting duly called and held
and not subsequently rescinded or modified in any way, has duly
(i) determined that the Merger is advisable, fair to, and
in the best interests of the stockholders of the Company (other
than Parent and its affiliates and associates),
(ii) approved and adopted this Agreement and declared its
advisability and approved the Merger and the other transactions
contemplated by this Agreement, and (iii) recommended the
approval and adoption of this Agreement by the stockholders of
the Company and directed that this Agreement be submitted for
consideration by the Company’s stockholders at the Company
Stockholders’ Meeting (as defined in Section 6.01(a)).
(c) Subject to Section 7.01(b), the only vote of the
holders of any class or series of capital stock of the Company
necessary to approve this Agreement, the Merger and the other
Transactions is the Required Company Vote.
Section
3.04
[Reserved]
Section
3.05
Opinion
of Financial Advisor
.
The Special Committee has received
the written opinion of Houlihan Lokey Howard & Zukin
(the “
HLHZ Fairness Opinion
”), dated the date
of this Agreement, to the effect that, as of the date of this
Agreement, the Exchange Ratio is fair, from a financial point of
view, to the Company’s stockholders (other than Parent and
its affiliates and associates), a copy of which opinion has
heretofore been furnished to Parent prior to the execution and
delivery of this Agreement.
Section
3.06
Brokers
.
No broker, finder or investment banker (other than Houlihan
Lokey Howard & Zukin) is entitled to any
brokerage, finder’s or other fee or commission in
connection with the Transactions based upon arrangements made by
or on behalf of the Company. The Company has heretofore
furnished to Parent a complete and correct copy of all
agreements between the Company and Houlihan Lokey
Howard & Zukin pursuant to which such firm would be
entitled to any payment relating to the Transactions.
8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As an inducement to the Company to enter into this Agreement,
Parent and Merger Sub hereby, jointly and severally, represent
and warrant to the Company that:
Section
4.01
Corporate
Organization
.
(a) Each of Parent and each
subsidiary of Parent, excluding the Company and its subsidiaries
(each a “
Subsidiary
” and collectively, the
“
Subsidiaries
”), is a corporation amalgamated
or incorporated, as applicable, validly existing and in good
standing under the laws of the jurisdiction of its amalgamation
or incorporation, as applicable, and has the requisite corporate
power and authority to own, lease and operate its properties and
to carry on its business as it is now being conducted and is
duly qualified to do business in each jurisdiction where the
character of its activities requires such qualification, except
where the failure to be so amalgamated or incorporated, as
applicable, existing or in good standing, to have such power and
authority or to be so qualified would not, individually or in
the aggregate, prevent or materially delay consummation of any
of the Transactions or otherwise prevent or materially delay
Parent or Merger Sub from performing their obligations under
this Agreement and would not, individually or in the aggregate,
have a Parent Material Adverse Effect (as defined in
Section 9.03(a)).
(b) A true and complete list of all the Subsidiaries,
together with the jurisdiction of incorporation of each
Subsidiary and the percentage of the outstanding capital stock
of each Subsidiary owned by Parent and each other Subsidiary, is
set forth in Section 4.01(b) of the Parent Disclosure
Schedule (the “
Parent Disclosure Schedule
”),
which has been prepared by Parent and delivered by Parent to the
Company prior to the execution and delivery of this Agreement.
Except as disclosed in Section 4.01(b) of the Parent
Disclosure Schedule, Parent does not directly or indirectly own
any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity or similar
interest in, any corporation, partnership, joint venture or
other business association or entity.
(c) Each Subsidiary that is material to the business,
financial condition or results of operations of Parent and the
Subsidiaries taken as a whole is so identified in
Section 4.01(c) of the Parent Disclosure Schedule and is
referred to herein as a “
Material Subsidiary
”.
Section
4.02
Certificate
of Amalgamation and By-laws
.
Parent has heretofore
furnished to the Company a complete and correct copy of the
Articles of Amalgamation and the By-laws of Parent and the
Articles of Incorporation or Certificate of Amalgamation and
By-laws of each Material Subsidiary, each as amended to date.
Such Articles of Amalgamation, Articles of Incorporation or
Certificate of Incorporation as applicable, and By-laws are in
full force and effect. Neither Parent nor any Material
Subsidiary is in violation of any of the provisions of its
Articles of Amalgamation, Articles of Incorporation or
Certificate of Incorporation as applicable, or By-laws.
Section
4.03
Capitalization
.
(a) The authorized capital stock of Parent consists of
(i) an unlimited number of shares of Parent Common Stock,
(ii) an unlimited number of Class B Multiple Voting
Shares (“
Parent Class B Shares
”),
(iii) 100,000 Class C Shares (“
Parent
Class C Shares
”), (iv) an unlimited number of
non-voting common shares (“
Parent Non-Voting
Shares
”), and (v) 2,034,578 Series A
preferred shares (“
Parent Preferred Stock
”). As
of the date of this Agreement, (i) 85,450 shares of
Parent Common Stock are issued and outstanding, all of which are
validly issued, fully paid and non-assessable, (ii) nil
shares of Parent Common Stock are held in the treasury of
Parent, (iii) nil shares of Parent Common Stock are held by
subsidiaries of Parent, (iv) 7,213,094 Parent Class B
Shares are issued and outstanding, all of which are validly
issued, fully paid and non-assessable, (vi) nil Parent
Class C Shares are issued and outstanding, (vi) nil
Parent Non-Voting Shares are issued and outstanding, and
(vii) 1,022,350 shares of Parent Preferred Stock are
issued and outstanding, all of which are validly issued, fully
paid and non-assessable. As of the date of this Agreement, no
other shares of Parent Preferred Stock are issued and
outstanding. Except as set forth in this Section 4.03 and
in Section 4.03(a) of the Parent Disclosure Schedule and
except for stock options granted pursuant to the stock option
plan of Parent (the “
Parent Stock Option
Plan
”), there are no options, warrants or other rights,
agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Parent or
any Subsidiary or obligating Parent or any Subsidiary to issue or
9
sell any shares of capital stock of, or other equity interests
in, Parent or any Subsidiary. Section 4.03(a) of the Parent
Disclosure Schedule sets forth a correct and complete list, as
of the date hereof, of the holders of all stock options granted
pursuant to the Parent Stock Option Plan, the number of options
held by each such holder and the exercise price and the date of
grant of each such option. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they
are issuable, will be duly authorized, validly issued, fully
paid and non-assessable. Except as disclosed in
Section 4.03(a) of the Parent Disclosure Schedule, there
are no outstanding contractual obligations of Parent or any
Subsidiary to repurchase, redeem or otherwise acquire any shares
of Parent Common Stock or any capital stock of any Subsidiary.
Except as disclosed in Section 4.03(a) of the Parent
Disclosure Schedule, there are no outstanding contractual
obligations of Parent to provide funds to, or make any
investment (in the form of a loan, capital contribution or
otherwise) in, any Subsidiary or any other person.
(b) Except as disclosed in Section 4.03(b) of the
Parent Disclosure Schedule, as of the Effective Time,
(i) 1,623,644 shares of Parent Common Stock will be
issued and outstanding, all of which will be validly issued,
fully paid and non-assessable, (ii) nil shares of Parent
Common Stock will be held in the treasury of Parent,
(iii) nil shares of Parent Common Stock will be held by
subsidiaries of Parent, (iv) 7,717,970 Parent Class B
Shares will be issued and outstanding, all of which will be
validly issued, fully paid and non-assessable, (v) nil
Parent Class C Shares will be issued and outstanding,
(vi) nil Parent Non-Voting Shares will be issued and
outstanding, and (vii) nil shares of Parent Preferred Stock
will be issued and outstanding.
(c) The authorized capital stock of Merger Sub consists of
200 shares of common stock, par value $0.01 per share,
all of which are duly authorized, validly issued, fully paid and
non-assessable and free of any preemptive rights in respect
thereof and all of which are owned by Parent. Each outstanding
share of capital stock of Merger Sub is duly authorized, validly
issued, fully paid and non-assessable and each such share is
owned by Parent or Merger Sub free and clear of all security
interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on Parent’s or Merger
Sub’s voting rights, charges and other encumbrances of any
nature whatsoever.
(d) The shares of Parent Common Stock to be issued pursuant
to the Merger in accordance with Section 2.01 (i) will
be duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by
statute, the Parent’s Articles of Amalgamation or By-laws
or any agreement to which the Parent is a party or is bound and
(ii) will, when issued, be registered under the Securities
Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the “
Securities Act
”)
and the Exchange Act and registered or exempt from registration
under applicable Blue Sky Laws.
Section
4.04
Authority
Relative to this Agreement
.
Each of Parent and Merger
Sub has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder
and to consummate the Transactions. The execution and delivery
of this Agreement by Parent and Merger Sub and the consummation
by Parent and Merger Sub of the Transactions have been duly and
validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Parent or Merger Sub
are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the filing
and recordation of appropriate merger documents as required by
the DGCL). This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming due
authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of
Parent and Merger Sub, enforceable against each of Parent and
Merger Sub in accordance with its terms, subject to the effect
of any applicable bankruptcy, insolvency (including, without
limitation, all Laws relating to fraudulent transfers),
reorganization, moratorium or similar Laws affecting
creditors’ rights generally and subject to the effect of
general principles of equity (regardless of whether considered
in a proceeding at law or in equity).
Section
4.05
No
Conflict; Required Filings and Consents
.
(a) The
execution and delivery of this Agreement by Parent and Merger
Sub do not, and the performance of this Agreement by Parent and
Merger Sub will not, (i) conflict with or violate the
Articles of Amalgamation, Articles of Incorporation or
Certificate of Incorporation, as applicable, or By-laws of
Parent or any Subsidiary, (ii) assuming that all consents,
10
approvals, authorizations and other actions described in
Section 4.05(b) have been obtained and all filings and
obligations described in Section 4.05(b) have been made,
conflict with or violate any Law applicable to Parent or any
Subsidiary or by which any property or asset of either of them
is bound or affected, or (iii) 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 rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Parent or any Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which Parent or any Subsidiary is a party or by
which Parent or any Subsidiary or any property or asset of
either of them is bound or affected, except, with respect to
clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which would not,
individually or in the aggregate, prevent or materially delay
consummation of any of the Transactions or otherwise prevent or
materially delay Parent and Merger Sub from performing their
obligations under this Agreement and would not, individually or
in the aggregate, have a Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent
and Merger Sub do not, and the performance of this Agreement by
Parent and Merger Sub will not, require any consent, approval,
authorization or permit of, or filing with or notification to,
any Governmental Authority, except (i) for applicable
requirements of, or exemptions under, the Securities Act,
Exchange Act, Blue Sky Laws or Canadian securities laws and
filing and recordation of appropriate merger documents as
required by the DGCL, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make
such filings or notifications, would not, individually or in the
aggregate, prevent or materially delay consummation of any of
the Transactions or otherwise prevent Parent or Merger Sub from
performing, in all material respects, their obligations under
this Agreement.
Section
4.06
Permits;
Compliance
.
Except as disclosed in Section 4.06 of
the Parent Disclosure Schedule, each of Parent and its
Subsidiaries is in possession of all material franchises,
grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any
Governmental Authority necessary for Parent or any Subsidiary to
own, lease and operate its material properties or to carry on
its business as it is now being conducted (the “
Parent
Permits
”). As of the date of this Agreement, no
suspension or cancellation of any of the Parent Permits is
pending or, to the knowledge of Parent, threatened. Neither
Parent nor any Subsidiary is in conflict with, or in default,
breach or violation of, (a) any Law applicable to Parent or
any Subsidiary or by which any material property or asset of
Parent or any Subsidiary is bound or affected, or (b) any
material note, bond, mortgage, indenture, contract, agreement,
lease, license, franchise, Parent Permit or other material
instrument or obligation to which Parent or any Subsidiary is a
party or by which Parent or any Subsidiary or any property or
asset of Parent or any Subsidiary is bound.
Section
4.07
SEC
Filings
.
Parent has filed all forms, schedules, reports
and documents required to be filed by it with the Securities and
Exchange Commission (the “
SEC
”) since
July 31, 2002 (collectively, the “
Parent SEC
Reports
”). The Parent SEC Reports (i) were
prepared in all material respects in accordance with either the
requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations promulgated
thereunder, and (ii) did not, at the time they were filed,
or, if amended, as of the date of such amendment, contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances
under which they were made, not misleading.
Section
4.08
Financial
Statement; Undisclosed Liabilities
.
(a) Schedule 4.08 of the Parent Disclosure Schedule
contains copies of (i) the consolidated audited balance
sheets and related consolidated audited annual statements of
operations and deficit and cash flows of Parent (as of and for
the fiscal years ended March 29, 2003 and March 27,
2004) (the “
Audited Financial Statements
”); and
(ii) the consolidated unaudited balance sheet of Parent as
of December 25, 2004 and the related consolidated unaudited
statements of operations and deficit and cash flows for the
39-week period then ended (the “
Unaudited Financial
Statements
”). The Audited Financial Statements and the
Unaudited Financial Statements are hereinafter referred to,
collectively, as the “
Financial Statements
.”
Each of the balance sheets included in the Financial Statements
(including any related notes and schedules) fairly presents in
all material respects the consolidated
11
financial position of Parent, as of the date thereof, and each
of the statements of operations and deficit and cash flows
included in the Financial Statements (including any related
notes and schedules) fairly presents in all material respects
the consolidated results of operations and changes in cash
flows, as the case may be, of Parent for the periods set forth
therein, in each case in accordance with GAAP (as defined in
Section 4.10(a)), subject in the case of the Unaudited
Financial Statements, to normal recurring adjustments and the
absence of footnotes.
(b) There are no liabilities or obligations of Parent or
any Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and
there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in
such a liability or obligation, other than: (i) liabilities
fully reflected or provided for in the most recent balance sheet
included in the Financial Statements and (ii) liabilities
or obligations disclosed in the Parent Disclosure Schedule.
Section
4.09
Absence
of Certain Changes or Events
.
Since March 27, 2004,
except as set forth in Section 4.09 of the Parent
Disclosure Schedule, or as expressly contemplated by this
Agreement, (a) Parent has conducted its business only in
the ordinary course and in a manner consistent with past
practice, and (b) there has not been any Parent Material
Adverse Effect and (c) none of Parent or any Subsidiary has
taken any action that, if taken after the date of this
Agreement, would constitute a breach of any of the covenants set
forth in Section 5.02.
Section
4.10
Internal
Controls
.
(a) Parent’s financial reporting is
in accordance with United States generally accepted accounting
principles (“
GAAP
”). Parent and its
Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with
management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and
to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or
specific authorization, and (iv) the recorded
accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with
respect to any differences. Parent has made available to the
Company complete and correct copies of, all written descriptions
of, and all policies, manuals and other documents promulgating,
such internal accounting controls.
(b) Since March 27, 2004, neither Parent nor any
Subsidiary nor, to Parent’s knowledge, any director,
officer, employee, auditor, accountant or representative of
Parent or any Subsidiary, has received or otherwise had or
obtained knowledge of any complaint, allegation, assertion or
claim, whether written or oral, regarding the accounting or
auditing practices, procedures, methodologies or methods of
Parent or any Subsidiary or their respective internal accounting
controls, including any complaint, allegation, assertion or
claim that Parent or any Subsidiary has engaged in questionable
accounting or auditing practices.
Section
4.11
Absence
of Litigation
.
Except as set forth in Section 4.11
of the Parent Disclosure Schedule, there is no litigation, suit,
claim, action, proceeding or investigation (an
“
Action
”) pending or, to the knowledge of
Parent, threatened against Parent or any Subsidiary, or any
property or asset of Parent or any Subsidiary, before any
Governmental Authority that (a) individually or in the
aggregate, is reasonably likely to have a Parent Material
Adverse Effect or (b) seeks to materially delay or prevent
the consummation of the Merger. Neither Parent nor any
Subsidiary nor any material property or asset of Parent or any
Subsidiary is subject to any continuing order of, consent
decree, settlement agreement or other similar written agreement
with, or, to the knowledge of Parent, continuing investigation
by, any Governmental Authority that would, individually or in
the aggregate, prevent or materially delay consummation of any
of the Transactions or otherwise prevent or materially delay
Parent or Merger Sub from performing its obligations under this
Agreement or, individually or in the aggregate, is reasonably
likely to have a Parent Material Adverse Effect.
Section
4.12
Employee
Benefit Plans
.
(a) Section 4.12(a) of Parent
Disclosure Schedule lists all employee benefit plans and all
bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment,
termination, severance or other contracts or agreements, whether
legally enforceable or not, to which Parent or any Subsidiary is
a party, with respect to which Parent or any Subsidiary has any
obligation or which are maintained, contributed to or sponsored
by Parent or any
12
Subsidiary for the benefit of any current or former employee,
officer or director of Parent or any Subsidiary (collectively,
the “
Plans
”).
(b) Each Plan is now and always has been operated in all
material respects in accordance with its terms and the
requirements of all applicable Laws. Parent and the Subsidiaries
have performed all obligations required to be performed by them
under, are not in any respect in default under or in violation
of, and have no knowledge of any default or violation by any
party to, any Plan. Except as otherwise described in the Parent
Disclosure Schedule, no Action is pending or, to the knowledge
of Parent, threatened with respect to any Plan (other than
claims for benefits in the ordinary course).
(c) All contributions, premiums or payments required to be
made with respect to any Plan have been made on or before their
due dates. All such contributions have been fully deducted for
income tax purposes and no such deduction has been challenged or
disallowed by any Governmental Authority.
(d) Except as noted in Section 4.12(d) of the Parent
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the Transactions will (either
alone or in conjunction with any other event, including
termination of employment) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any
severance, termination or other payment or benefit to any
director, officer, employee or consultant of Parent or any
Subsidiary.
Section
4.13
Labor
and Employment Matters
.
(a) Except as set forth in
Section 4.13(a) of Parent Disclosure Schedule,
(i) there are no material controversies pending or, to the
knowledge of Parent, threatened between Parent or any Subsidiary
and any of their respective employees; (ii) neither Parent
nor any Subsidiary is a party to any collective bargaining
agreement or other labor union contract applicable to persons
employed by Parent or any Subsidiary, nor, to the knowledge of
Parent, are there any activities or proceedings of any labor
union to organize any such employees; and (iii) there are
no unfair labor practice complaints pending against Parent or
any Subsidiary before any Governmental Authority.
(b) Parent and the Subsidiaries are in material compliance
with all applicable Laws relating to the employment of labor,
including those related to wages, hours, collective bargaining
and the payment and withholding of taxes and other sums as
required by the appropriate Governmental Authority and have
withheld and paid to the appropriate Governmental Authority or
are holding for payment not yet due to such Governmental
Authority all amounts required to be withheld from employees of
Parent or any Subsidiary and are not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply with
any of the foregoing. Parent and the Subsidiaries have paid in
full to all employees or adequately accrued for in accordance
with GAAP consistently applied all wages, salaries, commissions,
bonuses, benefits and other compensation due to or on behalf of
such employees and, except as described in the Parent Disclosure
Schedule, there is no material claim or group of related claims
with respect to payment of wages, salary or overtime pay that
has been asserted or is now pending or threatened before any
Governmental Authority with respect to any persons currently or
formerly employed by Parent or any Subsidiary. Except as
described in Section 4.13(b) of the Parent Disclosure
Schedule, neither Parent nor any Subsidiary is a party to, or
otherwise bound by, any consent decree with, or citation by, any
Governmental Authority relating to employees or employment
practices. Except as described in Section 4.13(b) of the
Parent Disclosure Schedule, there is no charge or proceeding
with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened
with respect to Parent. Except as described in
Section 4.13(b) of the Parent Disclosure Schedule, there is
no charge of discrimination in employment or employment
practices, for any reason, including, without limitation, age,
gender, race, religion or other legally protected category,
which has been asserted or is now pending or threatened before
any Governmental Authority in any jurisdiction in which Parent
or any Subsidiary has employed or employ any person.
Section
4.14
Real
Property; Title to Assets
.
(a) Section 4.14(a)
of the Parent Disclosure Schedule lists each parcel of real
property currently or formerly owned by Parent or any
Subsidiary. Except as disclosed in Section 4.14(a) of the
Parent Disclosure Schedule, each parcel of real property owned
by Parent or any Subsidiary (i) is owned free and clear of
all mortgages, pledges, liens, security interests, conditional
and installment sale agreements, encumbrances, charges or other
claims of third parties of any kind, including, without
limitation, any easement, right of way or other encumbrance to
title, or any option, right of
13
first refusal, or right of first offer (collectively,
“
Liens
”), other than (A) Liens for current
taxes and assessments not yet past due, (B) inchoate
mechanics’ and materialmen’s Liens for construction in
progress, (C) supplier’s, workmen’s,
repairmen’s, warehousemen’s and carriers’ Liens
arising in the ordinary course of business of Parent or such
Subsidiary consistent with past practice, and (D) all
matters of record, Liens and other imperfections of title and
encumbrances that would not, individually or in the aggregate,
have a Parent Material Adverse Effect (collectively,
“
Permitted Liens
”), and (ii) is neither
subject to any governmental decree or order to be sold nor is
being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor,
to the knowledge of Parent, has any such condemnation,
expropriation or taking been proposed.
(b) Section 4.14(b) of the Parent Disclosure Schedule
lists each parcel of real property currently leased or subleased
by Parent or any Subsidiary, pursuant to a lease agreement to
which Parent and the Subsidiaries are parties (collectively, the
“
Lease Documents
”). True, correct and complete
copies of all Lease Documents have been delivered to the
Company. All such current leases and subleases are in full force
and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases,
any existing material default or event of default (or event
which, with notice or lapse of time, or both, would constitute a
default) by Parent or any Subsidiary.
(c) There are no contractual or legal restrictions that
preclude or restrict the ability to use any real property owned
or leased by Parent or any Subsidiary for the purposes for which
it is currently being used. There are no latent defects or
adverse physical conditions affecting the real property, and
improvements thereon, owned or leased by Parent or any
Subsidiary other than those that would not, individually or in
the aggregate, prevent or materially delay consummation of any
of the Transactions or otherwise prevent or materially delay
Parent or Merger Sub from performing its obligations under this
Agreement and would not, individually or in the aggregate, have
a Parent Material Adverse Effect.
(d) Each of Parent and the Subsidiaries has good and valid
title to, or, in the case of leased properties and assets, valid
leasehold or subleasehold interests in, all of its properties
and assets, tangible and intangible, real, personal and mixed,
used or held for use in its business, free and clear of any
Liens, except for such imperfections of title, if any, that do
not materially interfere with the present value of the subject
property and that would not have a Parent Material Adverse
Effect.
Section
4.15
Intellectual
Property
.
(a) To the knowledge of Parent, the
conduct of the business of Parent and the Subsidiaries as
currently conducted does not infringe upon or misappropriate the
Intellectual Property rights of any third party in any material
respect, and no claim has been asserted to Parent that the
conduct of the business of Parent and the Subsidiaries as
currently conducted infringes upon or may infringe upon or
misappropriates the Intellectual Property Rights of any third
party in any material respect; (b) Parent and the
Subsidiaries own, or have the right to use pursuant to licenses,
sublicenses, agreements, or permissions, all Intellectual
Property material to the operation of the business of Parent and
the Subsidiaries as presently conducted; (c) with respect
to each item of Intellectual Property owned by Parent or a
Subsidiary and material to the business, financial condition or
results of operations of Parent and the Subsidiaries taken as a
whole (“
Parent Owned Intellectual Property
”),
Parent or a Subsidiary is the owner of the entire right, title
and interest in and to such Parent Owned Intellectual Property
and is entitled to use such Parent Owned Intellectual Property
in the continued operation of its respective business;
(d) with respect to each item of Intellectual Property
licensed to Parent or a Subsidiary that is material to the
business of Parent and the Subsidiaries as currently conducted
(“
Parent Licensed Intellectual Property
”),
Parent or a Subsidiary has the right to use such Parent Licensed
Intellectual Property in the continued operation of its
respective business in accordance with the terms of the license
agreement governing such Parent Licensed Intellectual Property;
(e) Parent Owned Intellectual Property is valid and
enforceable, and has not been adjudged invalid or unenforceable
in whole or in part; (f) to the knowledge of Parent, no
person is engaging in any activity that infringes upon Parent
Owned Intellectual Property in any material respect; (g) to
the knowledge of Parent, each license of Parent Licensed
Intellectual Property is valid and enforceable, is binding on
all parties to such license, and is in full force and effect;
(h) to the knowledge of Parent, no party to any license of
Parent Licensed Intellectual Property is in material breach
thereof or default thereunder; and (i) neither the execution
14
of this Agreement nor the consummation of any Transaction shall
adversely affect any of Parent’s material rights with
respect to Parent Owned Intellectual Property or Parent Licensed
Intellectual Property.
Section
4.16
Taxes
.
Parent and the Subsidiaries have filed all material Tax returns
and reports required to be filed by them and have paid and
discharged all material Taxes required to be paid or discharged
by them, other than such payments as are being contested in good
faith by appropriate proceedings. No taxing authority or agency
is now asserting or, to the knowledge of Parent, threatening to
assert against Parent or any Subsidiary any deficiency or claim
for any Taxes or interest thereon or penalties in connection
therewith. Section 4.16 of the Parent Disclosure Schedule
describes all Tax audits and investigations currently being
conducted by any Governmental Authority. The accruals and
reserves for Taxes reflected in the March 27, 2004 balance
sheet of Parent are adequate to cover all Taxes accruable
through such date (including interest and penalties, if any,
thereon) in accordance with GAAP. There are no Tax liens upon
any property or assets of Parent or any of the Subsidiaries
except liens for current Taxes not yet due. To the knowledge of
Parent, neither Parent nor any of its affiliates has taken or
agreed to take any action that would prevent the Merger from
qualifying as a reorganization within the meaning of
Section 368(a) of the Code. Parent is not aware of any
agreement, plan or other circumstance that would
(i) prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code or
(ii) cause Section 367(a)(1) of the Code to apply to
any person other than a five-percent transferee shareholder.
Section
4.17
Environmental
Matters
.
Except as described in Section 4.17 of
Parent Disclosure Schedule (a) none of Parent nor any of
the Subsidiaries has violated in any material respect or is in
material violation of any Environmental Law; (b) none of
Parent nor any of the Subsidiaries has received any written
notice of actual or alleged material violations of any
Environmental Law; (c) none of the properties owned, leased
or operated by Parent or any Subsidiary (including, without
limitation, soils and surface and ground waters) are materially
contaminated with any Hazardous Substance; (d) none of
Parent or any of the Subsidiaries is actually or allegedly
liable in any material respect for any material contamination by
Hazardous Substances; (e) none of Parent or any of the
Subsidiaries is actually or allegedly liable in any material
respect under any Environmental Law; (f) none of the real
property owned, operated or leased by Parent or any Subsidiary
contains any asbestos in any form or polychlorinated biphenyls
in any form; (g) none of the real property owned, operated
or leased by Parent or any Subsidiary has ever or currently has
any underground storage tanks used to hold Hazardous Substances;
(h) each of Parent and each Subsidiary has all material
permits, licenses and other authorizations required under any
Environmental Law (“
Environmental Permits
”);
and (i) none of Parent nor any of the Subsidiaries has
received any written notice from any Governmental Authority
proposing to or threatening to revoke, cancel, rescind,
materially modify or refuse to renew any Environmental Permit.
Section
4.18
Material
Contracts
.
(a) Subsections (i) through
(viii) of Section 4.18(a) of Parent Disclosure
Schedule lists the following types of contracts and agreements
to which Parent or any Subsidiary is a party (such contracts and
agreements as are required to be set forth in
Section 4.18(a) of Parent Disclosure Schedule being the
“
Material Contracts
”):
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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 Parent and its Subsidiaries;
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(ii) each contract and agreement which is likely to involve
consideration of more than $2,500,000, in the aggregate, over
the remaining term of such contract or agreement;
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(iii) all material broker, distributor, supply, dealer,
manufacturer’s representative, franchise, agency, sales
promotion, market research, marketing consulting and advertising
contracts and agreements to which Parent or any Subsidiary is a
party;
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(iv) all management contracts (excluding contracts for
employment) and contracts with other consultants, including any
contracts involving the payment of royalties or other amounts
calculated based upon the revenues or income of Parent or any
Subsidiary or income or revenues related to any product of
Parent or any Subsidiary to which Parent or any Subsidiary is a
party;
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(v) all material contracts and agreements under which it
has created, incurred, assumed, or guaranteed any material
indebtedness or under which it has imposed a material Lien on
any of its assets, tangible or intangible;
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(vi) all material contracts and agreements with any
Governmental Authority to which Parent or any Subsidiary is a
party;
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(vii) all contracts and agreements that materially limit,
or purport to materially limit, the ability of Parent or any
Subsidiary to compete in any line of business or with any person
or entity or in any geographic area or during any period of time;
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(viii) all other contracts and agreements, whether or not
made in the ordinary course of business, which are material to
Parent or the conduct of its business, or the absence of which
would, individually or in the aggregate, prevent or materially
delay consummation of any of the Transactions or otherwise
prevent or materially delay Parent or Merger Sub from performing
its obligations under this Agreement or would, individually or
in the aggregate, have a Parent Material Adverse Effect;
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(ix) any material agreement concerning a partnership or
joint venture; and
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(x) any agreement under which it has advanced or loaned any
amount to any of its stockholders, affiliates, directors,
officers, or employees other than in the ordinary course of
business.
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(b) Except as would not, individually or in the aggregate,
prevent or materially delay consummation of any of the
Transactions or otherwise prevent or materially delay Parent or
Merger Sub from performing its obligations under this Agreement
and would not, individually or in the aggregate, have a Parent
Material Adverse Effect, (i) each Material Contract is a
legal, valid and binding agreement, and none of the Material
Contracts is in default by its terms or has been canceled by the
other party; (ii) to Parent’s knowledge, no other
party is in breach or violation of, or default under, any
Material Contract; (iii) Parent and the Subsidiaries have
not received any claim of default under any such agreement; and
(iv) neither the execution of this Agreement nor the
consummation of any Transaction shall constitute a default
under, give rise to cancellation rights under, or otherwise
adversely affect any of the rights of Parent or any Subsidiary
under any Material Contract. Parent has furnished or made
available to the Company true and complete copies of all
Material Contracts, including any amendments thereto.
Section
4.19
Insurance
.
Parent and its Subsidiaries maintain insurance coverage with
reputable insurers in such amounts and covering such risks as
are in accordance with normal industry practice for companies
engaged in businesses similar to that of Parent and its
Subsidiaries. There is no claim pending under any of such
policies as to which coverage has been denied or disputed by the
underwriters of such policies. All premiums due and payable
under all such policies have been paid, and Parent and its
Subsidiaries are otherwise in compliance in all material
respects with the terms of such policies. To the knowledge of
Parent, there has been no threatened termination of, or material
premium increase with respect to, any of such policies.
Section
4.20
Customers
and Suppliers
.
As of the date of this Agreement, none of
the Parent’s ten largest customers accounted for more
than ten percent of Parent’s consolidated revenues during
the 12-month period ended as of December 25, 2004 and no
material supplier of Parent and its Subsidiaries, (i) has
cancelled or otherwise terminated any Material Contract with
Parent or any Subsidiary prior to the expiration of its term, or
(ii) to Parent’s knowledge, has threatened, or
indicated its intention, to cancel or otherwise terminate its
relationship with Parent or its Subsidiaries or to reduce
substantially its purchase from or sale to Parent or any
Subsidiary of any products, equipment, goods or services.
Section
4.21
Certain
Business Practices
.
None of Parent, any Subsidiary or,
in connection with the operation of the business of Parent or
any Subsidiary, any directors or officers, agents or employees
of Parent or any Subsidiary, has (i) directly or indirectly
given or agreed to give any funds for unlawful contributions,
payments, gifts, entertainment or other unlawful expenses
related to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees
or to foreign or domestic political parties
16
or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any
payment in the nature of criminal bribery.
Section
4.22
Interested
Party Transactions
.
Except as disclosed in
Section 4.22 of the Parent Disclosure Schedule, no
director, officer or other affiliate of Parent or any Subsidiary
has or has had, directly or indirectly, (i) an economic
interest in any person that has furnished or sold, or furnishes
or sells, services or products that Parent or any Subsidiary
furnishes or sells, or proposes to furnish or sell; (ii) an
economic interest in any person that purchases from or sells or
furnishes to, Parent or any Subsidiary, any goods or services;
(iii) a beneficial interest in any contract or agreement
disclosed in Section 4.18(a) of the Parent Disclosure
Schedule; or (iv) any contractual or other arrangement with
Parent or any Subsidiary.
Section
4.23
No
Vote Required
.
No vote of the stockholders of Parent is
required by Law, Parent’s Articles of Amalgamation or
By-laws or otherwise in order for Parent and Merger Sub to
consummate the Transactions.
Section
4.24
Accounts
Receivable
.
All accounts receivable of Parent and its
Subsidiaries reflected in the Financial Statements arose from,
and such accounts receivable existing as of the Effective Time
will have arisen from, the sale of goods or services in the
ordinary course of business consistent with past practice and,
to the knowledge of Parent, constitute only valid and undisputed
claims of Parent or a Subsidiary not subject to valid claims of
setoff or other defenses or counterclaims other than normal cash
discounts accrued in the ordinary course of business consistent
with past practice. Such accounts receivable are collectible in
a manner consistent with Parent’s past practice.
Section
4.25
Inventories
.
Subject to amounts reserved therefore on the Financial
Statements, the values at which all inventory, merchandise,
finished goods, work in process and raw materials of Parent and
its Subsidiaries (“
Inventories
”) are carried on
the Financial Statements reflect the historical inventory
valuation policy of Parent and the Subsidiaries of stating such
Inventories at the lower of cost (determined in a manner
consistent with the valuation of Inventories in the Financial
Statements) or market value. Except as set forth in
Section 4.25 of the Parent Disclosure Schedule:
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(a) Parent or a Subsidiary, as the case may be, has good
and marketable title to the Inventories free and clear of all
Liens other than Permitted Liens.
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(b) Parent has adequately provided for obsolescence and
returns and the provision for obsolescence and returns is
accurately reflected, in all material respects, in the Financial
Statements.
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(c) Neither Parent nor any Subsidiary has acquired or
committed to acquire or manufacture Inventory for sale which is
not of a quality and quantity usable in the ordinary course of
business within a reasonable period of time and consistent with
past practice. The Inventories are in good and merchantable
condition in all material respects, are suitable and usable for
the purposes for which they are intended and are in a condition
such that they can be sold in the ordinary course of the
business of Parent and its Subsidiaries consistent with past
practice.
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Section
4.26
Operations
of Merger Sub
.
Merger Sub is a direct, wholly owned
subsidiary of Parent, was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its
operations only as contemplated by this Agreement. Except for
obligations and liabilities incurred in connection with its
organization and the transactions contemplated by this
Agreement, Merger Sub has no obligations or liabilities.
Section
4.27
Brokers
.
No broker, finder or investment banker (other than Bear Stearns)
is entitled to any brokerage, finder’s or other fee or
commission in connection with the Transactions based upon
arrangements made by or on behalf of Parent or Merger Sub.
Parent has heretofore furnished to the Company a complete and
correct copy of all written agreements between Parent and Bear
Stearns pursuant to which such firm would be entitled to any
payment relating to the Transactions.
17
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section
5.01
Conduct
of Business by the Company Pending the Merger
.
Except as
expressly contemplated by any other provision of this Agreement
or at the direction of, or as consented to by, Parent or its
affiliates or associates, the Company agrees that, between the
date of this Agreement and the Effective Time, the businesses of
the Company and its subsidiaries shall be conducted, and the
Company and its subsidiaries shall not take any action except,
in all material respects, in the ordinary course of business and
in a manner consistent with past practice.
Section
5.02
Conduct
of Business by Parent Pending the Merger
.
Except as
expressly contemplated by any other provision of this Agreement,
Parent agrees that from the date of this Agreement until the
earlier of the termination of this Agreement and the Effective
Time, Parent shall not except as disclosed in Section 5.02
of the Parent Disclosure Schedule, directly or indirectly, do,
or propose to do, any of the following without the prior written
consent of the Company:
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(a) conduct the businesses of Parent and the Subsidiaries
in a manner, or take any action with respect to the businesses
of Parent and the Subsidiaries, that is not in the ordinary
course of business and consistent with past practice or that
would cause Parent to be in default of the Amended and Restated
Accounts Receivable Management, Loan and Security Agreement
between GMAC Commercial Finance Corporation — Canada
and Parent (as in effect on the date hereof, irrespective of any
subsequent waiver or amendment);
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(b) change nor amend the charter documents or By-laws of
Parent;
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(c) issue, sell, or grant any shares of capital stock
(except Parent Common Stock issued upon exercise of options
outstanding on the date of the Agreement), or any options,
warrants, or rights to purchase or subscribe to, or enter into
any arrangement or contract with respect to the issuance or sale
of, any of the capital stock of Parent or any Subsidiary or
rights or obligations convertible into or exchangeable for any
such shares of capital stock;
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(d) split, combine or reclassify any of its capital stock
or otherwise make any changes in the capital structure of Parent;
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(e) declare, pay, or set aside for payment any dividend or
other distribution in respect of the capital stock or other
equity securities of Parent or any Subsidiary or redeem,
purchase, or otherwise acquire any shares of the capital stock
or other securities of Parent or any Subsidiary or rights or
obligations convertible into or exchangeable for any shares of
the capital stock or other securities of Parent or any
Subsidiary or obligations convertible into such, or any options,
warrants, or other rights to purchase or subscribe to any of the
foregoing;
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(f) (i) except for normal increases made in the
ordinary course of business consistent with past practice, or as
required by applicable Law or an agreement in existence as of
the date of this Agreement, increase the wages, salaries,
compensation, pension, or other fringe benefits or perquisites
payable to any officer, employee, or director of Parent or any
Subsidiary or pay any benefit not contemplated by any Plan as in
effect on the date hereof, (ii) pay any pension or
retirement allowance not required by any existing Plan or by
applicable Law, (iii) except for bonuses paid in the
ordinary course of business consistent with past practice, or as
required by an agreement in existence as of the date of this
Agreement, pay any bonus, (iv) except for agreements
entered or amended in the ordinary course of business consistent
with past practice, become a party to, amend or commit itself
to, any pension, retirement, profit-sharing or welfare benefit
plan or agreement or employment, consulting, indemnification,
severance or termination agreement with or for the benefit of
any employee, other than as required by applicable law or an
existing agreement set forth in Section 4.12(a) of the
Parent Disclosure Schedule, or (v) except as required under
any existing Plan, grant, or agreement, accelerate the vesting
of, or the lapsing of restrictions with respect to, any stock
options granted pursuant to any Parent Stock Option Plan or any
other Parent stock-based awards;
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(g) sell, license, lease, encumber, assign or otherwise
dispose of, abandon or fail to maintain any of its material
assets, properties (including Intellectual Property) or other
rights or agreements other than in the ordinary course of
business consistent with past practice;
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(h) enter into any new line of business;
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(i) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division thereof;
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(j) create, renew, amend or terminate, fail to perform any
material obligations under, waive or release any material rights
under or give notice of a proposed renewal, amendment, waiver,
release or termination of, any material contract, agreement or
lease for goods, services or office space to which Parent or any
of the Subsidiaries is a party or by which Parent or any of the
Subsidiaries or their respective properties is bound, other than
any of the foregoing arising in the ordinary course of business
(and as to which Parent shall provide prior notice thereof to
the Company);
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(k) (i) cause any material insurance policy naming it
as a beneficiary or a loss payable payee to be canceled or
terminated, or (ii) cause Parent’s directors and
officers liability insurance policy, and any excess liability
policy related thereto, to be canceled, terminated or otherwise
not be renewed or replaced with at least an equivalent amount of
coverage and on other terms no less favorable to Parent and its
officers and directors;
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(l) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Parent or any of its
Subsidiaries;
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(m) make any material election relating to Taxes or change
any Tax accounting method, or settle any material liability
relating to Taxes (other than in the ordinary course of
business);
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(n) engage in any action that could reasonably be expected
to cause the Merger (i) to fail to qualify as a
“reorganization” under Section 368(a) of the Code
or (ii) to result in the application of
Section 367(a)(1) of the Code to any person other than a
five-percent transferee shareholder;
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(o) take any action to cause Parent’s representations
and warranties set forth in Article IV to be untrue in any
material respect;
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(p) take any action that would reasonably be likely to
materially delay the Merger; or
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(q) agree to take, make any commitment to take, or adopt
any resolutions of its board of directors in support of, any of
the foregoing actions.
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ARTICLE VI
ADDITIONAL AGREEMENTS
Section
6.01
Registration
Statement; Proxy Statement
.
(a) As promptly as
practicable after the execution of this Agreement,
(i) Parent and the Company shall prepare and file with the
SEC the proxy statement to be sent to the stockholders of the
Company relating to the meeting of the Company’s
stockholders (together with any adjournments or postponements
thereof, the “
Company Stockholders’
Meeting
”) to be held to consider approval and adoption
of this Agreement (such proxy statement, as amended or
supplemented, being referred to herein as the “
Proxy
Statement
”) and (ii) Parent shall prepare and file
with the SEC a registration statement on Form F-4 (together
with all amendments thereto, the “
Registration
Statement
”) in which the Proxy Statement shall be
included as a prospectus, in connection with the registration
under the Securities Act of the shares of Parent Common Stock to
be issued to holders of Shares pursuant to the Merger. Parent
and the Company each shall use their reasonable best efforts to
cause the Registration Statement to become effective as promptly
as practicable, and, prior to the effective date of the
Registration Statement, Parent shall take all action required
under any applicable federal, state or Canadian securities Laws
in connection with the issuance of shares of Parent Common Stock
pursuant to the Merger.
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The Company shall furnish all information concerning the Company
as Parent may reasonably request in connection with such actions
and the preparation of the Registration Statement and Proxy
Statement. As promptly as practicable after the Registration
Statement shall have become effective, the Company shall mail
the Proxy Statement to its stockholders.
(b) The Company covenants that neither the Company Board
nor the Special Committee shall withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Parent or Merger
Sub, the approval or recommendation by the Company Board and the
Special Committee of this Agreement, the Merger or the
Transactions (the “
Company Recommendation
”),
and the Proxy Statement shall include the recommendation of the
Special Committee to the Company Board and of the Company Board
to the stockholders of the Company in favor of approval and
adoption of this Agreement. Notwithstanding the foregoing, if
the Company Board or the Special Committee determines, in its
good faith judgment prior to the Required Company Vote and the
Disinterested Stockholder Vote and after consultation with
outside legal counsel (who may be the Company’s regularly
engaged outside legal counsel), that the failure to make a
change in the Company Recommendation would be inconsistent with
its fiduciary obligations to the Company and its stockholders
under applicable Law, the Company Board or the Special Committee
may withdraw or modify or propose to withdrawal or modify the
Company Recommendation. The Company shall have the right to
notify the stockholders of the Company of any such withdrawal or
modification.
(c) No amendment or supplement to the Proxy Statement or
the Registration Statement will be made by Parent or the Company
without the approval of the other party (such approval not to be
unreasonably withheld or delayed). Parent and the Company each
will advise the other, promptly after they receive notice
thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the
issuance of any stop order, of the suspension of the
qualification of the Parent Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction, or of
any request by the SEC for amendment of the Proxy Statement or
the Registration Statement or comments thereon and responses
thereto or requests by the SEC for additional information.
(d) Parent represents that the information supplied by
Parent for inclusion in the Registration Statement and the Proxy
Statement shall not, at (i) the time the Registration
Statement is declared effective, (ii) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of the Company, (iii) the
time of the Company Stockholders’ Meeting and (iv) the
Effective Time, contain any untrue statement of a material fact
or fail to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
If, at any time prior to the Effective Time, any event or
circumstance relating to Parent or Merger Sub, or their
respective officers or directors, should be discovered by Parent
which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, Parent shall promptly
inform the Company. All documents that Parent is responsible for
filing with the SEC in connection with the Merger or the other
transactions contemplated by this Agreement will comply as to
form and substance in all material aspects with the applicable
requirements of the Securities Act and the Exchange Act.
(e) The Company represents that the information supplied by
the Company for inclusion in the Registration Statement and the
Proxy Statement shall not, at (i) the time the Registration
Statement is declared effective, (ii) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of the Company, (iii) the
time of the Company Stockholders’ Meeting and (iv) the
Effective Time, contain any untrue statement of a material fact
or fail to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation is made by the
Company with respect to information included in the Registration
Statement or Proxy Statement based on information supplied by
Parent or its affiliates or associates. If, at any time prior to
the Effective Time, any event or circumstance relating to the
Company or any Company Subsidiary, or their respective officers
or directors, should be discovered by the Company which should
be set forth in an amendment or a supplement to the Registration
Statement or Proxy Statement, the Company shall promptly inform
Parent. All documents that the Company is responsible for filing
with the SEC in connection with the Merger or the other
transactions
20
contemplated by this Agreement will comply as to form and
substance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act.
Section
6.02
Company
Stockholders’ Meeting
.
The Company shall call and
hold the Company Stockholders’ Meeting as promptly as
practicable for the purpose of voting upon the approval and
adoption of this Agreement and the Company shall use its
reasonable efforts to hold the Company Stockholders’
Meeting as soon as practicable after the date on which the
Registration Statement becomes effective. The Company shall use
its reasonable efforts to solicit from its stockholders proxies
in favor of the approval and adoption of this Agreement, and
shall take all other action necessary or advisable to secure the
required vote or consent of its stockholders, except in the
event and to the extent that the Company Board or the Special
Committee, in accordance with the last sentence of
Section 6.01(b), withdraws or modifies the Company
Recommendation.
Section
6.03
Access
to Information; Confidentiality
.
(a) Except as
required pursuant to any confidentiality agreement or similar
agreement or arrangement to which the Company or Parent or any
of their respective subsidiaries is a party or pursuant to
applicable Law, from the date of this Agreement until the
Effective Time, the Company and Parent shall (and shall cause
their respective subsidiaries to): (i) provide to the other
party (and the other party’s officers, directors,
employees, accountants, consultants, financial advisors, legal
counsel, agents and other representatives, collectively,
“
Representatives
”) access at reasonable times
upon prior notice to the officers, employees, agents,
properties, offices and other facilities of such party and its
subsidiaries and to the books and records thereof; and
(ii) furnish promptly to the other party such information
concerning the business, properties, contracts, assets,
liabilities, personnel and other aspects of such party and its
subsidiaries as the other party or its Representatives may
reasonably request.
(b) All information obtained by the parties pursuant to
this Section 6.03 shall be kept confidential in accordance
with the confidentiality agreement, dated August 30, 2004
(the “
Confidentiality Agreement
”), between
Parent and the Company.
(c) No investigation pursuant to this Section 6.03
shall affect any representation or warranty in this Agreement of
any party hereto or any condition to the obligations of the
parties hereto.
Section
6.04
Directors’
and Officers’ Indemnification and Insurance
.
(a) The By-laws of the Surviving Corporation shall, and
Parent shall cause such By-laws to contain provisions no less
favorable with respect to indemnification than are set forth in
Article Five of the By-laws of the Company, which
provisions shall not be amended, repealed or otherwise modified
after the Effective Time in any manner that would affect
adversely the rights thereunder of individuals who, at or prior
to the Effective Time, were directors, officers, employees,
fiduciaries or agents of the Company, unless such modification
shall be required by Law.
(b) The Surviving Corporation shall, and Parent shall cause
the Surviving Corporation to, maintain in effect for six years
from the Effective Time the current directors’ and
officers’ liability insurance policies maintained by the
Company (provided that the Surviving Corporation may substitute
therefor policies with an insurer of equal or greater claims
paying ratings and of at least the same coverage containing
terms and conditions that are not materially less favorable)
with respect to matters occurring prior to the Effective Time;
provided
,
however
, that in no event shall the
Surviving Corporation or Parent be required to expend pursuant
to this Section 6.04(b) more than an amount per year equal
to 200% of current annual premiums paid by the Company for such
insurance.
(c) The provisions set forth in this Section 6.04
shall not be exclusive of any other rights with respect to
indemnification, insurance or expense advancement which any
person may have or hereafter acquire under any Law, agreement or
otherwise. Following the Effective Time, the Surviving
Corporation shall, and Parent shall cause the Surviving
Corporation to, assume, honor and comply with all agreements and
contracts between the Company and its directors, officers,
employees, fiduciaries or agents requiring the Company to
provide indemnification, insurance or expense advancement.
(d) In the event the Company or the Surviving Corporation
or any of their respective successors or assigns
(i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or
substantially all of its properties
21
and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of
the Company or the Surviving Corporation, as the case may be, or
at Parent’s option, Parent, shall assume the obligations
set forth in this Section 6.04.
Section
6.05
Notification
of Certain Matters
.
The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company,
of (a) the occurrence, or non-occurrence, of any event the
occurrence, or non-occurrence, of which could reasonably be
expected to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material
respect and (b) any failure of the Company, Parent or
Merger Sub, as the case may be, to comply with or satisfy in any
material respect any covenant or agreement to be complied with
or satisfied by it hereunder;
provided
,
however
,
that the Company’s obligation pursuant to this
Section 6.05 shall be limited to those matters as to which
the Special Committee has knowledge; and provided, further, that
the delivery of any notice pursuant to this Section 6.05
shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
Section
6.06
Company
Affiliates
.
No later than 5 days after the date of
this Agreement, the Company shall deliver to Parent a list of
names and addresses of those persons who were, in the
Company’s reasonable judgment, on such date, affiliates
(within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act (each such
person being a “
Company Affiliate
”)) of the
Company. The Company shall provide Parent with such information
and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company shall use its reasonable
efforts to deliver or cause to be delivered to Parent, prior to
the Effective time, an affiliate letter in the form attached
hereto as Exhibit 6.06, executed by each of the Company
Affiliates identified in the foregoing list and any person who
shall, to the knowledge of the Company, have become a Company
Affiliate subsequent to the delivery of such list.
Section
6.07
Further
Action; Reasonable Efforts
.
Upon the terms and subject
to the conditions of this Agreement, each of the parties hereto
shall (i) make promptly its respective filings, and
thereafter make any other required submissions, under applicable
Laws with respect to the Transactions and (ii) use its
reasonable efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws or
otherwise to consummate and make effective the Transactions,
including, without limitation, using its reasonable efforts to
obtain all Permits, consents, approvals, authorizations,
qualifications and orders of Governmental Authorities and
parties to contracts with Parent, the Subsidiaries, the Company
and the Company’s subsidiaries as are necessary for the
consummation of the Transactions and to fulfill the conditions
to the Merger;
provided
that neither Merger Sub nor
Parent will be required by this Section 6.07 to take any
action, including entering into any consent decree, hold
separate orders or other arrangements, that (A) requires
the divestiture of any assets of any of Merger Sub, Parent, the
Company or any of their respective subsidiaries or
(B) limits Parent’s freedom of action with respect to,
or its ability to retain, the Company and its subsidiaries or
any portion thereof or any of Parent’s or its
affiliates’ other assets or businesses. In case, at any
time after the Effective Time, any further action is necessary
or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party to this Agreement
shall use their reasonable efforts to take all such action.
Section
6.08
Plan
of Reorganization
.
(a) This Agreement is intended
to constitute a “plan of reorganization” within the
meaning of section 1.368-2(g) of the income tax regulations
promulgated under the Code. From and after the date of this
Agreement and until the Effective Time, each party hereto shall
use its reasonable efforts to cause the Merger to qualify, and
will not knowingly take any action, cause any action to be
taken, fail to take any action or cause any action to fail to be
taken which action or failure to act could prevent the Merger
from qualifying as a “reorganization” within the
meaning of Section 368(a) of the Code to which, in the case
of any person other than a five-percent transferee shareholder,
Section 367(a)(1) of the Code does not apply. Following the
Effective Time, neither the Surviving Corporation, Parent nor
any of their affiliates shall knowingly take any action, cause
any action to be taken, fail to take any action or cause any
action to fail to be taken, which action or failure to act could
cause the Merger (i) to fail to qualify as a
“reorganization” within the meaning of
Section 368(a) of the Code or (ii) result in the
application of Section 367(a)(1) of the Code to any person
other than a five-percent transferee shareholder.
22
(b) As of the date hereof, Parent does not know of any
reason (i) why it would not be able to deliver to counsel
to the Company, at the date of the legal opinion required by
Section 7.03(d), certificates substantially in compliance
with Internal Revenue Service (“
IRS
”) published
advance ruling guidelines, with customary exceptions and
modifications thereto, to enable such firm to deliver such
opinion, and Parent hereby agrees to deliver such certificates
effective as of the date of such opinion or (ii) why
counsel to the Company would not be able to deliver the opinion
required by Section 7.03(d). Parent will deliver such
certificates to counsel to the Company.
(c) Following the Effective Time, Parent shall cause the
Company to comply with the U.S. tax reporting requirements
described in Section 1.367(a)-3(c)(6) of the income tax
regulations promulgated under the Code.
Section
6.09
Obligations
of Merger Sub
.
Parent shall take all action necessary to
cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the
conditions set forth in this Agreement.
Section
6.10
Consents
of Accountants
.
Parent and the Company will each use all
reasonable efforts to cause to be delivered to each other
consents from their respective independent auditors, in form
reasonably satisfactory to the recipient and customary in scope
and substance for consents delivered by independent public
accountants in connection with registration statements on
Form F-4 under the Securities Act.
Section
6.11
AMEX
Listing
.
Parent shall promptly prepare and submit to the
AMEX a listing application covering the shares of Parent Common
Stock outstanding and those to be issued in the Merger and
pursuant to Substitute Options, and shall use its reasonable
efforts to obtain, prior to the Effective Time, approval for the
listing of such Parent Common Stock, subject to official notice
of issuance to the AMEX, and the Company shall cooperate with
Parent with respect to such listing.
Section
6.12
Public
Announcements
.
The initial press release relating to
this Agreement shall be a joint press release the text of which
has been agreed to by each of Parent and the Company.
Thereafter, unless otherwise required by applicable Law or the
requirements of the AMEX, each of Parent and the Company shall
each use its reasonable efforts to consult with each other
before issuing any press release or otherwise making any public
statements with respect to this Agreement, the Merger or any of
the other Transactions.
Section
6.13
Board
of Directors of Parent
.
Within one year following the
Effective Time, a majority of the members of the Parent Board
shall be independent within the rules of AMEX.
Section
6.14
Company
Stock Held by Parent
.
From the date hereof until the
Effective Time, Parent shall not transfer, sell or otherwise
dispose of any of the shares of Company Common Stock, Company
Preferred Stock or warrants to purchase Company Common Stock
owned by Parent. At the Company Stockholders’ Meeting,
Parent shall vote all shares of Company Common Stock and Company
Preferred Stock owned by Parent in favor of the approval and
adoption of this Agreement.
ARTICLE VII
CONDITIONS TO THE MERGER
Section
7.01
Conditions
to the Obligations of Each Party
.
The obligations of the
Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the
following conditions:
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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.
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(b)
Company Stockholder Approval
.
The Company
shall have obtained the Disinterested Stockholder Vote at the
Company Stockholders’ Meeting.
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(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.
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(d)
AMEX Listing
.
The shares of Parent Common
Stock shall have been authorized for listing on the AMEX,
subject to official notice of issuance.
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(e)
HLHZ Opinion
.
The HLHZ Fairness Opinion
shall not have been withdrawn, revoked, annulled or materially
modified.
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Section
7.02
Conditions
to the Obligations of Parent and Merger Sub
.
The
obligations of Parent and Merger Sub to consummate the Merger
are subject to the satisfaction or waiver (where permissible) of
the following additional conditions:
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(a)
Representations and Warranties
.
The
representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects as
of the Effective Time, as though made on and as of the Effective
Time, except to the extent expressly made as of an earlier date,
in which case as of such earlier date (
provided
that any
representation or warranty that is qualified by materiality or
Company Material Adverse Effect shall be true and correct in all
respects as of the Effective Time, or as of such particular
earlier date, as the case may be);
provided
,
however
, this condition shall not apply to any
representation or warranty of the Company that, to the knowledge
of Parent, was not true and correct as of the date hereof; and
provided
,
further
, this condition shall not apply
to any representation or warranty of the Company if the failure
of such representation or warranty to be so true and correct is
attributable to any action or inaction on the part of Parent or
its affiliates or associates.
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(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; provided, however, this condition shall not apply to any
agreement or covenant of the Company if the failure by the
Company to so perform or comply is attributable to any action or
inaction on the part of Parent or its affiliates or associates.
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(c)
Officer Certificate
.
The Company shall
have delivered to Parent a certificate, dated the date of the
Closing, signed by the Chief Administrative Officer of the
Company, certifying as to the satisfaction of the conditions
specified in Sections 7.02(a) and 7.02(b).
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(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 Authorities, and all consents from the third
parties listed in Section 7.02(d) of the Parent Disclosure
Schedule shall have been obtained.
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(e)
Material Adverse Effect
.
No Company
Material Adverse Effect shall have occurred since the date of
this Agreement.
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Section
7.03
Conditions
to the Obligations of the Company
.
The obligations of
the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following
additional conditions:
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(a)
Representations and Warranties
.
The
representations and warranties of Parent and Merger Sub
contained in this Agreement shall be true and correct in all
material respects as of the Effective Time, as though made on
and as of the Effective Time, except to the extent expressly
made as of an earlier date, in which case as of such earlier
date (
provided
that any representation or warranty that
is qualified by materiality or Parent Material Adverse Effect
shall be true and correct in all respects as of the Effective
Time, or as of such particular earlier date, as the case may be).
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(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.
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(c)
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) and 7.03(b).
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(d)
Tax Opinion
.
The Company shall have
received the opinion of Holland & Knight LLP, counsel
to the Company, based upon customary representations of Parent,
Merger Sub and the Company, and normal assumptions, to the
effect that, for United States federal income tax purposes,
(i) the Merger will qualify as a “reorganization”
within the meaning of Section 368(a) of the Code and each
of Parent and the Company will be a “party to the
reorganization” within the meaning of section 368(b)
of the Code, and (ii) the conversion of Company Common
Shares into Parent Common Stock in the Merger will not result in
the recognition of gain under Section 367 of the Code to
any person who is not a five percent transferee shareholder,
which opinion shall not have been withdrawn or modified in any
material respect;
provided
,
however
, that if such
counsel is unable or unwilling to deliver such opinion this
condition shall be satisfied by delivery to the Company of a
similar opinion of King & Spalding LLP. The issuance of
such opinion shall be conditioned on receipt by Holland and
Knight LLP or King & Spalding LLP, as the case may be,
of representation letters from each of Parent and Company as
contemplated in Section 6.08 of this Agreement. 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.
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(e)
Company Stockholder Approval
.
The Company
shall have obtained the Required Stockholder Vote at the Company
Stockholders’ Meeting.
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(f)
Articles of Amalgamation and By-laws
.
The
Articles of Amalgamation and By-laws of Parent in effect shall
be in the form attached hereto as Exhibit 7.03(f)(i) and
Exhibit 7.03(f)(ii), respectively.
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(g)
Material Adverse Effect
.
No Parent
Material Adverse Effect shall have occurred since the date of
this Agreement.
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(h)
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 Authorities, and all consents from the third
parties listed in Section 7.02(d) of the Parent Disclosure
Schedule shall have been obtained.
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(i)
Conversion of Parent Securities
.
All of
the issued and outstanding Series A Preferred Shares of
Parent Preferred Stock and $5,000,000 aggregate principal amount
of Secured Convertible Notes of Parent (“
Secured
Convertible Notes
”) shall have been converted into
512,015 shares of Parent Common Stock and 504,876 Parent
Class B Shares; nil Series A Preferred Shares of
Parent Preferred Stock and nil Secured Convertible Notes shall
be issued and outstanding.
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(j)
Anti-Dilution Provisions
.
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(i) Each Company Warrant shall have been amended, for no
additional consideration to the holder, to (A) provide that
the definition of “Additional Shares of Common Stock”
shall specifically exclude any stock options or other securities
exercisable for, convertible into or exchangeable into capital
stock (or shares issued upon exercise, conversion or exchange
thereof), any restricted stock or any other equity granted or
issued for a compensatory purpose following the Effective Time
to employees, officers, directors or consultants, and
(B) delete the last two sentences of Section 1 thereof.
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(ii) The employment agreement dated October 24, 2001
between Parent and Thomas A. Andruskevich (the
“
Andruskevich Employment Agreement
”) shall have
been amended, in form reasonably satisfactory to the Company,
for no additional consideration to Mr. Andruskevich, to
provide that any stock options or other securities exercisable
for, convertible into or exchangeable
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into capital stock (or shares issued upon exercise, conversion
or exchange thereof), any restricted stock or any other equity
granted or issued for a compensatory purpose following the
Effective Time to employees, officers, directors or consultants
shall be disregarded for purposes of calculating two percent
(2%) of the issued and outstanding shares in the capital stock
of Parent (on a fully diluted basis) pursuant to
Section 5.1 of the Andruskevich Employment Agreement.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section
8.01
Termination
.
This Agreement may be terminated and the Merger and the other
Transactions may be abandoned at any time prior to the Effective
Time, notwithstanding any requisite approval and adoption of
this Agreement and the Transactions by the stockholders of the
Company, as follows:
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(a) by mutual written consent of Parent and the Company
duly authorized by the Board of Directors of Parent and the
Special Committee; or
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(b) by either Parent or the Company if the Effective Time
shall not have occurred on or before December 31, 2005;
provided
,
however
, that the right to terminate
this Agreement under this Section 8.01(b) shall not be
available to any party whose material breach of any
representation, warranty, covenant or agreement under this
Agreement has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date; or
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(c) by either Parent or the Company if any Governmental
Authority shall have enacted, issued, promulgated, enforced or
entered any injunction, order, decree or ruling (whether
temporary, preliminary or permanent) which is then in effect and
has the effect of making consummation of the Merger illegal or
otherwise preventing or prohibiting consummation of the
Merger; or
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(d) by Parent or the Company if a Company Triggering Event
(as defined below) shall have occurred; or
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(e) by either Parent or the Company if this Agreement shall
fail to receive the requisite vote for approval at the Company
Stockholders’ Meeting as set forth in Section 7.01(b)
(other than by reason of a breach by Parent of Section 6.14
hereof); or
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(f) by Parent upon a breach of any representation,
warranty, covenant or agreement on the part of the Company set
forth in this Agreement, or if any representation or warranty of
the Company shall have become untrue, in either case such that
the conditions set forth in Section 7.02(a) and
Section 7.02(b) would not be satisfied
(“
Terminating Company Breach
”);
provided
,
however
, that, if such Terminating
Company Breach is curable by the Company, Parent may not
terminate this Agreement under this Section 8.01(f) for so
long as the Company continues to exercise its best efforts to
cure such breach, unless such breach is not cured within
15 days after notice of such breach is provided by Parent
to the Company;
provided
,
further
, that Parent may
not terminate this Agreement under this Section 8.01(f) if
such Terminating Company Breach is attributable to action or
inaction on the part of Parent or its affiliates or
associates; or
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(g) by the Company upon a breach of any representation,
warranty, covenant or agreement on the part of Parent and Merger
Sub set forth in this Agreement, or if any representation or
warranty of Parent and Merger Sub shall have become untrue, in
either case such that the conditions set forth in
Section 7.03(a) and Section 7.03(b) would not be
satisfied (“
Terminating Parent Breach
”);
provided
,
however
, that, if such Terminating
Parent Breach is curable by Parent and Merger Sub, the Company
may not terminate this Agreement under this Section 8.01(g)
for so long as Parent and Merger Sub continue to exercise their
best efforts to cure such breach, unless such breach is not
cured within 15 days after notice of such breach is
provided by the Company to Parent.
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For purposes of this Agreement, a “
Company Triggering
Event
” shall be deemed to have occurred if:
(i) the Company Board or the Special Committee withdraws,
modifies or changes the Company Recommendation in a manner
adverse to Parent or shall have resolved to do so; (ii) the
Company shall have failed to include in the Proxy Statement the
recommendation of the Company Board or Special Committee in
favor of the approval and adoption of this Agreement by the
Company Board; or (iii) the HLHZ Fairness Opinion shall
have been withdrawn, revoked, annulled or materially modified.
Section
8.02
Effect
of Termination
.
In the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall
forthwith become void, and there shall be no liability under
this Agreement on the part of any party hereto, except
(a) as set forth in Section 8.03 and (b) nothing
herein shall relieve any party from liability for any willful
breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement prior to such
termination;
provided
,
however
, that the
Confidentiality Agreement shall survive any termination of this
Agreement.
Section
8.03
Fees
and Expenses
.
All Expenses (as defined below) incurred
in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party
incurring such expenses, whether or not the Merger or any other
transaction is consummated, except that the Company and Parent
shall each pay one-half of all Expenses relating to printing,
filing and mailing the Registration Statement and the Proxy
Statement and all SEC and other regulatory filing fees incurred
in connection with the Registration Statement and the Proxy
Statement;
provided
,
however
, that in the event
this Agreement is terminated by the Company pursuant to
Section 8.01(b) if (i) the Registration Statement has
not been declared effective by the SEC for reasons unrelated to
the Company and its subsidiaries or (ii) the Parent Common
Stock has not been authorized for listing on the AMEX for
reasons unrelated to the Company and its subsidiaries, Parent
shall reimburse the Company for all the Company’s Expenses.
“
Expenses
”, as used in this Agreement, shall
include all reasonable out-of-pocket expenses (including,
without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a
party hereto and its affiliates) incurred by a party (which in
the case of the Company shall be deemed to include the Special
Committee) or on its behalf in connection with or related to the
authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing
and mailing of the Registration Statement and the Proxy
Statement, the solicitation of stockholder approvals and all
other matters related to the closing of the Merger and the other
Transactions.
Section
8.04
Amendment
.
This Agreement may be amended by the parties hereto by action
taken by or on behalf of their respective Boards of Directors at
any time prior to the Effective Time;
provided
,
however
, that, after the approval and adoption of this
Agreement and the Transactions by the stockholders of the
Company, no amendment may be made which by applicable Law or in
accordance with the rules of the AMEX requires further approval
by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing
signed by each of the parties hereto.
Section
8.05
Waiver
.
At any time prior to the Effective Time, any party hereto may
(a) extend the time for the performance of any obligation
or other act of any other party hereto, (b) waive any
inaccuracy in the representations and warranties of any other
party contained herein or in any document delivered pursuant
hereto and (c) waive compliance with any agreement of any
other party or any condition to its own obligations contained
herein. Any such extension or waiver shall be valid if set forth
in an instrument in writing signed by the party or parties to be
bound thereby.
ARTICLE IX
GENERAL PROVISIONS
Section
9.01
Non-Survival
of Representations, Warranties and Agreements
.
The
representations, warranties and agreements in this Agreement and
in any certificate delivered pursuant hereto shall terminate at
the Effective Time, except that the agreements set forth in
Articles I and II, Section 6.04 and Section 6.08
and this Article IX shall survive the Effective Time.
27
Section
9.02
Notices
.
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 or email or by registered or certified mail
(postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance
with this Section 9.02):
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if to Parent or Merger Sub:
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Henry Birks & Sons Inc.
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1240 Square Phillips
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Montreal, Quebec
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H3B 3H4
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Attention:
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Sabine Bruckert, Esq.
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bruckerts@birks.com
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with a copy to:
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Shearman & Sterling LLP
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199 Bay Street
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Commerce Court West
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Suite 4405, P.O. Box 247
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Toronto, Ontario
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M5L 1E8 CANADA
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Attention:
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Brice T. Voran, Esq.
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bvoran@shearman.com
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and
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Adam M. Givertz, Esq.
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agivertz@shearman.com
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if to the Company:
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Mayor’s Jewelers, Inc.
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14051 N.W. 14th Street
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Sunrise, Florida 33323
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Attention:
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Marc Weinstein
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mweinstein@mayors.com
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and
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Ann Spector Lieff, Chairperson of the Special Committee
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annlieff@aol.com
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with a copy to:
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Holland & Knight LLP
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701 Brickell Avenue
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Suite 3000
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Miami, Florida 33131
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Attention:
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Rodney H. Bell, Esq.
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rodney.bell@hklaw.com
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and
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King & Spalding LLP
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191 Peachtree Street
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Atlanta, Georgia 30303
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Attention:
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C. William Baxley, Esq.
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Section
9.03
Certain
Definitions
.
(a) For purposes of this Agreement:
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“
affiliate
” of a specified person means a
person who, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, such specified person.
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“
associate
” of a specified person has the
meaning ascribed to such term under Rule 12b-2 of the
Exchange Act.
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“
business day
” means any day on which the
principal offices of the SEC in Washington, D.C. are open
to accept filings, or, in the case of determining a date when
any payment is due, any day on which banks are not required or
authorized to close in The City of New York and/or Montreal,
Quebec.
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“
Company Material Adverse Effect
” means any
event, circumstance, change or effect that, individually or in
the aggregate with all other events, circumstances, changes and
effects, is or is reasonably likely to be materially adverse to
(i) the business, condition (financial or otherwise),
assets, liabilities or results of operations of the Company and
its subsidiaries taken as a whole or (ii) the ability of
the Company to consummate the transactions contemplated by this
Agreement;
provided
,
however
, that clause (i)
shall not include any event, circumstance, change or effect
resulting from (x) changes in general economic conditions,
changes in the stock price of the Company, or changes in
securities markets in general that do not have a materially
disproportionate effect (relative to other industry
participants) on the Company or its subsidiaries,
(y) general changes in the industries in which the Company
and its subsidiaries operate, except those events,
circumstances, changes or effects that adversely affect the
Company and its subsidiaries to a materially greater extent than
they affect other entities operating in such industries or
(z) the public announcement or pendency of the transactions
contemplated hereby.
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“
Company Preferred Stock
” means the shares of
preferred stock, par value $0.0001 per share, of the
Company designated as “Series A-1 Convertible
Preferred Stock.”
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“
control
” (including the terms
“
controlled by
” and “
under common
control with
”) means the possession, directly or
indirectly, or as trustee or executor, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting securities, as trustee
or executor, by contract or credit arrangement or otherwise.
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“
Disinterested Stockholder Vote
” means the
affirmative vote in favor of the approval and adoption of this
Agreement by at least a majority of the outstanding shares of
Company Common Stock voted, in person or by proxy (but not
including a vote that is not counted as either affirmative or
negative), at the Company Stockholder meeting by persons other
than Parent or any person that is an affiliate or associate of
Parent.
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“
Environmental Laws
” means any United States
federal, state or local or Canadian federal, provincial or local
or non-United States or Canadian Laws relating to
(i) releases or threatened releases of Hazardous Substances
or materials containing Hazardous Substances; (ii) the
manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Substances or materials containing
Hazardous Substances; or (iii) pollution or protection of
the environment, health, safety or natural resources.
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“
five-percent transferee shareholder
” means any
person who owns at least five percent of either the total voting
power or total value of the stock of Parent immediately after
the Merger after applying the rules of
Section 1.367(a)-3(c)(4) of the income tax regulations
promulgated under the Code.
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“
Hazardous Substances
” means (i) petroleum
and petroleum products, including crude oil and any fractions
thereof; (ii) natural gas, synthetic gas, and any mixtures
thereof; (iii) polychlorinated biphenyls, asbestos and
radon; (iv) any other contaminant; and (v) any
substance, material or waste regulated by any Governmental
Authority pursuant to any Environmental Law.
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“
Intellectual Property
” means (i) United
States, Canadian and international patents, patent applications
and statutory invention registrations, (ii) trademarks,
service marks, trade dress, logos, trade names, corporate names
and other source identifiers, and registrations and applications
for registration
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29
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thereof, (iii) copyrightable works, copyrights, and
registrations and applications for registration thereof, and
(iv) confidential and proprietary information, including
trade secrets and know-how.
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“
knowledge
” when used in reference to Parent,
means actual knowledge of any executive officer of Parent who is
also an executive officer of the Company.
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“
Parent Material Adverse Effect
” means any
event, circumstance, change or effect that, individually or in
the aggregate with all other events, circumstances, changes and
effects, is or is reasonably likely to be materially adverse to
(i) the business, condition (financial or otherwise),
assets, liabilities or results of operations of Parent and the
Subsidiaries taken as a whole or (ii) the ability of Parent
to consummate the transactions contemplated by this Agreement;
provided
,
however
, that clause (i) shall not
include any event, circumstance, change or effect resulting from
(x) changes in general economic conditions or changes in
securities markets in general that do not have a materially
disproportionate effect (relative to other industry
participants) on Parent or the Subsidiaries, (y) general
changes in the industries in which Parent and the Subsidiaries
operate, except those events, circumstances, changes or effects
that adversely affect Parent and the Subsidiaries to a
materially greater extent than they affect other entities
operating in such industries or (z) the public announcement
or pendency of the Transactions.
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“
person
” means an individual, corporation,
partnership, limited partnership, limited liability company,
syndicate, person (including, without limitation, a
“person” as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government,
political subdivision, agency or instrumentality of a government.
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“
Required Company Vote
” means the affirmative
vote in favor of the approval and adoption of this Agreement by
the holders of the Company Common Stock and the Company
Preferred Stock, voting as a single class, representing at least
a majority of the sum of (i) the outstanding shares of
Company Common Stock and (ii) the shares of Company Common
Stock into which the outstanding shares of Company Preferred
Stock are convertible.
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“
subsidiary
” or “
subsidiaries
”
means, with respect to any person, any corporation or other
entity of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are
directly or indirectly owned by such person.
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“
Taxes
” shall mean any and all taxes, fees,
levies, duties, tariffs, imposts and other charges of any kind
(together with any and all interest, penalties, additions to tax
and additional amounts imposed with respect thereto) imposed by
any Governmental Authority or taxing authority, including,
without limitation: taxes or other charges on or with respect to
income, franchise, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, social
security, workers’ compensation, unemployment compensation
or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value-added or gains
taxes; license, registration and documentation fees; and
customers’ duties, tariffs and similar charges.
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(b) Unless otherwise noted, all references to “$”
or “dollars” shall mean U.S. dollars.
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(c) The following terms have the meaning set forth in the
Sections set forth below:
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Defined Term
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Location of Definition
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Action
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§ 4.11
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Agreement
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Preamble
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AMEX
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§ 2.02(e)
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Audited Financial Statements
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§ 4.08
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Blue Sky Laws
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§ 3.02(b)
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Certificate of Merger
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§ 1.02
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Certificates
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§ 2.02(b)
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Closing
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§ 1.02
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30
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Defined Term
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Location of Definition
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Code
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Recitals
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Company
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Preamble
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Company Board
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Recitals
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Company Common Stock
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§ 2.01(a)
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Company Disclosure Schedule
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§ 3.02
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Company Recommendation
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§ 6.01(b)
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Company Restricted Stock Award
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§ 2.05
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Company Stock Options
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§ 2.04(a)
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Company Stock Option Plans
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§ 2.04(a)
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Company Stockholders’ Meeting
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§ 6.01(a)
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Company Triggering Event
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§ 8.01
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Company Warrants
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§ 2.06(a)
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Company Warrant Agreements
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§ 2.06(a)
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Confidentiality Agreement
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§ 6.03(b)
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DGCL
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Recitals
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Effective Time
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§ 1.02
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Environmental Permits
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§ 4.17
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Exchange Act
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§ 3.02(b)
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Exchange Agent
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§ 2.02(a)
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Exchange Fund
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§ 2.02(a)
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Exchange Ratio
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§ 2.01(a)
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Expenses
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§ 8.03
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Financial Statements
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§ 4.08
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GAAP
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§ 4.10(a)
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Governmental Authority
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§ 3.02(b)
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HLHZ Fairness Opinion
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§ 3.05
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Inventories
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§ 4.25
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IRS
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§ 6.08(b)
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ITA
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§ 2.02(i)
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Law
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§ 3.02(a)
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Lease Documents
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§ 4.14(b)
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Liens
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§ 4.14(a)
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Material Contracts
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§ 4.18(a)
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Material Subsidiary
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§ 4.01(c)
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Merger
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Recitals
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Merger Consideration
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§ 2.01(a)
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Merger Sub
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Preamble
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Order
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§ 7.01(c)
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Parent
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Preamble
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Parent Board
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Recitals
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Parent Class B Shares
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§ 4.03(a)
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Parent Common Stock
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§ 2.01(a)
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Parent Disclosure Schedule
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§ 4.01(b)
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Parent Licensed Intellectual Property
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§ 4.15
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31
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Defined Term
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Location of Definition
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Parent Owned Intellectual Property
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§ 4.15
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Parent Permits
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§ 4.06
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Parent Preferred Stock
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§ 4.03(a)
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Parent SEC Reports
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§ 4.07
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Parent Stock Option Plan
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§ 4.03(a)
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Permitted Liens
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§ 4.14(a)
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Plans
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§ 4.12(a)
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Proxy Statement
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§ 6.01(a)
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Registration Statement
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§ 6.01(a)
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Representatives
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§ 6.03(a)
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SEC
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§ 4.07
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Secured Convertible Notes
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§ 7.03(i)
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Securities Act
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§ 4.03(d)
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Shares
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§ 2.01(a)
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Special Committee
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Recitals
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Subsidiary
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§ 4.01
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Subsidiaries
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§ 4.01
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Substitute Option
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§ 2.04(a)
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Substitute Warrant
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§ 2.06(a)
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Surviving Corporation
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§ 1.01
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Terminating Company Breach
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§ 8.01(f)
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Terminating Parent Breach
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§ 8.01(g)
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Transactions
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§ 3.01
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Unaudited Financial Statements
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§ 4.08
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Section
9.04
Severability
.
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 is
not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the Transactions be
consummated as originally contemplated to the fullest extent
possible.
Section
9.05
Entire
Agreement; Assignment
.
This Agreement constitutes the
entire agreement among the parties with respect to the subject
matter hereof and supersedes, except as set forth in
Sections 6.03(b), 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 or delegated (whether pursuant to a merger, by
operation of Law or otherwise).
Section
9.06
Parties
in Interest
.
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, other
than Section 6.04 (which is intended to be for the benefit
of the persons covered thereby and may be enforced by such
persons).
Section
9.07
Specific
Performance
.
The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement
were 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 equity.
32
Section
9.08
Governing
Law
.
This Agreement shall be governed by, and construed
in accordance with, the Laws of the State of Delaware applicable
to contracts executed in and to be performed in that State. All
actions and proceedings arising out of or relating to this
Agreement shall be heard and determined exclusively in any
Delaware Chancery Court. The parties hereto hereby
(a) submit to the exclusive jurisdiction of the Delaware
Chancery Court for the purpose of any Action arising out of or
relating to this Agreement brought by any party hereto, and
(b) irrevocably waive, and agree not to assert by way of
motion, defense, or otherwise, in any such Action, any claim
that it is not subject personally to the jurisdiction of the
Delaware Chancery Court, that its property is exempt or immune
from attachment or execution, that the Action is brought in an
inconvenient forum, that the venue of the Action is improper, or
that this Agreement or the Transactions may not be enforced in
or by the Delaware Chancery Court.
Section
9.09
Waiver
of Jury Trial
.
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 or the Transactions. Each of the parties
hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or
otherwise, that such other party would not, in the event of
litigation, seek to enforce that foregoing waiver and
(b) acknowledges that it and the other hereto have been
induced to enter into this Agreement and the Transactions, as
applicable, by, among other things, the mutual waivers and
certifications in this Section 9.09.
Section
9.10
Headings
.
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section
9.11
Counterparts
.
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.
Section
9.12
Special
Committee
.
Prior to the Effective Time, any consent,
waiver or other determination to be made, or action to be taken,
by the Company under this Agreement shall be made or taken only
upon the approval of the Special Committee, including, without
limitation, pursuant to or under Section 5.02,
Section 7.03 or Article VIII.
33
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
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By:
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/s/ Thomas A. Andruskevich
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Name: Thomas A. Andruskevich
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Title:
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President & Chief Executive Officer
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By:
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/s/ Thomas A. Andruskevich
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Name: Thomas A. Andruskevich
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Title:
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SVP & Chief Administrative Officer
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34
EXHIBIT 6.06
FORM OF AFFILIATE LETTER FOR
AFFILIATES OF THE COMPANY
[ ]
[ ], 2005
Henry Birks & Sons Inc.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be
deemed to be an “affiliate” of Mayor’s Jewelers,
Inc., (the “
Company
”), as the term
“affiliate” is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the
rules and regulations (the “
Rules and
Regulations
”) of the Securities and Exchange Commission
(the “
Commission
”) under the Securities Act of
1933, as amended (the “
Act
”). Pursuant to the
terms of the Agreement and Plan of Merger and Reorganization,
dated as of April 18, 2005 (the “
Merger
Agreement
”), among Henry Birks & Sons Inc., a
Canadian corporation (“
Parent
”), Birks Merger
Corporation, a Delaware corporation (“
Merger
Sub
”), and the Company, Merger Sub will be merged with
and into the Company (the “
Merger
”).
Capitalized terms used in this letter agreement without
definition shall have the meanings assigned to them in the
Merger Agreement.
As a result of the Merger, I may receive shares of common stock,
without par value, of Parent (the “
Parent
Shares
”). I would receive such Parent Shares in
exchange for shares (or upon exercise of options for shares)
owned by me of common stock, par value $0.0001 per share,
of the Company (the “
Company Shares
”).
1. I represent, warrant and covenant to Parent that in the
event I receive any Parent Shares as a result of the Merger:
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A. I shall not make any sale, transfer or other disposition
of the Parent Shares in violation of the Act or the Rules and
Regulations.
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B. I have carefully read this letter and the Merger
Agreement and discussed the requirements of such documents and
other applicable limitations upon my ability to sell, transfer
or otherwise dispose of the Parent Shares, to the extent I felt
necessary, with my counsel or counsel for the Company.
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C. I have been advised that the issuance of the Parent
Shares to me pursuant to the Merger has been registered with the
Commission under the Act on a Registration Statement on
Form F-4. However, I have also been advised that, because
at the time the Merger is submitted for a vote of the
shareholders of the Company, (a) I may be deemed to be an
affiliate of the Company and (b) the distribution by me of
the Parent Shares has not been registered under the Act, I may
not sell, transfer or otherwise dispose of the Parent Shares
issued to me in the Merger unless (i) such sale, transfer
or other disposition is made in conformity with the volume and
other limitations of Rule 145 promulgated by the Commission
under the Act, (ii) such sale, transfer or other
disposition has been registered under the Act or (iii) in
the opinion of counsel reasonably acceptable to Parent, such
sale, transfer or other disposition is otherwise exempt from
registration under the Act.
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D. I understand that Parent is under no obligation to
register the sale, transfer or other disposition of the Parent
Shares by me or on my behalf under the Act or, except as
provided in paragraph 2(A) below, to take any other action
necessary in order to make compliance with an exemption from
such registration available.
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E. I understand that there will be placed on the
certificates for the Parent Shares issued to me, or any
substitutions therefor, a legend stating in substance:
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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
[ ],
2005 BETWEEN THE REGISTERED HOLDER HEREOF AND HENRY
BIRKS & SONS INC., A COPY OF WHICH AGREEMENT IS ON FILE
AT THE PRINCIPAL OFFICES OF HENRY BIRKS & SONS
INC.”
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F. I understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to
a registration statement, Parent reserves the right to put the
following legend on the certificates issued to my transferee:
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“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.”
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G. Execution of this letter should not be considered an
admission on my part that I am an “affiliate” of the
Company as described in the first paragraph of this letter, nor
as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
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2. By Parent’s acceptance of this letter, Parent
hereby agrees with me as follows:
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A. For so long as and to the extent necessary to permit me
to sell the Parent Shares pursuant to Rule 145 and, to the
extent applicable, Rule 144 under the Act, Parent shall
(a) use its reasonable efforts to (i) file, on a
timely basis, all reports and data required to be filed with the
Commission by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the “
Exchange
Act
”), and (ii) furnish to me upon request a
written statement as to whether Parent has complied with such
reporting requirements during the 12 months preceding any
proposed sale of the Parent Shares by me under Rule 145,
and (b) otherwise use its reasonable efforts to permit such
sales pursuant to Rule 145 and Rule 144. Parent hereby
represents to me that it has filed all reports required to be
filed with the Commission under Section 13 of the Exchange
Act during the preceding 12 months.
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B. It is understood and agreed that certificates with the
legends set forth in paragraphs I(E) and l(F) above will be
substituted by delivery of certificates without such legends if
(i) one year shall have elapsed from the date the
undersigned acquired the Parent Shares received in the Merger
and the provisions of Rule 145(d)(2) are then available to
the undersigned, (ii) two years shall have elapsed from the
date the undersigned acquired the Parent Shares received in the
Merger and the provisions of Rule 145(d)(3) are then
applicable to the undersigned, or (iii) Parent has received
either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Parent, or a “no action”
letter
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Exhibit 6.06–2
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obtained by the undersigned from the staff of the Commission, to
the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned.
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Agreed and accepted this
[ ] day
of
[ ],
2005, by
HENRY BIRKS & SONS INC.
Name:
Title:
Exhibit 6.06–3
Exhibit 7.03(f)(i)
CANADA BUSINESS
CORPORATIONS ACT
ARTICLES
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1.
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Name of the Corporation
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HENRY BIRKS & SONS INC.
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2.
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The province or territory in Canada where the registered
office is situated
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Province of Quebec
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3.
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The classes and any maximum number of shares that the
Corporation is authorized to issue
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The attached Schedule 1 is forming part hereof.
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4.
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Restrictions, if any, on share transfers
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None
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5.
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Number (or minimum and maximum number) of directors
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A minimum of three (3) directors and a maximum of fifteen
(15) directors.
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6.
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Restrictions, if any, on the business the Corporation may
carry on
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None.
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7.
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Other provisions, if any
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(a) Meetings of shareholders of the Corporation may be held
in the greater metropolitan area of any city having a population
of more than 80,000 inhabitants in the United States, in any
member-country of the European Union or in Asia.
(b) A director’s term of office shall be from the date
of the meeting at which he is elected or appointed until the
first annual meeting next following his election or nomination
or, if an election of the board of directors is not held at such
meeting or if such meeting does not occur, at the date on which
his successor is elected or appointed, or earlier if he dies or
resigns, is removed or disqualified, or if his term of office
ends for any other reason.
(c) The directors may appoint one or more directors, who
shall hold office for a term expiring no later than the close of
the next annual meeting of shareholders, but the total number of
directors so appointed may not exceed one-third of the number of
directors elected at the previous annual meeting of shareholders.
Exhibit 7.03(f)(i) - 1
Schedule 1
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3.
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The classes and maximum number of shares that the Corporation
is authorized to issue:
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Unlimited number of Class A Voting Shares without nominal
or par value;
Unlimited number of Class B Multiple Voting Shares without
nominal or par value; and
Unlimited number of Preferred Shares without nominal or par
value, issuable in series.
The Class A Voting Shares and the Class B Multiple
Voting Shares are sometimes referred to herein collectively as
the “Common Shares”. Any capitalized term shall have
the meaning assigned to such term in these Articles. Any
reference herein to the Act is a reference to the
Canada
Business Corporations Act
as it now exists and as it may be
amended from time to time and any reference herein to a section
of the Act is a reference to a section of the Act as such
section is presently numbered or as it may be renumbered from
time to time.
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I.
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The Class A Voting Shares shall have attached thereto
the following rights, privileges, restrictions and
conditions:
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(b)
Voting
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Each Class A Voting Share
shall entitle the holder thereof to one (1) vote at all
meetings of the shareholders of the Corporation (except meetings
at which only holders of another specified class of shares are
entitled to vote pursuant to the provisions hereof or pursuant
to the provisions of the Act).
(c)
Ranking on Liquidation
.
In the event of
the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or other distribution of
assets of the Corporation among shareholders for the purpose of
winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of
shares ranking prior to the Class A Voting Shares or the
Class B Multiple Voting Shares, the holders of the
Class A Voting Shares and the holders of the Class B
Multiple Voting Shares shall be entitled to receive the
remaining property of the Corporation. The holders of the
Class A Voting Shares and the holders of the Class B
Multiple Voting Shares shall rank equally with respect to the
distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary
or involuntary, or any other distribution of the assets of the
Corporation among shareholders for the purpose of winding-up its
affairs.
(d)
Dividends and Distributions
.
In addition
to any dividend or distribution declared by the directors of the
Corporation in respect of Class A Voting Shares, holders of
Class A Voting Shares shall be entitled to receive a
dividend or distribution, whether cash, non-cash or some
combination thereof, equal (on a per share basis) to any
dividend or distribution declared by the directors of the
Corporation in respect of the Class B Multiple Voting
Shares. Dividends and distributions on Class A Voting
Shares shall be payable on the date fixed for payment of the
dividend or distribution in respect of Class A Voting
Shares or, ifapplicable, on the date fixed for payment of any
dividend or distribution in respect of Class B Multiple
Voting Shares.
(e)
Right of Participation in a Sale
Transaction
.
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(i) No holder of Class B Multiple Voting Shares (a
“Selling Holder”) shall sell, transfer or otherwise
dispose of Class B Multiple Voting Shares if, immediately
following such sale, transfer or disposition of Class B
Multiple Voting Shares, such Selling Holder and its Affiliates
shall control less than a majority of the total voting rights
attached to the Common Shares issued and outstanding on the date
of such sale, transfer or disposition (a “Sale
Transaction”), unless all other holders of Common Shares
shall have the right (A) to receive the same consideration
(on a per share basis), whether cash, non-cash or some
combination thereof, as that to be received by the Selling
Holder pursuant to the Sale Transaction and (B) to
participate in such Sale Transaction on the same terms as the
Selling Holder in all other material respects, including in
respect of the conditions to such Sale Transaction. Written
notice of any Sale Transaction, which notice shall specify the
terms of such Sale Transaction and the right of all holders of
Common Shares to participate in such Sale Transaction, shall be
provided to the holders of Common Shares by first class mail, at
least twenty (20) business days prior to the consummation
of such Sale Transaction.
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Exhibit 7.03(f)(i) - 2
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(ii) Any Sale Transaction not in compliance with subsection
(e)(i) above shall be null and void and shall not be registered
in the books of the Corporation.
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(iii) Notwithstanding the foregoing, none of the following
shall constitute a Sale Transaction: (A) any pledge,
mortgage, hypothecation, lien or similar encumbrance, whether by
possession or registration, of Class B Multiple Voting
Shares which creates a security interest in favor of another
person or entity, and (B) any sale, transfer or other
disposition of Class B Multiple Voting Shares to
Affiliates, Associates or shareholders of the transferor of such
Class B Multiple Voting Shares. For purposes of these
Articles, an “Affiliate” means a person that directly
or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified
person. For purposes of these Articles, an
“Associate”, when used to indicate a relationship with
any person, means (x) any trust or other estate in which
such person has a substantial beneficial interest or as to which
such person serves as trustee or in a similar fiduciary capacity
and (y) a spouse or child of such person.
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(f)
Right of Participation in a Business
Combination
.
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(i) The Corporation shall not consummate a Business
Combination unless the holders of Class A Voting Shares
shall have the right (A) to receivethe same consideration
(on a per share basis), whether cash, non-cash or some
combination thereof, as that to be received by the holders of
Class B Multiple Voting Shares in connection with such
Business Combination and (B) to participate in such
Business Combination on the same terms as the holders of
Class B Multiple Voting Shares in all other material
respects, including in respect of the conditions to such
Business Combination.
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(ii) “Business Combination” as used herein shall
mean, whether in one or a series of related transactions:
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(A) any merger, amalgamation, recapitalization or
consolidation involving the Corporation, other than a merger,
amalgamation, recapitalization, consolidation or similar
transaction with a wholly-owned subsidiary of the Corporation or
which is solely for the purpose of continuance of the
Corporation as a corporation in another jurisdiction;
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(B) any sale, lease, exchange, transfer or other
disposition involving 50% or more of the assets of the
Corporation and its subsidiaries, on a consolidated basis; or
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(C) any agreement, contract or other arrangement having the
same purpose or effect as the transactions described in (A) and
(B) above.
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(g)
Transactions or Actions Requiring Special
Approval
.
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(i) In addition to any other approvals required under the
Act, prior to consummating a Related Party Transaction, the
Corporation shall obtain (A) the consent of the majority of
a committee of independent directors of the Corporation and
(B) with respect to clauses (x) and (y) of the
definition of Related Party Transaction below, the affirmative
vote in favor of the approval of the Related Party Transaction
by the majority of the holders of Class A Voting Shares
(exclusive of Class A Voting Shares held by the Related
Person (and its Affiliates and Associates) which is or would be
a party to such Related Party Transaction) that cast a vote, in
person or by proxy (but not including any vote that is not
counted as either an affirmative or negative vote), at the
annual or special shareholders meeting at which such Related
Party Transaction is considered.
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(ii) For purposes of these Articles, (A) “Related
Party Transaction” shall mean (x) consummation of a
Business Combination with a Related Person; (y) amending,
repealing or altering in anyway any provision of these Articles
or the By-laws of the Corporation, except for matters not having
an adverse effect on the holders of Class A Voting Shares;
or (z) theissuance, sale, exchange, transfer or other
disposition (in one transaction or a series of related
transactions) by the Corporation or any wholly-owned subsidiary
of the Corporation of any securities of the Corporation or of
such subsidiary to a Related Person (other than pursuant to: an
employee or director stock incentive plan or other compensation
arrangements approved by the Compensation Committee of the
Corporation; an offering made to all holders of Class A
Voting Shares; or a public offering); and (B) “Related
Person” shall
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Exhibit 7.03(f)(i) - 3
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mean any individual, corporation, partnership, group,
association or other person or entity that, together with its
Affiliates and Associates, beneficially owns Class A Voting
Shares and/or Class B Multiple Voting Shares which, in the
aggregate, equal twenty percent (20%) or more of the total
voting rights attached to the Common Shares issued and
outstanding at the time the definitive agreement with respect to
a Related Party Transaction is executed.
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(h)
Subdivision, Consolidation, Reclassification or
other Change
.
No subdivision, consolidation or
reclassification of, or other change to, the Class A Voting
Shares shall be carried out, either directly or indirectly
unless, at the same time, the Class B Multiple Voting
Shares are subdivided, consolidated, reclassified or changed in
the same manner and on the same basis.
(i)
Equal Status
.
Except as otherwise
expressly provided in these Articles, Class A Voting Shares
and Class B Multiple Voting Shares shall have the same
rights and privileges and shall rank equally, share ratably and
be equal in all respects as to all matters.
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II.
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The Class B Multiple Voting Shares shall have attached
thereto the following rights, privileges, restrictions and
conditions:
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(a)
Voting
.
Each Class B multiple voting
share shall entitle the holder thereof to ten (10) votes at
all meetings of the shareholders of the Corporation (except
meetings at which only holders of another specified class of
shares are entitled to vote pursuant to the provisions hereof or
pursuant to the provisions of the Act).
(b)
Ranking on Liquidation
.
In the event of
the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or other distribution of
assets of the Corporation among shareholders for the purpose of
winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of
shares ranking prior to the Class B Multiple Voting Shares
or the Class A Voting Shares, the holders of the
Class B Multiple Voting Shares and the holders of the
Class A Voting Shares shall be entitled to receive the
remaining property of the Corporation. The holders of the
Class B Multiple Voting Shares and the holders of the
Class A Voting Shares shall rank equally with respect to
the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary
orinvoluntary, or any other distribution of the assets of the
Corporation among shareholders for the purpose of winding-up its
affairs.
(c)
Dividends and Distributions
.
In addition
to any dividend or distribution declared by the directors in
respect of Class B Multiple Voting Shares, holders of
Class B Multiple Voting Shares shall be entitled to receive
a dividend or distribution, whether cash, non-cash or some
combination thereof, equal (on a per share basis) to any
dividend or distribution declared by the directors of the
Corporation in respect of Class A Voting Shares. Dividends
and distributions on Class B Multiple Voting Shares shall
be payable on the dated fixed for payment of the dividend or
distribution in respect of Class B Multiple Voting Shares
or, if applicable, on the date fixed for payment of a dividend
or distribution in respect of Class A Voting Shares
(d)
Conversion by Holder into Class A Voting
Shares
.
Each Class B multiple voting share may at
any time and from time to time, at the option of the holder, be
converted into one (1) fully paid and non-assessable
Class A voting share. Such conversion right shall be
exercised as follows:
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(i) the holder of Class B Multiple Voting Shares shall
send to the transfer agent of the Corporation a written notice,
accompanied by a certificate or certificates representing the
Class B Multiple Voting Shares in respect of which the
holder desires to exercise such conversion right. Such notice
shall be signed by the holder of the Class B Multiple
Voting Shares in respect of which such right is being exercised,
or by the duly authorized representative thereof, and shall
specify the number of Class B Multiple Voting Shares which
such holder desires to have converted. The holder shall also pay
any governmental or other tax, if any, imposed in respect of
such conversion. The conversion of the Class B Multiple
Voting Shares into Class A Voting Shares shall take effect
upon receipt by the transfer agent of the Corporation of the
conversion notice accompanied by the certificate or certificates
representing the Class B Multiple Voting Shares in respect
of which the holder desires to exercise such conversion right.
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Exhibit 7.03(f)(i) - 4
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(ii) upon receipt of such notice and certificate or
certificates by the transfer agent of the Corporation, the
Corporation shall, effective as of the date of such receipt,
issue or cause to be issued a certificate or certificates
representing Class A Voting Shares into which Class B
Multiple Voting Shares are being converted. If less than all of
the Class B Multiple Voting Shares represented by any
certificate are to be converted, the holder shall be entitled to
receive a new certificate representing the Class B Multiple
Voting Shares represented by the original certificate which are
not to be converted.
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(e)
Subdivision, Consolidation, Reclassification or
other Change
.
No subdivision, consolidation or
reclassification of, or other change to, the Class B
Multiple Voting Shares shall be carried out unless, at the same
time, the Class A VotingShares are subdivided,
consolidated, reclassified or changed in the same manner and on
the same basis.
(f)
Equal Status
.
Except as otherwise
expressly provided in these Articles, Class B Multiple
Voting Shares and Class A Voting Shares shall have the same
rights and privileges and shall rank equally, share ratably and
be equal in all respects as to all matters.
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III.
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The Preferred Shares shall have attached thereto, as a class,
the following rights, privileges, restrictions and
conditions:
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(a)
Issuance of Preferred Shares, in Series
.
The directors of the Corporation may, at any time and from time
to time, issue Preferred Shares in one (1) or more series,
each series to consist of such number of Preferred Shares as
may, before issuance thereof, be determined by the directors.
(b)
Determination of Rights, Privileges,
Restrictions, Conditions and Limitations attaching to Series of
Preferred Shares
.
The directors of the Corporation may,
subject to the following, from time to time fix, before
issuance, the designation, rights, privileges, restrictions,
conditions and limitations to attach to the Preferred Shares of
each series including, without limiting the generality of the
foregoing,
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(i) the rate, amount or method of calculation of
preferential dividends of the Preferred Shares of such series,
if any, whether cumulative or non-cumulative or partially
cumulative, and whether such rate, amount or method of
calculation shall be subject to change or adjustment in the
future, the currency or currencies of payment, the date or dates
and place or places of payment thereof and the date or dates
from which such preferential dividends shall accrue;
provided,
that,
the dividends payable with respect to any series of
Preferred Shares, whether cumulative or non-cumulative or
partially cumulative, shall not exceed five (5) percent of
the liquidation preference of such series of Preferred Shares;
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(ii) the redemption price and terms and conditions of
redemption, if any, of the Preferred Shares of such
series;
provided, that,
without the approval by a majority
of the votes cast at a meeting of shareholders of the Company
duly called, the redemption price shall not exceed the
liquidation preference of such shares;
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(iii) the rights of retraction, if any, vested in the
holders of Preferred Shares of such series, and the prices and
the other terms and conditions of any rights of retraction, and
whether any additional rights of retraction may be vested in
such holders in the future;
provided, that,
without the
approval by a majority of the votes cast at a meeting of
shareholders of the Company duly called, the retraction price
shall not exceed the liquidation preference of such shares;
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(iv) the voting rights, if any, of the Preferred Shares of
such series;
provided, that,
the approval by a majority
of the votes cast at a meeting of shareholders of the
Corporation duly called shall be required for the issuance of
any series of Preferred Shares with voting rights;
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(v) the conversion rights and terms and conditions of
conversion, if any, of the Preferred Shares of such
series;
provided, that,
the approval by a majority of the
votes cast at a meeting of shareholders of the Company duly
called shall be required for the issuance of any series of
Preferred Shares which are convertible into securities with
voting rights;
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(vi) any sinking fund, purchase fund or other provisions
attaching to the Preferred Shares of such series; and
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Exhibit 7.03(f)(i) - 5
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(vii) any other relative rights, preferences and
limitations of the Preferred Shares of such series,
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the whole subject to the issue of a certificate of amendment in
respect of articles of amendment in the prescribed form to
designate a series of Preferred Shares.
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(c)
Cumulative Dividends or Return of Capital not
Paid in Full
.
Pursuant to section 27(2) of the Act,
when any cumulative dividends or amounts payable on a return of
capital in respect of a series of Preferred Shares are not paid
in full, the Preferred Shares of all series shall participate
ratably in respect of such dividends including accumulations, if
any, in accordance with the sums which would be payable on the
Preferred Shares if all such dividends were declared and paid in
full, and on any return of capital in accordance with the sums
which would be payable on such return of capital if all sums so
payable were paid in full.
(d)
Payment of Dividends and Other
Preferences
.
The Preferred Shares shall be entitled to
preference over the Class A Voting Shares, the Class B
Multiple Voting Shares and any other shares of the Corporation
ranking junior to the Preferred Shares with respect to the
payment of dividends, and may also be given such other
preferences over the Class A Voting Shares, the
Class B Multiple Voting Shares and any other shares of the
Corporation ranking junior to the Preferred Shares, as may be
fixed by the directors of the Corporation, as to the respective
series authorized to be issued.
(e)
Procedure for Payment of Dividends
.
No
dividends shall at any time be declared or paid or set apart for
payment on any shares of the Corporation ranking junior to the
Preferred Shares, unless all dividends up to and including the
dividends payable for the last completed period for which such
dividends shall be payable on each series of Preferred Shares
then issued and outstanding shall have been declared and paid or
set apart for payment at the date of such declaration or payment
or setting apart for payment on such shares of the Corporation
ranking junior to the Preferred Shares, nor shall the
Corporation callfor redemption or redeem or purchase for
cancellation or reduce or otherwise pay off any of the Preferred
Shares (less than the total amount then outstanding) or any
shares of the Corporation ranking junior to the Preferred
Shares, unless all dividends up to and including the dividend
payable for the last completed period for which such dividends
shall be payable on each series of the Preferred Shares then
issued and outstanding shall have been declared and paid or set
apart for payment at the date of such call for redemption,
purchase, reduction or other payment.
(f)
Ranking for Payment of Dividends and Liquidation,
Dissolution or Winding-up
.
The Preferred Shares of each
series shall rank on a parity with the Preferred Shares of every
other series with respect to priority in payment of dividends
and in the distribution of assets in the event of liquidation,
dissolution or winding-up of the Corporation whether voluntary
of involuntary.
(g)
Liquidation, Dissolution or Winding-up
.
In the event of the liquidation, dissolution or winding-up of
the Corporation or other distribution of assets of the
Corporation among shareholders for the purpose of winding-up its
affairs, the holders of the Preferred Shares shall, before any
amount shall be paid to or any property or assets of the
Corporation distributed among the holders of the Class A
Voting Shares, the Class B Multiple Voting Shares or any
other shares of the Corporation ranking junior to the Preferred
Shares, be entitled to receive:
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(i) an amount equal to the consideration received by the
Corporation upon the issuance of such shares together with, in
the case of cumulative Preferred Shares, all unpaid cumulative
dividends (which for such purpose shall be calculated as if such
cumulative dividends were accruing from day to day for the
period from the expiration of the last period for which
cumulative dividends have been paid-up to and including the date
of distribution) and, in the case of non-cumulative Preferred
Shares, all declared and unpaid non-cumulative dividends; and
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(ii) if such liquidation, dissolution, winding-up or
distribution shall be voluntary, an additional amount equal to
the premium, if any, which would have been payable on the
redemption of the said Preferred Shares respectively if they had
been called for redemption by the Corporation on the date of
distribution and, if said Preferred Shares could not be redeemed
on such date, then an additional amount
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Exhibit 7.03(f)(i) - 6
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equal to the greatest premium, if any, which would have been
payable on the redemption of said Preferred Shares respectively.
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(h)
Purchase by the Corporation
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The
Preferred Shares of any series may be purchased for cancellation
or made subject to redemption by the Corporation at such times
and at such prices and upon such other terms and conditions as
may be specified in the rights, privileges, restrictions and
conditions attaching to the Preferred Shares of such series as
set forth in the articles of amendment relating to such series.
(i)
Amendments
.
The provisions of this
section III may be deleted or varied in whole or in part by
a certificate of amendment, but only with the prior approval of
the holders of the Preferred Shares, given as hereinafter
specified, in addition to any other approval required by the Act
(or any other statutory provision of the like or similar effect,
from time to time in force). The approval of the holders of the
Preferred Shares with respect to any and all matters
hereinbefore referred to, may be given by at least two-thirds
(2/3) of the votes cast at a meeting of the holders of the
Preferred Shares duly called for that purpose and held upon at
least twenty-one (21) days notice at which the holders of a
majority of the outstanding Preferred Shares are present or
represented by proxy. If at any such meeting the holders of a
majority of the outstanding Preferred Shares are not present or
represented by proxy within thirty (30) minutes after the
time appointed for such meeting, then the meeting shall be
adjourned to such date being not less than thirty (30) days
later and to such time and place as may be determined by the
chairman of the meeting and not less than twenty-one
(21) days notice shall be given of such adjourned meeting
but it shall not be necessary in such notice to specify the
purpose for which the meeting was originally called. At such
adjourned meeting the holders of Preferred Shares, present or
represented by proxy, may transact the business for which the
meeting was originally called and a resolution passed thereat by
not less than two-thirds (2/3) of the votes cast at such
adjourned meeting, shall constitute the authorization of the
holders of the Preferred Shares referred to above. The
formalities to be observed in respect of the giving of notice of
any such meeting or adjourned meeting and the conduct thereof
shall be those from time to time prescribed by the by-laws of
the Corporation with respect to meetings of shareholders. On
every poll taken at every such meeting or adjourned meeting,
every holder of Preferred Shares shall be entitled to one
(1) vote in respect of each preferred share held.
Exhibit 7.03(f)(i) - 7
Exhibit 7.03(f)(ii)
HENRY BIRKS & SONS INC./ HENRY BIRKS ET FILS INC.
BY-LAW NO. ONE
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Page
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DEFINITIONS
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1
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Act
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1
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Articles
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1
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By-law
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1
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REGISTERED OFFICE
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1
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CORPORATE SEAL
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1
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DIRECTORS
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1
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Number
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1
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Vacancies
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2
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Vacation of Office
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2
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Election
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2
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Consent to be Elected or Appointed Director
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2
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MEETINGS OF DIRECTORS
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3
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Place and Calling of Meetings
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3
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Notice
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3
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Waiver of Notice
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3
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Participation by Communication Facilities
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3
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Adjournment
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3
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Quorum and Voting
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3
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Resolution in lieu of Meeting
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4
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REMUNERATION OF DIRECTORS
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4
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SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR
APPROVAL
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4
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CHAIRMAN OF THE BOARD
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4
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OFFICERS
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4
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Appointment of Officers
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4
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Remuneration and Removal of Officers
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5
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Duties of Officers may be Delegated
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5
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President
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5
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Vice-President
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5
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Secretary
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5
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Treasurer
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5
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Assistant Secretary and Assistant Treasurer
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6
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COMMITTEES
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6
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Appointment of Committees
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6
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Audit Committee
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6
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Nominating Committee
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6
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Corporate Governance Committee
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6
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Page
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Executive Committee
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7
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Compensation Committee
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7
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DISCLOSURE OF INTEREST
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7
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INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS AND
OTHERS
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8
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Liability
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8
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Indemnification
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8
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Insurance
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9
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MEETINGS OF SHAREHOLDERS
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9
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Annual Meeting
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9
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Special Meetings
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9
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Place of Meetings
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9
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Notice
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9
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Omission of Notice
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9
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Record Date
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10
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Participation by Communication Facilities
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10
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Votes
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10
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Proxies
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11
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Adjournment
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12
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Quorum
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12
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SECURITIES
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12
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Certificates
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12
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Registrar and Transfer Agent
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12
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Surrender of Share Certificates
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12
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Defaced, Destroyed, Stolen or Lost Certificates
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13
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DIVIDENDS
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13
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NOTICES
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13
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Method of Giving Notices
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13
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Shares registered in more than one (1) name
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13
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Persons becoming entitled by operation of law
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13
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Deceased Shareholder
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14
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Signatures to Notices
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14
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Computation of Time
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14
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Proof of Service
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14
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CHEQUES, DRAFTS, NOTES, ETC.
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14
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CUSTODY OF SECURITIES
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14
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EXECUTION OF CONTRACTS, ETC.
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14
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DECLARATIONS
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15
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FISCAL YEAR
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15
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ii
Exhibit 7.03(f)(ii)
BY-LAW NO. ONE
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being a by-law relating generally to the transaction of the
business and affairs of Henry Birks & Sons Inc./ Henry
Birks et Fils Inc. (the
“Corporation”
).
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DEFINITIONS
1. In this by-law and all other by-laws of the Corporation,
unless the context otherwise specifies or requires:
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(a)
“Act”
means the
Canada Business
Corporations Act
, R.S.C., 1985, chapter C-44, any
statute that may be substituted therefore and any regulations
thereunder, as from time to time amended; and any reference to a
section of the Act is a reference to a section of the Act as
such section is presently numbered or as it may be renumbered
from time to time;
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(b)
“articles”
means the articles of the
Corporation, as from time to time amended or restated;
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(c)
“by-law”
means this by-law and all
other by-laws of the Corporation from time to time in force and
effect;
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(d) words importing the singular number only shall include
the plural and
vice versa
; words importing the masculine
gender shall include the feminine and neuter genders and
vice
versa
; words importing persons shall include bodies
corporate, corporations, companies, partnerships, syndicates,
trusts and any number or aggregate of individuals;
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(e) the headings used in this by-law are inserted for
reference purposes only and are not to be considered or taken
into account in construing the terms or provisions thereof or to
be deemed in any way to clarify, modify or explain the effect of
any such terms or provisions; and
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(f) all terms contained in this by-law and which are
defined in the Act shall have the meanings given to such terms
in the Act.
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REGISTERED OFFICE
2. The Corporation may from time to time (i) by
resolution of the board of directors, change the place and/or
address of the registered office of the Corporation within the
province specified in its articles and (ii) by articles of
amendment, change the province in which its registered office is
situated to another province of Canada.
CORPORATE SEAL
3. The Corporation may have one or more corporate seals
which shall be such as the board of directors may by resolution
from time to time adopt and change.
DIRECTORS
4.
Number
There shall be a board of directors consisting of such fixed
number, or minimum and maximum number of directors as may be set
out in the articles. If any of the issued securities of the
Corporation are or were part of a distribution to the public,
remain outstanding and are held by more than one person, the
Corporation shall not have fewer than three (3) directors,
at least two (2) of whom are not officers or employees of
the Corporation or its affiliates.
5.
Vacancies
If a fixed number of directors is set out in the articles and if
such fixed number is higher than the number of directors in
office at the time of the amendment to the articles, or if such
fixed number is thereafter increased, the resulting vacancies
shall be filled at a meeting of shareholders duly called for
that purpose. Notwithstanding the provisions of this by-law and
subject to the provisions of the Act, if a vacancy should
otherwise occur in the board, the remaining directors, if
constituting a quorum, may appoint a qualified person to fill
the vacancy for the remainder of the term, except a vacancy
resulting from the fixing, in the articles, of a number of
directors that is higher than the number of directors in office
at the time of the amendment to the articles, from a subsequent
increase of such fixed number or from a failure of the
shareholders to elect the number or minimum number of directors
specified in the articles. In the absence of a quorum or if the
vacancy has arisen from a failure by the shareholders to elect
the number or minimum number of directors specified in the
articles, the remaining directors shall forthwith call a meeting
of shareholders to fill the vacancy pursuant to
subsection 111(2) of the Act. If the directors fail to call
such a meeting or if there are no directors then in office, any
shareholder may call the meeting. Where a vacancy or vacancies
exist in the board, the remaining directors may exercise all of
the powers of the board so long as a quorum remains in office.
6.
Vacation of Office
The office of a director shall
ipso facto
be vacated if:
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(a) he dies;
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(b) by notice in writing to the Corporation, he resigns his
office and such resignation, if not effective immediately,
becomes effective in accordance with its terms;
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(c) he is removed from office in accordance with
section 109 of the Act; or
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(d) he ceases to be qualified to be a director.
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7.
Election
Directors shall be elected by the shareholders by ordinary
resolution in a general meeting unless the articles of the
Corporation confer upon the directors the right to appoint
additional directors in which case, the dispositions of the Act
apply. A vote by ballot shall not be necessary for the election
of the directors unless it is required by someone present and
entitled to vote at the meeting.
A retiring director shall retain office until the adjournment or
termination of the meeting at which his successor is elected,
unless such meeting was called for the purpose of removing him
from office as a director in which case the director so removed
shall vacate office forthwith upon the passing of the resolution
for his removal.
8.
Consent to be Elected or Appointed Director
An individual who is elected or appointed to hold office as a
director is not a director and is deemed not to have been
elected or appointed to hold office as a director unless:
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(a) the said individual was present at the meeting when the
election or appointment took place and he did not refuse to hold
office as a director; or
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(b) the said individual was not present at the meeting when
the election or appointment took place and the said individual
consented to hold office as a director in writing before the
election or appointment or within ten (10) days after it,
or the said individual has acted as a director pursuant to the
election or appointment.
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2
MEETINGS OF DIRECTORS
9.
Place and Calling of Meetings
Subject to the articles, meetings of directors may be held at
any place within or outside Canada as the directors may from
time to time determine or the person convening the meeting may
give notice. A meeting of the board of directors may be convened
by the chairman of the board, if any, the president, if any, or
any director at any time. The secretary, if any, shall, upon
direction of any of the foregoing, convene a meeting of the
board of directors.
10.
Notice
Notice of the time and place for the holding of any such meeting
shall be delivered, mailed, faxed or emailed to each director at
his latest address as shown on the records of the Corporation no
less than two (2) days or twelve (12) days if mailed
(exclusive of the day on which the notice is sent, but inclusive
of the day for which notice is given) before the date of the
meeting; provided that meetings of the board of directors may be
held at any time without notice, if all the directors have
waived notice.
For the first meeting of the board of directors, to be held
immediately following the election of directors at any annual or
special meeting of the shareholders, no notice of such meeting
need be given to the newly elected or appointed director or
directors in order for the meeting to be duly constituted,
provided a quorum of the directors is present.
A notice of a meeting of directors shall specify any matter
referred to in subsection 115(3) of the Act that is to be
dealt with at the meeting but otherwise need not specify the
purpose of or the business to be transacted at the meeting.
11.
Waiver of Notice
Notice of any meeting of the board of directors or any
irregularity in any meeting or in the notice thereof may be
waived by any director, and such waiver may be validly given
either before or after the meeting to which such waiver relates.
The attendance of a director at a meeting of directors is a
waiver of notice of the meeting, except where a director attends
a meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is
not lawfully called.
12.
Participation by Communication Facilities
A director may, if all the directors of the Corporation consent
thereto (either before, during or after the meeting),
participate in a meeting of the board of directors or of any
committee thereof, if any, by means of a telephonic, electronic
or other communication facility that permits all participants to
communicate adequately with each other, and a director
participating in such manner is deemed to be present at that
meeting. A consent may be given with respect to all meetings of
the board and/or of the committees of the board, if any.
13.
Adjournment
Any meeting of the board of directors may be adjourned from time
to time by the chairman of the meeting, with the consent of the
meeting, to a fixed time and place and no notice of the time and
place for the continuance of the adjourned meeting need be given
to any director in such a case. Any adjourned meeting shall be
duly constituted if held in accordance with the terms of the
adjournment and a quorum is present at the meeting. The
directors who formed a quorum at the original meeting are not
required to form the quorum at the adjourned meeting. If there
is no quorum present at the adjourned meeting, the original
meeting shall be deemed to have terminated forthwith after its
adjournment.
14.
Quorum and Voting
Subject to the articles, a majority of the number of directors
in office shall constitute a quorum for the transaction of
business. Subject to subsection 117(1) of the Act, no
business shall be transacted by the directors, except at a
meeting of directors at which a quorum of the board is present.
The directors shall not
3
transact business at a meeting unless the number of Canadian
directors required by the law are present, except where:
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(a) a resident Canadian director who is unable to be
present approves in writing, or by telephonic, electronic or
other communication facility, the business transacted at the
meeting; and
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(b) the required number of resident Canadian directors
would have been present had that director been present at the
meeting.
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Questions arising at any meeting of the board of directors shall
be decided by a majority of votes cast. In case of an equality
of votes, the chairman of the meeting, in addition to his
original vote, shall not have a second or casting vote.
15.
Resolution in lieu of Meeting
A resolution in writing, signed by all the directors entitled to
vote on that resolution at a meeting of directors or a committee
of directors, if any, is as valid as if it had been passed at a
meeting of directors or committee of directors, if any.
A copy of every such resolution shall be kept with the minutes
of the proceedings of the directors or committee of directors,
if any.
REMUNERATION OF DIRECTORS
16. Subject to the articles, the remuneration to be paid to
the directors shall be such as the board of directors shall from
time to time determine and such remuneration shall not be in
addition to the salary paid to any officer of the Corporation
who is also a member of the board of directors. The directors
may also by resolution award special remuneration to any
director undertaking any special services on the
Corporation’s behalf other than the routine work ordinarily
required of a director by the Corporation. The confirmation of
any such resolution or resolutions by the shareholders shall not
be required. The directors concerned shall not vote on such
resolutions. The directors shall be entitled to be paid their
traveling and other expenses properly incurred by them in
connection with the affairs of the Corporation.
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS
FOR APPROVAL
17. The board of directors, in its discretion, may submit
any contract, act or transaction for approval, ratification or
confirmation at any annual meeting of the shareholders or at any
special meeting of the shareholders called for the purpose of
considering the same and any contract, act or transaction that
shall be approved, ratified or confirmed by resolution passed by
a majority of the votes cast at any such meeting (unless any
different or additional requirement is imposed by the Act or by
the Corporation’s articles or the by-law) shall be as valid
and as binding upon the Corporation and upon all the
shareholders as though it had been approved, ratified or
confirmed by every shareholder of the Corporation.
CHAIRMAN OF THE BOARD
18. The chairman of the board, if any, shall, if present,
preside at all meetings of the board of directors and of
shareholders. He shall sign such contracts, documents or
instruments in writing as require his signature and shall have
such other powers and duties as may from time to time be
assigned to him by resolution of the board of directors.
OFFICERS
19.
Appointment of Officers
Subject to the articles, the board of directors, annually or as
often as may be required, may appoint among themselves a
chairman of the board and may appoint a president and a
secretary and, if deemed advisable, may appoint a vice chairman,
one (1) or more vice-presidents (to which title may be
added words indicating seniority or function), a treasurer and
one (1) or more assistant secretaries and/or one
(1) or more
4
assistant treasurers. None of such officers, except the chairman
of the board, need be a director of the Corporation. The board
of directors may from time to time designate such other offices
and appoint such other officers, employees and agents as it
shall deem necessary, who shall have such authority and shall
perform such functions and duties, as may from time to time be
prescribed by resolution of the board of directors. Any two
(2) or more offices may be held by the same person. In case
and whenever the same person holds the offices of secretary and
treasurer he may, but need not, be known as the
secretary-treasurer.
20.
Remuneration and Removal of Officers
Subject to the articles, the remuneration of all officers,
employees and agents elected or appointed by the board of
directors may be determined from time to time by resolution of
the board of directors. The fact that any officer, employee or
agent is a director or shareholder of the Corporation shall not
disqualify him from receiving such remuneration as may be so
determined. The board of directors may, by resolution, remove
any officer, employee or agent at any time, with or without
cause, subject to his rights under any employment contract in
force between the Corporation and such individual.
21.
Duties of Officers may be Delegated
In case of the absence or inability or refusal to act of any
officer of the Corporation or for any other reason that the
board of directors or the President, as applicable, may deem
sufficient, the board of directors or the President, as
applicable, may delegate all or any of the powers of such
officer to any other officer or to any director for the time
being.
22.
President
The president, if any, shall be the chief executive officer of
the Corporation and shall exercise general supervision over the
business and affairs of the Corporation. In the absence or
inability of the chairman of the board, if any, the president
shall, when present, preside at all meetings of the board of
directors and shareholders; he shall sign such contracts,
documents or instruments in writing as require his signature and
shall have such other powers and shall perform such other duties
as may from time to time be assigned to him by resolution of the
board of directors or as are incident to his office.
23.
Vice-President
The vice-president or, if more than one (1), the
vice-presidents, in order of seniority, shall be vested with all
the powers and shall perform all the duties of the president in
the absence or inability or refusal to act of the president,
provided, however, that a vice-president, who is not a director,
shall not preside as chairman at any meeting of shareholders.
The vice-president or, if more than one (1), the
vice-presidents, in order of seniority, shall sign such
contracts, documents or instruments in writing as require his or
their signatures and shall also have such other powers and
duties as may from time to time be assigned to him or them by
resolution of the board of directors or, to the extent permitted
by the Act, by the president of the Corporation.
24.
Secretary
The secretary, if any, shall give or cause to be given notices
for all meetings of the board of directors, of committees
thereof, if any, and of shareholders when directed to do so and
shall have charge, subject to the provisions of this by-law, of
the records referred to in section 20 of the Act (except
the accounting records) and of the corporate seal or seals, if
any, except when some other officer or agent has been appointed
for that purpose. He shall sign such contracts, documents or
instruments in writing as require his signature and shall have
such other powers and duties as may from time to time be
assigned to him by resolution of the board of directors or as
are incident to his office.
25.
Treasurer
Subject to the provisions of any resolution of the board of
directors, the treasurer, if any, shall have the care and
custody of all the funds and securities of the Corporation and
shall deposit the same in the name of the Corporation in such
bank or banks or with such other depositary or depositaries as
the board of directors may, by resolution, direct. He shall
prepare, maintain and keep or cause to be kept adequate books of
5
accounts and accounting records. He shall sign such contracts,
documents or instruments in writing as require his signature and
shall have such other powers and duties as may from time to time
be assigned to him by resolution of the board of directors or as
are incident to his office. He may be required to give such bond
for the faithful performance of his duties as the board of
directors, in their absolute discretion, may require, and no
director shall be liable for failure to require any such bond or
for the insufficiency of any such bond or for any loss by reason
of the failure of the Corporation to receive any indemnity
thereby provided.
26.
Assistant Secretary and Assistant Treasurer
The assistant secretary or, if more than one (1), the assistant
secretaries, in order of seniority, and the assistant treasurer
or, if more than one (1), the assistant treasurers, in order of
seniority, shall respectively perform all the duties of the
secretary and treasurer, respectively, in the absence or
inability to act of the secretary or treasurer, as the case may
be. The assistant secretary or assistant secretaries, if more
than one (1), and the assistant treasurer or assistant
treasurers, if more than one (1), shall sign such contracts,
documents or instruments in writing as require his or their
signatures respectively and shall have such other powers and
duties as may from time to time be assigned to them by
resolution of the board of directors.
COMMITTEES
27.
Appointment of Committees
The board of directors may from time to time appoint from their
number one (1) or more committees consisting of one
(1) or more individuals and delegate to such committee or
committees any of the powers of the directors, except as
provided in subsection 115(3) of the Act. Unless otherwise
ordered by the board, a committee of directors shall have power
to fix its quorum and to regulate its proceedings. Meetings of
any such committee may be held at any place in or outside of
Canada.
28.
Audit Committee
The Corporation shall have an Audit Committee composed of not
fewer than three (3) directors. If any of the issued
securities of the Corporation are or were part of a distribution
to the public, remain outstanding and are held by more than one
(1) person, each of the directors composing the Audit
Committee must be independent and none of them must be an
employee of the Corporation or any of its affiliates. The
members of the Audit Committee shall be appointed annually by
the board of directors from its number. The Audit Committee
shall be responsible for reviewing the scope and results of the
annual audit of the Corporation’s consolidated financial
statements conducted by the Corporation’s independent
auditors, the scope of other services provided by the
Corporation’s independent auditors, the proposed changes in
the Corporation’s policies and procedures with respect to
its internal accounting, auditing, auditing and financial
controls and shall have such other powers and duties as may be
provided in the Act or specified by the board of directors.
29.
Nominating Committee
The board of directors may appoint a Nominating Committee
composed of not fewer than three (3) directors. If any of
the issued securities of the Corporation are or were part of a
distribution to the public, remain outstanding and are held by
more than one (1) person, each of the directors composing
the Nominating Committee must be independent and none of them
must be an employee of the Corporation or any of its affiliates.
The Nominating Committee shall be responsible for nominating
potential nominees to the board of directors. The members of the
Nominating Committee shall be appointed annually by the board of
directors from its number. The Nominating Committee shall have
the powers and duties as may be specified by the board of
directors.
30.
Corporate Governance Committee
The board of directors shall have a Corporate Governance
Committee composed of not fewer than
three (3) directors. If any of the issued securities
of the Corporation are or were part of a distribution to the
public, remain outstanding and are held by more than one
(1) person, each of the directors composing the Corporate
Governance Committee must be independent and none of them must
be an employee of the Corporation or any of its affiliates. The
Corporate Governance Committee shall be responsible for
overseeing
6
all aspects of the Corporation’s corporate governance
policies. The members of the Corporate Governance Committee
shall be appointed annually by the board of directors from its
number. The Corporate Governance Committee shall have such other
powers and duties that may be specified by the board of
directors. No agreement or arrangement between the Corporation
and any affiliate of the Corporation shall be entered into by
the Corporation without the approval of the Corporate Governance
Committee;
provided, however
, that the foregoing
prohibition shall not apply to any agreement or arrangement that
does not exceed any applicable threshold which may be
established by the Corporate Governance Committee from time to
time.
31.
Executive Committee
The board of directors may appoint an Executive Committee
composed of at least three (3) members of the board of
directors and responsible for facilitating the efficient
operation of the Corporation. The members of the Executive
Committee shall be appointed annually by the board of directors
from its number. The Executive Committee shall have the powers
and duties as may be specified by the board of directors.
32.
Compensation Committee
The board of directors shall appoint a Compensation Committee
composed of not fewer than three (3) directors. If any
of the issued securities of the Corporation are or were part of
a distribution to the public, remain outstanding and are held by
more than one (1) person, each of the directors composing
the Compensation Committee must be independent and none of them
must be an employee of the Corporation or any of its affiliates.
The Compensation Committee shall be responsible for recommending
to the board of directors executive compensation, including base
salaries, bonuses and long-term incentive awards for the
executive officers of the Corporation. The members of the
Compensation Committee shall be appointed annually by the board
of directors from its number. The Compensation Committee shall
have the powers and duties as may be specified by the board of
directors.
DISCLOSURE OF INTEREST
33. A director or officer of the Corporation shall disclose
to the Corporation, in writing, or by requesting to have it
entered in the minutes of meetings of directors or of meetings
of committees of directors, if any, the nature and extent of any
interest that he has in a material contract or material
transaction, whether made or proposed, with the Corporation: if
the director or officer is a party to the contract or the
transaction; if he is a director or officer, or an individual
acting in a similar capacity of a party to the contract or
transaction; or if he has a material interest in a party to the
contract or transaction.
In the case of a contract or transaction or a proposed contract
or transaction involving a director, the disclosure shall be
made at the meeting of directors at which the question of
entering into the contract or transaction is first considered.
If the director was not at the time of the meeting referred to
previously interested in the proposed contract or transaction,
the disclosure shall be at the first meeting of the directors
held after he becomes so interested. If the director becomes
interested in a contract or transaction after it is made, the
disclosure shall be made at the first meeting of directors held
after the director becomes so interested. If an individual who
is interested in a contract or transaction later becomes a
director, the disclosure shall be made at the first meeting
after he becomes a director.
If a material contract or material transaction, whether entered
into or proposed, is one that, in the ordinary course of the
Corporation’s business, would not require approval by the
directors or shareholders, a director or officer shall disclose,
in writing to the Corporation or request to have it entered in
the minutes of meetings of directors or of meetings of
committees of directors, if any, the nature and extent of his
interest immediately after he becomes aware of the contract or
transaction.
In the case of a contract or transaction or proposed contract or
transaction involving an officer who is not a director, the
disclosure shall be made immediately after he becomes aware that
the contract, transaction or proposed contract or proposed
transaction is to be considered or has been considered at a
meeting. If the officer becomes interested after a contract or
transaction is made, the disclosure shall be made immediately
after he becomes so interested. If an individual who is
interested in a contract or transaction later becomes an
officer, the disclosure shall be made immediately after he
becomes an officer.
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A general notice to the directors declaring that a director or
an officer is to be regarded as interested, for any of the
following reasons, in a contract or transaction made with a
party, is a sufficient declaration of interest in relation to
the contract or transaction:
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(a) the director or officer is a director or officer or
acting in a similar capacity, of a party to the contract or
transaction, or of a party who has a material interest in a
party to the contract or transaction;
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(b) the director or officer has a material interest in the
party; or
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(c) there has been a material change in the nature of the
director’s or the officer’s interest in the party.
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A director required to make a disclosure of interest shall not
vote on any resolution to approve the contract or transaction
unless the contract or transaction:
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(a) relates primarily to his remuneration as a director,
officer, employee or agent of the Corporation or an
affiliate; or
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(b) is for indemnity or insurance under section 124 of
the Act.
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INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS AND
OTHERS
34.
Liability
No director or officer shall be liable for the acts, receipts,
neglects or defaults of any other director, officer or employee
of the Corporation, or for joining any receipt or other act for
conformity, or for any loss, damage or expense happening to the
Corporation through the insufficiency or deficiency of title to
any property acquired for or on behalf of the Corporation, or
for the insufficiency or deficiency of any security in or upon
which any of the moneys of the Corporation shall be invested, or
for any loss or damage arising from the bankruptcy, insolvency
or tortuous acts of any person with whom any of the moneys,
securities or effects of the Corporation shall be deposited, or
for any loss occasioned by any error of judgment or oversight on
his part, or for any other loss, damage or misfortune which
shall happen in the execution of the duties of his office or in
relation thereto, provided that nothing herein shall relieve any
director or officer from the duty to act in accordance with the
Act or from liability for any breach thereof.
35.
Indemnification
Subject to the Act, the Corporation shall indemnify a director
or officer of the Corporation, a former director or officer of
the Corporation, or another individual who acts or acted at the
Corporation’s request as a director or officer, or an
individual acting in a similar capacity, of another entity
against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably
incurred by the individual in respect of any civil, criminal,
administrative, investigative or other proceeding in which the
individual is involved because of that association with the
Corporation or other entity if:
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(a) he acted honestly and in good faith with a view to the
best interests of the Corporation, or, as the case may be, to
the best interests of the other entity for which the individual
acted as a director of officer or in a similar capacity at the
Corporation’s request; and
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(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, the
individual had reasonable grounds for believing that the
individual’s conduct was lawful.
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The Corporation shall advance the necessary moneys to a
director, officer or other individual for the costs, charges and
expenses of a proceeding referred to previously. The individual
shall repay the moneys if the individual does not fulfill the
previously named conditions.
The Corporation shall also indemnify such person in such other
circumstances as the Act permits or requires. Nothing in this
by-law shall limit the right of any person entitled to indemnity
to claim indemnity apart from the provisions of this by-law.
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36.
Insurance
Subject to the Act, the Corporation may purchase and maintain
insurance for the benefit of an individual referred to in
section 35 against any liability incurred by the individual
in his capacity as a director or officer of the Corporation or
in the individual’s capacity as a director or officer, or
similar capacity, of another entity (as such term is defined in
the Act), if the individual acts or acted in that capacity at
the Corporation’s request.
MEETINGS OF SHAREHOLDERS
37.
Annual Meeting
Subject to compliance with section 133 of the Act, the
annual meeting of the shareholders shall be convened on such day
in each year and at such time as the board of directors may by
resolution determine. The directors of the Corporation shall
call an annual meeting of shareholders not later than
fifteen (15) months after holding the last preceding
annual meeting but no later than six (6) months after the
end of the Corporation’s preceding financial year.
38.
Special Meetings
Other meetings of the shareholders may be convened by order of
the chairman of the board, the president or a vice-president who
is a director or by the board of directors, to be held at such
time and place as may be specified in such order.
Special meetings of shareholders may also be called by written
requisition to the board of directors signed by shareholders
holding between them not less than five percent (5%) of the
outstanding shares of the capital of the Corporation entitled to
vote thereat. Such requisition shall state the business to be
transacted at the meeting and shall be sent to each director and
to the registered office of the Corporation.
Except as otherwise provided in subsection 143(3) of the
Act, it shall be the duty of the board of directors, on receipt
of such requisition, to cause the meeting to be called by the
secretary of the Corporation.
If the board of directors does not, within twenty-one
(21) days after receiving such requisition call a meeting,
any shareholder who signed the requisition may call the meeting.
39.
Place of Meetings
Meetings of shareholders of the Corporation shall be held at the
registered office of the Corporation or at such other place in
Canada as may be specified in the notice convening such meeting.
Notwithstanding the foregoing, a meeting of shareholders may be
held at a place outside Canada if the place does not contravene
the articles.
40.
Notice
A notice stating the day, hour and place of meeting and, subject
to subsection 135(6) of the Act, the general nature of the
business to be transacted shall be served to each shareholder
who is entitled to vote at such meeting, each director of the
Corporation and the auditor of the Corporation no less than
twenty-one (21) days or more than sixty (60) days
before the meeting. If such notice is served by mail, it shall
be directed to the latest address, as shown in the records of
the Corporation, of the intended recipient. Notice of any
meeting of shareholders or any irregularity in any such meeting
or in the notice thereof may be waived by any shareholder, the
duly appointed proxy of any shareholder, any director or the
auditor of the Corporation in any manner that a notice can be
given to the Corporation or by any other manner, and any such
waiver may be validly given either before or after the meeting
to which such waiver relates.
41.
Omission of Notice
The accidental omission to give notice of any meeting to or the
non-receipt of any notice by any person shall not invalidate any
resolution passed or any proceeding taken at any meeting of
shareholders.
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42.
Record Date
The board of directors may, by resolution, fix in advance a date
and time as the record date for the determination of the
shareholders entitled to receive notice of a meeting of the
shareholders and/or to vote at such meeting and/or to receive
the financial statements of the Corporation, but such record
date shall not precede by more than sixty (60) days or by
less than twenty-one (21) days the date on which the
meeting is to be held and notice of such record date shall be
given not less than seven (7) days before such record date
in the manner prescribed in the Act unless waiver in accordance
with the Act is obtained.
If the directors fail to fix in advance a date and time as the
record date in respect of all or any of the matters described
above for any meeting of the shareholders of the Corporation,
the following provisions shall apply, as the case may be:
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(a) the record date for the determination of the
shareholders entitled to receive notice of a meeting of
shareholders shall be at the close of business on the day
immediately preceding the day on which notice is given or sent
or, if no notice is given, the day on which the meeting is held;
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(b) the record date for the determination of the
shareholders entitled to vote at a meeting of shareholders shall
be the day on which the meeting is held or in accordance with
subsection 138(3) of the Act, if so determined by the
directors; and
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(c) the record date for the determination of the
shareholders entitled to receive the financial statements of the
Corporation shall be the close of business on the day on which
the directors pass the resolution relating thereto.
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43.
Participation by communication facilities
Any person entitled to attend a meeting of shareholders may
participate in the meeting by means of a telephonic, electronic
or other communication facility that permits all participants to
communicate adequately with each other during the meeting if the
Corporation makes available such a communication facility. A
person participating in a meeting by such means is deemed to be
present at that meeting. A meeting of shareholders may be held,
in accordance with the Act, entirely by telephonic, electronic
or other communication facility if the requirements listed
previously are met.
44.
Votes
Except in the case of a meeting held by telephonic, electronic
or other communication means, voting at a meeting of
shareholders shall be by show of hands, except where a ballot is
demanded by a shareholder entitled to vote at the meeting. A
shareholder may demand a ballot either before or immediately
after any vote by show of hands.
Every question submitted to any meeting of shareholders shall be
decided in the first instance, unless a ballot is demanded, on a
show of hands, and, in case of an equality of votes, the
chairman of the meeting shall not, both on a show of hands and
on a ballot, have a second or casting vote in addition to the
vote or votes to which he may be entitled as a shareholder.
At any meeting, unless a ballot is demanded, a declaration by
the chairman of the meeting that a resolution has been carried
or carried unanimously or by a particular majority or lost or
not carried by a particular majority shall be conclusive
evidence of the fact without proof of the number or proportion
of votes recorded in favour of or against the motion.
In the absence of the chairman of the board, the president and
every vice-president who is a director, the shareholders present
entitled to vote shall choose another director as chairman of
the meeting, and if no director is present or if all the
directors present decline to take the chair, then the
shareholders present shall choose one of their number to be
chairman of the meeting.
If at any meeting a ballot is demanded on the election of a
chairman or on the question of adjournment or termination, it
shall be taken forthwith without adjournment. If a ballot is
demanded on any other question or as to the election of
directors, it shall be taken in such manner and either at once
or later at the meeting or
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after adjournment as the chairman of the meeting directs. The
result of a ballot shall be deemed to be the resolution of the
meeting at which the ballot was demanded. A demand for a ballot
may be withdrawn.
Where a person holds shares as a personal representative, such
person or his proxy is the person entitled to vote at all
meetings of shareholders in respect of the shares so held by him.
Where a person mortgages or hypothecates his shares, such person
or his proxy is the person entitled to vote at all meetings of
shareholders in respect of such shares unless, in the instrument
creating the mortgage or hypothec, he has expressly empowered
the person holding the mortgage or hypothec to vote in respect
of such shares, in which case, subject to the articles, such
holder or his proxy is the person entitled to vote in respect of
the shares.
Where two (2) or more persons hold the same share or shares
jointly, any one (1) of such persons present at a meeting
of shareholders has the right, in the absence of the other or
others, to vote in respect of such share or shares, but if more
than one (1) of such persons are present or represented by
proxy and vote, they shall vote together as one (1) on the
share or shares jointly held by them.
Any vote at a meeting held solely by telephonic, electronic or
other communication facility, may be exercised entirely by
telephonic, electronic or other communication facility in
accordance with the Act.
45.
Proxies
A shareholder, including a shareholder that is a body corporate,
entitled to vote at a meeting of shareholders may, by means of a
proxy, appoint a proxyholder or one (1) or more alternate
proxyholders, who are not required to be shareholders, to attend
and act at the meeting in the manner and to the extent
authorized by the proxy and with the authority conferred by the
proxy.
An instrument appointing a proxyholder shall be in writing and
shall be executed by the shareholder or his attorney authorized
in writing or, if the shareholder is a body corporate, either
under its seal or by an officer or attorney thereof, duly
authorized. A proxy is valid only at the meeting in respect of
which it is given or any adjournment thereof.
Unless the Act requires another form, an instrument appointing a
proxyholder may be in the following form:
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“The undersigned shareholder
of hereby
appoints of or
failing
him, of ,
as the nominee of the undersigned to attend and act for and on
behalf of the undersigned at the meeting of the shareholders of
the said Corporation to be held on the day
of , ,
and at any adjournment thereof to the same extent and with the
same power as if the undersigned were personally present at the
said meeting or such adjournment thereof.
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Dated this day
of , .
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_______________________________________
Signature of Shareholder
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NOTE:
This form of proxy must be signed by a shareholder or his
attorney authorized in writing or, if the shareholder is a body
corporate, either under its seal or by an officer or attorney
thereof duly authorized.”
The directors may from time to time adopt procedures regarding
the deposit of instruments appointing a proxyholder at some
place or places other than the place at which a meeting or
adjourned meeting of shareholders is to be held and for
particulars of such instruments to be sent before the meeting or
adjourned meeting to the Corporation or any agent of the
Corporation for the purpose of receiving such particulars and
providing that instruments appointing a proxyholder so lodged
may be voted upon as though the instruments themselves were
produced at the meeting or adjourned meeting and votes given in
accordance with such regulations shall be valid and shall be
counted. The chairman of any meeting of shareholders may,
subject to any procedure adopted as aforesaid, in his
discretion, accept such a communication as to the authority of
anyone claiming to vote on behalf of and to represent a
shareholder, notwithstanding that no instrument of
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proxy conferring such authority has been lodged with the
Corporation, and any votes given in accordance with such a
communication accepted by the chairman of the meeting shall be
valid and shall be counted.
46.
Adjournment
The chairman of the meeting may, with the consent of the
meeting, adjourn any meeting of shareholders from time to time
to a fixed time and place. If a meeting of shareholders is
adjourned less than thirty (30) days, it is not necessary
to give notice of the adjourned meeting other than by
announcement at the earliest meeting that is adjourned. If a
meeting of shareholders is adjourned by one (1) or more
adjournments for an aggregate of thirty (30) days or more,
notice of the adjournment meeting shall be given as for an
original meeting but, unless the meeting is adjourned by one
(1) or more adjournments for an aggregate of more than
ninety (90) days, the requirements of
subsection 149(1) of the Act relating to mandatory
solicitation of proxies do not apply.
Any adjourned meeting shall be duly constituted if held in
accordance with the terms of the adjournment and a quorum is
present thereat. The persons who formed a quorum at the original
meeting are not required to form a quorum at the adjourned
meeting. If there is no quorum present at the adjourned meeting,
the original meeting shall be deemed to have terminated
forthwith after its adjournment. Any business may be brought
before or dealt with at any adjourned meeting which might have
been brought before or dealt with at the original meeting in
accordance with the notice calling same.
47.
Quorum
One (1) person present and holding or representing by proxy
at least one (1) issued voting share of the Corporation
shall be the required quorum for the choice of a chairman of the
meeting and for the adjournment of the meeting; for all other
purposes, a quorum for any meeting (unless a different number of
shareholders and/or a different number of shares are required to
be represented by the Act or by the articles or by the by-law)
shall be persons present being not less than two (2) in
number and holding or representing by proxy at least 50% of the
shares entitled to vote at such meeting. If a quorum is present
at the opening of a meeting of the shareholders, the
shareholders present may proceed with the business of the
meeting, notwithstanding that a quorum is not present throughout
the meeting. Where the Corporation has only one
(1) shareholder or only one (1) holder of any class or
series of shares, the shareholder, present in person or by
proxy, constitutes a meeting.
SECURITIES
48.
Certificates
Share certificates (and the form of stock transfer power on the
reverse side thereof) shall (subject to compliance with
section 49 of the Act) be in such form and be signed by
such director(s) or officer(s) as the board of directors may
from time to time, by resolution, determine.
49.
Registrar and Transfer Agent
The board of directors may from time to time, by resolution,
appoint or remove one (1) or more registrars and/or branch
registrars (which may, but need not be, the same person) to keep
the register of security holders and/or one (1) or more
transfer agents and/or branch transfer agents (which may, but
need not be, the same person) to keep the register of transfer,
and (subject to the Act) may provide for the registration of
issues and the registration of transfers of the securities of
the Corporation in one (1) or more places and such
registrars and/or branch registrars and/or transfer agents
and/or branch transfer agents shall keep all necessary books and
registers of the Corporation for the registration of the
issuance and the registration of transfers of the securities of
the Corporation for which they are so appointed. All
certificates issued after any such appointment representing
securities issued by the Corporation shall be countersigned by
or on behalf of one of the said registrars and/or branch
registrars and/or transfer agents and/or branch transfer agents,
as the case may be.
50.
Surrender of Share Certificates
No transfer of a share issued by the Corporation shall be
recorded or registered unless or until the certificate
representing the share to be transferred has been surrendered
and cancelled or, if no certificate has
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been issued by the Corporation in respect of such share, unless
or until a duly executed share transfer power in respect thereof
has been presented for registration.
51.
Defaced, Destroyed, Stolen or Lost Certificates
If the defacement, destruction or apparent destruction, theft,
or other wrongful taking or loss of a share certificate is
reported by the owner to the Corporation or to a registrar,
branch registrar, transfer agent or branch transfer agent of the
Corporation (hereinafter, in this paragraph, called the
“Corporation’s transfer agent”) and such owner
gives to the Corporation or the Corporation’s transfer
agent a written statement verified by oath or statutory
declaration as to the defacement, destruction or apparent
destruction, theft, or other wrongful taking or loss and the
circumstances concerning the same, a request for the issuance of
a new certificate to replace the one so defaced, destroyed,
wrongfully taken or lost and a bond of a surety company (or
other security approved by the board of directors) in such form
as is approved by the board of directors or by the chairman of
the board, the president, a vice-president, the secretary or the
treasurer of the Corporation, indemnifying the Corporation (and
the Corporation’s transfer agent, if any), against all
loss, damage or expense, which the Corporation and/or the
Corporation’s transfer agent may suffer or be liable for by
reason of the issuance of a new certificate to such shareholder,
a new certificate may be issued in replacement of the one
defaced, destroyed or apparently destroyed, stolen or otherwise
wrongfully taken or lost, if such issuance is ordered and
authorized by any one (1) of the chairman of the board, the
president, a vice-president, the secretary or the treasurer of
the Corporation or by resolution of the board of directors.
DIVIDENDS
52. Subject to the relevant provisions of the Act, the
board of directors may from time to time, by resolution, declare
and the Corporation may pay dividends on its issued shares,
subject to the relevant provisions, if any, of the articles.
NOTICES
53.
Method of Giving Notices
Any notice or document to be given pursuant to the Act, the
articles or the by-law to a shareholder or director of the
Corporation may be sent (a) by prepaid mail addressed to,
or may be delivered personally to, the shareholder at the
shareholder’s latest address as shown in the records of the
Corporation or its transfer agent or branch transfer agent and
the director at the director’s latest address as shown on
the records of the Corporation or in the last notice of
directors or notice of change of directors filed under the Act,
and a notice or document sent in accordance with the foregoing
to a shareholder or director of the Corporation shall be deemed
to be received by them at the time it would be delivered in the
ordinary course of mail unless there are reasonable grounds for
believing that the shareholder or director did not receive the
notice or document at the time or at all or (b) by
electronic means as permitted by, and in accordance with, the
Act. The secretary may change or cause to be changed the
recorded address of any shareholder, director, officer, auditor
or member of a committee of the board, if any, in accordance
with any information believed by the secretary to be reliable.
The foregoing shall not be construed so as to limit the manner
or effect of giving notice by any other means of communication
otherwise permitted by law.
54.
Shares registered in more than one (1) name
All notices or other documents required to be sent to a
shareholder by the Act, the articles or the by-law of the
Corporation shall, with respect to any shares in the capital of
the Corporation registered in more than one name, be given to
whichever of such persons is named first in the records of the
Corporation or its transfer agent or branch transfer agent and
any notice or other document so given shall be sufficient notice
of delivery of such documents to all the holders of such shares.
55.
Persons becoming entitled by operation of law
Every person, who by operation of law, transfer or by any other
means whatsoever shall become entitled to any shares in the
capital of the Corporation, shall be bound by every notice or
other document in respect of such shares which prior to his name
and address being entered in the records of the Corporation or
its
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transfer agent or branch transfer agent shall have been duly
given to the person or persons from whom he derives his title to
such shares.
56.
Deceased Shareholder
Any notice or other document delivered or sent by post or left
at the address of any shareholder as the same appears in the
records of the Corporation or its transfer agent or branch
transfer agent shall, notwithstanding that such shareholder be
then deceased and whether or not the Corporation has notice of
his decease, be deemed to have been duly served in respect of
the shares held by such shareholder (whether held solely or with
other persons) until some other person be entered in his stead
in the records of the Corporation or its transfer agent or
branch transfer agent as the holder or one of the holders
thereof and such service shall, for all purposes, be deemed a
sufficient service of such notice or other document on his
heirs, executors or administrators and all persons, if any,
interested with him in such shares.
57.
Signatures to Notices
The signature of any director or officer of the Corporation to
any notice may be written, stamped, typewritten or printed or
partly written, stamped, typewritten or printed or, for the
notice given by electronic means, in accordance with
section 252.7 of the Act. The foregoing shall not be
construed so as to limit the manner or effect of affixing a
signature by any other means otherwise permitted by law.
58.
Computation of Time
Where a given number of days’ notice or notice extending
over any period is required to be given under any provisions of
the articles or by-law of the Corporation, the day of service or
posting of the notice shall, unless it is otherwise provided, be
counted in such number of days or other period and such notice
shall be deemed to have been given or sent on the day of service
or posting.
59.
Proof of Service
A certificate of any officer of the Corporation in office at the
time of the making of the certificate or of a transfer officer
of any transfer agent or branch transfer agent of shares of any
class of the Corporation as to facts in relation to the mailing
or delivery or service of any notice or other documents to any
shareholder, director, officer or auditor or publication of any
notice or other document, shall be conclusive evidence thereof
and shall be binding on every shareholder, director, officer or
auditor of the Corporation, as the case may be.
CHEQUES, DRAFTS, NOTES, ETC.
60. All cheques, drafts or orders for the payment of money
and all notes, acceptances and bills of exchange shall be signed
by such officer or officers or other person or persons, whether
or not officers of the Corporation, and in such manner as the
board of directors may from time to time designate by resolution.
CUSTODY OF SECURITIES
61. All securities, including warrants, owned by the
Corporation shall be lodged, in the name of the Corporation,
with a chartered bank or a trust company or in a safety deposit
box or, if so authorized by resolution of the board of
directors, with such other depositaries or in such other manner
as may be determined from time to time by the board of directors.
All securities, including warrants, belonging to the Corporation
may be issued and held in the name of a nominee or nominees of
the Corporation, and, if issued or held in the names of more
than one nominee, shall be held in the names of the nominees
jointly with right of survivorship and shall be endorsed in
blank with endorsement guaranteed in order to enable transfer
thereof to be completed and registration thereof to be effected.
EXECUTION OF CONTRACTS, ETC.
62. Contracts, documents or instruments in writing
requiring the signature of the Corporation may be signed by any
director or any officer of the Corporation, or by any person
authorized by resolution of the board of directors. All
contracts, documents or instruments in writing so signed shall
be binding upon the Corporation without any further
authorization or formality. The board of directors is authorized
from time to
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time, by resolution, to appoint any officer or officers or any
other person or persons on behalf of the Corporation, either to
sign contracts, documents or instruments in writing generally or
to sign specific contracts, documents or instruments in writing.
Where the Corporation has only one (1) director and officer
being the same person, that person may sign all such contracts,
documents or other written instruments.
The corporate seal, if any, may, when required, be affixed to
contracts, documents or instruments in writing, signed as
aforesaid, by an officer or officers, person or persons,
appointed as aforesaid by resolution of the board of directors.
The term “contracts, documents or instruments in
writing”, as used in this by-law, shall include deeds,
mortgages, hypothecs, charges, conveyances, transfers and
assignments of property, real or personal, immoveable or
moveable, agreements, releases, receipts and discharges for the
payment of money or other obligations, conveyances, transfers
and assignments of shares, warrants, bonds, debentures or other
securities and all paper writings or their equivalent on all
electronic form.
In particular, without limiting the generality of the foregoing,
any director or any officer of the Corporation, or any person
authorized by resolution of the board of directors, is hereby
authorized to sell, assign, transfer, exchange, convert or
convey all shares, bonds, debentures, rights, warrants or other
securities owned by or registered in the name of the Corporation
and to sign and execute, under the seal of the Corporation or
otherwise, all assignments, transfers, conveyances, powers of
attorney and other instruments that may be necessary for the
purpose of selling, assigning, transferring, exchanging,
converting or conveying or enforcing or exercising any voting
rights in respect of any such shares, bonds, debentures, rights,
warrants or other securities. Where the Corporation has only one
(1) director and officer, being the same person, that
person may perform the functions and exercise the powers herein
contemplated.
The signature or signatures of any officer or director of the
Corporation and/or of any person or persons appointed as
aforesaid by resolution of the board of directors may, if
specifically authorized by resolution of the directors, be
printed, engraved, lithographed, otherwise mechanically or
electronically reproduced or given in any manner permitted by
the law, on all contracts, documents or instruments in writing
or in an electronic form, or, subject to subsections 49(4) and
49(5) of the Act, on bonds, debentures or other securities of
the Corporation executed or issued by or on behalf of the
Corporation. All such contracts, documents or instruments in
writing or in an electronic form, or bonds, debentures or other
securities of the Corporation on which the signatures of any of
the foregoing officers, directors or persons shall be so
reproduced, by authorization by resolution of the board of
directors shall, subject to subsections 49(4) and 49(5) of the
Act, be deemed to have been duly signed by such officers and
shall be as valid to all intents and purposes as if they had
been signed manually and notwithstanding that the officers,
directors or persons whose signature or signatures is or are so
reproduced may have ceased to hold office at the date of the
delivery or issue of such contracts, documents or instruments in
writing or in an electronic form or bonds, debentures or other
securities of the Corporation.
DECLARATIONS
63. Any director or any officer of the Corporation, or any
person authorized by resolution of the board of directors or any
employee authorized by any officer or director of the
Corporation, is authorized and empowered to appear and make
answer for the Corporation to all writs, orders and
interrogatories upon articulated facts issued out of any court
and to declare for and on behalf of the Corporation any answer
to writs of attachment by way of garnishment in which the
Corporation is garnishee, and to make all affidavits and sworn
declarations in connection therewith or in connection with any
or all judicial proceedings to which the Corporation is a party
and to make demands of abandonment or petitions for winding up
or bankruptcy orders upon any debtor of the Corporation and to
attend and vote at all meetings of creditors of any of the
Corporation’s debtors and grant proxies in connection
therewith.
FISCAL YEAR
64. The fiscal period of the Corporation shall terminate on
such day in each year as the board of directors may from time to
time, by resolution, determine.
15
AMENDMENT AGREEMENT
AMENDMENT (this “
Amendment
”), dated as of
July 27, 2005, to the Agreement and Plan of Merger and
Reorganization (the “
Agreement
”), dated as of
April 18, 2005, among Henry Birks & Sons Inc., a
Canadian corporation (“
Parent
”), Birks Merger
Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent (“
Merger Sub
”), and
Mayor’s Jewelers, Inc., a Delaware corporation (the
“
Company
”). Capitalized terms used but not
defined herein shall have the meanings assigned to such terms in
the Agreement.
WITNESSETH:
WHEREAS, the parties have entered into the Agreement;
WHEREAS, pursuant to, and subject to the terms and conditions
of, the Agreement, Parent and the Company will enter into a
business combination transaction pursuant to which Merger Sub
will merge with and into the Company;
WHEREAS, pursuant to and in accordance with Section 8.04 of
the Agreement, the parties wish to amend the Agreement as set
forth in this Amendment;
NOW, THEREFORE, in consideration of the rights and obligations
contained herein, and for other good and valuable consideration,
the adequacy of which is hereby acknowledged, the parties agree
as follows:
Section 1.
Amendment
to Section 7.02 of the Agreement
.
The following
shall be added as paragraph (f) to Section 7.02
of the Agreement:
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The Company shall have issued to Joseph A. Keifer, Marco
Pasteris and Carlo Coda-Nunziante an aggregate of 125,752
Company Warrants with an exercise price equal to the closing
sale price of Company Common Stock on the AMEX on the date of
issuance of such Company Warrants.
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Section 2.
Amendment
to Section 7.03 of the Agreement
.
Paragraph 7.03(j)(i) of the Agreement is amended and
restated in its entirety to read as follows:
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Each Warrant Agreement, dated as of August 20, 2002,
between Parent, and/or its assignees, and the Company, shall be
amended to delete Sections 7(a), (b), (c) and
(d) thereof for no additional consideration to the holder,
except as set forth in Section 7.02(f) hereof.
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Section 3.
Amendment
to Exhibit 7.03(f)(i) of the Agreement
.
Exhibit 7.03(f)(i) of the Agreement is amended and restated
in its entirety as attached as Exhibit 7.03(f)(i) hereof.
Section 4.
Amendment
to Exhibit 7.03(f)(ii) of the Agreement
.
Paragraph 47 of Exhibit 7.03(f)(ii) of the Agreement
is amended and restated in its entirety to read as follows:
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“
Quorum
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One (1) person present and holding or representing by proxy
at least one (1) issued voting share of the Corporation
shall be the required quorum for the choice of a chairman of the
meeting and for the adjournment of the meeting; for all other
purposes, a quorum for any meeting (unless a different number of
shareholders and/or a different number of shares are required to
be represented by the Act or by the articles or by the by-law)
shall be persons present being not less than two (2) in
number and holding or representing by proxy at least 50% of the
total voting rights attached to the issued and outstanding
shares entitled to vote at such meeting. If a quorum is present
at the opening of a meeting of the shareholders, the
shareholders present may proceed with the business of the
meeting, notwithstanding that a quorum is not present throughout
the meeting.”
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Section 5.
Entire
Agreement
.
This Amendment constitutes the entire
agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and
undertakings, both written and oral, among the parties with
respect to the subject matter hereof. Except as amended by this
Amendment, the Agreement shall continue in full force and effect.
Section 6.
Severability
.
If any term or other provision of this Amendment is invalid,
illegal or incapable of being enforced by any Law or public
policy, all other terms and provisions of this Amendment shall
nevertheless remain in full force and effect so long as the
economic or legal substance of the
transactions contemplated by this Amendment is not affected in
any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Amendment so as to effect
the original intent of the parties as closely as possible in an
acceptable manner in order that the transactions contemplated by
this Amendment are consummated as originally contemplated to the
greatest extent possible.
Section 7.
Counterparts
.
This Amendment 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.
Section 8.
Governing
Law
.
This Agreement shall be governed by, and construed
in accordance with, the Laws of the State of Delaware applicable
to contracts executed in and to be performed in that State.
2
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Amendment to be executed as of the date first
written above by their respective officers thereunto duly
authorized.
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By:
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/s/
Thomas A. Andruskevich
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Name: Thomas A. Andruskevich
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Title: President & Chief Executive Officer
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BIRKS MERGER CORPORATION
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By:
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/s/
Thomas A. Andruskevich
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Name: Thomas A. Andruskevich
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Title: President
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MAYOR’S JEWELERS, INC.
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Name: Marc Weinstein
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Title: SVP & Chief Administrative Officer
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3
EXHIBIT 7.03(f)(i)
CANADA BUSINESS
CORPORATIONS ACT
ARTICLES
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1.
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Name of the Corporation
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BIRKS & MAYORS INC.
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2.
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The province or territory in Canada where the registered
office is situated
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Province of Quebec
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3.
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The classes and any maximum number of shares that the
Corporation is authorized to issue
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The attached Schedule 1 is forming part hereof.
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4.
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Restrictions, if any, on share transfers
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None, except as otherwise set forth in Schedule 1.
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5.
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Number (or minimum and maximum number) of directors
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A minimum of three (3) directors and a maximum of fifteen
(15) directors.
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6.
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Restrictions, if any, on the business the Corporation may
carry on
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None.
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7.
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Other provisions, if any
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(a) Meetings of shareholders of the Corporation may be held
at the places in Canada as set out in the by-laws of the
Corporation or in the greater metropolitan area of any city
having a population of more than 80,000 inhabitants in the
United States, in any member-country of the European Union or in
Asia.
(b) A director’s term of office shall be from the date
of the meeting at which he is elected or appointed until the
first annual meeting next following his election or nomination
or, if an election of the board of directors is not held at such
meeting or if such meeting does not occur, at the date on which
his successor is elected or appointed, or earlier if he dies or
resigns, is removed or disqualified, or if his term of office
ends for any other reason.
(c) The directors may appoint one or more directors, who
shall hold office for a term expiring no later than the close of
the next annual meeting of shareholders, but the total number of
directors so appointed may not exceed one-third of the number of
directors elected at the previous annual meeting of shareholders.
Exhibit 7.03(f)(i) - 1
Schedule 1
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3.
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The classes and maximum number of shares that the Corporation
is authorized to issue:
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Unlimited number of Class A Voting Shares without nominal
or par value;
Unlimited number of Class B Multiple Voting Shares without
nominal or par value; and
Unlimited number of Preferred Shares without nominal or par
value, issuable in series.
The Class A Voting Shares and the Class B Multiple
Voting Shares are sometimes referred to herein collectively as
the “Common Shares”. Any capitalized term shall have
the meaning assigned to such term in these Articles. Any
reference herein to the Act is a reference to the
Canada
Business Corporations Act
as it now exists and as it may be
amended from time to time and any reference herein to a section
of the Act is a reference to a section of the Act as such
section is presently numbered or as it may be renumbered from
time to time.
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I.
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The Class A Voting Shares shall have attached thereto
the following rights, privileges, restrictions and
conditions:
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(a)
Voting
.
Each Class A Voting Share
shall entitle the holder thereof to one (1) vote at all
meetings of the shareholders of the Corporation (except meetings
at which only holders of another specified class of shares are
entitled to vote pursuant to the provisions hereof or pursuant
to the provisions of the Act).
(b)
Ranking on Liquidation
.
In the event of
the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or other distribution of
assets of the Corporation among shareholders for the purpose of
winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of
shares ranking prior to the Class A Voting Shares or the
Class B Multiple Voting Shares, the holders of the
Class A Voting Shares and the holders of the Class B
Multiple Voting Shares shall be entitled to receive the
remaining property of the Corporation. The holders of the
Class A Voting Shares and the holders of the Class B
Multiple Voting Shares shall rank equally with respect to the
distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary
or involuntary, or any other distribution of the assets of the
Corporation among shareholders for the purpose of winding-up its
affairs.
(c)
Dividends and Distributions
.
In addition
to any dividend or distribution declared by the directors of the
Corporation in respect of Class A Voting Shares, holders of
Class A Voting Shares shall be entitled to receive a
dividend or distribution, whether cash, non-cash or some
combination thereof, equal (on a per share basis) to any
dividend or distribution declared by the directors of the
Corporation in respect of the Class B Multiple Voting
Shares. Dividends and distributions on Class A Voting
Shares shall be payable on the date fixed for payment of the
dividend or distribution in respect of Class A Voting
Shares or, if applicable, on the date fixed for payment of any
dividend or distribution in respect of Class B Multiple
Voting Shares.
(d)
Right of Participation in a Sale
Transaction
.
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(i) No holder of Class B Multiple Voting Shares (a
“Selling Holder”) shall sell, transfer or otherwise
dispose of Class B Multiple Voting Shares if, immediately
following such sale, transfer or disposition of Class B
Multiple Voting Shares, such Selling Holder and its Affiliates
shall control less than a majority of the total voting rights
attached to the Common Shares issued and outstanding on the date
of such sale, transfer or disposition (a “Sale
Transaction”), unless all other holders of Common Shares
shall have the right (A) to receive the same consideration
(on a per share basis), whether cash, non-cash or some
combination thereof, as that to be received by the Selling
Holder pursuant to the Sale Transaction and (B) to
participate in such Sale Transaction on the same terms as the
Selling Holder in all other material respects, including in
respect of the conditions to such Sale Transaction. Written
notice of any Sale Transaction, which notice shall specify the
terms of such Sale Transaction and the right of all holders of
Common Shares to participate in such Sale Transaction, shall be
provided to the holders of Common Shares by first class mail, at
least twenty (20) business days prior to the consummation of
such Sale Transaction.
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(ii) Any Sale Transaction not in compliance with subsection
00 above shall be null and void and shall not be registered in
the books of the Corporation.
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Exhibit 7.03(f)(i) - 2
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(iii) Notwithstanding the foregoing, none of the following
shall constitute a Sale Transaction: (A) any pledge,
mortgage, hypothecation, lien or similar encumbrance, whether by
possession or registration, of Class B Multiple Voting
Shares which creates a security interest in favor of another
person or entity, and (B) any sale, transfer or other
disposition of Class B Multiple Voting Shares to
Affiliates, Associates or shareholders of the transferor of such
Class B Multiple Voting Shares. For purposes of these
Articles, an “Affiliate”, when used to indicate a
relationship with any person, means a person that directly or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified
person. For purposes of these Articles, an
“Associate”, when used to indicate a relationship with
any person, means (x) any trust or other estate in which
such person has a substantial beneficial interest or as to which
such person serves as trustee or in a similar fiduciary capacity
and (y) a spouse or child of such person.
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(e)
Right of Participation in a Business
Combination
.
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(iv) The Corporation shall not consummate a Business
Combination unless the holders of Class A Voting Shares
shall have the right (A) to receive the same consideration
(on a per share basis), whether cash, non-cash or some
combination thereof, as that to be received by the holders of
Class B Multiple Voting Shares in connection with such
Business Combination and (B) to participate in such
Business Combination on the same terms as the holders of
Class B Multiple Voting Shares in all other material
respects, including in respect of the conditions to such
Business Combination.
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(v) “Business Combination” as used herein shall
mean, whether in one or a series of related transactions:
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(A) any merger, amalgamation, recapitalization or
consolidation involving the Corporation, other than a merger,
amalgamation, recapitalization, consolidation or similar
transaction with a wholly-owned subsidiary of the Corporation or
which is solely for the purpose of continuance of the
Corporation as a corporation in another jurisdiction;
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(B) any sale, lease, exchange, transfer or other
disposition involving 50% or more of the assets of the
Corporation and its subsidiaries, on a consolidated
basis; or
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(C) any agreement, contract or other arrangement having the
same purpose or effect as the transactions described in
(A) and (B) above.
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(f)
Transactions or Actions Requiring Special
Approval
.
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(vi) In addition to any other approvals required under the
Act or these Articles, prior to consummating a Related Party
Transaction, the Corporation shall obtain (A) the consent
of the majority of a committee of independent directors of the
Corporation and (B) with respect to
clauses (x) and (y) of the definition of Related
Party Transaction below, the affirmative vote in favor of the
approval of the Related Party Transaction by holders of a
majority of the Class A Voting Shares (exclusive of
Class A Voting Shares held by the Related Person (and its
Affiliates and Associates) which is or would be a party to such
Related Party Transaction) that cast a vote, in person or by
proxy (but not including any vote that is not counted as either
an affirmative or negative vote), at the annual or special
shareholders meeting at which such Related Party Transaction is
considered.
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(vii) For purposes of these Articles,
(A) “Related Party Transaction” shall mean
(x) consummation of a Business Combination with a Related
Person; (y) amending, repealing or altering in anyway any
provision of these Articles or the By-laws of the Corporation,
except for matters not having an adverse effect on the holders
of Class A Voting Shares; or (z) the issuance, sale,
exchange, transfer or other disposition (in one transaction or a
series of related transactions) by the Corporation or any
wholly-owned subsidiary of the Corporation of any securities of
the Corporation or of such subsidiary to a Related Person (other
than pursuant to: an employee or director stock incentive plan
or other compensation arrangements approved by the Compensation
Committee of the Corporation; an offering made to all holders of
Class A Voting Shares; or a public offering); and
(B) “Related Person” shall mean any individual,
corporation, partnership, group, association or other person or
entity that, together with its Affiliates and Associates,
beneficially owns Class A Voting Shares and/or Class B
Multiple Voting Shares which, in the aggregate, equal twenty
percent (20%) or more of the total voting rights
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Exhibit 7.03(f)(i) - 3
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attached to the Common Shares issued and outstanding at the time
the definitive agreement with respect to a Related Party
Transaction is executed.
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(g)
Subdivision, Consolidation, Reclassification or
other Change
.
No subdivision, consolidation or
reclassification of, or other change to, the Class A Voting
Shares shall be carried out, either directly or indirectly
unless, at the same time, the Class B Multiple Voting
Shares are subdivided, consolidated, reclassified or changed in
the same manner and on the same basis.
(h)
Equal Status
.
Except as otherwise
expressly provided in these Articles, Class A Voting Shares
and Class B Multiple Voting Shares shall have the same
rights and privileges and shall rank equally, share ratably and
be equal in all respects as to all matters.
(i)
Approval of Issuance
.
For so long as the
outstanding Class B Multiple Voting Shares represent a
majority of the total voting rights attached to the Common
Shares, the Corporation shall not issue any Class A Voting
Shares, or any security convertible into or exercisable or
exchangeable for Class A Voting Shares, unless such
issuance, or the plan or agreement under which such security is
to be issued, has been approved by (i) a majority of the
votes cast at a meeting of the holders of Class B Multiple
Voting Shares or (ii) unanimous written consent of the
holders of Class B Multiple Voting Shares; provided,
however, such approval shall not be required for the issuance of:
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(A) Class A Voting Shares, options or warrants under
any plan or agreement approved by the Corporation prior to
June 1, 2005 (including without limitation, pursuant to the
Agreement and Plan of Merger and Reorganization, dated as of
April 18, 2005 and as thereafter amended, among the
Corporation, Birks Merger Corporation and Mayor’s Jewelers,
Inc.); or
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(B) Class A Voting Shares upon the exercise of an
option or warrant issued or to be issued under any plan or
agreement approved by the Corporation prior to June 1,
2005; or
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(C) Class A Voting Shares upon the conversion of
Class B Multiple Voting Shares; or
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(D) Class A Voting Shares upon the conversion,
exercise or exchange of any security, obligation or other
instrument of the Corporation for Class A Voting Shares if
the issuance of such security, obligation or other instrument of
the Corporation was previously approved pursuant to this
paragraph 3.I.(i).
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II.
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The Class B Multiple Voting Shares shall have attached
thereto the following rights, privileges, restrictions and
conditions:
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(a)
Voting
.
Each Class B Multiple Voting
Share shall entitle the holder thereof to ten (10) votes at
all meetings of the shareholders of the Corporation (except
meetings at which only holders of another specified class of
shares are entitled to vote pursuant to the provisions hereof or
pursuant to the provisions of the Act).
(b)
Ranking on Liquidation
.
In the event of
the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or other distribution of
assets of the Corporation among shareholders for the purpose of
winding-up its affairs, subject to the rights, privileges,
restrictions and conditions attaching to any other class of
shares ranking prior to the Class B Multiple Voting Shares
or the Class A Voting Shares, the holders of the
Class B Multiple Voting Shares and the holders of the
Class A Voting Shares shall be entitled to receive the
remaining property of the Corporation. The holders of the
Class B Multiple Voting Shares and the holders of the
Class A Voting Shares shall rank equally with respect to
the distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary
or involuntary, or any other distribution of the assets of the
Corporation among shareholders for the purpose of winding-up its
affairs.
(c)
Dividends and Distributions
.
In addition
to any dividend or distribution declared by the directors in
respect of Class B Multiple Voting Shares, holders of
Class B Multiple Voting Shares shall be entitled to receive
a dividend or distribution, whether cash, non-cash or some
combination thereof, equal (on a per share basis) to any
dividend or distribution declared by the directors of the
Corporation in respect of Class A Voting Shares. Dividends
and distributions on Class B Multiple Voting Shares shall
be payable on the dated fixed for payment of the dividend or
distribution in respect of Class B Multiple Voting Shares
or, if applicable, on the date fixed for payment of a dividend
or distribution in respect of Class A Voting Shares
Exhibit 7.03(f)(i) - 4
(d)
Conversion by Holder into Class A Voting
Shares
.
Each Class B Multiple Voting Share may at
any time and from time to time, at the option of the holder, be
converted into one (1) fully paid and non-assessable
Class A Voting Share. Such conversion right shall be
exercised as follows:
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(i) the holder of Class B Multiple Voting Shares shall
send to the transfer agent of the Corporation a written notice,
accompanied by a certificate or certificates representing the
Class B Multiple Voting Shares in respect of which the
holder desires to exercise such conversion right. Such notice
shall be signed by the holder of the Class B Multiple
Voting Shares in respect of which such right is being exercised,
or by the duly authorized representative thereof, and shall
specify the number of Class B Multiple Voting Shares which
such holder desires to have converted. The holder shall also pay
any governmental or other tax, if any, imposed in respect of
such conversion. The conversion of the Class B Multiple
Voting Shares into Class A Voting Shares shall take effect
upon receipt by the transfer agent of the Corporation of the
conversion notice accompanied by the certificate or certificates
representing the Class B Multiple Voting Shares in respect
of which the holder desires to exercise such conversion right.
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(ii) upon receipt of such notice and certificate or
certificates by the transfer agent of the Corporation, the
Corporation shall, effective as of the date of such receipt,
issue or cause to be issued a certificate or certificates
representing Class A Voting Shares into which Class B
Multiple Voting Shares are being converted. If less than all of
the Class B Multiple Voting Shares represented by any
certificate are to be converted, the holder shall be entitled to
receive a new certificate representing the Class B Multiple
Voting Shares represented by the original certificate which are
not to be converted.
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(e)
Subdivision, Consolidation, Reclassification or
other Change
.
No subdivision, consolidation or
reclassification of, or other change to, the Class B
Multiple Voting Shares shall be carried out unless, at the same
time, the Class A Voting Shares are subdivided,
consolidated, reclassified or changed in the same manner and on
the same basis.
(f)
Equal Status
.
Except as otherwise
expressly provided in these Articles, Class B Multiple
Voting Shares and Class A Voting Shares shall have the same
rights and privileges and shall rank equally, share ratably and
be equal in all respects as to all matters.
(g)
Approval of Issuance
.
For so long as the
outstanding Class B Multiple Voting Shares represent a
majority of the total voting rights attached to the Common
Shares, the Corporation shall not issue any Class B
Multiple Voting Shares, or any security convertible into or
exercisable or exchangeable for Class B Multiple Voting
Shares, unless such issuance has been approved by (i) a
majority of the votes cast at a meeting of the holders of
Class B Multiple Voting Shares or (ii) unanimous
written consent of the holders of Class B Multiple Voting
Shares; provided, however, such approval shall not be required
for the issuance of Class B Multiple Voting Shares upon the
conversion, exercise or exchange of any security of the
Corporation for Class B Multiple Voting Shares if the
issuance of such security of the Corporation was previously
approved pursuant to this paragraph 3.II.(g).
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III.
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The Preferred Shares shall have attached thereto, as a class,
the following rights, privileges, restrictions and
conditions:
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(a)
Issuance of Preferred Shares, in Series
.
The directors of the Corporation may, at any time and from time
to time, issue Preferred Shares in one (1) or more series,
each series to consist of such number of Preferred Shares as
may, before issuance thereof, be determined by the directors.
(b)
Determination of Rights, Privileges,
Restrictions, Conditions and Limitations attaching to Series of
Preferred Shares
.
The directors of the Corporation may,
subject to the following, from time to time fix, before
issuance, the designation, rights, privileges, restrictions,
conditions and limitations to attach to the Preferred Shares of
each series including, without limiting the generality of the
foregoing,
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(i) the rate, amount or method of calculation of
preferential dividends of the Preferred Shares of such series,
if any, whether cumulative or non-cumulative or partially
cumulative, and whether such rate, amount or method of
calculation shall be subject to change or adjustment in the
future, the currency or currencies of payment, the date or dates
and place or places of payment thereof and the date or dates
from which such preferential dividends shall accrue; provided,
that, the dividends payable with respect to
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Exhibit 7.03(f)(i) - 5
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any series of Preferred Shares, whether cumulative or
non-cumulative or partially cumulative, shall not exceed five
(5) percent of the liquidation preference of such series of
Preferred Shares;
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(ii) the redemption price and terms and conditions of
redemption, if any, of the Preferred Shares of such series;
provided, that, without the approval by a majority of the votes
cast at a meeting of shareholders of the Company duly called,
the redemption price shall not exceed the liquidation preference
of such shares;
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(iii) the rights of retraction, if any, vested in the
holders of Preferred Shares of such series, and the prices and
the other terms and conditions of any rights of retraction, and
whether any additional rights of retraction may be vested in
such holders in the future; provided, that, without the approval
by a majority of the votes cast at a meeting of shareholders of
the Company duly called, the retraction price shall not exceed
the liquidation preference of such shares;
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(iv) the voting rights, if any, of the Preferred Shares of
such series; provided, that, the approval by a majority of the
votes cast at a meeting of shareholders of the Corporation duly
called shall be required for the issuance of any series of
Preferred Shares with voting rights;
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(v) the conversion rights and terms and conditions of
conversion, if any, of the Preferred Shares of such series;
provided, that, the approval by a majority of the votes cast at
a meeting of shareholders of the Company duly called shall be
required for the issuance of any series of Preferred Shares
which are convertible into securities with voting rights;
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(vi) any sinking fund, purchase fund or other provisions
attaching to the Preferred Shares of such series; and
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(vii) any other relative rights, preferences and
limitations of the Preferred Shares of such series,
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the whole subject to the issuance of a certificate of amendment
in respect of articles of amendment in the prescribed form to
designate a series of Preferred Shares.
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(c)
Cumulative Dividends or Return of Capital not
Paid in Full
.
Pursuant to section 27(2) of the Act,
when any cumulative dividends or amounts payable on a return of
capital in respect of a series of Preferred Shares are not paid
in full, the Preferred Shares of all series shall participate
ratably in respect of such dividends including accumulations, if
any, in accordance with the sums which would be payable on the
Preferred Shares if all such dividends were declared and paid in
full, and on any return of capital in accordance with the sums
which would be payable on such return of capital if all sums so
payable were paid in full.
(d)
Payment of Dividends and Other
Preferences
.
The Preferred Shares shall be entitled to
preference over the Class A Voting Shares, the Class B
Multiple Voting Shares and any other shares of the Corporation
ranking junior to the Preferred Shares with respect to the
payment of dividends, and may also be given such other
preferences over the Class A Voting Shares, the
Class B Multiple Voting Shares and any other shares of the
Corporation ranking junior to the Preferred Shares, as may be
fixed by the directors of the Corporation, as to the respective
series authorized to be issued.
(e)
Procedure for Payment of Dividends
.
No
dividends shall at any time be declared or paid or set apart for
payment on any shares of the Corporation ranking junior to the
Preferred Shares, unless all dividends up to and including the
dividends payable for the last completed period for which such
dividends shall be payable on each series of Preferred Shares
then issued and outstanding shall have been declared and paid or
set apart for payment at the date of such declaration or payment
or setting apart for payment on such shares of the Corporation
ranking junior to the Preferred Shares, nor shall the
Corporation call for redemption or redeem or purchase for
cancellation or reduce or otherwise pay off any of the Preferred
Shares (less than the total amount then outstanding) or any
shares of the Corporation ranking junior to the Preferred
Shares, unless all dividends up to and including the dividend
payable for the last completed period for which such dividends
shall be payable on each series of the Preferred Shares then
issued and outstanding shall have been declared and paid or set
apart for payment at the date of such call for redemption,
purchase, reduction or other payment.
Exhibit 7.03(f)(i) - 6
(f)
Ranking for Payment of Dividends and Liquidation,
Dissolution or Winding-up
.
The Preferred Shares of each
series shall rank on a parity with the Preferred Shares of every
other series with respect to priority in payment of dividends
and in the distribution of assets in the event of liquidation,
dissolution or winding-up of the Corporation whether voluntary
of involuntary.
(g)
Liquidation, Dissolution or Winding-up
.
In the event of the liquidation, dissolution or winding-up of
the Corporation or other distribution of assets of the
Corporation among shareholders for the purpose of winding-up its
affairs, the holders of the Preferred Shares shall, before any
amount shall be paid to or any property or assets of the
Corporation distributed among the holders of the Class A
Voting Shares, the Class B Multiple Voting Shares or any
other shares of the Corporation ranking junior to the Preferred
Shares, be entitled to receive:
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(i) an amount equal to the consideration received by the
Corporation upon the issuance of such shares together with, in
the case of cumulative Preferred Shares, all unpaid cumulative
dividends (which for such purpose shall be calculated as if such
cumulative dividends were accruing from day to day for the
period from the expiration of the last period for which
cumulative dividends have been paid-up to and including the date
of distribution) and, in the case of non-cumulative Preferred
Shares, all declared and unpaid non-cumulative
dividends; and
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(ii) if such liquidation, dissolution, winding-up or
distribution shall be voluntary, an additional amount equal to
the premium, if any, which would have been payable on the
redemption of the said Preferred Shares respectively if they had
been called for redemption by the Corporation on the date of
distribution and, if said Preferred Shares could not be redeemed
on such date, then an additional amount equal to the greatest
premium, if any, which would have been payable on the redemption
of said Preferred Shares respectively.
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(h)
Purchase by the Corporation
.
The
Preferred Shares of any series may be purchased for cancellation
or made subject to redemption by the Corporation at such times
and at such prices and upon such other terms and conditions as
may be specified in the rights, privileges, restrictions and
conditions attaching to the Preferred Shares of such series as
set forth in the articles of amendment relating to such series.
(i)
Amendments
.
The provisions of this
section III may be deleted or varied in whole or in part by
a certificate of amendment, but only with the prior approval of
the holders of the Preferred Shares, given as hereinafter
specified, in addition to any other approval required by the Act
(or any other statutory provision of the like or similar effect,
from time to time in force). The approval of the holders of the
Preferred Shares with respect to any and all matters
hereinbefore referred to, may be given by at least two-thirds
(
2
/
3
)
of the votes cast at a meeting of the holders of the Preferred
Shares duly called for that purpose and held upon at least
twenty-one (21) days notice at which the holders of a
majority of the outstanding Preferred Shares are present or
represented by proxy. If at any such meeting the holders of a
majority of the outstanding Preferred Shares are not present or
represented by proxy within thirty (30) minutes after the
time appointed for such meeting, then the meeting shall be
adjourned to such date being not less than thirty (30) days
later and to such time and place as may be determined by the
chairman of the meeting and not less than twenty-one
(21) days notice shall be given of such adjourned meeting
but it shall not be necessary in such notice to specify the
purpose for which the meeting was originally called. At such
adjourned meeting the holders of Preferred Shares, present or
represented by proxy, may transact the business for which the
meeting was originally called and a resolution passed thereat by
not less than two-thirds
(
2
/
3
)
of the votes cast at such adjourned meeting, shall constitute
the authorization of the holders of the Preferred Shares
referred to above. The formalities to be observed in respect of
the giving of notice of any such meeting or adjourned meeting
and the conduct thereof shall be those from time to time
prescribed by the by-laws of the Corporation with respect to
meetings of shareholders. On every poll taken at every such
meeting or adjourned meeting, every holder of Preferred Shares
shall be entitled to one (1) vote in respect of each
Preferred Share held.
Exhibit 7.03(f)(i) - 7
APPENDIX B
Opinion of Houlihan Lokey Howard & Zukin
1
April 18, 2005
Mayor’s Jewelers, Inc.
14051 N.W.
14
th
Street
Suite 200
Sunrise, FL 33323
Attention: Special Committee of the Board of Directors/ Board of
Directors
Ladies and Gentlemen:
We understand that Mayor’s Jewelers, Inc.
(“Mayor’s” or the “Company”) is
considering a business combination transaction (the
“Transaction”) with the Company’s majority
stockholder, Henry Birks & Sons Inc., a corporation
organized under the laws of Canada (“Birks”), pursuant
to which (i) each outstanding share of Mayor’s common
stock not owned by Birks will be converted into 0.08695
Class A voting shares of Birks (the “Exchange
Ratio”) and (ii) the Company would become a
wholly-owned subsidiary of Birks. It is our further
understanding that, although Birks is currently a private
company, in connection with the Transaction, Birks will seek to
list its common shares on the American Stock Exchange.
You have requested our opinion (the “Opinion”) as to
the matters set forth below. The Opinion does not address the
Company’s underlying business decision to effect the
Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part
of the Company, nor did we advise you with respect to
alternatives to it.
In connection with this Opinion, we have made such reviews,
analyses and inquiries as we have deemed necessary and
appropriate under the circumstances. Among other things, we have:
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1. Reviewed the Company’s annual reports on
Form 10-K for the fiscal years ended March 30, 2002,
March 29, 2003 and March 27, 2004, as well as the
Form 10-K/ A for the fiscal year ended March 27, 2004;
the internally prepared monthly financial statements for
(i) April through March of 2002 and 2003, (ii) March
through December of 2004, and (iii) January and February
2005; and quarterly reports on Form 10-Q for the quarter
and nine months ended December 25, 2004, which the
Company’s management has identified as being the most
current financial statements available;
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2. Reviewed Birks’ audited financial statements for
the fiscal years ending March 2002, 2003 and 2004 and internally
prepared financial statements for (i) the fiscal years
ending March 2002, 2003 and 2004, (ii) the period from
March through December 2004 and (iii) January and February
2005;
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3. Reviewed monthly CFO reports from both Birks and the
Company from the period April 2002 through February 2005;
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4. Reviewed the Company’s and Birks’ financial
projections for the fiscal year ending March 2005, as well as
summary projections for the fiscal years ending March 2006 and
2007;
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5. Reviewed the combined pro forma projected financial
statements for Birks giving effect to the Transaction;
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6. Reviewed the Fiscal Year 2004-2006 Strategic Plan
documents for each of the Company and Birks;
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7. Reviewed copies of the Agreement and Plan of Merger and
Reorganization draft dated April 14, 2005;
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8. Reviewed the proposed post-Transaction Charter and
By-Laws of Birks;
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New York
• 245 Park Avenue, 20th
Floor • New York, New York
10167 • tel.212.497.4100 • fax.212.661.3070
Los Angeles Chicago San Francisco Washington, D.C.
Minneapolis Dallas Atlanta London
Broker/dealer services through Houlihan Lokey Howard & Zukin
Capital. Investment advisory services through
Houlihan Lokey Howard & Zukin Financial advisors.
2
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9. Reviewed the Form S-4 draft as of April 6,
2005 to be filed with Securities and Exchange Commission;
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10. Met with certain members of the senior management of
the Company and Birks to discuss the respective operations,
financial condition, future prospects and projected operations
and performance of Birks and the Company, and met with
representatives of Birks’ commercial bankers to discuss
certain matters;
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11. Visited certain facilities and business offices of the
Company and Birks;
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12. Reviewed the historical market prices and trading
volume for the Company’s publicly traded securities;
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13. Reviewed certain other publicly available financial
data for certain companies that we deem comparable to the
Company, and publicly available prices and premiums paid in
other transactions that we considered similar to the
Transaction; and
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14. Conducted such other studies, analyses and inquiries,
as we have deemed appropriate.
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We have relied upon and assumed, without independent
verification, that the financial forecasts and projections
provided to us have been reasonably prepared and reflect the
best currently available estimates of the future financial
results and condition of the Company and Birks, and that there
have been no material changes in the respective assets,
financial condition, business or prospects of the Company or
Birks since the date of the most recent financial statements
made available to us.
We have not independently verified the accuracy and completeness
of the information supplied to us with respect to the Company
and Birks and do not assume any responsibility with respect to
it. We have not made any independent appraisal of any of the
properties or assets of the Company or Birks. Our opinion is
necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date
of this letter.
Based upon the foregoing, and in reliance thereon, it is our
opinion that the Exchange Ratio is fair, from a financial point
of view, to the stockholders of the Company (other than Birks
and its affiliates and associates).
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HOULIHAN LOKEY HOWARD & ZUKIN
FINANCIAL ADVISORS, INC.
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3
Who Can Help Answer Your Questions
If you have more questions about the merger or if you would like
copies of any documents or information referred to in the
accompanying proxy statement/ prospectus that is not included in
or delivered with this document, you may write or call the
following persons.
Mayor’s Jewelers, Inc.
14051 N.W.
14
th
Street
Sunrise, Florida 33323
(954) 846-2701
Attention: Marc Weinstein
Senior Vice President, Chief Administrative Officer and
Secretary
or
Georgeson Shareholder Communications Inc.
17 State St.
28
th
Floor
New York, New York 10004
(212) 404-9800
Attention: James Gill
To ensure timely delivery prior to the Mayor’s special
and annual meeting, any request for documents should be received
by
[ ],
2005.
Until
[ ],
2005, all dealers that effect transactions in Birks Class A
voting shares, whether or not participating in the offering of
Birks Class A voting shares pursuant to the merger, may be
required to deliver a proxy statement/ prospectus.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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ITEM 20.
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Indemnification of Officers and Directors
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Under the
Canada Business Corporations Act
(the
“CBCA”), a corporation may indemnify a present or
former director or officer of such corporation or another
individual who acts or acted at the corporation’s request
as a director or officer, or an individual acting in a similar
capacity, of another entity, against all costs, charges and
expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by the individual in
respect of any civil, criminal, administrative, investigative or
other proceeding in which the individual is involved because of
that association with the corporation or other entity. The
corporation may advance moneys to the director, officer or other
individual for the costs, charges and expenses of any such
proceeding. The corporation may not indemnify an individual
unless the individual acted honestly and in good faith with a
view to the best interests of the corporation, or, as the case
may be, to the best interests of the other entity for which the
individual acted as director or officer or in a similar capacity
at the corporation’s request and, in the case of a criminal
or administrative action or proceeding that is enforced by a
monetary penalty, the individual had reasonable grounds for
believing that the individual’s conduct was lawful. The
individual shall repay any moneys advanced to him or her if he
or she does not fulfill the above conditions. Such
indemnification and advances may be made in connection with a
derivative action only with court approval. Such individual is
entitled to indemnification or advances from the corporation as
a matter of right in respect of all costs, charges and expenses
reasonably incurred by him in connection with the defence of any
civil, criminal, administrative, investigative or other
proceeding to which he is subject by reason of being or having
been a director or officer of the corporation or another entity
as described above if the individual was not judged by the court
or other competent authority to have committed any fault or
omitted to do anything that the individual ought to have done
and if the individual fulfils the conditions set forth above.
The by-laws of Henry Birks & Sons Inc. (the
“Registrant”) provide that, subject to the CBCA, the
Registrant shall indemnify a director or officer of the
Registrant, a former director or officer of the Registrant, or
another individual who acts or acted at the Registrant’s
request as a director or officer, or an individual acting in a
similar capacity, of another entity against all costs, charges
and expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by the individual in
respect of any civil, criminal, administrative, investigative or
other proceeding in which the individual is involved because of
that association with the Registrant or other entity if:
(a) the individual acted honestly and in good faith with a
view to the best interests of the Registrant or, as the case may
be, to the best interests of the other entity for with the
individual acted as a director or officer or in a similar
capacity at the Registrant’s request; and (b) in the
case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, the individual had reasonable
grounds for believing that his or her conduct was lawful. The
Registrant shall advance the necessary moneys to a director,
officer or other individual for the costs, charges and expenses
of a proceeding referred to previously. The individual shall
repay the moneys if the individual does not fulfill the
previously named conditions. The Registrant shall also indemnify
such person in such other circumstances as the CBCA permits or
requires.
The Registrant maintains directors’ and officers’
liability insurance which insures the directors and officers of
the Registrant and its subsidiaries against certain losses
resulting from any wrongful act committed in their official
capacities for which they become obligated to pay to the extent
permitted by applicable law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that, in the
opinion of the U.S. Securities and Exchange Commission,
such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
The exhibits listed in the exhibits index, appearing elsewhere
in this registration statement, have been filed as part of this
registration statement.
II-1
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ITEM 21.
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Exhibits and Financial Statement Schedules
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(a) The following documents are exhibits to the
registration statement.
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Exhibit
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Number
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Description of Document
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2
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.1*
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Agreement and Plan of Merger and Reorganization, dated as of
April 18, 2005, as amended as of July 27, 2005, among
Henry Birks & Sons Inc., Mayor’s Jewelers, Inc.
and Birks Merger Corporation, a wholly-owned subsidiary of Henry
Birks & Sons Inc. (attached as Appendix A to the proxy
statement/ prospectus which is part of this Registration
Statement).
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3
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.1*
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Articles of Amalgamation of Henry Birks & Sons Inc.
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3
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.2*
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Form of Articles of Amalgamation, as amended, of Henry
Birks & Sons Inc. to be in effect upon consummation of
the merger.
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3
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.3*
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By-laws of Henry Birks & Sons Inc.
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3
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.4*
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Form of By-laws of Henry Birks & Sons Inc., as amended,
to be in effect upon consummation of the merger.
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4
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.1*
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Form of Birks Class A voting share certificate.
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5
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.1**
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Opinion of Stikeman Elliott LLP as to the legality of the
securities being registered.
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8
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.1**
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Opinion of Holland & Knight LLP as to certain
U.S. federal income tax matters.
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9
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.1*
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Shareholders’ Agreement among Management Investors, Henry
Birks & Sons Holdings Inc. and Birks, dated
August 31, 1998, as amended as of April 5, 2002.
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9
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.2*
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Shareholders’ Agreement among Prime Investments SA, Henry
Birks & Sons Holdings Inc., Marco Pasteris and
Birks, dated as of August 15, 2002.
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10
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.1
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Revolving Credit, Tranche B Loan and Security Agreement by
and among Fleet Retail Finance Inc., GMAC Business Credit, LLC,
Back Bay Capital Funding LLC and Mayor’s, dated as of
August 20, 2002. Incorporated by reference from
Mayor’s Form 8-K, dated as of August 20, 2002.
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10
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.2
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First Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
February 20, 2004, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 10-Q filed
on January 7, 2005.
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10
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.3
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Second Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
November 21, 2003, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 10-Q filed
on February 10, 2004.
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10
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.4
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Third Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
February 20, 2004, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
March 4, 2004.
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10
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.5
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Fourth Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
September 7, 2004, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
September 13, 2004.
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10
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.6
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Fifth Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
March 4, 2005, by and among Fleet Retail Group, Inc., GMAC
Commercial Finance, LLC, Back Bay Capital Funding LLC, and the
domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
March 8, 2005.
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10
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.7
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Sixth Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
March 4, 2005, by and among Fleet Retail Group, Inc., GMAC
Commercial Finance, LLC, Back Bay Capital Funding LLC, and the
domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
May 5, 2005.
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10
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.8
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Exchange Agreement, dated as of February 20, 2004, between
Mayor’s and Birks. Incorporated by reference from
Mayor’s Form 8-K filed on March 4, 2004.
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10
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.9
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Management Consulting Services Agreement between Mayor’s
and Regaluxe dated as of April 22, 2004. Incorporated by
reference from Mayor’s Form 8-K filed on April 29,
2004.
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II-2
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Exhibit
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Number
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Description of Document
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10
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.10*
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Accounts Receivable Management, Loan and Security Agreement
among GMAC Commercial Finance Corporation Canada, Birks and
Henry Birks & Sons U.S., Inc., dated as of
October 15, 1996, amended and restated as of
November 19, 2004.
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10
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.11*
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Option Agreement between Birks, Henry Birks & Sons
Holdings Inc. and GMAC Commercial Finance Corporation, dated as
of March 15, 2005.
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10
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.12*
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Loan Agreement between Birks and Regaluxe, dated as of
February 16, 2004, and as amended as of February 23,
2005.
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10
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.13*
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Loan Agreement between Birks and la Financière du
Québec, dated as of November 27, 2002.
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10
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.14*
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Expense Reimbursement Agreement between Birks and Iniziativa SA,
dated as of April 1, 2003.
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10
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.15*
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Form of Directors and Officers Indemnity Agreement.
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10
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.16*
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Employee Stock Option Agreement dated as of May 1, 1997,
amended as of June 20, 2000.
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10
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.17*
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Employment Agreement between Thomas A. Andruskevich and Birks,
dated as of September 27, 2004.
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10
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.18*
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Lease Agreement between Birks and Anglo Canadian Investments SA,
dated as of December 12, 2000.
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10
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.19*
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Diamond Supply Agreement between Prime Investments SA and Birks,
dated as of August 15, 2002.
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10
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.20*
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Conditional Sale Agreement between Rosy Blue N.V. and Birks,
dated as of August 15, 2002.
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10
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.21*
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Conditional Sale Agreement between Rosy Blue Inc. and Birks,
dated as of August 15, 2002.
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10
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.22*
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Conditional Sale Agreement between Rosy Blue Sales Ltd. and
Birks, dated as of August 15, 2002.
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10
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.23*
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Conditional Sale Agreement between Rosy Blue Hong Kong Ltd. and
Birks, dated as of August 15, 2002.
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10
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.24*
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Conditional Sale Agreement between Rosy Blue Finance S.A. and
Birks, dated as of August 15, 2002.
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10
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.25*
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Registration Rights Agreement between Birks and Prime
Investments SA, dated as of February 4, 2005.
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10
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.26*
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Secured convertible note between Prime Investments SA and Birks,
dated as of September 30, 2002, as amended as of
March 14, 2005.
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10
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.27*
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Offre de Garantie de Prêts between Garantie Québec and
Birks, dated as of December 15, 1999 and April 9, 2001.
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10
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.28*
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Employment Agreement between Michael Rabinovitch and
Mayor’s, dated as of August 1, 2005.
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10
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.29
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Amended Employment Agreement between Thomas A. Andruskevich and
Mayor’s, dated as of June 24, 2004. Incorporated by
reference from Mayor’s Form 10-K filed on
June 25, 2004.
|
|
|
|
|
13
|
.1
|
|
Mayor’s Annual Report on Form 10-K for the year ended
March 26, 2005, filed on June 24, 2005.
|
|
|
|
|
21
|
.1*
|
|
Subsidiaries of Henry Birks & Sons Inc.
|
|
|
|
|
23
|
.1*
|
|
Consent of KPMG LLP.
|
|
|
|
|
23
|
.2*
|
|
Consent of KPMG LLP.
|
|
|
|
|
23
|
.3*
|
|
Consent of Deloitte & Touche LLP.
|
|
|
|
|
23
|
.4**
|
|
Consent of Stikeman Elliott LLP (included in Exhibit 5.1).
|
|
|
|
|
23
|
.5**
|
|
Consent of Holland & Knight LLP.
|
|
|
|
|
23
|
.6*
|
|
Consent of Houlihan Lokey Howard & Zukin.
|
|
|
|
|
24
|
.1*
|
|
Powers of Attorney (included on the signature page of this
Registration Statement).
|
|
|
|
|
99
|
.1*
|
|
Form of proxy card for the special and annual meeting of
stockholders of Mayor’s Jewelers, Inc.
|
|
|
|
|
99
|
.2*
|
|
Form of Letter to the stockholders of Mayor’s Jewelers,
Inc. (included in the proxy statement/ prospectus which is part
of this Registration Statement).
|
|
|
|
|
99
|
.3*
|
|
Form of Notice of Special and Annual Meeting of stockholders of
Mayor’s Jewelers, Inc. (included in the proxy statement/
prospectus which is part of this Registration Statement).
|
|
|
|
|
99
|
.4*
|
|
Opinion of Houlihan Lokey Howard & Zukin (attached as
Appendix B to the proxy statement/ prospectus which is part of
this Registration Statement).
|
|
|
|
|
**
|
To be filed by amendment.
|
II-3
(b) Financial statement schedules are omitted because they
are not applicable or the required information is shown in the
consolidated financial statements of Henry Birks & Sons
Inc. and the notes thereto.
(c) The opinion of Houlihan Lokey Howard & Zukin
is incorporated as Appendix B to the proxy statement/
prospectus which is part of this Registration Statement.
The undersigned registrant hereby undertakes:
|
|
|
|
|
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
|
|
|
|
|
|
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
|
|
|
|
|
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement;
|
|
|
|
|
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
|
|
|
|
|
|
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
|
|
|
|
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
|
|
|
|
|
(4) To file a post-effective amendment to the registration
statement to include any financial statements required by
Item 8.A. of Form 20-F at the start of any delayed
offering or throughout a continuous offering. Financial
statements and information otherwise required by
Section 10(a)(3) of the Act need not be furnished,
provided
that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in
the prospectus is at least as current as the date of those
financial statements.
|
The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant’s annual report pursuant to
section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan’s annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable
II-4
registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is
filed pursuant to the paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to
Rule 415, will be filed as part of an amendment to the
registration statement and will not be used until such amendment
is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial
bona fide
offering thereof.
Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes: (i) to
respond to requests for information that is incorporated by
reference into the proxy statement/ prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally
prompt means; and (ii) to arrange or provide for a facility
in the U.S. for the purpose of responding to such requests.
The undertaking in subparagraph (i) above includes
information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Montreal, Province of Quebec, Canada,
on July 27, 2005.
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|
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|
|
HENRY BIRKS & SONS INC.
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|
|
(Registrant)
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|
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|
By:
|
/s/ Thomas A. Andruskevich
|
|
|
|
|
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|
|
Name: Thomas A. Andruskevich
|
|
|
|
|
|
|
Title:
|
President, Chief Executive Officer and Director
|
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Thomas A.
Andruskevich and Sabine Bruckert, and each of them, as his or
her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (until revoked in
writing), to sign any and all amendments, including
post-effective amendments, and supplements to this registration
statement, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to
all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his or her substitute may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
/s/ Thomas A. Andruskevich
Thomas
A. Andruskevich
|
|
President, Chief Executive Officer
and Director
|
|
July 27, 2005
|
|
|
/s/ Lawrence Litowitz
Lawrence
Litowitz
|
|
Interim Chief Financial Officer and
Principal Accounting Officer
|
|
July 27, 2005
|
|
|
/s/ Lorenzo Rossi di Montelera
Lorenzo
Rossi di Montelera
|
|
Director
|
|
July 27, 2005
|
|
|
/s/ Shirley A. Dawe
Shirley
A. Dawe
|
|
Director
|
|
July 27, 2005
|
|
|
/s/ Margherita Oberti
Margherita
Oberti
|
|
Director
|
|
July 27, 2005
|
|
|
/s/ Peter R. O’Brien
Peter
R. O’Brien
|
|
Director
|
|
July 27, 2005
|
|
|
/s/ Filippo Recami
Filippo
Recami
|
|
Director
|
|
July 27, 2005
|
II-6
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the
Securities Act of 1933, the Authorized Representative has signed
this Registration Statement, solely in its capacity as the duly
authorized representative of Henry Birks & Sons US Inc.
on July 27, 2005.
|
|
|
|
|
HENRY BIRKS & SONS US INC.
|
|
|
|
|
|
|
By:
|
/s/ Thomas A. Andruskevich
|
|
|
|
|
|
|
|
|
Name: Thomas
A. Andruskevich
|
|
|
|
|
|
|
Title:
|
President, Chief Executive Officer and Director
|
II-7
EXHIBIT INDEX
|
|
|
|
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|
|
Exhibit
|
|
|
|
Number
|
|
Description of Document
|
|
|
|
|
|
|
2
|
.1*
|
|
Agreement and Plan of Merger and Reorganization, dated as of
April 18, 2005, as amended as of July 27, 2005, among
Henry Birks & Sons Inc., Mayor’s Jewelers, Inc.
and Birks Merger Corporation, a wholly-owned subsidiary of Henry
Birks & Sons Inc. (attached as Appendix A to the proxy
statement/prospectus which is part of this Registration
Statement).
|
|
|
|
|
3
|
.1*
|
|
Articles of Amalgamation of Henry Birks & Sons Inc.
|
|
|
|
|
3
|
.2*
|
|
Form of Articles of Amalgamation, as amended, of Henry
Birks & Sons Inc. to be in effect upon consummation of
the merger.
|
|
|
|
|
3
|
.3*
|
|
By-laws of Henry Birks & Sons Inc.
|
|
|
|
|
3
|
.4*
|
|
Form of By-laws of Henry Birks & Sons Inc., as amended,
to be in effect upon consummation of the merger.
|
|
|
|
|
4
|
.1*
|
|
Form of Birks Class A voting share certificate.
|
|
|
|
|
5
|
.1**
|
|
Opinion of Stikeman Elliott LLP as to the legality of the
securities being registered.
|
|
|
|
|
8
|
.1**
|
|
Opinion of Holland & Knight LLP as to certain
U.S. federal income tax matters.
|
|
|
|
|
9
|
.1*
|
|
Shareholders’ Agreement among Management Investors, Henry
Birks & Sons Holdings Inc. and Birks, dated as of
August 31, 1998, as amended as of April 5, 2002.
|
|
|
|
|
9
|
.2*
|
|
Shareholders’ Agreement among Prime Investments SA, Henry
Birks & Sons Holdings Inc., Marco Pasteris and Birks,
dated as of August 15, 2002.
|
|
|
|
|
10
|
.1
|
|
Revolving Credit, Tranche B Loan and Security Agreement by
and among Fleet Retail Finance Inc., GMAC Business Credit, LLC,
Back Bay Capital Funding LLC and Mayor’s dated as of
August 20, 2002. Incorporated by reference from
Mayor’s Form 8-K dated as of August 20, 2002.
|
|
|
|
|
10
|
.2
|
|
First Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
February 20, 2004, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 10-Q filed
on January 7, 2005.
|
|
|
|
|
10
|
.3
|
|
Second Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
November 21, 2003, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 10-Q filed
on February 10, 2004.
|
|
|
|
|
10
|
.4
|
|
Third Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
February 20, 2004, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
March 4, 2004.
|
|
|
|
|
10
|
.5
|
|
Fourth Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
September 7, 2004, by and among Fleet Retail Group, Inc.,
GMAC Commercial Finance, LLC, Back Bay Capital Funding LLC, and
the domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
September 13, 2004.
|
|
|
|
|
10
|
.6
|
|
Fifth Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
March 4, 2005, by and among Fleet Retail Group, Inc., GMAC
Commercial Finance, LLC, Back Bay Capital Funding LLC, and the
domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
March 8, 2005.
|
|
|
|
|
10
|
.7
|
|
Sixth Amendment to Revolving Credit, Tranche B Loan and
Security Agreement, Limited Waiver and Consent, dated as of
March 4, 2005, by and among Fleet Retail Group, Inc., GMAC
Commercial Finance, LLC, Back Bay Capital Funding LLC, and the
domestic subsidiaries of Mayor’s and Mayor’s.
Incorporated by reference from Mayor’s Form 8-K filed on
May 5, 2005.
|
|
|
|
|
10
|
.8
|
|
Exchange Agreement, dated as of February 20, 2004, between
Mayor’s and Birks. Incorporated by reference from
Mayor’s Form 8-K filed on March 4, 2004.
|
|
|
|
|
10
|
.9
|
|
Management Consulting Services Agreement between Mayor’s
and Regaluxe, dated as of April 22, 2004. Incorporated by
reference from Mayor’s Form 8-K filed on April 29,
2004.
|
|
|
|
|
10
|
.10*
|
|
Accounts Receivable Management, Loan and Security Agreement
among GMAC Commercial Finance Corporation Canada, Birks and
Henry Birks & Sons U.S., Inc., dated as of
October 15, 1996, amended and restated as of
November 19, 2004.
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Number
|
|
Description of Document
|
|
|
|
|
|
|
|
|
10
|
.11*
|
|
Option Agreement between Birks, Henry Birks & Sons
Holdings Inc. and GMAC Commercial Finance Corporation, dated as
of March 15, 2005.
|
|
|
|
|
10
|
.12*
|
|
Loan Agreement between Birks and Regaluxe dated as of
February 16, 2004, and as amended as of February 23,
2005.
|
|
|
|
|
10
|
.13*
|
|
Loan Agreement between Birks and la Financière du
Québec, dated as of November 27, 2002.
|
|
|
|
|
10
|
.14*
|
|
Expense Reimbursement Agreement between Birks and Iniziativa SA,
dated as of April 1, 2003.
|
|
|
|
|
10
|
.15*
|
|
Form of Directors and Officers Indemnity Agreement.
|
|
|
|
|
10
|
.16*
|
|
Employee Stock Option Agreement, dated as of May 1, 1997,
amended as of June 20, 2000.
|
|
|
|
|
10
|
.17*
|
|
Employment Agreement between Thomas A. Andruskevich and Birks,
dated as of September 27, 2004.
|
|
|
|
|
10
|
.18*
|
|
Lease Agreement between Birks and Anglo Canadian Investments SA,
dated as of December 12, 2000.
|
|
|
|
|
10
|
.19*
|
|
Diamond Supply Agreement between Prime Investments SA and Birks,
dated as of August 15, 2002.
|
|
|
|
|
10
|
.20*
|
|
Conditional Sale Agreement between Rosy Blue N.V. and Birks,
dated as of August 15, 2002.
|
|
|
|
|
10
|
.21*
|
|
Conditional Sale Agreement between Rosy Blue Inc. and Birks,
dated as of August 15, 2002.
|
|
|
|
|
10
|
.22*
|
|
Conditional Sale Agreement between Rosy Blue Sales Ltd. and
Birks, dated as of August 15, 2002.
|
|
|
|
|
10
|
.23*
|
|
Conditional Sale Agreement between Rosy Blue Hong Kong Ltd. and
Birks, dated as of August 15, 2002.
|
|
|
|
|
10
|
.24*
|
|
Conditional Sale Agreement between Rosy Blue Finance S.A. and
Birks, dated as of August 15, 2002.
|
|
|
|
|
10
|
.25*
|
|
Registration Rights Agreement between Birks and Prime
Investments SA, dated as of February 4, 2005.
|
|
|
|
|
10
|
.26*
|
|
Secured convertible note between Prime Investments SA and Birks,
dated as of September 30, 2002, as amended as of
March 14, 2005.
|
|
|
|
|
10
|
.27*
|
|
Offre de Garantie de Prêts between Garantie Québec and
Birks, dated as of December 15, 1999 and April 9, 2001.
|
|
|
|
|
10
|
.28*
|
|
Employment Agreement between Michael Rabinovitch and
Mayor’s, dated as of August 1, 2005.
|
|
|
|
|
10
|
.29
|
|
Amended Employment Agreement between Thomas A. Andruskevich and
Mayor’s, dated as of June 24, 2004. Incorporated by
reference from Mayor’s Form 10-K filed on
June 25, 2004.
|
|
|
|
|
13
|
.1
|
|
Mayor’s Annual Report on Form 10-K for the year ended
March 26, 2005, filed on June 24, 2005.
|
|
|
|
|
21
|
.1*
|
|
Subsidiaries of Henry Birks & Sons Inc.
|
|
|
|
|
23
|
.1*
|
|
Consent of KPMG LLP.
|
|
|
|
|
23
|
.2*
|
|
Consent of KPMG LLP.
|
|
|
|
|
23
|
.3*
|
|
Consent of Deloitte & Touche LLP.
|
|
|
|
|
23
|
.4**
|
|
Consent of Stikeman Elliott LLP (included in Exhibit 5.1).
|
|
|
|
|
23
|
.5**
|
|
Consent of Holland & Knight LLP (included in
Exhibit 8.1).
|
|
|
|
|
23
|
.6*
|
|
Consent of Houlihan Lokey Howard & Zukin.
|
|
|
|
|
24
|
.1*
|
|
Powers of Attorney (included on the signature page of this
Registration Statement).
|
|
|
|
|
99
|
.1*
|
|
Form of proxy card for the special and annual meeting of
stockholders of Mayor’s Jewelers, Inc.
|
|
|
|
|
99
|
.2*
|
|
Form of Letter to the stockholders of Mayor’s Jewelers,
Inc. (included in the proxy statement/ prospectus which is part
of this Registration Statement).
|
|
|
|
|
99
|
.3*
|
|
Form of Notice of Special and Annual Meeting of stockholders of
Mayor’s Jewelers, Inc. (included in the proxy statement/
prospectus which is part of this Registration Statement).
|
|
|
|
|
99
|
.4*
|
|
Opinion of Houlihan Lokey Howard & Zukin (attached as
Appendix B to the proxy statement/ prospectus which is part of
this Registration Statement).
|
|
|
|
|
**
|
To be filed by amendment.
|
EXHIBIT 3.1
[FLAG SYMBOL LOGO] Industry Canada Industrie Canada
CERTIFICATE
OF AMALGAMATION
CANADA BUSINESS
CORPORATIONS ACT
HENRY BIRKS & SONS INC.
HENRY BIRKS ET FILS INC.
NAME OF CORPORATION-DENOMINATION DE LA SOCIETE
I hereby certify that the above-named corporation resulted from an amalgamation,
under section 185 of the Canada Business Corporations Act, of the corporations
set out in the attached articles of amalgamation.
/s/ Robert Lit
------------------------
DIRECTOR - DIRECTEUR
|
CERTIFICAT
DE FUSION
LOI CANADIENNE SUR
LES SOCIETES PAR ACTIONS
357267-6
CORPORATION NUMBER-NUMERO DE LA SOCIETE
Je certifie que la societe susmentionnee est issue d'une fusion, en vertu de
l'article 185 de la Loi canadienne sur les societes par actions, des societes
dont les denominations apparaissent dans les statuts de fusion ci-joints.
DECEMBER 26, 1998/LE 26 DECEMBER 1998
DATE OF AMALGAMATION - DATE DE FUSION
[CANADA FLAG SYMBOL LOGO]
CANADA BUSINESS
CORPORATIONS ACT
FORM 9
ARTICLES OF AMALGAMATION
(SECTION 185)
1 - NAME OF AMALGAMATED CORPORATION
HENRY BIRKS & SONS INC. / HENRY BIRKS ET FILS INC.
2 - THE PLACE IN CANADA WHERE THE REGISTERED OFFICE IS TO BE SITUATED
Urban Community of Montreal
Province of Quebec
3 - THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE
Unlimited number of common shares; and
Unlimited number of non-voting common shares.
I. The common shares shall have attached thereto the following rights,
privileges, restriction and conditions:
(a) VOTING - Each common share shall entitle the holder thereof to one (1)
vote at all meetings of the shareholders of the Corporation (except
meetings at which only holders of another specified class of shares are
entitled to vote pursuant to the provisions hereof or pursuant to the
provisions of the Canada Business Corporations Act (hereinafter
referred to as the "Act")).
(b) RANKING ON LIQUIDATION AND DIVIDENDS - In the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or other distribution of assets of the Corporation among
shareholders for the purpose of winding-up its affairs, subject to the
rights, privileges, restrictions and conditions attaching to any other
class of shares ranking prior to the common shares or the non-voting
shares, the holders of the common shares and the holders of the non-voting
common shares shall be entitled to receive the remaining property of the
Corporation, the holders of the common shares and the holders of the
non-voting common shares shall rank equally with respect to the payment of
dividends and distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the assets of the Corporation
among shareholders for the purpose of winding-up its affairs.
II. The non-voting common shares shall have attached thereto the following
rights, privileges, restrictions and conditions:
(a) VOTING - Subject to the provisions of the Act or as otherwise expressly
provided herein, the holders of the non-voting common shares shall not be
entitled to receive notice of, nor to attend or vote at meetings of the
shareholders of the Corporation
(b) CONVERSION - Except as provided for herein below, the non-voting common
shares shall not have any conversion rights attached thereto. In the event
that the Corporation becomes a reporting issuer, as such term is defined
in any securities legislation or securities regulation applicable to the
Corporation, then each non-voting common share will become convertible at
the option of the holder into one common share of the Corporation subject
to any adjustment hereunder.
If the corporation shall declare a dividend or make a distribution on its
outstanding common shares, in either case payable in common shares, other
than pursuant to any dividend reinvestment and stock purchase plan, or
shall divide its outstanding common shares into a greater number of
shares, or shall consolidate its outstanding common
shares into a lesser number of shares (any such event being herein called
a "common share reorganization"), the conversion basis then in effect
shall be adjusted immediately after the effective date or record date at
which the holders of common shares are determined for purposes of the
common share reorganization by multiplying the conversion basis in effect
immediately prior to such effective date or record date by a fraction, the
numerator or which shall be the number of common shares outstanding
immediately after giving effect to such common share reorganization and
the denominator of which shall be the number of common shares outstanding
on such effective date or record date before giving effect to such common
share reorganization.
If and whenever at any time there is a capital reorganization of the
Corporation not covered by the above sub-paragraph or a consolidation or
merger or amalgamation of the Corporation with or into any other company
or body corporate, including by way of a sale whereby all or substantially
all of the Corporation's undertaking and assets would become the property
of any other company or body corporate (any of which is herein called a
"capital reorganization"), any holder of Non-Voting Common shares who has
not exercised his right of conversion prior to the effective date of such
capital reorganization shall be entitled to receive and shall accept, upon
the exercise of such right at any time on the effective date or
thereafter, in lieu of the number of common shares to which he was
theretofore entitled upon conversion, the aggregate number of shares or
other securities or property of the Corporation or of the company or body
corporate resulting from or acquiring under the capital reorganization
that such holder would have been entitled to receive as a result of such
capital reorganization if, on the effective date thereof, he had been the
registered holder of the number of common shares to which he was
theretofore entitled upon conversion; provided that no such capital
reorganization shall be carried into effect unless, in the opinion of the
directors, all necessary steps shall have been taken to ensure that the
holders of the Non-Voting Common shares shall thereafter be entitled to
receive such number of shares or other securities or property of the
Corporation or of the company or body corporate resulting from the
consolidation, merger or amalgamation or to which such sale may be made,
as the case may be, subject to adjustment thereafter in accordance with
the provisions similar, as nearly as may be, to those contained in this
paragraph.
(c) RANKING ON LIQUIDATION AND DIVIDENDS - In the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or other distribution of assets of the Corporation among
shareholders for the purpose of winding-up its affairs, subject to the
rights, privileges, restrictions and conditions attaching to any other
class of shares ranking prior to the common shares or the non-voting
shares, the holders of the common shares and the holders of the non-voting
common shares shall be entitled to receive the remaining property of the
Corporation, the holders of the common shares and the holders of the
non-voting common shares shall rank equally with respect to the payment of
dividends and distribution of assets in the event of the liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, or any other distribution of the assets of the Corporation
among shareholders for the purpose of winding-up its affairs.
4 - RESTRICTIONS, IF ANY, ON SHARE TRANSFERS
No share in the Share capital of the Corporation shall be transferred nor
shall it be assigned without the approval of the directors certified by a
resolution of the board of directors.
5 - NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
A minimum number of three (3) and a maximum number of fifteen (15).
6 - RESTRICTIONS, IF ANY, ON BUSINESS THE CORPORATION MAY CARRY ON
None.
7 OTHER PROVISIONS, IF ANY
(1) the number of the shareholders of the Corporation is limited to
fifty (50) exclusive of present or former employees of the
Corporation or of a subsidiary of the Corporation, two or more
persons holding one or more shares jointly being counted as a single
shareholder;
(2) any distribution of securities to the public or invitation to the
public to subscribe for the Corporation's securities is prohibited;
and
(3) the directors may appoint one or more directors, who shall hold
office for a term expiring not later than the close of the next
annual meeting of shareholders, but the total number of directors so
appointed may not exceed one third of the number of directors
elected at the previous annual meeting of shareholders.
8 - THE AMALGAMATION HAS BEEN APPROVED PURSUANT TO THAT SECTION OR SUBSECTION
OF THE ACT WHICH IS INDICATED AS FOLLOWS:
___ 183
X 184(1)
___ 184(2)
9 - NAME OF THE AMALGAMATING CORPORATIONS
(a) Henry Birks & Sons Inc. - Henry Birks et Fils Inc.
(b) 3138712
CORPORATION NO.
(a) 3332667
(b) 3138712
Jan 21st, 1999 Henry Birks & Sons Inc.
Henry Birks et Fils Inc.
/s/ Sabine Bruckert
-----------------------------------------
Name: Sabine Bruckert
Title: Vice President and General Counsel
_______ , 1999 3138712 Canada Inc.
/s/ John T. Sullivan
-----------------------------------------
John T. Sullivan
Director
_________________________________________________________
FOR DEPARTMENTAL USE ONLY
Corporation No. Filed
357267-6. JAN 27 1999
|
[FLAG SYMBOL LOGO] Industry Canada Industrie Canada
CERTIFICATE CERTIFICATE
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
|
HENRY BIRKS & SONS INC.
HENRY BIRKS ET FILS INC. 357267-6
----------------------------------------------- -----------------------------------------
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the Je certifie que les statuts de la societe
above-named corporation were amended. susmentionnee ont ete modifies
a) under section 13 of the Canada [ ] a) en vertu de l'article 13 de la Loi
Business Corporations Act in canadienne sur les societes par
accordance with the attached notice; actions, conformement a l'avis ci-joint,
b) under section 27 of the Canada Business [X] b) en vertu de l'article 27 de la Loi
Corporations Act as set out in the canadienne sur les societes par
attached articles of amendment actions, tel qu'il est indique dans les
designating a series of shares, clauses modificatrices ci-jointes
designant une serie d'actions,
c) under section 179 of the Canada Business [ ] c) en vertu de l'article 179 de la Loi
Corporations Act as set out in the canadienne sur les societes par
attached articles of amendment, actions, tel qu'il est indique dans les
clauses modificatrices ci-jointes;
d) under section 191 of the Canada Business [ ] d) en vertu de l'article 191 de la Loi
Corporations Act as set out in the canadienne sur les societes par
attached articles of reorganization, actions, tel qu'il est indique dans les
clauses de reorganisation ci-jointes,
|
/s/ Richard G. Shaw
-------------------
Director - Directeur AUGUST 19, 2002/LE 19 AOUT 2002
Date of Amendment - Date de modification
|
[CANADA FLAG SYMBOL LOGO]
EXHIBIT A
CANADA BUSINESS
CORPORATIONS ACT
FORM 4
(SECTION 27 OR 177)
1. Name of the Corporation
HENRY BIRKS & SONS INC
HENRY BIRKS ET FILS INC.
2. Corporation No.
357267-6
3. The articles of the above-named Corporation are amended as follows:
Section 2 of the articles of amalgamation be and the same is hereby
deleted and replaced by the following:
1. The province or territory in Canada where the registered office is
situated Province of Quebec
Section 3 of the articles of amalgamation be and the same is hereby
deleted and replaced by the following:
The attached Schedule 1 is forming part hereof.
Date Signature
August 15, 2002 /s/ Thomas A. Andruskevich
--------------------------------
4 Capacity of Printed Name
________________________________________________________________________________
FOR DEPARTMENTAL USE ONLY
Filed AUG 20 2002
AOUT 20 2002
|
- 1 -
SCHEDULE 1
3 The classes and any maximum number of shares that the Corporation is
authorized to issue
Unlimited number of common shares,
Unlimited number of non-voting common shares; and
2,034,578 Series A preferred shares.
I THE COMMON SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING RIGHTS,
PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting Each common share shall entitle the holder thereof to one (1)
vote at all meetings of the shareholders of the Corporation (except
meetings at which only holders of another specified class of shares
are entitled to vote pursuant to the provisions hereof or pursuant
to the provisions of the Canada Business Corporations Act
(hereinafter referred to as the "ACT")).
(b) Ranking on Liquidation and Dividends. In the event of the
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or other distribution of assets of the
Corporation among shareholders for the purpose of winding-up its
affairs, subject to the rights, privileges, restrictions and
conditions attaching to any other class of shares ranking prior to
the common shares or the non-voting shares, the holders of the
common shares and the holders of the non-voting common shares shall
be entitled to receive the remaining property of the Corporation,
the holders of the common shares and the holders of the non-voting
common shares shall rank equally with respect to the payment of
dividends and distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of
the Corporation among shareholders for the purpose of winding-up its
affairs.
II. THE NON-VOTING COMMON SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting. Subject to the provisions of the Act or as otherwise
expressly provided herein, the holders of the non-voting common
shares shall not be entitled to receive notice of, nor to attend or
vote at, meetings of the shareholders of the Corporation.
(b) Conversion Except as provided for herein below, the non-voting
common shares shall not have any conversion rights attached thereto
In the event that the Corporation becomes a reporting issuer, as
such term is defined in any securities legislation or securities
regulation applicable to the Corporation, then each non-
- 2 -
voting common share will become convertible at the option of the
holder into one common share of the Corporation subject to any
adjustments hereunder.
If the Corporation shall declare a dividend or make a distribution
on its outstanding common shares, in either case payable in common
shares, other than pursuant to any dividend reinvestment and stock
purchase plan, or shall divide its outstanding common shares into a
greater number of shares, or shall consolidate its outstanding
common shares into a lesser number of shares (any such event being
herein called a "COMMON SHARE REORGANIZATION"), the conversion basis
then in effect shall be adjusted immediately after the effective
date or record date at which the holders of common shares are
determined for purposes of the common share reorganization by
multiplying the conversion basis in effect immediately prior to such
effective date or record date by a fraction, the numerator of which
shall be the number of common shares outstanding immediately after
giving effect to such common share reorganization and the
denominator of which shall be the number of common shares
outstanding on such effective date or record date before giving
effect to such common share reorganization.
If and whenever at any time there is a capital reorganization of the
Corporation not covered by the above sub-paragraph or a
consolidation or merger or amalgamation of the Corporation with or
into any other company or body corporate, including by way of a sale
whereby all or substantially all of the Corporations undertaking and
assets would become the property of any other company or body
corporate (any of which is herein called a "CAPITAL
REORGANIZATION"), any holder of non-voting common shares who has not
exercised his right of conversion prior to the effective date of
such capital reorganization shall be entitled to receive and shall
accept, upon the exercise of such right at any time on the effective
date or thereafter, in lieu of the number of common shares to which
he was theretofore entitled upon conversion, the aggregate number of
shares or other securities or property of the Corporation or of the
company or body corporate resulting from or acquiring under the
capital reorganization that such holder would have been entitled to
receive as a result of such capital reorganization if, on the
effective date thereof, he had been the registered holder of the
number of common shares to which he was theretofore entitled upon
conversion; provided that no such capital reorganization shall be
carried into effect unless, in the opinion of the directors, all
necessary steps shall have been taken to ensure that the holders of
the non-voting common shares shall thereafter be entitled to receive
such number of shares or other securities or property of the
Corporation or of the company or body corporate resulting from the
consolidation, merger or amalgamation or to which such sale may be
made, as the case may be, subject to adjustment thereafter in
accordance with the provisions similar, as nearly as may be, to
those contained in this paragraph.
(c) Ranking on Liquidation and Dividends. In the event of the
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or other distribution of assets of the
Corporation among shareholders for the purpose of winding-up its
affairs, subject to the rights, privileges, restrictions and
conditions
- 3 -
attaching to any other class of shares ranking prior to the common
shares or the non-voting shares, the holders of the common shares
and the holders of the non-voting common shares shall be entitled to
receive the remaining property of the Corporation, the holders of
the common shares and the holders of the non-voting common shares
shall rank equally with respect to the payment of dividends and
distribution of assets in the event of the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary,
or any other distribution of the assets of the Corporation among
shareholders for the purpose of winding-up its affairs.
III. THE SERIES A PREFERRED SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING
RIGHTS, PRIVILEGES, PREFERENCES, RESTRICTIONS AND CONDITIONS:
(a) Dividends. The holders of Series A Preferred Shares shall be entitled
to share in any dividends declared and paid upon or set aside for common shares
or non-voting common shares of the Corporation, pro rata in accordance with the
number of Common Shares into which such Series A Preferred Shares are then
convertible pursuant to Section 3 (III)(c) below.
(b) Liquidation Preference. (i) In the event of the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
or other distribution of assets of the Corporation among shareholders for the
purpose of winding-up its affairs, subject to the rights, privileges,
preferences, restrictions and conditions attaching to any other class of shares
ranking prior to the Series A Preferred Shares, the holders of Series A
Preferred Shares shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of common
shares or non-voting common shares by reason of their ownership thereof, an
amount per share equal to the sum of (the "LIQUIDATION PREFERENCE") (A) US
$4.9396 for each outstanding Series A Preferred Share (the "ORIGINAL SERIES A
ISSUE PRICE") and (B) the US dollar equivalent of an amount equal to any
declared but unpaid dividends that the holder of Series A Preferred Shares is
entitled to receive. If upon the occurrence of any such event, the assets and
funds available for distribution among the holders of the Series A Preferred
Shares shall be insufficient to permit the payment to such holders of the
Liquidation Preference, then, subject to the rights privileges, restrictions and
conditions attaching to any other class of shares ranking prior to the Series A
Preferred Shares, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Shares in proportion to the amount of such shares owned by
each such holder.
(ii) Upon the completion of the distribution required by
subparagraph (i) of this Section 3 (III) (b), subject to the rights, privileges,
preferences, restrictions and conditions attaching to any other class of shares
ranking prior to the Series A Preferred Shares, common shares or non-voting
common shares, the remaining assets of the Corporation available for
distribution to shareholders shall be distributed among the holders of Series A
Preferred shares, common shares and non-voting common shares pro rata based on
the number of Common Shares and Non-Voting Common Shares held by each and
assuming conversion of all such Series A Preferred Shares in accordance with
Section 3(III) (c) below.
- 4 -
(iii) A holder of Series A Preferred Shares shall be entitled
to receive, at its option, the Liquidation Preference described in Section 3
(III)(b)(i) in the event of:
(A) a merger, amalgamation, consolidation or combination
of the Corporation or a purchase or exchange of voting securities of the
Corporation by any person or entity, other than
(1) a merger, amalgamation, consolidation,
combination, share purchase or share
exchange that would result in the voting
securities of the Corporation outstanding
immediately prior thereto continuing to be
held by the same persons or entities in
substantially the same proportions and
continuing to represent (either by remaining
outstanding or by being converted into
voting securities of the surviving entity)
(aa) more than fifty percent (50%) of the
combined voting power of the Corporation or
such surviving entity outstanding
immediately after such merger, amalgamation,
consolidation, combination, share purchase
or share exchange if the Common Shares of
the Corporation or such surviving entity
outstanding immediately after such merger,
amalgamation, consolidation, combination,
share purchase or share exchange are not
publicly traded and listed on a U.S. stock
exchange (or a Canadian stock exchange) or
quoted on the Association of the Securities
Dealers the National Association Automated
Quotation System ("NASDAQ") for the National
Market System ("NMS") or Small Cap (the
"NASDAQ-NMS OR SMALL CAP") or (bb) not less
than twenty-five percent (25%) of the
combined voting power of the Corporation or
such surviving entry outstanding immediately
after such merger, amalgamation,
consolidation, combination, share purchase
or share exchange if the Common Shares of
the Corporation or such surviving entity
outstanding immediately after such merger,
amalgamation, consolidation, combination,
share purchase or share exchange are
publicly traded and listed on a U.S. stock
exchange (or a Canadian stock exchange) or
quoted on the NASDAQ NMS or Small Cap; or
(2) a merger, amalgamation, consolidation,
combination, share purchase or share
exchange effected to implement a
recapitalization of the
- 5 -
Corporation (or similar transaction) in
which a person who was the beneficial owner
of more than fifty percent (50%) of the
Corporation's voting securities prior to the
merger amalgamation, consolidation,
combination, share purchase or share
exchange retains or acquires, as the case
may be, beneficial ownership of (aa) more
than fifty percent (50%) of the combined
voting power of the Corporation's
outstanding securities after the merger,
amalgamation, consolidation, combination
share purchase or share exchange, if
immediately after such merger, amalgamation,
consolidation, combination, share purchase
or share exchange, the Corporation's Common
Shares are not publicly traded and listed on
a U.S. stock exchange (or a Canadian stock
exchange) or quoted on the NASDQ-NMS or
Small Cap or (bb) twenty-five percent (25%)
or more of the combined voting power of the
Corporation's outstanding securities after
such merger or combination, if immediately
after such merger or combination, the
Corporation's Common Shares are publicly
traded and listed on a U.S. stock exchange
(or a Canadian stock exchange) or quoted on
the NASDAQ-NMS or Small Cap; or
(B) the sale or other disposition (unless captured in
(A) above) by the Corporation of all or substantially all of the
Corporation's assets.
(C) the Corporation fails to pay when due principal
and/or interest on those certain Secured Convertible Notes (the "NOTES")
issued pursuant to that certain Securities Purchase Agreement dated as of
August 15, 2002 between the Corporation and the Investors named therein,
and such failure has not been waived by the holders of the Notes or cured
as provided in the Notes and such Notes have not thereafter been converted
as provided in such Notes;
(D) an order is issued or a resolution is adopted for
the purpose of winding-up the Corporation, or the Corporation files a
proposal or makes an assignment of its property for the benefit of its
creditors, or if a petition in bankruptcy is filed against the Corporation
or any of its subsidiaries and such petition is not dismissed within
thirty (30) days of the filing thereof, or a trustee is appointed for the
Corporation pursuant to the Bankruptcy and Insolvency Act (Canada) or
pursuant to any other legislation relating to insolvent persons, or if an
application is filed pursuant to the Companies' Creditors Arrangement Act
(Canada), or a seizure is made (unless the seizure is validly contested by
the Corporation) or a judgment is executed against all or a substantial
part of the Corporation's property;
- 6 -
(E) the Corporation has ceased to operate within the
ordinary course of business;
(F) the Corporation fails to carry out or comply with
any other undertaking or any other condition set forth herein or there is
an Event of Default under and as defined in the Notes; or
(G) the Corporation fails to pay when due an amount
equal to $500,000 under the Diamond Conditional Sale Agreement or the
Diamond Supply Agreement and such failure shall continue for a period of
thirty (30) days after the Corporation has received written notice to that
effect from the Holder; or
(H) subject to subsection (G) above, the New York
Diamond Dealers Club (or any successor thereto) determines that there has been a
material breach by the Corporation under the Diamond Supply Agreement
(iv) In the event the requirements of Section 3 (III)(b) are
not complied with this Corporation shall forthwith either:
(A) cause the closing of the applicable transaction to
be postponed until such time as the requirements of this Section 3
(III)(b) have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Preferred Shares
shall revert to and be the same as such rights, preferences and privileges
existing immediately prior to the date of the first notice referred to in
subsection 3 (III)(b) (v) hereof.
(v) The Corporation shall give each holder of record of Series
A Preferred Shares written notice of such impending transaction not later than
twenty (20) days prior to the shareholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3 (III)(b) and the Corporation shall thereafter give such holders
prompt notice of any material changes thereto. The transaction shall in no event
take place sooner than twenty (20) days after the Corporation has given the
first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Series A Preferred Shares that are entitled to such notice
rights or similar notice rights and that represent at least a majority of the
voting power attaching to all such shares then outstanding.
(c) Conversion.
The Series A Preferred Shares shall have attached thereto the following
conversion rights (the "CONVERSION RIGHTS"):
- 7 -
(i) Right to Convert. Each Series A Preferred Share shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for such shares, into such number of fully paid and non-assessable Common Shares
as is determined by dividing the Original Series A Issue Price by the Conversion
Price applicable to such share, determined as hereafter provided, in effect on
the date the certificate is surrendered for conversion. The initial Conversion
Price per Series A Preferred Share shall be the Original Series A Issue Price;
provided, however, that the Conversion Price for the Series A Preferred Stock
shall be subject to adjustment as set forth in Section 3 (III)(c)(iv).
(ii) Automatic Conversion. Each Series A Preferred Share shall
automatically be converted into Common Shares at the Conversion Price at the
time in effect for such Series A Preferred Shares immediately upon the earlier
of (i) the Corporation's sale of its Common Shares in a bona fide firm
commitment underwritten public offering pursuant to a registration statement
filed with, and declared effective by, the Securities and Exchange Commission
under the United States Securities Act of 1933, as amended (the "US SECURITIES
ACT") or under a prospectus filed with, and receipted by, the applicable
securities commissions or regulatory authorities in Canada (the "CANADIAN
PROSPECTUS"), raising aggregate net proceeds to the Company of at least US
$55,000,000 at a minimum share price of US $4.94 per Common Share (adjusted to
reflect subsequent stock dividends, stock splits or recapitalization) and the
Common Shares are listed on a US stock exchange or a Canadian stock exchange or
quoted on a U S. national automated securities quotation system or (ii) the date
specified by written consent or written agreement of the holders of sixty-seven
percent (67%) of the then outstanding Series A Preferred Shares.
(iii) Mechanics of Conversion. Before any holder of Series A
Preferred Shares shall be entitled to convert the same into Common Shares, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for the Series A
Preferred Shares, and shall give written notice to the Corporation at its
principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for Common
Shares are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series A
Preferred Shares, or to the nominee or nominees of such holder, a certificate or
certificates for the number of Common Shares to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
Series A Preferred Shares to be converted, and the person or persons entitled to
receive the Common Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Shares as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the US Securities Act of 1933, as amended or made
pursuant to a Canadian Prospectus, the conversion may, at the option of any
holder tendering Series A Preferred Shares for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the persons entitled to receive the Common Shares upon
conversion of the Series A Preferred Shares shall not be deemed to have
converted such Series A Preferred Shares until immediately prior to the closing
of such sale of securities.
- 8 -
(iv) Conversion Price Adjustments of Preferred Shares for
Certain Dilutive Issuances and Combinations. The Conversion Price of the Series
A Preferred Shares shall be subject to adjustment from time to time as follows:
(A) Stock Splits or Subdivisions. In the event the
Corporation should at any time or from time to time after the date upon
which any Series A Preferred Shares were first issued (the "PURCHASE
DATE") fix a record date for the effectuation of a split or subdivision of
the outstanding Common Shares or the determination of holders of Common
Shares entitled to receive a dividend or other distribution payable in
additional Common Shares or other securities or rights convertible into,
or entitling the holder thereof to receive directly or indirectly,
additional Common Shares (hereinafter referred to as "COMMON SHARE
EQUIVALENTS") without payment of any consideration by such holder for the
additional Common Shares or the Common Share Equivalents (including the
additional Common Shares issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution,
split or subdivision if no record date is fixed), the Conversion Pnce of
the Series A Preferred Shares shall be appropriately decreased so that the
number of Common Shares issuable on conversion of each share of such
series shall be increased in proportion to such increase of the aggregate
of Common Shares outstanding and those issuable with respect to such
Common Share Equivalents
(B) Combinations. If the number of Common Shares
outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding Common Shares, then, following the record
date of such combination, the Conversion Price for the Series A Preferred
Shares shall be appropriately increased so that the number of Common
Shares issuable on conversion of each Series A Preferred Shares shall be
decreased in proportion to such decrease in outstanding shares.
(C) Other Distributions. In the event the Corporation
shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to in
Section 3 (III)(c)(iv)(A), then, in each such case for the purpose of this
Section 3 (III)(c)(iv)(C), the holders of the Series A Preferred Shares
shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of Common Shares of the
Corporation into which their Series A Preferred Shares are convertible as
of the record date fixed for the determination of the holders of Common
Shares of the Corporation entitled to receive such distribution.
(D) Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Shares (other than a
subdivision, combination or merger or sale of assets transaction provided
for elsewhere in Section 3 (III)(b) or Section 3 (III)(c) hereof,
provision shall be made so that the holders of the Series A Preferred
Shares shall thereafter be entitled to receive upon conversion of the
Series A Preferred Shares the number of shares or other securities or
property of the Corporation or otherwise, to which a holder of Common
Shares deliverable upon conversion would have been entitled on such
recapitalization In any such case, appropriate adjustment shall be made in
the application of the provisions of this Section 3 (III)(c) with respect
to the
- 9 -
rights of the holders of the Series A Preferred Shares after the
recapitalization to the end that the provisions of this Section 3 (III)(c)
(including adjustment of the Conversion Price then in effect and the
number of shares purchasable upon conversion of the Series A Preferred
Shares) shall be applicable after that event as nearly equivalent as may
be practicable.
(E) No Impairment. The Corporation will not, by
amendment of its Articles or through any reorganization, recapitalization,
transfer of assets, consolidation merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 3 (III)(c) and
in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series A
Preferred Shares against impairment.
(F) No Fractional Shares and Certificate as to
Adjustments.
(1) No fractional shares shall be issued upon
the conversion of any Series A Preferred
Shares, and the number of Common Shares to
be issued shall be rounded to the nearest
whole share. Whether or not fractional
shares are issuable upon such conversion
shall be determined on the basis of the
total number of Series A Preferred Shares
the holder is at the time converting into
Common Shares and the number of Common
Shares issuable upon such aggregate
conversion.
(2) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of
Series A Preferred Shares pursuant to this
Section 3 (III)(c), the Corporation, at its
expense, shall promptly compute such
adjustment or readjustment in accordance
with the terms hereof and prepare and
furnish to each holder of Series A Preferred
Shares a certificate setting forth such
adjustment or readjustment and showing in
detail the facts upon which such adjustment
or readjustment is based The Corporation
shall, upon the written request at any time
of any holder of Series A Preferred Shares,
furnish or cause to be furnished to such
holder a like certificate setting forth (aa)
such adjustment and readjustment, (bb) the
Conversion Price for the Series A Preferred
Shares at the time in effect, and (cc) the
number of Common Shares and the amount, if
any, of other property which at the time
would be
- 10 -
received upon the conversion of Series A
Preferred Shares
(G) Notices of Record Date. In the event of any taking
by the Corporation of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution,
any right to subscribe for, purchase or otherwise acquire any shares of
any class or any other securities or property, or to receive any other
right, the Corporation shall mail to each holder of Series A Preferred
Shares, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(H) Reservation of Common Shares Issuable Upon
Conversion. The Corporation shall at all times reserve and keep available
out of its authorized but unissued Common Shares, solely for the purpose
of effecting the conversion of the Series A Preferred Shares, such number
of Common Shares as shall from time to time be sufficient to effect the
conversion of all Series A Preferred Shares; and if at any time the number
of authorized but unissued Common Shares shall not be sufficient to effect
the conversion of all then outstanding Series A Preferred Shares, in
addition to such other remedies as shall be available to the holder of
such Preferred Shares, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in
best efforts to obtain the requisite shareholder approval of any necessary
amendment to these Articles.
(I) Notices. Any notice required by the provisions of
this Section 3 (III)(c) to be given to the holders of Series A Preferred
Shares shall in writing and shall be deemed effectively given: (1) upon
personal delivery to the party to be notified, (2) when sent by confirmed
facsimile if sent during normal business hours of the recipient, if not,
then on the next business day, or (3) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt
(d) Voting Rights. The holder of Series A Preferred Shares shall have the
right to one vote for each Common Share into which such Series A Preferred
Shares could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Shares, and shall be entitled, notwithstanding any provision
hereof, to receive notice of and attend any shareholders' meeting in accordance
with the by-laws of this Corporation, and shall be entitled to vote, together
with holders of Common Shares, with respect to any question upon which holders
of Common Shares have the right to vote Fractional votes shall not, however, be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all Common Shares into which Series A Preferred Shares held
by each holder could be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
- 11 -
(e) Protective Provisions. Subject to the rights, privileges, restrictions
and conditions attaching to any other class of shares ranking prior to the
Series A Preferred Shares, so long as any Series A Preferred Shares are
outstanding, the Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders not less than
sixty-seven percent (67%) of the then outstanding Series A Preferred Shares:
(i) alter or change the rights, preferences or
privileges of the Series A Preferred Shares;
(ii) amend or vary the Articles or By-Laws of the
Corporation in a manner that adversely affects the rights, preferences or
privileges of the Series A Preferred Shares;
(iii) re-classify any of the issued and outstanding
share capital of the Corporation; or
(iv) authorize or issue, or obligate itself to issue,
any equity security, (including any other security convertible into or
exercisable for any equity security) having a preference over, the Series A
Preferred Shares with respect to voting, dividends or upon liquidation,
dissolution or winding-up or merger, amalgamation, consolidation, combination,
share purchase or share exchange as set forth in this Section 3 or as otherwise
provided by law.
(f) Status of Converted or Reacquired Stock. In the event any Series A
Preferred Shares shall be converted pursuant to Section 3 (III)(c) hereof or be
reacquired by the Corporation, the shares so converted or reacquired shall be
cancelled and shall not be issuable by the Corporation.
(g) Ratable Treatment. Except in connection with the conversion of the
Series A Preferred Shares at the election of the holder thereof in accordance
with Section 3(c)(i), the Corporation shall treat the holders of Series A
Preferred Shares ratably in any and all matters.
- 12 -
[FLAG SYMBOL LOGO] Industry Canada Industrie Canada
CERTIFICATE CERTIFICAT
OF AMENDMENT DE MODIFICATION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
|
HENRY BIRKS & SONS INC.
HENRY BIRKS ET FILS INC. 357267-6
--------------------------------------------- ---------------------------------------------
Name of corporation-Denomination de la societe Corporation number-Numero de la societe
I hereby certify that the articles of the Je certifie que les statuts de la societe
above-named corporation were amended: susmentionnee ont ete modifies:
a) under section 13 of the Canada [ ] a) en vertu de l'article 13 de la Loi
Business Corporations Act in accordance canadienne sur les societes par
with the attached notice; actions, conformement a l'avis ci-joint;
b) under section 27 of the Canada [ ] b) en vertu de l'article 27 de la Loi
Business Corporations Act as set out in canadienne sur les societes par
the attached articles of amendment actions, tel qu'il est indique dans les
designating a series of shares; clauses modificatrices ci-jointes
designant une serie d'actions;
c) under section 179 of the Canada [X] c) en vertu de l'article 179 de la Loi
Business Corporations Act as set out in canadienne sur les societes par
the attached articles of amendment; actions, tel qu'il est indique dans les
clauses modificatrices ci-jointes;
d) under section 191 of the Canada [ ] d) en vertu de l'article 191 de la Loi
Business Corporations Act as set out in canadienne sur les societes par
the attached articles of reorganization; actions, tel qu'il est indique dans les
clauses de reorganisation ci-jointes;
|
/s/ Richard G. Shaw MARCH 7, 2005/LE 7 MARS 2005
----------------------- Date of Amendment - Date de modification
Richard G. Shaw
Director - Directeur
|
[CANADA FLAG SYMBOL LOGO]
CANADA BUSINESS
CORPORATIONS ACT
FORM 4
ARTICLES OF AMENDMENT
(SECTION 27 OR 177)
1 - NAME OF THE CORPORATION
Henry Birks & Sons Inc.
Henry Birks et Fils Inc.
2 - CORPORATION NO.
3572676
3 - THE ARTICLES OF THE ABOVE-NAMED CORPORATION ARE AMENDED AS FOLLOWS:
A. The authorized capital of the Corporation is hereby amended by the
creation of:
- An unlimited number of Class A Voting Shares;
- An unlimited number of Class B Multiple Voting Shares; and
- 100,000 Class C Shares.
B. Each issued and outstanding common share of the Corporation is
hereby converted into 1.01166 Class A Voting Shares provided,
however, that the Corporation shall not, upon such conversion, issue
fractions of Class A Voting Shares. In the event that such
conversion would result in the issuance of a fraction of a Class A
Voting Share to a shareholder, such fraction of a Class A Voting
Share to which the shareholder would otherwise have been entitled
shall be rounded to the nearest whole Class A Voting Share, without
any further consideration (if applicable).
C. The authorized but unissued common shares of the Corporation are
hereby cancelled.
D. Section 3 of the articles of amalgamation of the Corporation, as
amended by articles of amendment on August 19, 2002, is hereby
deleted and replaced by the following:
The attached Schedule 1 is forming part hereof.
- 2 -
DATE SIGNATURE
March 7, 2005 /s/ Thomas A. Andruskevich
--------------------------
4- CAPACITY OF PRINTED NAME
DIRECTOR THOMAS A. ANDRUSKEVICH
________________________________________________________________________________
FOR DEPARTMENTAL USE ONLY
|
Filed
MAR 09 2005
MARS 09 2005
SCHEDULE 1
3- THE CLASSES AND MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE:
Unlimited number of Class A Voting Shares without nominal or par value;
Unlimited number of Class B Multiple Voting Shares without nominal or par
value;
100,000 Class C Shares;
Unlimited number of non-voting common shares; and
2,034,578 Series A Preferred Shares.
Any capitalized term shall have the meaning assigned to such term in these
Articles. Any reference herein to the Act is a reference to the Canada
Business Corporations Act as it now exists and as it may be amended from
time to time and any reference herein to a section of the Act is a
reference to a section of the Act as such section is presently numbered or
as it may be renumbered from time to time.
I. THE CLASS A VOTING SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting. Each Class A Voting Share shall entitle the holder thereof
to one (1) vote at all meetings of the shareholders of the
Corporation (except meetings at which only holders of another
specified class of shares are entitled to vote pursuant to the
provisions hereof or pursuant to the provisions of the Act).
(b) Ranking on Liquidation. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary,
or other distribution of assets of the Corporation among
shareholders for the purpose of winding up its affairs, subject to
the rights, privileges, restrictions and conditions attaching to any
other class of shares ranking prior to the Class A Voting Shares,
Class B Multiple Voting Shares or non-voting common shares, the
holders of the Class A Voting Shares, the holders of the Class B
Multiple Voting Shares and the holders of the non-voting common
shares shall be entitled to receive the remaining property of the
Corporation. The holders of the Class A Voting Shares, the holders
of the Class B Multiple Voting Shares and the holders of the
non-voting common shares shall rank equally with respect to the
distribution of assets in the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary,
or any other distribution of the assets of the Corporation among
shareholders for the purpose of winding up its affairs.
(c) Dividends and Distributions. In addition to any dividend or
distribution declared by the directors of the Corporation in respect
of Class A Voting Shares, holders of Class A Voting Shares shall be
entitled to receive a dividend or distribution, whether cash,
non-cash or some combination thereof, equal (on a per share basis)
to any dividend or distribution declared by the directors of the
Corporation in respect of the Class B Multiple Voting Shares and/or
the non-voting common shares. Dividends and distributions on Class
A Voting Shares
- 2 -
shall be payable on the date fixed for payment of the dividend or
distribution in respect of Class A Voting Shares or, if applicable,
on the date fixed for payment of any dividend or distribution in
respect of Class B Multiple Voting Shares and/or non-voting common
shares.
(d) Subdivision, Consolidation, Reclassification or other Change. No
subdivision, consolidation or reclassification of, or other change
to, the Class A Voting Shares shall be carried out, either directly
or indirectly unless, at the same time, the Class B Multiple Voting
Shares and non-voting common shares are subdivided, consolidated,
reclassified or changed in the same manner and on the same basis.
(e) Equal Status. Except as expressly provided in Section 3(II) and (IV)
below, Class A Voting Shares, Class B Multiple Voting Shares and
non-voting common shares shall have the same rights and privileges
and shall rank equally, share ratably and be equal in all respects
as to all matters.
II. THE CLASS B MULTIPLE VOTING SHARES SHALL HAVE ATTACHED THERETO THE
FOLLOWING RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting. Each Class B multiple voting share shall entitle the holder
thereof to ten (10) votes at all meetings of the shareholders of the
Corporation (except meetings at which only holders of another
specified class of shares are entitled to vote pursuant to the
provisions hereof or pursuant to the provisions of the Act).
(b) Ranking on Liquidation. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary,
or other distribution of assets of the Corporation among
shareholders for the purpose of winding up its affairs, subject to
the rights, privileges, restrictions and conditions attaching to any
other class of shares ranking prior to the Class B Multiple Voting
Shares, Class A Voting Shares or non-voting common shares, the
holders of the Class B Multiple Voting Shares, Class A Voting Shares
and non-voting common shares shall be entitled to receive the
remaining property of the Corporation. The holders of the Class B
Multiple Voting Shares, Class A Voting Shares and non-voting common
shares shall rank equally with respect to the distribution of assets
in the event of the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among shareholders for
the purpose of winding up its affairs.
(c) Dividends and Distributions. In addition to any dividend or
distribution declared by the directors in respect of Class B
Multiple Voting Shares, holders of Class B Multiple Voting Shares
shall be entitled to receive a dividend or distribution, whether
cash, non-cash or some combination thereof, equal (on a per share
basis) to any dividend or distribution declared by the directors of
the Corporation in respect of Class A Voting Shares and/or
non-voting common shares. Dividends and distributions on Class B
Multiple Voting Shares shall be payable on the dated fixed for
payment of the dividend or distribution in respect of Class B
Multiple Voting Shares or, if applicable, on the date fixed for
payment
- 3 -
of a dividend or distribution in respect of Class A Voting Shares
and/or non-voting common shares.
(d) Conversion by Holder into Class A Voting Shares. Each Class B
multiple voting share may at any time and from time to time, at the
option of the holder, be converted into one (1) fully paid and
non-assessable Class A voting share. Such conversion right shall be
exercised as follows:
(i) the holder of Class B Multiple Voting Shares shall send to the
transfer agent of the Corporation a written notice,
accompanied by a certificate or certificates representing the
Class B Multiple Voting Shares in respect of which the holder
desires to exercise such conversion right. Such notice shall
be signed by the holder of the Class B Multiple Voting Shares
in respect of which such right is being exercised, or by the
duly authorized representative thereof, and shall specify the
number of Class B Multiple Voting Shares which such holder
desires to have converted. The holder shall also pay any
governmental or other tax, if any, imposed in respect of such
conversion. The conversion of the Class B Multiple Voting
Shares into Class A Voting Shares shall take effect upon
receipt by the transfer agent of the Corporation of the
conversion notice accompanied by the certificate or
certificates representing the Class B Multiple Voting Shares
in respect of which the holder desires to exercise such
conversion right.
(ii) upon receipt of such notice and certificate or certificates by
the transfer agent of the Corporation, the Corporation shall,
effective as of the date of such receipt, issue or cause to be
issued a certificate or certificates representing Class A
Voting Shares into which Class B Multiple Voting Shares are
being converted. If less than all of the Class B Multiple
Voting Shares represented by any certificate are to be
converted, the holder shall be entitled to receive a new
certificate representing the Class B Multiple Voting Shares
represented by the original certificate which are not to be
converted.
(e) Subdivision, Consolidation, Reclassification or other Change. No
subdivision, consolidation or reclassification of, or other change
to, the Class B Multiple Voting Shares shall be carried out unless,
at the same time, the Class A Voting Shares and the non-voting
common shares are subdivided, consolidated, reclassified or changed
in the same manner and on the same basis.
(f) Equal Status. Except as expressly provided in Section 3(I) above and
in Section 3(IV) below, Class B Multiple Voting Shares, Class A
Voting Shares and non-voting common shares shall have the same
rights and privileges and shall rank equally, share ratably and be
equal in all respects as to all matters.
- 4 -
III. THE CLASS C SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING RIGHTS,
PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting. Each Class C Share shall entitle the holder thereof to one
hundred (100) votes at all meetings of the shareholders of the
Corporation (except meetings at which only holders of a specified
class of shares are entitled to vote separately pursuant to the
provisions hereof or pursuant to the provisions of the Act).
(b) Dividends. The holders of the Class C Shares shall not be entitled
to receive any dividends.
(c) Liquidation, Dissolution or Winding up. In the event of the
liquidation, dissolution or winding up of the Corporation, the
holders of the Class C Shares shall not be entitled to participate
in the property and assets of the Corporation.
(d) Redemption by the Corporation. The Class C Shares may be redeemed by
the Corporation, at any time and from time to time. The redemption
price payable by the Corporation for each Class C Share will be
equal to the consideration received by the Corporation for the
issuance of such Class C Share.
IV. THE NON-VOTING COMMON SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting. Subject to the provisions of the Act or as otherwise
expressly provided herein, the holders of the non-voting common
shares shall not be entitled to receive notice of, nor to attend or
vote at, meetings of the shareholders of the Corporation.
(b) Conversion. Except as provided for herein below, the non-voting
common shares shall not have any conversion rights attached thereto.
In the event that the Corporation becomes a reporting issuer, as
such term is defined in any securities legislation or securities
regulation applicable to the Corporation, then each non-voting
common share will become convertible at the option of the holder
into one Class A Voting Share of the Corporation subject to any
adjustments hereunder.
If the Corporation shall declare a dividend or make a distribution
on its outstanding Class A Voting Shares or Class B Multiple Voting
Shares, in either case payable in Class A Voting Shares or Class B
Multiple Voting Shares other than pursuant to any dividend
reinvestment and stock purchase plan, or shall divide its
outstanding Class A Voting Shares or Class B Multiple Voting Shares
into a greater number of shares, or shall consolidate its
outstanding Class A Voting Shares or Class B Multiple Voting Shares
into a lesser number of shares (any such event being herein called a
"COMMON SHARE REORGANIZATION"), the conversion basis then in effect
shall be adjusted immediately after the effective date or record
date at which the holders of Class A Voting Shares and Class B
Multiple Voting Shares are determined for purposes of the Common
Share Reorganization by multiplying the conversion basis in effect
immediately prior
- 5 -
to such effective date or record date by a fraction, the numerator
of which shall be the number of Class A Voting Shares and Class B
Multiple Voting Shares outstanding immediately after giving effect
to such Common Share Reorganization and the denominator of which
shall be the number of Class A Voting Shares and Class B Multiple
Voting Shares outstanding on such effective date or record date
before giving effect to such Common Share Reorganization.
If and whenever at any time there is a capital reorganization of the
Corporation not covered by the above sub-paragraph or a
consolidation or merger or amalgamation of the Corporation with or
into any other company or body corporate, including by way of a sale
whereby all or substantially all of the Corporations undertaking and
assets would become the property of any other company or body
corporate (any of which is herein called a "CAPITAL
REORGANIZATION"), any holder of non-voting common shares who has not
exercised his right of conversion prior to the effective date of
such capital reorganization shall be entitled to receive and shall
accept, upon the exercise of such right at any time on the effective
date or thereafter, in lieu of the number of Class A Voting Shares
to which he was theretofore entitled upon conversion, the aggregate
number of shares or other securities or property of the Corporation
or of the company or body corporate resulting from or acquiring
under the capital reorganization that such holder would have been
entitled to receive as a result of such Capital Reorganization if,
on the effective date thereof, he had been the registered holder of
the number of Class A Voting Shares to which he was theretofore
entitled upon conversion; provided that no such capital
reorganization shall be carried into effect unless, in the opinion
of the directors, all necessary steps shall have been taken to
ensure that the holders of the non-voting common shares shall
thereafter be entitled to receive such number of shares or other
securities or property of the Corporation or of the company or body
corporate resulting from the consolidation, merger or amalgamation
or to which such sale may be made, as the case may be, subject to
adjustment thereafter in accordance with the provisions similar, as
nearly as may be, to those contained in this paragraph.
(c) Ranking on Liquidation. In the event of the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary,
or other distribution of assets of the Corporation among
shareholders for the purpose of winding up its affairs, subject to
the rights, privileges, restrictions and conditions attaching to any
other class of shares ranking prior to the non-voting common shares,
Class A Voting Shares or Class B Multiple Voting Shares, the holders
of the non-voting common shares, the holders of the Class A Voting
Shares and the holders of the Class B Multiple Voting Shares shall
be entitled to receive the remaining property of the Corporation.
The holders of the non-voting common shares, the holders of the
Class A Voting Shares and the holders of the Class B Multiple Voting
Shares shall rank equally with respect to the distribution of assets
in the event of the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or any other
distribution of the assets of the Corporation among shareholders for
the purpose of winding up its affairs.
- 6 -
(d) Dividends and Distributions. In addition to any dividend or
distribution declared by the directors of the Corporation in respect
of non-voting common shares, holders of non-voting common shares
shall be entitled to receive a dividend or distribution, whether
cash, non-cash or some combination thereof equal (on a per-share
basis) to any dividend or distribution declared by the directors of
the Corporation in respect of the Class A Voting Shares and/or the
Class B Multiple Voting Shares. Dividends and distributions on
non-voting common shares shall be payable on the date fixed for
payment of the dividend or distribution in respect of the non-voting
common shares or, if applicable, on the date fixed for payment of
any dividend or distribution in respect of Class A Voting Shares
and/or Class B Multiple Voting Shares.
V. THE SERIES A PREFERRED SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING
RIGHTS, PRIVILEGES, PREFERENCES, RESTRICTIONS AND CONDITIONS:
(a) Dividends. The holders of Series A Preferred Shares shall be
entitled to share in any dividends declared and paid upon or set
aside for Class A Voting Shares, Class B Multiple Voting Shares or
non-voting common shares of the Corporation, pro rata in accordance
with the number of Class A Voting Shares into which such Series A
Preferred Shares are then convertible pursuant to Section 3(V)(c)
below.
(b) Liquidation Preference.
(i) In the event of the liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, or other
distribution of assets of the Corporation among shareholders
for the purpose of winding-up its affairs, subject to the
rights, privileges, preferences, restrictions and conditions
attaching to any other class of shares ranking prior to the
Series A Preferred Shares, the holders of Series A Preferred
Shares shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to
the holders of Class A Voting Shares, Class B Multiple Voting
Shares of non-voting common shares by reason of their
ownership thereof, an amount per share equal to the sum of
(the "LIQUIDATION PREFERENCE") (A) US$4.9396 for each
outstanding Series A Preferred Share (the "ORIGINAL SERIES A
ISSUE PRICE") and (B) the US dollar equivalent of an amount
equal to any declared but unpaid dividends that the holder of
Series A Preferred Shares is entitled to receive. If upon the
occurrence of any such event, the assets and funds available
for distribution among the holders of the Series A Preferred
Shares shall be insufficient to permit the payment to such
holders of the Liquidation Preference, then, subject to the
rights, privileges, restrictions and conditions attaching to
any other class of shares ranking prior to the Series A
Preferred Shares, the entire assets and funds of the
Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A
Preferred Shares in proportion to the amount of such shares
owned by each such holder.
- 7 -
(ii) Upon the completion of the distribution required by
subparagraph (i) of this Section 3(V)(b), subject to the
rights, privileges, preferences, restrictions and conditions
attaching to any other class of shares ranking prior to the
Series A Preferred Shares, Class A Voting Shares, Class B
Multiple Voting Shares or non-voting common shares, the
remaining assets of the Corporation available for distribution
to shareholders shall be distributed among the holders of
Series A Preferred Shares, Class A Voting Shares, Class B
Multiple Voting Shares and non-voting common shares pro rata
based on the number of Class A Voting Shares, Class B Multiple
Voting Shares and non-voting common shares held by each and
assuming conversion of all such Series A Preferred Shares in
accordance with Section 3(V)(c) below.
(iii) A holder of Series A Preferred Shares shall be entitled to
receive, as its option, the liquidation Preference described
in Section 3(V)(b)(i) in the event of:
(A) a merger, amalgamation, consolidation or combination of
the Corporation or a purchase or exchange of voting
securities of the Corporation by any person or entity,
other than
(1) a merger, amalgamation, consolidation,
combination, share purchase or share exchange that
would result in the voting securities of the
Corporation outstanding immediately prior thereto
continuing to be held by the same persons or
entities in substantially the same proportions and
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) (aa) more than
fifty percent (50%) of the combined voting power
of the Corporation or such surviving entity
outstanding immediately after such merger,
amalgamation, consolidation, combination, share
purchase or share exchange if the Class A Voting
Shares of the Corporation or such surviving entity
outstanding immediately after such merger,
amalgamation, consolidation, combination, share
purchase or share exchange are not publicly traded
and listed on a U.S. stock exchange (or a Canadian
stock exchange) or quoted on the Association of
the Securities Dealers the National Association
Automated Quotation System ("NASDAQ") for the
National Market System ("NMS") or Small Cap (the
"NASDAQ-NMS or SMALL CAP") or (bb) not less than
twenty-five percent (25%) of the combined voting
power of the Corporation or such surviving entity
outstanding immediately after such merger,
amalgamation, consolidation, combination, share
purchase or share exchange if the Class A Voting
Shares of
- 8 -
the Corporation or such surviving entity
outstanding immediately after such merger,
amalgamation, consolidation, combination, share
purchase or share exchange are publicly traded and
listed on a U.S. stock exchange (or a Canadian
stock exchange) or quoted on the NASDAQ-NMS or
Small Cap; or
(2) a merger, amalgamation, consolidation,
combination, share purchase or share exchange
effected to implement a recapitalization of the
Corporation (or similar transaction) in which a
person who was the beneficial owner of more than
fifty percent (50%) of the Corporation's voting
securities prior to the merger amalgamation,
consolidation, combination, share purchase or
share exchange retains or acquires, as the case
may be, beneficial ownership of (aa) more than
fifty percent (50%) of the combined voting power
of the Corporation's outstanding securities after
the merger, amalgamation, consolidation,
combination, share purchase or share exchange, if
immediately after such merger, amalgamation,
consolidation, combination, share purchase or
share exchange, the Corporation's Class A Voting
Shares are not publicly traded and listed on a
U.S. stock exchange (or a Canadian stock exchange)
or quoted on the NASDAQ-NMS or Small Cap or (bb)
twenty-five percent (25%) or more of the combined
voting power of the Corporation's outstanding
securities after such merger or combination, if
immediately after such merger or combination, the
Corporation's Class A Voting Shares are publicly
traded and listed on a U.S. stock exchange (or a
Canadian stock exchange) or quoted on the
NASDAQ-NMS or Small Cap; or
(B) the sale or other disposition (unless captured in (A)
above) by the Corporation of all or substantially all of
the Corporation's assets;
(C) the Corporation fails to pay when due principal and/or
interest on those certain Secured Convertible Notes (the
"NOTES") issued pursuant to that certain Securities
Purchase Agreement dated as of August 15, 2002 between
the Corporation and the Investors named therein, and
such failure has not been waived by the holders of the
Notes or cured as provided in the Notes and such Notes
have not thereafter been converted as provided in such
Notes;
(D) an order is issued or a resolution is adopted for the
purpose of winding-up the Corporation, or the
Corporation files a proposal or makes an assignment of
its property for the benefit of its
- 9 -
creditors, or if a petition in bankruptcy is filed
against the Corporation or any of its subsidiaries and
such petition is not dismissed within thirty (30) days
of the filing thereof, or a trustee is appointed for the
Corporation pursuant to the Bankruptcy and Insolvency
Act (Canada) or pursuant to any other legislation
relating to insolvent persons, or if an application is
filed pursuant to the Companies' Creditors Arrangement
Act (Canada), or a seizure is made (unless the seizure
is validly contested by the Corporation) or a judgment
is executed against all or a substantial part of the
Corporation's property;
(E) the Corporation has ceased to operate within the
ordinary course of business;
(F) the Corporation fails to carry out or comply with any
other undertaking or any other condition set forth
herein or there is an Event of Default under and as
defined in the Notes; or
(G) the Corporation fails to pay when due an amount equal to
$500,000 under the Diamond Conditional Sale Agreement or
the Diamond Supply Agreement and such failure shall
continue for a period of thirty (30) days after the
Corporation has received written notice to that effect
from the Holder; or
(H) subject to subsection (G) above, the New York Diamond
Dealers Club (or any successor thereto) determines that
there has been a material breach by the Corporation
under the Diamond Supply Agreement.
(iv) In the event the requirements of Section 3(V)(b) are not
complied with this Corporation shall forthwith either:
(A) cause the closing of the applicable transaction to be
postponed until such time as the requirements of this
Section 3(V)(b) have been complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series
A Preferred Shares shall revert to and be the same as
such rights, preferences and privileges existing
immediately prior to the date of the first notice
referred to in subsection 3(V)(b)(v) hereof.
(v) The Corporation shall give each holder of record of Series A
Preferred Shares written notice of such impending transaction
not later than twenty (20) days prior to the shareholders'
meeting called to approve such transaction, or twenty (20)
days prior to the closing of such transaction, whichever is
earlier, and shall also notify such holders in writing of the
final approval of such transaction. The first of such notices
shall describe
- 10 -
the material terms and conditions of the impending transaction
and the provisions of this Section 3(V)(b) and the Corporation
shall thereafter give such holders prompt notice of any
material changes thereto. The transaction shall in no event
take place sooner than twenty (20) days after the Corporation
has given the first notice provided for herein or sooner than
ten (10) days after the Corporation has given notice of any
material changes provided for herein; provided, however, that
such periods may be shortened upon the written consent of the
holders of Series A Preferred Shares that are entitled to such
notice rights or similar notice rights and that represent at
least a majority of the voting power attaching to all such
shares then outstanding.
(c) Conversion.
The Series A Preferred Shares shall have attached thereto the following
conversion rights (the "CONVERSION RIGHTS"):
(i) Right to Convert. Each Series A Preferred Share shall be
convertible, at the option of the holder thereof, at any time
after the date of issuance of such share, at the office of the
Corporation or any transfer agent for such shares, into such
number of fully paid and non-assessable Class A Voting Shares
as is determined by dividing the Original Series A Issue Price
by the Conversion Price applicable to such share, determined
as hereafter provided, in effect on the date the certificate
is surrendered for conversion. The Conversion Price per Series
A Preferred Share shall be the Original Series A Issue Price
multiplied by 0.988474; provided, however, that the Conversion
Price for the Series A Preferred Shares shall be subject to
adjustment as set forth in Section 3(V)(c)(iv).
(ii) Automatic Conversion. Each Series A Preferred Share shall
automatically be converted into Class A Voting Shares at the
Conversion Price at the time in effect for such Series A
Preferred Shares immediately upon the earlier of (i) the
Corporation's sale of its Class A Voting Shares in a bona fide
firm commitment underwritten public offering pursuant to a
registration statement filed with, and declared effective by,
the Securities and Exchange Commission under the United States
Securities Act of 1933, as amended (the "US SECURITIES ACT")
or under a prospectus filed with, and receipted by, the
applicable securities commissions or regulatory authorities in
Canada (the "CANADIAN PROSPECTUS"), raising aggregate net
proceeds to the Company of at least US$55,000,000 at a minimum
share price of US$4.94 per Class A Voting Shares (adjusted to
reflect subsequent stock dividends, stock splits or
recapitalization) and the Class A Voting Shares are listed on
a US stock exchange or a Canadian stock exchange or quoted on
a U.S. national automated securities quotation system or (ii)
the date specified by written consent or written agreement of
the holders of sixty-seven percent (67%) of the then
outstanding Series A Preferred Shares.
- 11 -
(iii) Mechanics of Conversion. Before any holder of Series A
Preferred Shares shall be entitled to convert the same into
Class A Voting Shares, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the
Series A Preferred Shares, and shall give written notice to
the Corporation at its principal corporate office, of the
election to convert the same and shall state therein the name
or names in which the certificate or certificates for Class A
Voting Shares are to be issued. The Corporation shall, as soon
as practicable thereafter, issue and deliver at such office to
such holder of Series A Preferred Shares, or to the nominee or
nominees of such holder, a certificate or certificates for the
number of Class A Voting Shares to which such holder shall be
entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the
date of such surrender of the Series A Preferred Shares to be
converted, and the person or persons entitled to receive the
Class A Voting Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of
such Class A Voting Shares as of such date. If the conversion
is in connection with an underwritten offering of securities
registered pursuant to the US Securities Act of 1933, as
amended or made pursuant to a Canadian Prospectus, the
conversion may, at the option of any holder tendering Series A
Preferred Shares for conversion, be conditioned upon the
closing with the underwriters of the sale of securities
pursuant to such offering, in which event the persons entitled
to receive the Class A Voting Shares upon conversion of the
Series A Preferred Shares shall not be deemed to have
converted such Series A Preferred Shares until immediately
prior to the closing of such sale of securities.
(iv) Conversion Price Adjustments of Preferred Shares for Certain
Dilutive Issuances and Combinations. The Conversion Price of
the Series A Preferred Shares shall be subject to adjustment
from time to time as follows:
(A) Stock Splits or Subdivisions. In the event the
Corporation should at any time or from time to time
after the date upon which any Series A Preferred Shares
were first issued, (the "PURCHASE DATE") fix a record
date for the effectuation of a split or subdivision of
the outstanding Class A Voting Shares or the
determination of holders of Class A Voting Shares
entitled to receive a dividend or other distribution
payable in additional Class A Voting Shares or other
securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly,
additional Class A Voting Shares (hereinafter referred
to as "CLASS A VOTING SHARES EQUIVALENTS") without
payment of any consideration by such holder for the
additional Class A Voting Shares or the Class A Voting
Shares Equivalents (including the additional Class A
Voting Shares issuable upon conversion or exercise
thereof), then,
- 12 -
as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is
fixed), the Conversion Price of the Series A Preferred
Shares shall be appropriately decreased so that the
number of Class A Voting Shares issuable on conversion
of each share of such series shall be increased in
proportion to such increase of the aggregate of Class A
Voting Shares outstanding and those issuable with
respect to such Class A Voting Shares Equivalents.
(B) Combinations. If the number of Class A Voting Shares
outstanding at any time after the Purchase Date is
decreased by a combination of the outstanding Class A
Voting Shares, then, following the record date of such
combination, the Conversion Price for the Series A
Preferred Shares shall be appropriately increased so
that the number of Class A Voting Shares issuable on
conversion of each Series A Preferred Shares shall be
decreased in proportion to such decrease in outstanding
shares.
(C) Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other
persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in
Section 3(V)(c)(iv)(A), then, in each such case for the
purpose of this Section 3(V)(c)(iv)(C), the holders of
the Series A Preferred Shares shall be entitled to a
proportionate share of any such distribution as though
they were the holders of the number of Class A Voting
Shares of the Corporation into which their Series A
Preferred Shares are convertible as of the record date
fixed for the determination of the holders of Class A
Voting Shares of the Corporation entitled to receive
such distribution.
(D) Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Class A Voting
Shares (other than a subdivision, combination or merger
or sale of assets transaction provided for elsewhere in
Section 3(V)(b) or Section 3(V)(c) hereof, provision
shall be made so that the holders of the Series A
Preferred Shares shall thereafter be entitled to receive
upon conversion of the Series A Preferred Shares the
number of shares or other securities or property of the
Corporation or otherwise, to which a holder of Class A
Voting Shares deliverable upon conversion would have
been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the
application of the provisions of this Section 3(V)(c)
with respect to the rights of the holders of the Series
A Preferred Shares after the recapitalization to the end
that the provisions of this Section 3(V)(c) (including
adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion
- 13 -
of the Series A Preferred Shares) shall be applicable
after that event as nearly equivalent as may be
practicable.
(E) No Impairment. The Corporation will not, by amendment of
its Articles or through any reorganization,
recapitalization, transfer of assets, consolidation
merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying
out of all the provisions, of this Section 3(V)(c) and
in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of
the holders of the Series A Preferred Shares against
impairment.
(F) No Fractional Shares and Certificate as to Adjustments.
(1) No fractional shares shall be issued upon the
conversion of any Series A Preferred Shares, and
the number of Class A Voting Shares to be issued
shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon
such conversion shall be determined on the basis
of the total number of Series A Preferred Shares
the holder is at the time converting into Class A
Voting Shares and the number of Class A Voting
Shares issuable upon such aggregate conversion.
(2) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A
Preferred Shares pursuant to this Section 3(V)(c),
the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in
accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred
Shares a certificate setting forth such adjustment
or readjustment and showing in detail the facts
upon which such adjustment or readjustment is
based. The Corporation shall, upon the written
request at any time of any holder of Series A
Preferred Shares, furnish or cause to be furnished
to such holder a like certificate setting forth
(aa) such adjustment and readjustment, (bb) the
Conversion Price for the Series A Preferred Shares
at the time in effect and (cc) the number of Class
A Voting Shares and the amount, if any, of other
property which at the time would be received upon
the conversion of Series A Preferred Shares.
(G) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class
of securities for
- 14 -
the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of any
class or any other securities or property, or to receive
any other right, the Corporation shall mail to each
holder of Series A Preferred Shares, at least twenty
(20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend,
distribution or right.
(H) Reservation of Class A Voting Shares Issuable Upon
Conversion. The Corporation shall at all times reserve
and keep available out of its authorized but unissued
Class A Voting Shares, solely for the purpose of
effecting the conversion of the Series A Preferred
Shares, such number of Class A Voting Shares as shall
from time to time be sufficient to effect the conversion
of all Series A Preferred Shares; and if at any time the
number of authorized but unissued Class A Voting Shares
shall not be sufficient to effect the conversion of all
then outstanding Series A Preferred Shares, in addition
to such other remedies as shall be available to the
holder of such Series A Preferred Shares, the
Corporation will take such corporate action as may, in
the opinion of its counsel, be necessary to increase its
authorized but unissued Class A Voting Shares to such
number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in
best efforts to obtain the requisite shareholder
approval of any necessary amendment to these Articles.
(I) Notices. Any notice required by the provisions of this
Section 3(V)(c) to be given to the holders of Series A
Preferred Shares shall in writing and shall be deemed
effectively given: (1) upon personal delivery to the
party to be notified, (2) when sent by confirmed
facsimile if sent during normal business hours of the
recipient, if not, then on the next business day, or (3)
one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with
written verification of receipt.
(d) Voting Rights. The holder of Series A Preferred Shares shall have
the right to one vote for each Class A Voting Shares into which such
Series A Preferred Shares could then be converted, and with respect
to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Class A
Voting Shares, and shall be entitled, notwithstanding any provision
hereof, to receive notice of and attend any shareholders' meeting in
accordance with the by-laws of this Corporation, and shall be
entitled to vote together with holders of Class A Voting Shares,
with respect to any question upon which holders of Class A Voting
Shares have the right to vote. Fractional
- 15 -
votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all
Class A Voting Shares into which Series A Preferred Shares held by
each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
(e) Protective Provisions. Subject to the rights, privileges,
restrictions and conditions attaching to any other class of shares
ranking prior to the Series A Preferred Shares, so long as any
Series A Preferred Shares are outstanding, the Corporation shall not
without first obtaining the approval (by vote or written consent, as
provided by law) of the holders not less than sixty-seven percent
(67%) of the then outstanding Series A Preferred Shares:
(i) alter or change the rights, preferences or privileges of the
Series A Preferred Shares;
(ii) amend or vary the Articles or By-Laws of the Corporation in a
manner that adversely affects the rights, preferences or
privileges of the Series A Preferred Shares;
(iii) re-classify any of the issued and outstanding share capital of
the Corporation; or
(iv) authorize or issue, or obligate itself to issue, any equity
security, (including any other security convertible into or
exercisable for any equity security) having a preference over,
the Series A Preferred Shares with respect to voting,
dividends or upon liquidation, dissolution or winding-up or
merger, amalgamation, consolidation, combination, share
purchase or share exchange as set forth in this Section 3 or
as otherwise provided by law.
(f) Status of Converted or Reacquired Stock. In the event any Series A
Preferred Shares shall be converted pursuant to Section 3(V)(c)
hereof or be reacquired by the Corporation, the shares so converted
or reacquired shall be cancelled and shall not be issuable by the
Corporation.
(g) Ratable Treatment. Except in connection with the conversion of the
Series A Preferred Shares at the election of the holder thereof in
accordance with Section 3(V)(c)(i), the Corporation shall treat the
holders of Series A Preferred Shares ratably in any and all matters.
EXHIBIT 3.2
CANADA BUSINESS
CORPORATIONS ACT
ARTICLES
1. Name of the Corporation
BIRKS & MAYORS INC.
2. The province or territory in Canada where the registered office is
situated
Province of Quebec
3. The classes and any maximum number of shares that the Corporation is
authorized to issue
The attached Schedule 1 is forming part hereof.
4. Restrictions, if any, on share transfers
None, except as otherwise set forth in Schedule 1.
5. Number (or minimum and maximum number) of directors
A minimum of three (3) directors and a maximum of fifteen (15) directors.
6. Restrictions, if any, on the business the Corporation may carry on
None.
7. Other provisions, if any
(a) Meetings of shareholders of the Corporation may be held at the
places in Canada as set out in the by-laws of the Corporation or in
the greater metropolitan area of any city having a population of
more than 80,000 inhabitants in the United States, in any
member-country of the European Union or in Asia.
(b) A director's term of office shall be from the date of the meeting at
which he is elected or appointed until the first annual meeting next
following his election or nomination or, if an election of the board
of directors is not held at such meeting or if such meeting does not
occur, at the date on which his successor is elected or appointed,
or earlier if he dies or resigns, is removed or disqualified, or if
his term of office ends for any other reason.
(c) The directors may appoint one or more directors, who shall hold
office for a term expiring no later than the close of the next
annual meeting of shareholders, but the total number of directors so
appointed may not exceed one-third of the number of directors
elected at the previous annual meeting of shareholders.
1
SCHEDULE 1
3. THE CLASSES AND MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS
AUTHORIZED TO ISSUE:
Unlimited number of Class A Voting Shares without nominal or par value;
Unlimited number of Class B Multiple Voting Shares without nominal or par
value; and
Unlimited number of Preferred Shares without nominal or par value,
issuable in series.
The Class A Voting Shares and the Class B Multiple Voting Shares are
sometimes referred to herein collectively as the "Common Shares". Any
capitalized term shall have the meaning assigned to such term in these
Articles. Any reference herein to the Act is a reference to the Canada
Business Corporations Act as it now exists and as it may be amended from
time to time and any reference herein to a section of the Act is a
reference to a section of the Act as such section is presently numbered or
as it may be renumbered from time to time.
I. THE CLASS A VOTING SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting. Each Class A Voting Share shall entitle the holder thereof
to one (1) vote at all meetings of the shareholders of the
Corporation (except meetings at which only holders of another
specified class of shares are entitled to vote pursuant to the
provisions hereof or pursuant to the provisions of the Act).
(b) Ranking on Liquidation. In the event of the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary,
or other distribution of assets of the Corporation among
shareholders for the purpose of winding-up its affairs, subject to
the rights, privileges, restrictions and conditions attaching to any
other class of shares ranking prior to the Class A Voting Shares or
the Class B Multiple Voting Shares, the holders of the Class A
Voting Shares and the holders of the Class B Multiple Voting Shares
shall be entitled to receive the remaining property of the
Corporation. The holders of the Class A Voting Shares and the
holders of the Class B Multiple Voting Shares shall rank equally
with respect to the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of
the Corporation among shareholders for the purpose of winding-up its
affairs.
(c) Dividends and Distributions. In addition to any dividend or
distribution declared by the directors of the Corporation in respect
of Class A Voting Shares, holders of Class A Voting Shares shall be
entitled to receive a dividend or distribution, whether cash,
non-cash or some combination thereof, equal (on a per share basis)
to any dividend or distribution declared by the directors of the
Corporation in respect of the Class B Multiple Voting Shares.
Dividends and distributions on Class A Voting Shares shall be
payable on the date fixed for payment of the dividend or
distribution in respect of Class A Voting Shares or, if applicable,
on the date fixed for payment of any dividend or distribution in
respect of Class B Multiple Voting Shares.
2
(d) Right of Participation in a Sale Transaction.
(i) No holder of Class B Multiple Voting Shares (a "Selling
Holder") shall sell, transfer or otherwise dispose of Class B
Multiple Voting Shares if, immediately following such sale,
transfer or disposition of Class B Multiple Voting Shares,
such Selling Holder and its Affiliates shall control less than
a majority of the total voting rights attached to the Common
Shares issued and outstanding on the date of such sale,
transfer or disposition (a "Sale Transaction"), unless all
other holders of Common Shares shall have the right (A) to
receive the same consideration (on a per share basis), whether
cash, non-cash or some combination thereof, as that to be
received by the Selling Holder pursuant to the Sale
Transaction and (B) to participate in such Sale Transaction on
the same terms as the Selling Holder in all other material
respects, including in respect of the conditions to such Sale
Transaction. Written notice of any Sale Transaction, which
notice shall specify the terms of such Sale Transaction and
the right of all holders of Common Shares to participate in
such Sale Transaction, shall be provided to the holders of
Common Shares by first class mail, at least twenty (20)
business days prior to the consummation of such Sale
Transaction.
(ii) Any Sale Transaction not in compliance with subsection 00
above shall be null and void and shall not be registered in
the books of the Corporation.
(iii) Notwithstanding the foregoing, none of the following shall
constitute a Sale Transaction: (A) any pledge, mortgage,
hypothecation, lien or similar encumbrance, whether by
possession or registration, of Class B Multiple Voting Shares
which creates a security interest in favor of another person
or entity, and (B) any sale, transfer or other disposition of
Class B Multiple Voting Shares to Affiliates, Associates or
shareholders of the transferor of such Class B Multiple Voting
Shares. For purposes of these Articles, an "Affiliate", when
used to indicate a relationship with any person, means a
person that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common
control with, such specified person. For purposes of these
Articles, an "Associate", when used to indicate a relationship
with any person, means (x) any trust or other estate in which
such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary
capacity and (y) a spouse or child of such person.
(e) Right of Participation in a Business Combination.
(iv) The Corporation shall not consummate a Business Combination
unless the holders of Class A Voting Shares shall have the
right (A) to receive the same consideration (on a per share
basis), whether cash, non-cash or some combination thereof, as
that to be received by the holders of Class B Multiple Voting
Shares in connection with such Business Combination and (B) to
participate in such Business Combination on the same terms as
the holders of Class B Multiple Voting Shares in all other
material respects, including in respect of the conditions to
such Business Combination.
3
(v) "Business Combination" as used herein shall mean, whether in
one or a series of related transactions:
(A) any merger, amalgamation, recapitalization or
consolidation involving the Corporation, other than a
merger, amalgamation, recapitalization, consolidation or
similar transaction with a wholly-owned subsidiary of
the Corporation or which is solely for the purpose of
continuance of the Corporation as a corporation in
another jurisdiction;
(B) any sale, lease, exchange, transfer or other disposition
involving 50% or more of the assets of the Corporation
and its subsidiaries, on a consolidated basis; or
(C) any agreement, contract or other arrangement having the
same purpose or effect as the transactions described in
(A) and (B) above.
(f) Transactions or Actions Requiring Special Approval.
(vi) In addition to any other approvals required under the Act or
these Articles, prior to consummating a Related Party
Transaction, the Corporation shall obtain (A) the consent of
the majority of a committee of independent directors of the
Corporation and (B) with respect to clauses (x) and (y) of the
definition of Related Party Transaction below, the affirmative
vote in favor of the approval of the Related Party Transaction
by holders of a majority of the Class A Voting Shares
(exclusive of Class A Voting Shares held by the Related Person
(and its Affiliates and Associates) which is or would be a
party to such Related Party Transaction) that cast a vote, in
person or by proxy (but not including any vote that is not
counted as either an affirmative or negative vote), at the
annual or special shareholders meeting at which such Related
Party Transaction is considered.
(vii) For purposes of these Articles, (A) "Related Party
Transaction" shall mean (x) consummation of a Business
Combination with a Related Person; (y) amending, repealing or
altering in anyway any provision of these Articles or the
By-laws of the Corporation, except for matters not having an
adverse effect on the holders of Class A Voting Shares; or (z)
the issuance, sale, exchange, transfer or other disposition
(in one transaction or a series of related transactions) by
the Corporation or any wholly-owned subsidiary of the
Corporation of any securities of the Corporation or of such
subsidiary to a Related Person (other than pursuant to: an
employee or director stock incentive plan or other
compensation arrangements approved by the Compensation
Committee of the Corporation; an offering made to all holders
of Class A Voting Shares; or a public offering); and (B)
"Related Person" shall mean any individual, corporation,
partnership, group, association or other person or entity
that, together with its Affiliates and Associates,
beneficially owns Class A Voting Shares and/or Class B
Multiple Voting Shares which, in the aggregate, equal twenty
percent (20%) or more of the total voting rights attached to
the Common Shares issued and outstanding at the time the
definitive agreement with respect to a Related Party
Transaction is executed.
4
(g) Subdivision, Consolidation, Reclassification or other Change. No
subdivision, consolidation or reclassification of, or other change
to, the Class A Voting Shares shall be carried out, either directly
or indirectly unless, at the same time, the Class B Multiple Voting
Shares are subdivided, consolidated, reclassified or changed in the
same manner and on the same basis.
(h) Equal Status. Except as otherwise expressly provided in these
Articles, Class A Voting Shares and Class B Multiple Voting Shares
shall have the same rights and privileges and shall rank equally,
share ratably and be equal in all respects as to all matters.
(i) Approval of Issuance. For so long as the outstanding Class B
Multiple Voting Shares represent a majority of the total voting
rights attached to the Common Shares, the Corporation shall not
issue any Class A Voting Shares, or any security convertible into or
exercisable or exchangeable for Class A Voting Shares, unless such
issuance, or the plan or agreement under which such security is to
be issued, has been approved by (i) a majority of the votes cast at
a meeting of the holders of Class B Multiple Voting Shares or (ii)
unanimous written consent of the holders of Class B Multiple Voting
Shares; provided, however, such approval shall not be required for
the issuance of:
(A) Class A Voting Shares, options or warrants under any plan or
agreement approved by the Corporation prior to June 1, 2005
(including without limitation, pursuant to the Agreement and
Plan of Merger and Reorganization, dated as of April 18, 2005
and as thereafter amended, among the Corporation, Birks Merger
Corporation and Mayor's Jewelers, Inc.); or
(B) Class A Voting Shares upon the exercise of an option or
warrant issued or to be issued under any plan or agreement
approved by the Corporation prior to June 1, 2005; or
(C) Class A Voting Shares upon the conversion of Class B Multiple
Voting Shares; or
(D) Class A Voting Shares upon the conversion, exercise or
exchange of any security, obligation or other instrument of
the Corporation for Class A Voting Shares if the issuance of
such security, obligation or other instrument of the
Corporation was previously approved pursuant to this paragraph
3.I.(i).
II. THE CLASS B MULTIPLE VOTING SHARES SHALL HAVE ATTACHED THERETO THE
FOLLOWING RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Voting. Each Class B Multiple Voting Share shall entitle the holder
thereof to ten (10) votes at all meetings of the shareholders of the
Corporation (except meetings at which only holders of another
specified class of shares are entitled to vote pursuant to the
provisions hereof or pursuant to the provisions of the Act).
(b) Ranking on Liquidation. In the event of the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary,
or other distribution of assets of the Corporation among
shareholders for the purpose of winding-up its affairs, subject to
the rights, privileges, restrictions and conditions attaching to any
other class of shares ranking prior to the Class B Multiple Voting
Shares or the Class A Voting Shares, the
5
holders of the Class B Multiple Voting Shares and the holders of the
Class A Voting Shares shall be entitled to receive the remaining
property of the Corporation. The holders of the Class B Multiple
Voting Shares and the holders of the Class A Voting Shares shall
rank equally with respect to the distribution of assets in the event
of the liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or any other distribution of the
assets of the Corporation among shareholders for the purpose of
winding-up its affairs.
(c) Dividends and Distributions. In addition to any dividend or
distribution declared by the directors in respect of Class B
Multiple Voting Shares, holders of Class B Multiple Voting Shares
shall be entitled to receive a dividend or distribution, whether
cash, non-cash or some combination thereof, equal (on a per share
basis) to any dividend or distribution declared by the directors of
the Corporation in respect of Class A Voting Shares. Dividends and
distributions on Class B Multiple Voting Shares shall be payable on
the dated fixed for payment of the dividend or distribution in
respect of Class B Multiple Voting Shares or, if applicable, on the
date fixed for payment of a dividend or distribution in respect of
Class A Voting Shares
(d) Conversion by Holder into Class A Voting Shares. Each Class B
Multiple Voting Share may at any time and from time to time, at the
option of the holder, be converted into one (1) fully paid and
non-assessable Class A Voting Share. Such conversion right shall be
exercised as follows:
(i) the holder of Class B Multiple Voting Shares shall send to the
transfer agent of the Corporation a written notice,
accompanied by a certificate or certificates representing the
Class B Multiple Voting Shares in respect of which the holder
desires to exercise such conversion right. Such notice shall
be signed by the holder of the Class B Multiple Voting Shares
in respect of which such right is being exercised, or by the
duly authorized representative thereof, and shall specify the
number of Class B Multiple Voting Shares which such holder
desires to have converted. The holder shall also pay any
governmental or other tax, if any, imposed in respect of such
conversion. The conversion of the Class B Multiple Voting
Shares into Class A Voting Shares shall take effect upon
receipt by the transfer agent of the Corporation of the
conversion notice accompanied by the certificate or
certificates representing the Class B Multiple Voting Shares
in respect of which the holder desires to exercise such
conversion right.
(ii) upon receipt of such notice and certificate or certificates by
the transfer agent of the Corporation, the Corporation shall,
effective as of the date of such receipt, issue or cause to be
issued a certificate or certificates representing Class A
Voting Shares into which Class B Multiple Voting Shares are
being converted. If less than all of the Class B Multiple
Voting Shares represented by any certificate are to be
converted, the holder shall be entitled to receive a new
certificate representing the Class B Multiple Voting Shares
represented by the original certificate which are not to be
converted.
(e) Subdivision, Consolidation, Reclassification or other Change. No
subdivision, consolidation or reclassification of, or other change
to, the Class B Multiple Voting Shares shall be carried out unless,
at the same time, the Class A Voting Shares are subdivided,
consolidated, reclassified or changed in the same manner and on the
same basis.
6
(f) Equal Status. Except as otherwise expressly provided in these
Articles, Class B Multiple Voting Shares and Class A Voting Shares
shall have the same rights and privileges and shall rank equally,
share ratably and be equal in all respects as to all matters.
(g) Approval of Issuance. For so long as the outstanding Class B
Multiple Voting Shares represent a majority of the total voting
rights attached to the Common Shares, the Corporation shall not
issue any Class B Multiple Voting Shares, or any security
convertible into or exercisable or exchangeable for Class B Multiple
Voting Shares, unless such issuance has been approved by (i) a
majority of the votes cast at a meeting of the holders of Class B
Multiple Voting Shares or (ii) unanimous written consent of the
holders of Class B Multiple Voting Shares; provided, however, such
approval shall not be required for the issuance of Class B Multiple
Voting Shares upon the conversion, exercise or exchange of any
security of the Corporation for Class B Multiple Voting Shares if
the issuance of such security of the Corporation was previously
approved pursuant to this paragraph 3.II.(g).
III. THE PREFERRED SHARES SHALL HAVE ATTACHED THERETO, AS A CLASS, THE
FOLLOWING RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS:
(a) Issuance of Preferred Shares, in Series. The directors of the
Corporation may, at any time and from time to time, issue Preferred
Shares in one (1) or more series, each series to consist of such
number of Preferred Shares as may, before issuance thereof, be
determined by the directors.
(b) Determination of Rights, Privileges, Restrictions, Conditions and
Limitations attaching to Series of Preferred Shares. The directors
of the Corporation may, subject to the following, from time to time
fix, before issuance, the designation, rights, privileges,
restrictions, conditions and limitations to attach to the Preferred
Shares of each series including, without limiting the generality of
the foregoing,
(i) the rate, amount or method of calculation of preferential
dividends of the Preferred Shares of such series, if any,
whether cumulative or non-cumulative or partially cumulative,
and whether such rate, amount or method of calculation shall
be subject to change or adjustment in the future, the currency
or currencies of payment, the date or dates and place or
places of payment thereof and the date or dates from which
such preferential dividends shall accrue; provided, that, the
dividends payable with respect to any series of Preferred
Shares, whether cumulative or non-cumulative or partially
cumulative, shall not exceed five (5) percent of the
liquidation preference of such series of Preferred Shares;
(ii) the redemption price and terms and conditions of redemption,
if any, of the Preferred Shares of such series; provided,
that, without the approval by a majority of the votes cast at
a meeting of shareholders of the Company duly called, the
redemption price shall not exceed the liquidation preference
of such shares;
(iii) the rights of retraction, if any, vested in the holders of
Preferred Shares of such series, and the prices and the other
terms and conditions of any rights of retraction, and whether
any additional rights of retraction may be vested in such
holders in the future; provided, that, without the approval by
a majority of the
7
votes cast at a meeting of shareholders of the Company duly
called, the retraction price shall not exceed the liquidation
preference of such shares;
(iv) the voting rights, if any, of the Preferred Shares of such
series; provided, that, the approval by a majority of the
votes cast at a meeting of shareholders of the Corporation
duly called shall be required for the issuance of any series
of Preferred Shares with voting rights;
(v) the conversion rights and terms and conditions of conversion,
if any, of the Preferred Shares of such series; provided,
that, the approval by a majority of the votes cast at a
meeting of shareholders of the Company duly called shall be
required for the issuance of any series of Preferred Shares
which are convertible into securities with voting rights;
(vi) any sinking fund, purchase fund or other provisions attaching
to the Preferred Shares of such series; and
(vii) any other relative rights, preferences and limitations of the
Preferred Shares of such series,
the whole subject to the issuance of a certificate of amendment in
respect of articles of amendment in the prescribed form to designate
a series of Preferred Shares.
(c) Cumulative Dividends or Return of Capital not Paid in Full. Pursuant
to section 27(2) of the Act, when any cumulative dividends or
amounts payable on a return of capital in respect of a series of
Preferred Shares are not paid in full, the Preferred Shares of all
series shall participate ratably in respect of such dividends
including accumulations, if any, in accordance with the sums which
would be payable on the Preferred Shares if all such dividends were
declared and paid in full, and on any return of capital in
accordance with the sums which would be payable on such return of
capital if all sums so payable were paid in full.
(d) Payment of Dividends and Other Preferences. The Preferred Shares
shall be entitled to preference over the Class A Voting Shares, the
Class B Multiple Voting Shares and any other shares of the
Corporation ranking junior to the Preferred Shares with respect to
the payment of dividends, and may also be given such other
preferences over the Class A Voting Shares, the Class B Multiple
Voting Shares and any other shares of the Corporation ranking junior
to the Preferred Shares, as may be fixed by the directors of the
Corporation, as to the respective series authorized to be issued.
(e) Procedure for Payment of Dividends. No dividends shall at any time
be declared or paid or set apart for payment on any shares of the
Corporation ranking junior to the Preferred Shares, unless all
dividends up to and including the dividends payable for the last
completed period for which such dividends shall be payable on each
series of Preferred Shares then issued and outstanding shall have
been declared and paid or set apart for payment at the date of such
declaration or payment or setting apart for payment on such shares
of the Corporation ranking junior to the Preferred Shares, nor shall
the Corporation call for redemption or redeem or purchase for
cancellation or reduce or otherwise pay off any of the Preferred
Shares (less than the total amount then outstanding) or any shares
of the Corporation ranking junior to the Preferred Shares, unless
all dividends up to and including the dividend payable for the last
completed
8
period for which such dividends shall be payable on each series of
the Preferred Shares then issued and outstanding shall have been
declared and paid or set apart for payment at the date of such call
for redemption, purchase, reduction or other payment.
(f) Ranking for Payment of Dividends and Liquidation, Dissolution or
Winding-up. The Preferred Shares of each series shall rank on a
parity with the Preferred Shares of every other series with respect
to priority in payment of dividends and in the distribution of
assets in the event of liquidation, dissolution or winding-up of the
Corporation whether voluntary of involuntary.
(g) Liquidation, Dissolution or Winding-up. In the event of the
liquidation, dissolution or winding-up of the Corporation or other
distribution of assets of the Corporation among shareholders for the
purpose of winding-up its affairs, the holders of the Preferred
Shares shall, before any amount shall be paid to or any property or
assets of the Corporation distributed among the holders of the Class
A Voting Shares, the Class B Multiple Voting Shares or any other
shares of the Corporation ranking junior to the Preferred Shares, be
entitled to receive:
(i) an amount equal to the consideration received by the
Corporation upon the issuance of such shares together with, in
the case of cumulative Preferred Shares, all unpaid cumulative
dividends (which for such purpose shall be calculated as if
such cumulative dividends were accruing from day to day for
the period from the expiration of the last period for which
cumulative dividends have been paid-up to and including the
date of distribution) and, in the case of non-cumulative
Preferred Shares, all declared and unpaid non-cumulative
dividends; and
(ii) if such liquidation, dissolution, winding-up or distribution
shall be voluntary, an additional amount equal to the premium,
if any, which would have been payable on the redemption of the
said Preferred Shares respectively if they had been called for
redemption by the Corporation on the date of distribution and,
if said Preferred Shares could not be redeemed on such date,
then an additional amount equal to the greatest premium, if
any, which would have been payable on the redemption of said
Preferred Shares respectively.
(h) Purchase by the Corporation. The Preferred Shares of any series may
be purchased for cancellation or made subject to redemption by the
Corporation at such times and at such prices and upon such other
terms and conditions as may be specified in the rights, privileges,
restrictions and conditions attaching to the Preferred Shares of
such series as set forth in the articles of amendment relating to
such series.
(i) Amendments. The provisions of this section III may be deleted or
varied in whole or in part by a certificate of amendment, but only
with the prior approval of the holders of the Preferred Shares,
given as hereinafter specified, in addition to any other approval
required by the Act (or any other statutory provision of the like or
similar effect, from time to time in force). The approval of the
holders of the Preferred Shares with respect to any and all matters
hereinbefore referred to, may be given by at least two-thirds (2/3)
of the votes cast at a meeting of the holders of the Preferred
Shares duly called for that purpose and held upon at least
twenty-one (21) days notice at which the holders of a majority of
the outstanding Preferred Shares are present or represented by
proxy. If at any such meeting the holders of a majority of the
outstanding Preferred Shares are not present or represented by proxy
within thirty (30) minutes after the time appointed for
9
such meeting, then the meeting shall be adjourned to such date being
not less than thirty (30) days later and to such time and place as
may be determined by the chairman of the meeting and not less than
twenty-one (21) days notice shall be given of such adjourned meeting
but it shall not be necessary in such notice to specify the purpose
for which the meeting was originally called. At such adjourned
meeting the holders of Preferred Shares, present or represented by
proxy, may transact the business for which the meeting was
originally called and a resolution passed thereat by not less than
two-thirds (2/3) of the votes cast at such adjourned meeting, shall
constitute the authorization of the holders of the Preferred Shares
referred to above. The formalities to be observed in respect of the
giving of notice of any such meeting or adjourned meeting and the
conduct thereof shall be those from time to time prescribed by the
by-laws of the Corporation with respect to meetings of shareholders.
On every poll taken at every such meeting or adjourned meeting,
every holder of Preferred Shares shall be entitled to one (1) vote
in respect of each Preferred Share held.
10
.
.
.
Exhibit 3.3
HENRY BIRKS ET FILS INC./HENRY BIRKS & SONS INC.
BY-LAW 1
ARTICLE PAGE
DEFINITIONS 1 1
Act 1 1
Articles 1 1
By-law 1 1
Unanimous shareholder agreement 1 1
REGISTERED OFFICE 2 1
CORPORATE SEAL 3 2
DIRECTORS 2
Number and Powers 4
Vacancies 5 2
Term of Office 6 2
Vacation of Office 7 2
Election 8 3
MEETINGS OF DIRECTORS 3
Place of Meeting 9 3
Notice 9 3
Waiver of Notice 9 3
Telephone Participation 9 4
Adjournment 10 4
Quorum and Voting 11 4
RESOLUTION IN LIEU OF MEETING 12 4
REMUNERATION OF DIRECTORS 13 4
SUBMISSION OF CONTRACTS OR TRANSACTION TO SHAREHOLDERS FOR APPROVAL 14 5
INDEMNITIES TO DIRECTORS AND OTHERS 15 5
OFFICERS 5
Appointment of Officers 16 5
Remuneration ad Removal of Officers 17 6
Duties of Officers may be Delegated 18 6
Chairman of the Board 19 6
|
ARTICLE PAGE
President 20 6
Vice-President 21 6
Secretary 22 6
Treasurer 23 7
Assistant Secretary and Assistant Treasurer 24 7
MANAGING DIRECTOR 25 7
COMMITTEES 26 8
SHAREHOLDERS' MEETINGS 8
Annual Meeting 27 8
Special Meetings 28 8
Place of Meetings 29 8
Notice 30 8
Omission of Notice 31 9
Record Date 32 9
Votes 33 9
Proxies 34 10
Adjournment 35 12
Quorum 36 12
Resolution in lieu of meeting 37 12
SECURITIES 13
Certificates 38 13
Registrar and Transfer Agent 39 13
Surrender of Share Certificates 40 13
Defaced, Destroyed, Stolen or Lost Certificates 41 13
DIVIDENDS 42 14
NOTICE 14
Shares registered in more than one name 43 14
Persons becoming entitled by operation of law 44 14
Deceased Shareholder 45 14
Signatures to Notices 46 14
Computation of Time 47 14
Proof of Service 48 14
CHEQUES, DRAFTS, NOTES ETC. 49 15
CUSTODY OF SECURITES 50 15
EXECUTION OF CONTRACTS, ETC. 51 15
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DECLARATIONS 52 16
FISCAL YEAR 53 17
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DEFINITIONS
1. In this by-law and all other by-laws of the Corporation, unless the context
otherwise specifies or requires:
(a) "ACT" means the Canada Business Corporations Act, R.S.C.
1985, c. C-44, and any statute that may be substituted
therefor, as from time to time amended;
(b) "ARTICLES" means the articles of the Corporation, as from time
to time amended or restated;
(c) "BY-LAW" means this by-law and all other by-laws of the
Corporation form time to time in force and effect;
(d) "UNANIMOUS SHAREHOLDERS AGREEMENT" means an agreement as
described in subsection 146(2) of the Act made by the
shareholders of the Corporation;
(e) words importing the singular number only shall include the
plural and vice versa; words importing the masculine gender
shall include the feminine and neuter genders and vice versa;
words importing persons shall include bodies corporate,
corporations, companies, partnerships, syndicates, trusts and
any number or aggregate of individuals;
(f) the headings used in the by-laws are inserted for reference
purposes only and are not to be considered or taken into
account in construing the terms or provisions thereof or to be
deemed in any way to clarify, modify or explain the effect of
any such terms or provisions; and
(g) all terms contained in the by-laws and which are defined in
the Act shall have the meanings given to such terms in the
Act.
REGISTERED OFFICE
2. The Corporation may from time to time (i) by resolution of the board of
directors change the location of the address of the registered office of the
Corporation within the place specified in the articles and (ii) by articles of
amendment change the place in which its registered office is situated to another
place within Canada.
1
CORPORATE SEAL
3. The Corporation may have one or more corporate seals which shall be such as
the board of directors may be resolution from time to time adopt and change.
DIRECTORS
4. Number and Powers. There shall be a board of directors consisting of such
fixed number, or minimum and maximum number of directors as may be set out in
the articles. If any of the issued securities of the Corporation are or were
part of a distribution to the public and remain outstanding and are held by more
than one person, the Corporation shall not have fewer than three (3) directors,
at least two (2) of whom are not officers or employees of the Corporation or its
affiliates.
5. Vacancies. If the number of directors is increased, the resulting vacancies
shall be filled at a meeting of shareholders duly called for that purpose.
Notwithstanding the provisions of this by-law and subject to the provisions of
the Act, if a vacancy should otherwise occur in the board, the remaining
directors, if constituting a quorum, may appoint a qualified person to fill the
vacancy for the remainder of the term. In the absence of a quorum, the remaining
directors shall forthwith call a meeting of shareholders to fill the vacancy
pursuant to subsection 111(2) of the Act. Where a vacancy or vacancies exist in
the board, the remaining directors may exercise all of the powers of the board
so long as a quorum remains in office.
6. Term of Office. A director's term of office shall be from the meeting at
which he is elected or appointed until the annual meeting next following or
until his successor is elected or appointed, or until, if earlier, he dies or
resigns, or is removed or disqualified pursuant to the provisions of the Act.
7. Vacation of Office. The office of a director shall ipso facto be vacated if:
(a) he dies;
(b) by notice in writing to the Corporation he resigns his office
and such resignation, if not effective immediately, becomes
effective in accordance with its terms;
(c) he is removed from office in accordance with section 109 of
the Act; or
(d) he ceases to be qualified to be a director.
8. Election. Directors shall be elected by the shareholders by ordinary
resolution in a general meeting on show of hands unless a poll is demanded and
if a poll is demanded such election shall be by ballot.
2
A retiring director shall retain office until the adjournment or
termination of the meeting at which his successor is elected unless such meeting
was called for the purpose of removing him from office as a director in which
case the director so removed shall vacate office forthwith upon the passing of
the resolution for his removal.
MEETINGS OF DIRECTORS
9. Place of Meeting. Subject to the articles, meetings of directors may be held
at any place within or outside Canada as the directors may from time to time
determine or the person convening the meeting may give notice. A meeting of the
board of directors may be convened by the chairman of the board, if any, the
president if any, or any two directors at any time. The secretary, if any, shall
upon direction of any of the foregoing convene a meeting of the board of
directors.
Notice. Notice of the time and place for the holding of any such meeting
shall be delivered, mailed, faxed, telegraphed, cabled or telexed to each
director at his latest address as shown on the records of the Corporation not
less than two (2) days or twelve (12) days if mailed (exclusive of the day on
which the notice is delivered, mailed, faxed, telegraphed, cabled or telexed but
inclusive of the day for which notice is given) before the date of the meeting;
provided that meetings of the board of directors may be held at any time without
notice if all the directors have waived notice.
For the first meeting of the board of directors to be held immediately
following the election of directors at an annual or special meeting of the
shareholders, no notice of such meeting need be given to the newly elected or
appointed director or directors in order for the meeting to be duly constituted,
provided a quorum of the directors is present.
A notice of a meeting of directors shall specify any matter referred to in
subsection 115(3) of the Act that is to be dealt with at the meeting.
Waiver of Notice. Notice of any meeting of the board of directors or any
irregularity in any meeting or in the notice thereof may be waived by any
director in writing or by fax, telegram, cable or telex addressed to the
Corporation or in any other manner, and such waiver may be validly given either
before or after the meeting to which such waiver relates. The attendance of a
director at a meeting of directors is a waiver of notice of the meeting except
where a director attends a meeting for the express purpose of objecting to the
transaction of any business on the grounds that the meeting is not lawfully
called.
Telephone Participation. A director may, if all the directors of the
Corporation consent thereto (either before, during or after the meeting),
participate in a meeting of directors by means of such telephone or other
communications facilities as permit all
3
persons participating in the meeting to hear each other, and a director
participating in such a meeting by such means shall be deemed to be present at
the meeting.
10. Adjournment. Any meeting of the board of directors may be adjourned from
time to time by the chairman of the meeting, with the consent of the meeting, to
a fixed time and place and no notice of the time and place for the continuance
of the adjourned meeting need be given to any director. Any adjourned meeting
shall be duly constituted if held in accordance with the terms of the
adjournment and a quorum present thereat. The directors who formed a quorum at
the original meeting are not required to form the quorum at the adjourned
meeting. If there is no quorum present at the adjourned meeting, the original
meeting shall be deemed to have terminated forthwith after its adjournment.
11. Quorum and Voting. Subject to the articles, a majority of the number of
directors in office at the time shall constitute a quorum for the transaction of
business. Subject to subsection 117(1) of the Act, no business shall be
transacted by the directors except at a meeting of directors at which a quorum
of the board is present. Questions arising at any meeting of the board of
directors shall be decided by a majority of votes cast. In case of an equality
of votes, the chairman of the meeting, in addition to his original vote shall
not have a second or casting vote. Where the Corporation has only one director,
that director may constitute the meeting.
12. Resolution in lieu of meeting. A resolution in writing, signed by all the
directors entitled to vote on that resolution at a meeting of directors, is as
valid as if it had been passed at a meeting of directors or committee of
directors.
A copy of every such resolution shall be kept with the minutes of the
proceedings of the directors or committee of directors.
REMUNERATION OF DIRECTORS
13. Subject to the articles or any unanimous shareholders agreement, the
remuneration to be paid to the directors shall be such as the board of directors
shall from time to time determine and such remuneration shall not be in addition
to the salary paid to any officer of the Corporation who is also a member of the
board of directors. The directors may also by resolution award special
remuneration to any director undertaking any special services on the
Corporation's behalf other than the routine work ordinarily required of a
director by the Corporation. The confirmation of any such resolution or
resolutions by the shareholders shall not be required. The directors shall also
be entitled to be paid their traveling and other expenses properly incurred by
them in connection with the affairs of the Corporation. The directors concerned
shall not vote on such resolutions.
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL
4
14. The board of directors in its discretion may submit any contract, act or
transaction for approval, ratification or confirmation at any annual meeting of
the shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and any contract, act or transaction that shall
be approved, ratified or confirmed by resolution passed by a majority of the
votes cast at any such meeting (unless any different or additional requirement
is imposed by the Act or by the Corporation's articles or any other by-law)
shall be as valid and as binding upon the Corporation and upon all the
shareholders as though it had been approved, ratified or confirmed by every
shareholder of the Corporation.
INDEMNITITES TO DIRECTORS AND OTHERS
15. Except in respect of an action by or on behalf of the Corporation or another
body corporate (as hereinafter defined) to procure a judgment in its favour, the
Corporation shall indemnify each director and officer of the Corporation and
each former director and officer of the Corporation and each person who acts or
acted at the Corporation's request as a director or officer of another body
corporate, and his heirs and legal representatives, against all costs, charges
and expenses, including any amount paid to settle an action or satisfy a
judgment0, reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of the Corporation or another body
corporate, as the case may be, if
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
"another body corporate" as used herein means a body corporate of which the
Corporation is or was a shareholder or creditor.
OFFICERS
16. Appointment of Officers. Subject to the articles or any unanimous
shareholders agreement, the board of directors, annually or as often as may be
required, may appoint from among themselves a chairman of the board and may
appoint a president and a secretary and, if deemed advisable, may also appoint a
vice chairman, one or more vice-presidents, a treasurer and one or more
assistant secretaries and/or one or more assistant treasurers. None of such
officers, except the chairman of the board, need be a director of the
Corporation. Any two (2) or more of such offices may be held by the same person.
In case and whenever the same person holds the offices of secretary and
treasurer he may, but need not, be known as the secretary-treasurer. The board
of directors may from
5
time to time designate such other offices and appoint such other officers,
employees and agents as it shall deem necessary who shall have such authority
and shall perform such functions and duties, as may from time to time be
prescribed by resolution of the board of directors.
17. Remuneration and Removal of Officers. Subject to the articles or any
unanimous shareholders agreement, the remuneration of all officers, employees
and agents elected or appointed by the board of directors may be determined from
time to time by resolution of the board of directors. The fact that any officer,
employee or agent is a director or shareholder of the Corporation shall not
disqualify him from receiving such remuneration as may be so determined. The
board of directors may by resolution remove any officer, employee or agent at
any time, with or without case.
18. Duties of Officers may be Delegated. In case of the absence or inability or
refusal to act of any officer of the Corporation or for any other reason that
the board of directors may deem sufficient, the board may delegate all or any of
the powers of such officer to any other officer or to any director for the time
being.
19. Chairman of the Board. The chairman of the board, if any, shall, if present,
preside at all meetings of the board of directors and of shareholders. He shall
sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and duties as may from time to time
be assigned to him by resolution of the board of directors.
20. President. The president, if any, shall be the chief executive officer of
the Corporation and shall exercise general supervision over the business and
affairs of the Corporation. In the absence of the chairman of the board, if any,
the president shall, when present, preside at all meetings of the board of
directors and shareholders; he shall sign such contracts, documents or
instruments in writing as require his signature and shall have such other powers
and shall perform such other duties as may from time to time be assigned to him
by resolution of the board of directors or as are incident to his office.
21. Vice-President. The vice-president or, if more than one, the vice-presidents
in order of seniority, shall be vested with all the powers and shall perform all
the duties of the president in the absence or inability or refusal to act of the
president, provided, however, that a vice-president who is not a director shall
not preside as chairman at any meeting of shareholders. The vice-president or,
if more than one, the vice-presidents in order of seniority, shall sign such
contracts, documents or instruments in writing as require his or their
signatures and shall also have such other powers and duties as may from time to
time be assigned to him or them by resolution of the board of directors.
22. Secretary. The secretary, if any, shall give or cause to be given notices
for all meetings of the board of directors, of committees thereof, if any, and
of shareholders when directed to do so and shall have charge, subject to the
provisions of this by-law, of the records referred to in section 20 of the Act
(except the accounting records) and of the corporate seal or seals, if any. He
shall sign such contracts, documents or instruments in
6
writing as require his signature and shall have such other powers and duties as
may from time to time be assigned to him by resolution of the board of directors
or as are incident to his office.
23. Treasurer. Subject to the provisions of any resolution of the board of
directors, the treasurer, if any, shall have the care and custody of all the
funds and securities of the Corporation and shall deposit the same in the name
of the Corporation in such bank or banks or with such other depositary or
depositaries as the board of directors may by resolution direct. He shall
prepare, maintain and keep or cause to be kept adequate books of accounts and
accounting records. He shall sign such contracts, documents or instruments in
writing as require his signature and shall have such other powers and duties as
may from time to time be assigned to him by resolution of the board of directors
or as are incident to his office. He may be required to give such bond for the
faithful performance of his duties as the board of directors in their
uncontrolled discretion may require and no director shall be liable for failure
to require any such bond or for the insufficiency of any such bond or for any
loss by reason of the failure of the Corporation to receive any indemnity
thereby provided.
24. Assistant Secretary and Assistant Treasurer. The assistant secretary or, if
more than one, the assistant secretaries in order of seniority, and the
assistant treasurer or, if more than one, the assistant treasurers in order of
seniority, shall respectively perform all the duties of the secretary and
treasurer, respectively, in the absence or inability to act of the secretary or
treasurer as the case may be. The assistant secretary or assistant secretaries,
if more than one, and the assistant treasurer or assistant treasurers, if more
than one, shall sign such contracts, documents or instruments in writing as
require his or their signatures respectively and shall have such other powers
and duties as may from time to time be assigned to them by resolution of the
board of directors.
MANAGING DIRECTOR
25. The board of directors may from time to time appoint from their number a
managing director who is a resident Canadian and may delegate to him any of the
powers of the board of directors except as provided in subsection 115(3) of the
Act. The managing director shall conform to all lawful orders given to him by
the board of directors of the Corporation and shall at all reasonable times give
to the directors or any of them all information they may require regarding the
affairs of the Corporation. Any agent or employee appointed by the managing
director shall be subject to discharge by the board of directors.
COMMITTEES
26. The board of directors may from time to time appoint from their number one
or more committees consisting of one or more individuals and delegate to such
committee or committees any of the powers of the directors except as provided in
subsection 115(3)
7
of the Act. Unless otherwise ordered by the board, a committee of directors
shall have power to fix its quorum, to elect its chairman and to regulate its
proceedings.
SHAREHOLDERS' MEETINGS
27. Annual Meeting. Subject to compliance with section 133 of the Act, the
annual meeting of the shareholders shall be convened on such day in each year
and at such time as the board of directors may by resolution determine.
28. Special Meetings. Other meetings of the shareholders may be convened by
order of the chairman of the board, the president or a vice-president who is a
director or by the board of directors, to be held at such time and place as may
be specified in such order.
Special meetings of shareholders may also be called by written requisition
to the board of directors signed by shareholders holding between them not less
than five percent (5%) of the outstanding shares of the capital of the
Corporation entitled to vote thereat. Such requisition shall state the business
to be transacted at the meeting and shall be sent to the registered office of
the Corporation. The item on the Agenda shall be limited to subject which are
validly to be considered and voted on by the shareholders.
Except as otherwise provided in subsection 143(3) of the Act, it shall be
the duty of the board of directors on receipt of such requisition, to cause the
meeting to be called by the secretary of the Corporation.
If the board of directors does not, within twenty-one (21) days after
receiving such requisition call a meeting, any shareholder who signed the
requisition may call the meeting.
29. Place of Meetings. Meetings of shareholders of the Corporation shall be held
at the registered office of the Corporation or at such other place in Canada as
may be specified in the notice convening such meeting. Notwithstanding the
foregoing, a meeting of shareholders may be held outside Canada if all the
shareholders entitled to vote at the meeting so agree, and a shareholder who
attends a meeting of shareholders held outside Canada is deemed to have so
agreed except when he attends the meeting for the express purpose of objecting
to the transaction of any business on the grounds that the meeting is not
lawfully held.
30. Notice. A printed, written or typewritten notice stating the day, hour and
place of meeting and, subject to subsection 135(6) of the Act, the general
nature of the business to be transacted shall be served to each person who is
entitled to vote at such meeting, each director of the Corporation and the
auditor of the Corporation, either personally or by sending such notice by
prepaid mail not less than twenty-one (21) days or more than fifty (50) days
before the meeting. If such notice is served by mail it shall be directed to the
latest address as shown in the records of the Corporation, of the intended
recipient. Notice of any meeting of shareholders or any irregularity in any such
meeting or in the notice thereof may be waived by any shareholder, the duly
appointed proxy of any
8
shareholder, any directors or the auditor of the Corporation in writing, by
telegram, cable or telex addressed to the Corporation or by any other manner,
and any such waiver may be validly given either before or after the meeting to
which such waiver relates.
31. Omission of Notice. The accidental omission to give notice of any meeting to
or the non-receipt of any notice by any person shall not invalidate any
resolution passed or any proceeding taken at any meeting of shareholders.
32. Record Date. The board of directors may by resolution fix in advance a date
and time as the record date for the determination of the shareholders entitled
to receive notice of a meeting of the shareholders, but such record date shall
not precede by more than fifty (50) days or by less than twenty-one (21) days
the date on which the meeting is to be held.
If the directors fail to fix in advance a date and time as the record date
in respect of all or any of the matters described above for any meeting of the
shareholders of the Corporation, the following provisions shall apply, as the
case may be:
(a) the record date for the determination of the shareholders entitled
to receive notice of a meeting of shareholders shall be at the close
of business on the day immediately preceding the day on which notice
is given or sent;
(b) the record date for the determination of the shareholders entitled
to vote at a meeting of shareholders shall be the day on which the
meeting is held; and
(c) the record date for the determination of the shareholders entitled
to receive the financial statements of the Corporation shall be the
close of business on the day on which the directors pass the
resolution relating thereto.
33. Votes. Voting at a meeting of shareholders shall be by show of hands except
where a ballot is demanded by a shareholder entitled to vote at the meeting. A
shareholder may demand a ballot either before or after any vote by show of
hands.
Every question submitted to any meeting of shareholders shall be decided
in the first instance, unless a ballot is demanded, on a show of hands and in
case of an equality of votes the chairman of the meeting shall not, both on a
show of hands and on a ballot, have a second or casting vote in addition to the
vote or votes to which he may be entitled as a shareholder.
At any meeting, unless a ballot is demanded, a declaration by the chairman
of the meeting that a resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority shall be
conclusive evidence of the fact without proof of the number or proportion of
votes recorded in favour of or against the motion.
9
In the absence of the chairman of the board, the president and every
vice-president who is a director, the shareholders present entitled to vote
shall choose another director as chairman of the meeting and if no director is
present or if all the directors present decline to take the chair then the
shareholders present shall choose one of their number to be chairman.
If at any meeting a ballot is demanded on the election of a chairman or on
the question of adjournment or termination it shall be taken forthwith without
adjournment. If a ballot is demanded on any other question or as to the election
of directors it shall be taken in such manner and either at once or later at the
meeting or after adjournment as the chairman of the meeting directs. The result
of a ballot shall be deemed to be the resolution of the meeting at which the
ballot was demanded. A demand for a ballot may be withdrawn.
Where a person holds shares as a personal representative, such person or
his proxy is the person entitled to vote at all meetings of shareholders in
respect of the shares so held by him.
Where a person mortgages or hypothecates his shares, such person or his
proxy is the person entitled to vote at all meetings of shareholders in respect
of such shares unless, in the instrument creating the mortgage or hypothec, he
has expressly empowered the person holding the mortgage or hypothec to vote in
respect of such shares, in which case, subject to the Corporation's articles,
such holder or his proxy is the person entitled to vote in respect of the
shares.
Where two (2) or more persons hold the same share or shares jointly, any
one of such persons present at a meeting of shareholders has the right, in the
absence of the other or others, to vote in respect of such share or shares, but
is more than one of such persons are present or represented by proxy and vote,
they shall vote together as one on the share or shares jointly held by them.
34. Proxies. A shareholder, including a shareholder that is a body corporate,
entitled to vote at a meeting of shareholders may be means of a proxy appoint a
proxyholder or one or more alternate proxyholders, who are not required to be
shareholders, to attend and act at the meeting in the manner and to the extent
authorised by the proxy and with the authority conferred by the proxy.
An instrument appointing a proxyholder shall be in writing and shall be
executed by the shareholder or his attorney authorised in writing or, if the
shareholder is a body corporate, either under its seal or by an officer or
attorney thereof, duly authorised. A proxy is valid only at the meeting in
respect of which it is given or any adjournment thereof.
Unless the Act requires another form, an instrument appointing a proxyholder may
be in the following form:
10
"The undersigned shareholder of __________________________________________
hereby appoints _________________________ of _____________________________
Failing him ___________________________ of __________________ as _________
the nominee of the undersigned to attend and act for and on behalf of the
undersigned at the meeting of the shareholders of the said Corporation to
be held on the day ______of _________ , 19 ___, and at any adjournment
thereof to the same extent and with the same power as if the undersigned
were personally present at the said meeting of such adjournment thereof.
Dated the ___________________________ day of ____________ ,19 ___________.
Signature of Shareholder
NOTE:
This form of proxy must be signed by a shareholder or his attorney
authorized in writing or, if the shareholder is a body corporate, either
under its seal or by an officer or attorney thereof duly authorized."
The directors may from time to time pass regulations regarding the deposit
of instruments appointing a proxyholder at some place or places other than the
place at which a meeting or adjourned meeting of shareholders is to be held and
for particulars of such instruments to be faxed, telegraphed, cabled, telexed or
sent in writing before the meeting or adjourned meeting to the Corporation or
any agent of the Corporation for the purpose of receiving such particulars and
providing that instruments appointing a proxyholder so lodged may be voted upon
as though the instruments themselves were produced at the meeting or adjourned
meeting and votes given in accordance with such regulations shall be valid and
shall be counted. The chairman of any meeting of shareholders may, subject to
any regulations made as aforesaid, in his discretion accept telegraphic, telex,
cable or written communication as to the authority of anyone claiming to vote on
behalf of and to represent a shareholder notwithstanding that no instrument of
proxy conferring such authority has been lodged with the Corporation, and any
votes given in accordance with such telegraphic, telex, cable or written
communication accepted by the chairman of the meeting shall be valid and shall
be counted.
35. Adjournment. The chairman of the meeting may with the consent of the meeting
adjourn any meeting of shareholders from time to time to a fixed time and place.
If a meeting of shareholders is adjourned less than thirty (30) days, it is not
necessary to give notice of the adjourned meeting other than by announcement at
the earliest meeting that is adjourned. If a meeting of shareholders is
adjourned by one or more adjournments for an aggregate of thirty (30) days or
more, notice of the adjourned meeting shall be given as for an original meeting
but, unless the meeting is adjourned by one or more
11
adjournments for an aggregate of more than ninety (90) days, the requirements of
subsection 149(1) of the Act relating to mandatory solicitation of proxies do
not apply.
Any adjourned meeting shall be duly constituted if held in accordance with
the terms of the adjournment and a quorum is present thereat. The persons who
formed a quorum at the original meeting are not required to form a quorum at the
adjourned meeting. If there is no quorum present at the adjourned meting, the
original meeting shall be deemed to have terminated forthwith after its
adjournment. Any business may be brought before or dealt with at any adjourned
meeting which might have been brought before or dealt with at the original
meeting in accordance with the notice calling same.
36. Quorum. One (1) person present and holding or representing by proxy at least
one (1) issued share of the Corporation shall be a quorum of any meeting of
shareholders for the choice of a chairman of the meeting and for the adjournment
of the meeting; for all other purposes a quorum for any meeting (unless a
different number of shareholders and/or a different number of shares are
required to be represented by the Act or by the articles or by any other by-law)
shall be persons present being not less than two (2) in number and holding or
representing by proxy a majority of the shares entitled to vote at such meeting.
If a quorum is present at the opening of a meeting of the shareholders, the
shareholders present may proceed with the business of the meeting,
notwithstanding that a quorum is not present throughout the meeting. Where the
Corporation has only one shareholder or only one holder of any class or series
of shares, the shareholder present in person or by proxy constitutes a meeting.
37. Resolution in lieu of meeting. Except where a written statement is submitted
by a director under subsection 110(2) of the Act or by an auditor under
subsection 168(5) of the Act, a resolution in writing signed by all shareholders
entitled to vote on that resolution at a meeting of shareholders is as valid as
if it had been passed at a meeting of the shareholders.
A copy of every such resolution shall be kept with the minutes of the
meetings of shareholders.
SECURITIES
38. Certificates. Share certificates (and the form of stock transfer power on
the reverse side thereof) shall (subject to compliance with section 49 of the
Act) be in such form and be signed by such director(s) or officer(s) as the
board of directors may from time to time by resolution determine.
39. Registrar and Transfer Agent. The board of directors may from time to time
by resolution appoint or remove one or more registrars and/or branch registrars
(which may but need not be the same person) to keep the register of security
holders and/or one or more transfer agents and/or branch transfer agents (which
may but need not be the same person) to keep the register of transfer, and
(subject to section 50 of the Act) may provide for the registration of issues
and the registration of transfers of the securities of the
12
Corporation in one or more places and such registrars and/or branch registrars
and/or transfer agents and/or branch transfer agents shall keep all necessary
books and registers of the Corporation for the registration of the issuance and
the registration of transfers of the securities issued by the Corporation shall
be countersigned by or on behalf of one of the said registrars and/or branch
registrars and/or transfer agents and/or branch transfer agents, as the case may
be.
40. Surrender of Share Certificates. No transfer of a share issued by the
Corporation shall be recorded or registered unless or until the certificate
representing the share to be transferred has been surrendered and cancelled or,
if no certificate has been issued by the Corporation in respect of such share,
unless or until a duly executed share transfer power in respect thereof has been
presented for registration.
41. Defaced, Destroyed, Stolen or Lost Certificates. If the defacement,
destruction or apparent destruction, theft, or other wrongful taking or loss of
a share certificate is reported by the owner to the Corporation or to a
registrar, branch registrar, transfer agent or branch transfer agent of the
Corporation (hereinafter, in this paragraph, called the "Corporation's transfer
agent") and such owner gives to the Corporation or the Corporation's transfer
agent a written statement verified by oath or statutory declaration as to the
defacement, destruction or apparent destruction, theft, or other wrongful taking
or loss and the circumstances concerning the same, a request for the issuance of
a new certificate to replace the one so defaced, destroyed, wrongfully taken or
lost and a bond of a surety company (or other security approved by the board of
directors) in such form as is approved by the board of directors or by the
chairman of the board, the president, a vice-president, the secretary or the
treasurer of the Corporation, indemnifying the Corporation (and the
Corporation's transfer agent, if any), against all loss, damage or expense,
which the Corporation and/or the Corporation's transfer agent may suffer or be
liable for by reason of the issuance of a new certificate to such shareholder, a
new certificate may be issued in replacement of the one defaced, destroyed or
apparently destroyed, stolen or otherwise wrongfully taken or lost, is such
issuance is ordered and authorized by any one of the chairman of the board, the
president, a vice-president, the secretary or the treasurer of the Corporation
or by resolution of the board of directors.
DIVIDENDS
42. Subject to the relevant provisions of the Act, the board of directors may
from time to time by resolution declare and the Corporation may pay dividends on
its issued shares, subject to the relevant provisions, if any, of the articles.
NOTICE
43. Shares registered in more than one name. All notices or other documents
required to be sent to a shareholder by the Act, the regulations under the Act,
the articles or the by-laws of the Corporation shall, with respect to any shares
in the capital of the Corporation registered in more than one name, be given to
whichever of such persons is
13
named first in the records of the Corporation and any notice or other document
so given shall be sufficient notice or delivery of such document to all the
holders of such shares.
44. Persons becoming entitled by operation of law. Every person who by operation
of law, transfer or by any other means whatsoever shall become entitled to any
shares in the capital of the Corporation shall be bound by every notice or other
document in respect of such shares which prior to his name and address being
entered on the records of the Corporation shall have been duly given to the
person or persons from who he derives his title to such shares.
45. Deceased Shareholder. Any notice or other document delivered or sent by post
or left at the address of any shareholder as the same appears in the records of
the Corporation shall, notwithstanding that such shareholder be then deceased
and whether or not the Corporation has notice of his decease, be deemed to have
been duly served in respect of the shares held by such shareholder (whether held
solely or with other persons) until some other person be entered in his stead in
the records of the Corporation as the holder or one of the holders thereof and
such service shall for all purposes be deemed a sufficient service of such
notice or other document on his heirs, executors or administrators and all
persons, if any, interested with him in such shares.
46. Signatures to Notices. The signature of any director or officer of the
Corporation to any notice may be written, stamped, typewritten or printed or
partly written, stamped, typewritten or printed.
47. Computation of Time. Where a given number of days' notice or notice
extending over any period is required to be given under any provisions of the
articles or by-laws of the Corporation, the day of service or posting of the
notice shall, unless it is otherwise provided, be counted in such number of days
or other period and such notice shall be deemed to have been given or sent on
the day of service or posting.
48. Proof of Service. A certificate of any officer of the Corporation in office
at the time of the making of the certificate or of a transfer officer of any
transfer agent or branch transfer agent of shares of any class of the
Corporation as to facts in relation to the mailing or delivery or service of any
notice or other documents to any shareholder, director, officer or auditor or
publication of any notice or other document shall be conclusive evidence thereof
and shall be binding on every shareholder, director, officer or auditor of the
Corporation, as the case may be.
CHEQUES, DRAFTS, NOTES, ETC.
49. All cheques, drafts or orders for the payment of money and all notes,
acceptances and bills of exchange shall be signed by such officer or officers or
other person or persons, whether or not officers of the Corporation, and in such
manner as the board of directors may from time to time designate by resolution.
CUSTODY OF SECURITIES
14
50. All securities, including warrants, owned by the Corporation shall be
lodged, in the name of the Corporation, with a chartered bank or a trust company
or in a safety deposit box or, if so authorized by resolution of the board of
directors, with such other depositaries or in such other manner as may be
determined from time to time by the board of directors.
All securities, including warrants, belonging to the Corporation may be
issued and held in the name of a nominee or nominees of the Corporation, and is
issued or held in the names of more than one nominee shall be held in the names
of the nominees jointly with right of survivorship and shall be endorsed in
blank with endorsement guaranteed in order to enable transfer thereof to be
completed and registration thereof to be effected.
EXECUTION OF CONTRACTS, ETC.
51. Contracts, documents or instruments in writing requiring the signature of
the Corporation may be signed by two (2) persons, one of whom holds the office
of chairman of the board, president, managing director, vice-president or
director and the other of whom holds one of the said offices or the office of
secretary, treasurer, assistant secretary or assistant treasurer or any other
office created by by-law or by resolution of the board. All contracts, documents
or instruments in writing so signed shall be binding upon the Corporation
without any further authorisation or formality. The board of directors is
authorised from time to time by resolution to appoint any officer or officers or
any other person or persons on behalf of the Corporation either to sign
contracts, documents or instruments in writing generally or to sign specific
contracts, documents or instruments in writing. Where the Corporation has only
one director and officer being the same person, that person may sign all such
contracts, documents or other written instruments.
The corporate seal, if any, may, when required, be affixed to contracts,
documents or instruments in writing signed as aforesaid or by an officer or
officers, person or persons appointed as aforesaid by resolution of the board of
directors.
The term "contracts, documents or instruments in writing" as used in this
by-law shall include deeds, mortgages, hypothecs, charges, conveyances,
transfers and assignments of property, real or personal, immoveable or moveable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of shares, warrants, bonds,
debentures or other securities and all paper writings.
In particular, without limiting the generality of the foregoing, two (2)
persons, one of whom holds the office of chairman of the board, president,
managing director, vice-president or director and the other of whom holds one of
the said offices or the office of secretary, treasurer, assistant secretary or
assistant treasurer or any other office created by by-law or by resolution of
the board are hereby authorised to sell, assign, transfer, exchange, convert or
convey all shares, bonds, debentures, rights, warrants or other securities owned
by or registered in the name of the Corporation and to sign and
15
execute, under the seal of the Corporation or otherwise, all assignments,
transfers, conveyances, powers of attorney and other instruments that may be
necessary for the purpose of selling, assigning, transferring, exchanging,
converting or conveying or enforcing or exercising any voting rights in respect
of any such shares, bonds, debentures, rights, warrants or other securities.
Where the Corporation has only one director and officer, being the same person,
that person may perform the functions and exercise the powers herein
contemplated.
The signature or signatures of any officer or director of the Corporation
and/or of any other officer or officers, person or persons appointed as
aforesaid by resolution of the board of directors may, if specifically
authorised by resolution of the directors, be printed, engraved, lithographed or
otherwise mechanically reproduced upon all contracts, documents or instruments
in writing or, subject to subsections 49(4) and 49(5) of the Act, bonds,
debentures or other securities of the Corporation executed or issued by or on
behalf of the Corporation and all contracts, documents or instruments in writing
or bonds, debentures or other securities of the Corporation on which the
signatures of any of the foregoing officers, directors or persons shall be so
reproduced, by authorisation by resolution of the board of directors, shall,
subject to subsections 49(4) and 49(5) of the Act, be deemed to have been duly
signed by such officers, shall be as valid to all intents and purposes as if
they had been signed manually and notwithstanding that the officers, directors
or persons whose signature or signatures is or are so reproduced may have ceased
to hold office at the date of the delivery or issue of such contracts, documents
or instruments in writing or bonds, debentures or other securities of the
corporation.
DECLARATIONS
52. The chairman of the board, if appointed, the president, the vice-presidents,
secretary and/or treasurer, the assistant secretaries and/or assistant
treasurers, comptroller, accountant, chief clerk, or any one of them, is
authorised and empowered to appear and make answer for the Corporation to all
writs, orders and interrogatories upon articulated facts issued out of any court
and to declare for and on behalf of the Corporation any answer to writs of
attachment by way of garnishment in which the Corporation is garnishee, and to
make all affidavits and sworn declarations in connection therewith or in
connection with any or all judicial proceedings to which the Corporation is a
party and to make demands of abandonment or petitions for winding up or
bankruptcy orders upon any debtor of the Corporation and to attend and vote at
all meetings of creditors of any of the Corporation's debtors and grant proxies
in connection therewith.
FISCAL YEAR
53. The fiscal period of the Corporation shall terminate on such day in each
year as the board of directors may from time to time by resolution determine.
16
.
.
.
EXHIBIT 3.4
HENRY BIRKS & SONS INC. / HENRY BIRKS ET FILS INC.
BY-LAW NO. ONE
PAGE
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DEFINITIONS.............................................................................................. 1
Act................................................................................................. 1
Articles............................................................................................ 1
By-law.............................................................................................. 1
REGISTERED OFFICE........................................................................................ 1
CORPORATE SEAL........................................................................................... 2
DIRECTORS................................................................................................ 2
Number.............................................................................................. 2
Vacancies........................................................................................... 2
Vacation of Office.................................................................................. 2
Election............................................................................................ 3
Consent to be Elected or Appointed Director......................................................... 3
MEETINGS OF DIRECTORS.................................................................................... 3
Place and Calling of Meetings....................................................................... 3
Notice.............................................................................................. 3
Waiver of Notice.................................................................................... 4
Participation by Communication Facilities........................................................... 4
Adjournment......................................................................................... 4
Quorum and Voting................................................................................... 5
Resolution in lieu of Meeting....................................................................... 5
REMUNERATION OF DIRECTORS................................................................................ 5
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL..................................... 6
CHAIRMAN OF THE BOARD.................................................................................... 6
OFFICERS................................................................................................. 6
Appointment of Officers............................................................................. 6
Remuneration and Removal of Officers................................................................ 6
Duties of Officers may be Delegated................................................................. 7
President........................................................................................... 7
Vice-President...................................................................................... 7
Secretary........................................................................................... 7
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i
EXHIBIT 3.4
Treasurer........................................................................................... 8
Assistant Secretary and Assistant Treasurer......................................................... 8
COMMITTEES............................................................................................... 8
Appointment of Committees........................................................................... 8
Audit Committee..................................................................................... 8
Nominating Committee................................................................................ 9
Corporate Governance Committee...................................................................... 9
Executive Committee................................................................................. 9
Compensation Committee.............................................................................. 10
DISCLOSURE OF INTEREST................................................................................... 10
INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS AND OTHERS......................................... 11
Liability........................................................................................... 11
Indemnification..................................................................................... 11
Insurance........................................................................................... 12
MEETINGS OF SHAREHOLDERS................................................................................. 12
Annual Meeting...................................................................................... 12
Special Meetings.................................................................................... 13
Place of Meetings................................................................................... 13
Notice.............................................................................................. 13
Omission of Notice.................................................................................. 13
Record Date......................................................................................... 14
Participation by Communication Facilities........................................................... 14
Votes............................................................................................... 14
Proxies............................................................................................. 15
Adjournment......................................................................................... 17
Quorum.............................................................................................. 17
SECURITIES............................................................................................... 17
Certificates........................................................................................ 17
Registrar and Transfer Agent........................................................................ 17
Surrender of Share Certificates..................................................................... 18
Defaced, Destroyed, Stolen or Lost Certificates..................................................... 18
DIVIDENDS................................................................................................ 19
NOTICES.................................................................................................. 19
Method of Giving Notices............................................................................ 19
Shares registered in more than one (1) name......................................................... 19
Persons becoming entitled by operation of law....................................................... 19
Deceased Shareholder................................................................................ 19
Signatures to Notices............................................................................... 20
Computation of Time................................................................................. 20
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ii
EXHIBIT 3.4
Proof of Service.................................................................................... 20
CHEQUES, DRAFTS, NOTES, ETC.............................................................................. 20
CUSTODY OF SECURITIES.................................................................................... 21
EXECUTION OF CONTRACTS, ETC.............................................................................. 21
DECLARATIONS............................................................................................. 22
FISCAL YEAR.............................................................................................. 22
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iii
BY-LAW NO. ONE
being a by-law relating generally to the transaction of the business and
affairs of Henry Birks & Sons Inc./Henry Birks et Fils Inc. (the
"CORPORATION").
DEFINITIONS
1. In this by-law and all other by-laws of the Corporation, unless the context
otherwise specifies or requires:
(a) "ACT" means the Canada Business Corporations Act, R.S.C., 1985,
chapter C-44, any statute that may be substituted therefore and any
regulations thereunder, as from time to time amended; and any
reference to a section of the Act is a reference to a section of the
Act as such section is presently numbered or as it may be renumbered
from time to time;
(b) "ARTICLES" means the articles of the Corporation, as from time to
time amended or restated;
(c) "BY-LAW" means this by-law and all other by-laws of the Corporation
from time to time in force and effect;
(d) words importing the singular number only shall include the plural
and vice versa; words importing the masculine gender shall include
the feminine and neuter genders and vice versa; words importing
persons shall include bodies corporate, corporations, companies,
partnerships, syndicates, trusts and any number or aggregate of
individuals;
(e) the headings used in this by-law are inserted for reference purposes
only and are not to be considered or taken into account in
construing the terms or provisions thereof or to be deemed in any
way to clarify, modify or explain the effect of any such terms or
provisions; and
(f) all terms contained in this by-law and which are defined in the Act
shall have the meanings given to such terms in the Act.
REGISTERED OFFICE
2. The Corporation may from time to time (i) by resolution of the board of
directors, change the place and/or address of the registered office of the
Corporation within the province specified in its articles and (ii) by articles
of amendment, change the province in which its registered office is situated to
another province of Canada.
1
CORPORATE SEAL
3. The Corporation may have one or more corporate seals which shall be such as
the board of directors may by resolution from time to time adopt and change.
DIRECTORS
4. Number
There shall be a board of directors consisting of such fixed number, or
minimum and maximum number of directors as may be set out in the articles. If
any of the issued securities of the Corporation are or were part of a
distribution to the public, remain outstanding and are held by more than one
person, the Corporation shall not have fewer than three (3) directors, at least
two (2) of whom are not officers or employees of the Corporation or its
affiliates.
5. Vacancies
If a fixed number of directors is set out in the articles and if such
fixed number is higher than the number of directors in office at the time of the
amendment to the articles, or if such fixed number is thereafter increased, the
resulting vacancies shall be filled at a meeting of shareholders duly called for
that purpose. Notwithstanding the provisions of this by-law and subject to the
provisions of the Act, if a vacancy should otherwise occur in the board, the
remaining directors, if constituting a quorum, may appoint a qualified person to
fill the vacancy for the remainder of the term, except a vacancy resulting from
the fixing, in the articles, of a number of directors that is higher than the
number of directors in office at the time of the amendment to the articles, from
a subsequent increase of such fixed number or from a failure of the shareholders
to elect the number or minimum number of directors specified in the articles. In
the absence of a quorum or if the vacancy has arisen from a failure by the
shareholders to elect the number or minimum number of directors specified in the
articles, the remaining directors shall forthwith call a meeting of shareholders
to fill the vacancy pursuant to subsection 111(2) of the Act. If the directors
fail to call such a meeting or if there are no directors then in office, any
shareholder may call the meeting. Where a vacancy or vacancies exist in the
board, the remaining directors may exercise all of the powers of the board so
long as a quorum remains in office.
6. Vacation of Office
The office of a director shall ipso facto be vacated if:
(a) he dies;
(b) by notice in writing to the Corporation, he resigns his office and
such resignation, if not effective immediately, becomes effective in
accordance with its terms;
2
(c) he is removed from office in accordance with section 109 of the Act;
or
(d) he ceases to be qualified to be a director.
7. Election
Directors shall be elected by the shareholders by ordinary resolution in a
general meeting unless the articles of the Corporation confer upon the directors
the right to appoint additional directors in which case, the dispositions of the
Act apply. A vote by ballot shall not be necessary for the election of the
directors unless it is required by someone present and entitled to vote at the
meeting.
A retiring director shall retain office until the adjournment or
termination of the meeting at which his successor is elected, unless such
meeting was called for the purpose of removing him from office as a director in
which case the director so removed shall vacate office forthwith upon the
passing of the resolution for his removal.
8. Consent to be Elected or Appointed Director
An individual who is elected or appointed to hold office as a director is
not a director and is deemed not to have been elected or appointed to hold
office as a director unless:
(a) the said individual was present at the meeting when the election or
appointment took place and he did not refuse to hold office as a
director; or
(b) the said individual was not present at the meeting when the election
or appointment took place and the said individual consented to hold
office as a director in writing before the election or appointment
or within ten (10) days after it, or the said individual has acted
as a director pursuant to the election or appointment.
MEETINGS OF DIRECTORS
9. Place and Calling of Meetings
Subject to the articles, meetings of directors may be held at any place
within or outside Canada as the directors may from time to time determine or the
person convening the meeting may give notice. A meeting of the board of
directors may be convened by the chairman of the board, if any, the president,
if any, or any director at any time. The secretary, if any, shall, upon
direction of any of the foregoing, convene a meeting of the board of directors.
10. Notice
Notice of the time and place for the holding of any such meeting shall be
delivered, mailed, faxed or emailed to each director at his latest address as
shown on the
3
records of the Corporation no less than two (2) days or twelve (12) days if
mailed (exclusive of the day on which the notice is sent, but inclusive of the
day for which notice is given) before the date of the meeting; provided that
meetings of the board of directors may be held at any time without notice, if
all the directors have waived notice.
For the first meeting of the board of directors, to be held immediately
following the election of directors at any annual or special meeting of the
shareholders, no notice of such meeting need be given to the newly elected or
appointed director or directors in order for the meeting to be duly constituted,
provided a quorum of the directors is present.
A notice of a meeting of directors shall specify any matter referred to in
subsection 115(3) of the Act that is to be dealt with at the meeting but
otherwise need not specify the purpose of or the business to be transacted at
the meeting.
11. Waiver of Notice
Notice of any meeting of the board of directors or any irregularity in any
meeting or in the notice thereof may be waived by any director, and such waiver
may be validly given either before or after the meeting to which such waiver
relates. The attendance of a director at a meeting of directors is a waiver of
notice of the meeting, except where a director attends a meeting for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called.
12. Participation by Communication Facilities
A director may, if all the directors of the Corporation consent thereto
(either before, during or after the meeting), participate in a meeting of the
board of directors or of any committee thereof, if any, by means of a
telephonic, electronic or other communication facility that permits all
participants to communicate adequately with each other, and a director
participating in such manner is deemed to be present at that meeting. A consent
may be given with respect to all meetings of the board and/or of the committees
of the board, if any.
13. Adjournment
Any meeting of the board of directors may be adjourned from time to time
by the chairman of the meeting, with the consent of the meeting, to a fixed time
and place and no notice of the time and place for the continuance of the
adjourned meeting need be given to any director in such a case. Any adjourned
meeting shall be duly constituted if held in accordance with the terms of the
adjournment and a quorum is present at the meeting. The directors who formed a
quorum at the original meeting are not required to form the quorum at the
adjourned meeting. If there is no quorum present at the adjourned meeting, the
original meeting shall be deemed to have terminated forthwith after its
adjournment.
4
14. Quorum and Voting
Subject to the articles, a majority of the number of directors in office
shall constitute a quorum for the transaction of business. Subject to subsection
117(1) of the Act, no business shall be transacted by the directors, except at a
meeting of directors at which a quorum of the board is present. The directors
shall not transact business at a meeting unless the number of Canadian directors
required by the law are present, except where:
(a) a resident Canadian director who is unable to be present approves in
writing, or by telephonic, electronic or other communication
facility, the business transacted at the meeting; and
(b) the required number of resident Canadian directors would have been
present had that director been present at the meeting.
Questions arising at any meeting of the board of directors shall be
decided by a majority of votes cast. In case of an equality of votes, the
chairman of the meeting, in addition to his original vote, shall not have a
second or casting vote.
15. Resolution in lieu of Meeting
A resolution in writing, signed by all the directors entitled to vote on
that resolution at a meeting of directors or a committee of directors, if any,
is as valid as if it had been passed at a meeting of directors or committee of
directors, if any.
A copy of every such resolution shall be kept with the minutes of the
proceedings of the directors or committee of directors, if any.
REMUNERATION OF DIRECTORS
16. Subject to the articles, the remuneration to be paid to the directors shall
be such as the board of directors shall from time to time determine and such
remuneration shall not be in addition to the salary paid to any officer of the
Corporation who is also a member of the board of directors. The directors may
also by resolution award special remuneration to any director undertaking any
special services on the Corporation's behalf other than the routine work
ordinarily required of a director by the Corporation. The confirmation of any
such resolution or resolutions by the shareholders shall not be required. The
directors concerned shall not vote on such resolutions. The directors shall be
entitled to be paid their traveling and other expenses properly incurred by them
in connection with the affairs of the Corporation.
5
SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL
17. The board of directors, in its discretion, may submit any contract, act or
transaction for approval, ratification or confirmation at any annual meeting of
the shareholders or at any special meeting of the shareholders called for the
purpose of considering the same and any contract, act or transaction that shall
be approved, ratified or confirmed by resolution passed by a majority of the
votes cast at any such meeting (unless any different or additional requirement
is imposed by the Act or by the Corporation's articles or the by-law) shall be
as valid and as binding upon the Corporation and upon all the shareholders as
though it had been approved, ratified or confirmed by every shareholder of the
Corporation.
CHAIRMAN OF THE BOARD
18. The chairman of the board, if any, shall, if present, preside at all
meetings of the board of directors and of shareholders. He shall sign such
contracts, documents or instruments in writing as require his signature and
shall have such other powers and duties as may from time to time be assigned to
him by resolution of the board of directors.
OFFICERS
19. Appointment of Officers
Subject to the articles, the board of directors, annually or as often as
may be required, may appoint among themselves a chairman of the board and may
appoint a president and a secretary and, if deemed advisable, may appoint a vice
chairman, one (1) or more vice-presidents (to which title may be added words
indicating seniority or function), a treasurer and one (1) or more assistant
secretaries and/or one (1) or more assistant treasurers. None of such officers,
except the chairman of the board, need be a director of the Corporation. The
board of directors may from time to time designate such other offices and
appoint such other officers, employees and agents as it shall deem necessary,
who shall have such authority and shall perform such functions and duties, as
may from time to time be prescribed by resolution of the board of directors. Any
two (2) or more offices may be held by the same person. In case and whenever the
same person holds the offices of secretary and treasurer he may, but need not,
be known as the secretary-treasurer.
20. Remuneration and Removal of Officers
Subject to the articles, the remuneration of all officers, employees and
agents elected or appointed by the board of directors may be determined from
time to time by resolution of the board of directors. The fact that any officer,
employee or agent is a director or shareholder of the Corporation shall not
disqualify him from receiving such remuneration as may be so determined. The
board of directors may, by resolution,
6
remove any officer, employee or agent at any time, with or without cause,
subject to his rights under any employment contract in force between the
Corporation and such individual.
21. Duties of Officers may be Delegated
In case of the absence or inability or refusal to act of any officer of
the Corporation or for any other reason that the board of directors or the
President, as applicable, may deem sufficient, the board of directors or the
President, as applicable, may delegate all or any of the powers of such officer
to any other officer or to any director for the time being.
22. President
The president, if any, shall be the chief executive officer of the
Corporation and shall exercise general supervision over the business and affairs
of the Corporation. In the absence or inability of the chairman of the board, if
any, the president shall, when present, preside at all meetings of the board of
directors and shareholders; he shall sign such contracts, documents or
instruments in writing as require his signature and shall have such other powers
and shall perform such other duties as may from time to time be assigned to him
by resolution of the board of directors or as are incident to his office.
23. Vice-President
The vice-president or, if more than one (1), the vice-presidents, in order
of seniority, shall be vested with all the powers and shall perform all the
duties of the president in the absence or inability or refusal to act of the
president, provided, however, that a vice-president, who is not a director,
shall not preside as chairman at any meeting of shareholders. The vice-president
or, if more than one (1), the vice-presidents, in order of seniority, shall sign
such contracts, documents or instruments in writing as require his or their
signatures and shall also have such other powers and duties as may from time to
time be assigned to him or them by resolution of the board of directors or, to
the extent permitted by the Act, by the president of the Corporation.
24. Secretary
The secretary, if any, shall give or cause to be given notices for all
meetings of the board of directors, of committees thereof, if any, and of
shareholders when directed to do so and shall have charge, subject to the
provisions of this by-law, of the records referred to in section 20 of the Act
(except the accounting records) and of the corporate seal or seals, if any,
except when some other officer or agent has been appointed for that purpose. He
shall sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and duties as may from time to time
be assigned to him by resolution of the board of directors or as are incident to
his office.
7
25. Treasurer
Subject to the provisions of any resolution of the board of directors, the
treasurer, if any, shall have the care and custody of all the funds and
securities of the Corporation and shall deposit the same in the name of the
Corporation in such bank or banks or with such other depositary or depositaries
as the board of directors may, by resolution, direct. He shall prepare, maintain
and keep or cause to be kept adequate books of accounts and accounting records.
He shall sign such contracts, documents or instruments in writing as require his
signature and shall have such other powers and duties as may from time to time
be assigned to him by resolution of the board of directors or as are incident to
his office. He may be required to give such bond for the faithful performance of
his duties as the board of directors, in their absolute discretion, may require,
and no director shall be liable for failure to require any such bond or for the
insufficiency of any such bond or for any loss by reason of the failure of the
Corporation to receive any indemnity thereby provided.
26. Assistant Secretary and Assistant Treasurer
The assistant secretary or, if more than one (1), the assistant
secretaries, in order of seniority, and the assistant treasurer or, if more than
one (1), the assistant treasurers, in order of seniority, shall respectively
perform all the duties of the secretary and treasurer, respectively, in the
absence or inability to act of the secretary or treasurer, as the case may be.
The assistant secretary or assistant secretaries, if more than one (1), and the
assistant treasurer or assistant treasurers, if more than one (1), shall sign
such contracts, documents or instruments in writing as require his or their
signatures respectively and shall have such other powers and duties as may from
time to time be assigned to them by resolution of the board of directors.
COMMITTEES
27. Appointment of Committees
The board of directors may from time to time appoint from their number one
(1) or more committees consisting of one (1) or more individuals and delegate to
such committee or committees any of the powers of the directors, except as
provided in subsection 115(3) of the Act. Unless otherwise ordered by the board,
a committee of directors shall have power to fix its quorum and to regulate its
proceedings. Meetings of any such committee may be held at any place in or
outside of Canada.
28. Audit Committee
The Corporation shall have an Audit Committee composed of not fewer than
three (3) directors. If any of the issued securities of the Corporation are or
were part of a distribution to the public, remain outstanding and are held by
more than one (1) person, each of the directors composing the Audit Committee
must be independent and none of them must be an employee of the Corporation or
any of its affiliates. The members of the Audit Committee shall be appointed
annually by the board of directors from its number.
8
The Audit Committee shall be responsible for reviewing the scope and results of
the annual audit of the Corporation's consolidated financial statements
conducted by the Corporation's independent auditors, the scope of other services
provided by the Corporation's independent auditors, the proposed changes in the
Corporation's policies and procedures with respect to its internal accounting,
auditing, auditing and financial controls and shall have such other powers and
duties as may be provided in the Act or specified by the board of directors.
29. Nominating Committee
The board of directors may appoint a Nominating Committee composed of not
fewer than three (3) directors. If any of the issued securities of the
Corporation are or were part of a distribution to the public, remain outstanding
and are held by more than one (1) person, each of the directors composing the
Nominating Committee must be independent and none of them must be an employee of
the Corporation or any of its affiliates. The Nominating Committee shall be
responsible for nominating potential nominees to the board of directors. The
members of the Nominating Committee shall be appointed annually by the board of
directors from its number. The Nominating Committee shall have the powers and
duties as may be specified by the board of directors.
30. Corporate Governance Committee
The board of directors shall have a Corporate Governance Committee
composed of not fewer than three (3) directors. If any of the issued securities
of the Corporation are or were part of a distribution to the public, remain
outstanding and are held by more than one (1) person, each of the directors
composing the Corporate Governance Committee must be independent and none of
them must be an employee of the Corporation or any of its affiliates. The
Corporate Governance Committee shall be responsible for overseeing all aspects
of the Corporation's corporate governance policies. The members of the Corporate
Governance Committee shall be appointed annually by the board of directors from
its number. The Corporate Governance Committee shall have such other powers and
duties that may be specified by the board of directors. No agreement or
arrangement between the Corporation and any affiliate of the Corporation shall
be entered into by the Corporation without the approval of the Corporate
Governance Committee; provided, however, that the foregoing prohibition shall
not apply to any agreement or arrangement that does not exceed any applicable
threshold which may be established by the Corporate Governance Committee from
time to time.
31. Executive Committee
The board of directors may appoint an Executive Committee composed of at
least three (3) members of the board of directors and responsible for
facilitating the efficient operation of the Corporation. The members of the
Executive Committee shall be appointed annually by the board of directors from
its number. The Executive Committee shall have the powers and duties as may be
specified by the board of directors.
9
32. Compensation Committee
The board of directors shall appoint a Compensation Committee composed of
not fewer than three (3) directors. If any of the issued securities of the
Corporation are or were part of a distribution to the public, remain outstanding
and are held by more than one (1) person, each of the directors composing the
Compensation Committee must be independent and none of them must be an employee
of the Corporation or any of its affiliates. The Compensation Committee shall be
responsible for recommending to the board of directors executive compensation,
including base salaries, bonuses and long-term incentive awards for the
executive officers of the Corporation. The members of the Compensation Committee
shall be appointed annually by the board of directors from its number. The
Compensation Committee shall have the powers and duties as may be specified by
the board of directors.
DISCLOSURE OF INTEREST
33. A director or officer of the Corporation shall disclose to the Corporation,
in writing, or by requesting to have it entered in the minutes of meetings of
directors or of meetings of committees of directors, if any, the nature and
extent of any interest that he has in a material contract or material
transaction, whether made or proposed, with the Corporation: if the director or
officer is a party to the contract or the transaction; if he is a director or
officer, or an individual acting in a similar capacity of a party to the
contract or transaction; or if he has a material interest in a party to the
contract or transaction.
In the case of a contract or transaction or a proposed contract or
transaction involving a director, the disclosure shall be made at the meeting of
directors at which the question of entering into the contract or transaction is
first considered. If the director was not at the time of the meeting referred to
previously interested in the proposed contract or transaction, the disclosure
shall be at the first meeting of the directors held after he becomes so
interested. If the director becomes interested in a contract or transaction
after it is made, the disclosure shall be made at the first meeting of directors
held after the director becomes so interested. If an individual who is
interested in a contract or transaction later becomes a director, the disclosure
shall be made at the first meeting after he becomes a director.
If a material contract or material transaction, whether entered into or
proposed, is one that, in the ordinary course of the Corporation's business,
would not require approval by the directors or shareholders, a director or
officer shall disclose, in writing to the Corporation or request to have it
entered in the minutes of meetings of directors or of meetings of committees of
directors, if any, the nature and extent of his interest immediately after he
becomes aware of the contract or transaction.
In the case of a contract or transaction or proposed contract or
transaction involving an officer who is not a director, the disclosure shall be
made immediately after he becomes aware that the contract, transaction or
proposed contract or proposed transaction is to be considered or has been
considered at a meeting. If the officer
10
becomes interested after a contract or transaction is made, the disclosure shall
be made immediately after he becomes so interested. If an individual who is
interested in a contract or transaction later becomes an officer, the disclosure
shall be made immediately after he becomes an officer.
A general notice to the directors declaring that a director or an officer
is to be regarded as interested, for any of the following reasons, in a contract
or transaction made with a party, is a sufficient declaration of interest in
relation to the contract or transaction:
(a) the director or officer is a director or officer or acting in a
similar capacity, of a party to the contract or transaction, or of a
party who has a material interest in a party to the contract or
transaction;
(b) the director or officer has a material interest in the party; or
(c) there has been a material change in the nature of the director's or
the officer's interest in the party.
A director required to make a disclosure of interest shall not vote on any
resolution to approve the contract or transaction unless the contract or
transaction:
(a) relates primarily to his remuneration as a director, officer,
employee or agent of the Corporation or an affiliate; or
(b) is for indemnity or insurance under section 124 of the Act.
INDEMNIFICATION AND PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
34. Liability
No director or officer shall be liable for the acts, receipts, neglects or
defaults of any other director, officer or employee of the Corporation, or for
joining any receipt or other act for conformity, or for any loss, damage or
expense happening to the Corporation through the insufficiency or deficiency of
title to any property acquired for or on behalf of the Corporation, or for the
insufficiency or deficiency of any security in or upon which any of the moneys
of the Corporation shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortuous acts of any person with whom any of the
moneys, securities or effects of the Corporation shall be deposited, or for any
loss occasioned by any error of judgment or oversight on his part, or for any
other loss, damage or misfortune which shall happen in the execution of the
duties of his office or in relation thereto, provided that nothing herein shall
relieve any director or officer from the duty to act in accordance with the Act
or from liability for any breach thereof.
35. Indemnification
11
Subject to the Act, the Corporation shall indemnify a director or officer
of the Corporation, a former director or officer of the Corporation, or another
individual who acts or acted at the Corporation's request as a director or
officer, or an individual acting in a similar capacity, of another entity
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, reasonably incurred by the individual in respect
of any civil, criminal, administrative, investigative or other proceeding in
which the individual is involved because of that association with the
Corporation or other entity if:
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation, or, as the case may be, to the best
interests of the other entity for which the individual acted as a
director of officer or in a similar capacity at the Corporation's
request; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, the individual had
reasonable grounds for believing that the individual's conduct was
lawful.
The Corporation shall advance the necessary moneys to a director, officer
or other individual for the costs, charges and expenses of a proceeding referred
to previously. The individual shall repay the moneys if the individual does not
fulfill the previously named conditions.
The Corporation shall also indemnify such person in such other
circumstances as the Act permits or requires. Nothing in this by-law shall limit
the right of any person entitled to indemnity to claim indemnity apart from the
provisions of this by-law.
36. Insurance
Subject to the Act, the Corporation may purchase and maintain insurance
for the benefit of an individual referred to in section 35 against any liability
incurred by the individual in his capacity as a director or officer of the
Corporation or in the individual's capacity as a director or officer, or similar
capacity, of another entity (as such term is defined in the Act), if the
individual acts or acted in that capacity at the Corporation's request.
MEETINGS OF SHAREHOLDERS
37. Annual Meeting
Subject to compliance with section 133 of the Act, the annual meeting of
the shareholders shall be convened on such day in each year and at such time as
the board of directors may by resolution determine. The directors of the
Corporation shall call an annual meeting of shareholders not later than fifteen
(15) months after holding the last preceding annual meeting but no later than
six (6) months after the end of the Corporation's preceding financial year.
12
38. Special Meetings
Other meetings of the shareholders may be convened by order of the
chairman of the board, the president or a vice-president who is a director or by
the board of directors, to be held at such time and place as may be specified in
such order.
Special meetings of shareholders may also be called by written requisition
to the board of directors signed by shareholders holding between them not less
than five percent (5%) of the outstanding shares of the capital of the
Corporation entitled to vote thereat. Such requisition shall state the business
to be transacted at the meeting and shall be sent to each director and to the
registered office of the Corporation.
Except as otherwise provided in subsection 143(3) of the Act, it shall be
the duty of the board of directors, on receipt of such requisition, to cause the
meeting to be called by the secretary of the Corporation.
If the board of directors does not, within twenty-one (21) days after
receiving such requisition call a meeting, any shareholder who signed the
requisition may call the meeting.
39. Place of Meetings
Meetings of shareholders of the Corporation shall be held at the
registered office of the Corporation or at such other place in Canada as may be
specified in the notice convening such meeting. Notwithstanding the foregoing, a
meeting of shareholders may be held at a place outside Canada if the place does
not contravene the articles.
40. Notice
A notice stating the day, hour and place of meeting and, subject to
subsection 135(6) of the Act, the general nature of the business to be
transacted shall be served to each shareholder who is entitled to vote at such
meeting, each director of the Corporation and the auditor of the Corporation no
less than twenty-one (21) days or more than sixty (60) days before the meeting.
If such notice is served by mail, it shall be directed to the latest address, as
shown in the records of the Corporation, of the intended recipient. Notice of
any meeting of shareholders or any irregularity in any such meeting or in the
notice thereof may be waived by any shareholder, the duly appointed proxy of any
shareholder, any director or the auditor of the Corporation in any manner that a
notice can be given to the Corporation or by any other manner, and any such
waiver may be validly given either before or after the meeting to which such
waiver relates.
41. Omission of Notice
The accidental omission to give notice of any meeting to or the
non-receipt of any notice by any person shall not invalidate any resolution
passed or any proceeding taken at any meeting of shareholders.
13
42. Record Date
The board of directors may, by resolution, fix in advance a date and time
as the record date for the determination of the shareholders entitled to receive
notice of a meeting of the shareholders and/or to vote at such meeting and/or to
receive the financial statements of the Corporation, but such record date shall
not precede by more than sixty (60) days or by less than twenty-one (21) days
the date on which the meeting is to be held and notice of such record date shall
be given not less than seven (7) days before such record date in the manner
prescribed in the Act unless waiver in accordance with the Act is obtained.
If the directors fail to fix in advance a date and time as the record date
in respect of all or any of the matters described above for any meeting of the
shareholders of the Corporation, the following provisions shall apply, as the
case may be:
(a) the record date for the determination of the shareholders entitled
to receive notice of a meeting of shareholders shall be at the close
of business on the day immediately preceding the day on which notice
is given or sent or, if no notice is given, the day on which the
meeting is held;
(b) the record date for the determination of the shareholders entitled
to vote at a meeting of shareholders shall be the day on which the
meeting is held or in accordance with subsection 138(3) of the Act,
if so determined by the directors; and
(c) the record date for the determination of the shareholders entitled
to receive the financial statements of the Corporation shall be the
close of business on the day on which the directors pass the
resolution relating thereto.
43. Participation by communication facilities
Any person entitled to attend a meeting of shareholders may participate in
the meeting by means of a telephonic, electronic or other communication facility
that permits all participants to communicate adequately with each other during
the meeting if the Corporation makes available such a communication facility. A
person participating in a meeting by such means is deemed to be present at that
meeting. A meeting of shareholders may be held, in accordance with the Act,
entirely by telephonic, electronic or other communication facility if the
requirements listed previously are met.
44. Votes
Except in the case of a meeting held by telephonic, electronic or other
communication means, voting at a meeting of shareholders shall be by show of
hands, except where a ballot is demanded by a shareholder entitled to vote at
the meeting. A shareholder may demand a ballot either before or immediately
after any vote by show of hands.
14
Every question submitted to any meeting of shareholders shall be decided
in the first instance, unless a ballot is demanded, on a show of hands, and, in
case of an equality of votes, the chairman of the meeting shall not, both on a
show of hands and on a ballot, have a second or casting vote in addition to the
vote or votes to which he may be entitled as a shareholder.
At any meeting, unless a ballot is demanded, a declaration by the chairman
of the meeting that a resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority shall be
conclusive evidence of the fact without proof of the number or proportion of
votes recorded in favour of or against the motion.
In the absence of the chairman of the board, the president and every
vice-president who is a director, the shareholders present entitled to vote
shall choose another director as chairman of the meeting, and if no director is
present or if all the directors present decline to take the chair, then the
shareholders present shall choose one of their number to be chairman of the
meeting.
If at any meeting a ballot is demanded on the election of a chairman or on
the question of adjournment or termination, it shall be taken forthwith without
adjournment. If a ballot is demanded on any other question or as to the election
of directors, it shall be taken in such manner and either at once or later at
the meeting or after adjournment as the chairman of the meeting directs. The
result of a ballot shall be deemed to be the resolution of the meeting at which
the ballot was demanded. A demand for a ballot may be withdrawn.
Where a person holds shares as a personal representative, such person or
his proxy is the person entitled to vote at all meetings of shareholders in
respect of the shares so held by him.
Where a person mortgages or hypothecates his shares, such person or his
proxy is the person entitled to vote at all meetings of shareholders in respect
of such shares unless, in the instrument creating the mortgage or hypothec, he
has expressly empowered the person holding the mortgage or hypothec to vote in
respect of such shares, in which case, subject to the articles, such holder or
his proxy is the person entitled to vote in respect of the shares.
Where two (2) or more persons hold the same share or shares jointly, any
one (1) of such persons present at a meeting of shareholders has the right, in
the absence of the other or others, to vote in respect of such share or shares,
but if more than one (1) of such persons are present or represented by proxy and
vote, they shall vote together as one (1) on the share or shares jointly held by
them.
Any vote at a meeting held solely by telephonic, electronic or other
communication facility, may be exercised entirely by telephonic, electronic or
other communication facility in accordance with the Act.
45. Proxies
15
A shareholder, including a shareholder that is a body corporate, entitled
to vote at a meeting of shareholders may, by means of a proxy, appoint a
proxyholder or one (1) or more alternate proxyholders, who are not required to
be shareholders, to attend and act at the meeting in the manner and to the
extent authorized by the proxy and with the authority conferred by the proxy.
An instrument appointing a proxyholder shall be in writing and shall be
executed by the shareholder or his attorney authorized in writing or, if the
shareholder is a body corporate, either under its seal or by an officer or
attorney thereof, duly authorized. A proxy is valid only at the meeting in
respect of which it is given or any adjournment thereof.
Unless the Act requires another form, an instrument appointing a
proxyholder may be in the following form:
"The undersigned shareholder of hereby appoints
of or failing him, of , as the nominee of the
undersigned to attend and act for and on behalf of the undersigned at the
meeting of the shareholders of the said Corporation to be held on the day of
, , and at any adjournment thereof to the same extent and with the same
power as if the undersigned were personally present at the said meeting or such
adjournment thereof.
Dated this day of , .
Signature of Shareholder
NOTE:
This form of proxy must be signed by a shareholder or his attorney
authorized in writing or, if the shareholder is a body corporate, either under
its seal or by an officer or attorney thereof duly authorized."
The directors may from time to time adopt procedures regarding the deposit
of instruments appointing a proxyholder at some place or places other than the
place at which a meeting or adjourned meeting of shareholders is to be held and
for particulars of such instruments to be sent before the meeting or adjourned
meeting to the Corporation or any agent of the Corporation for the purpose of
receiving such particulars and providing that instruments appointing a
proxyholder so lodged may be voted upon as though the instruments themselves
were produced at the meeting or adjourned meeting and votes given in accordance
with such regulations shall be valid and shall be counted. The chairman of any
meeting of shareholders may, subject to any procedure adopted as aforesaid, in
his discretion, accept such a communication as to the authority of anyone
claiming to vote on behalf of and to represent a shareholder, notwithstanding
that no instrument of proxy conferring such authority has been lodged with the
Corporation, and any votes given in accordance with such a communication
accepted by the chairman of the meeting shall be valid and shall be counted.
16
46. Adjournment
The chairman of the meeting may, with the consent of the meeting, adjourn
any meeting of shareholders from time to time to a fixed time and place. If a
meeting of shareholders is adjourned less than thirty (30) days, it is not
necessary to give notice of the adjourned meeting other than by announcement at
the earliest meeting that is adjourned. If a meeting of shareholders is
adjourned by one (1) or more adjournments for an aggregate of thirty (30) days
or more, notice of the adjournment meeting shall be given as for an original
meeting but, unless the meeting is adjourned by one (1) or more adjournments for
an aggregate of more than ninety (90) days, the requirements of subsection
149(1) of the Act relating to mandatory solicitation of proxies do not apply.
Any adjourned meeting shall be duly constituted if held in accordance with
the terms of the adjournment and a quorum is present thereat. The persons who
formed a quorum at the original meeting are not required to form a quorum at the
adjourned meeting. If there is no quorum present at the adjourned meeting, the
original meeting shall be deemed to have terminated forthwith after its
adjournment. Any business may be brought before or dealt with at any adjourned
meeting which might have been brought before or dealt with at the original
meeting in accordance with the notice calling same.
47. Quorum
One (1) person present and holding or representing by proxy at least one
(1) issued voting share of the Corporation shall be the required quorum for the
choice of a chairman of the meeting and for the adjournment of the meeting; for
all other purposes, a quorum for any meeting (unless a different number of
shareholders and/or a different number of shares are required to be represented
by the Act or by the articles or by the by-law) shall be persons present being
not less than two (2) in number and holding or representing by proxy at least
50% of the total voting rights attached to the issued and outstanding shares
entitled to vote at such meeting. If a quorum is present at the opening of a
meeting of the shareholders, the shareholders present may proceed with the
business of the meeting, notwithstanding that a quorum is not present throughout
the meeting.
SECURITIES
48. Certificates
Share certificates (and the form of stock transfer power on the reverse
side thereof) shall (subject to compliance with section 49 of the Act) be in
such form and be signed by such director(s) or officer(s) as the board of
directors may from time to time, by resolution, determine.
49. Registrar and Transfer Agent
17
The board of directors may from time to time, by resolution, appoint or
remove one (1) or more registrars and/or branch registrars (which may, but need
not be, the same person) to keep the register of security holders and/or one (1)
or more transfer agents and/or branch transfer agents (which may, but need not
be, the same person) to keep the register of transfer, and (subject to the Act)
may provide for the registration of issues and the registration of transfers of
the securities of the Corporation in one (1) or more places and such registrars
and/or branch registrars and/or transfer agents and/or branch transfer agents
shall keep all necessary books and registers of the Corporation for the
registration of the issuance and the registration of transfers of the securities
of the Corporation for which they are so appointed. All certificates issued
after any such appointment representing securities issued by the Corporation
shall be countersigned by or on behalf of one of the said registrars and/or
branch registrars and/or transfer agents and/or branch transfer agents, as the
case may be.
50. Surrender of Share Certificates
No transfer of a share issued by the Corporation shall be recorded or
registered unless or until the certificate representing the share to be
transferred has been surrendered and cancelled or, if no certificate has been
issued by the Corporation in respect of such share, unless or until a duly
executed share transfer power in respect thereof has been presented for
registration.
51. Defaced, Destroyed, Stolen or Lost Certificates
If the defacement, destruction or apparent destruction, theft, or other
wrongful taking or loss of a share certificate is reported by the owner to the
Corporation or to a registrar, branch registrar, transfer agent or branch
transfer agent of the Corporation (hereinafter, in this paragraph, called the
"Corporation's transfer agent") and such owner gives to the Corporation or the
Corporation's transfer agent a written statement verified by oath or statutory
declaration as to the defacement, destruction or apparent destruction, theft, or
other wrongful taking or loss and the circumstances concerning the same, a
request for the issuance of a new certificate to replace the one so defaced,
destroyed, wrongfully taken or lost and a bond of a surety company (or other
security approved by the board of directors) in such form as is approved by the
board of directors or by the chairman of the board, the president, a
vice-president, the secretary or the treasurer of the Corporation, indemnifying
the Corporation (and the Corporation's transfer agent, if any), against all
loss, damage or expense, which the Corporation and/or the Corporation's transfer
agent may suffer or be liable for by reason of the issuance of a new certificate
to such shareholder, a new certificate may be issued in replacement of the one
defaced, destroyed or apparently destroyed, stolen or otherwise wrongfully taken
or lost, if such issuance is ordered and authorized by any one (1) of the
chairman of the board, the president, a vice-president, the secretary or the
treasurer of the Corporation or by resolution of the board of directors.
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DIVIDENDS
52. Subject to the relevant provisions of the Act, the board of directors may
from time to time, by resolution, declare and the Corporation may pay dividends
on its issued shares, subject to the relevant provisions, if any, of the
articles.
NOTICES
53. Method of Giving Notices
Any notice or document to be given pursuant to the Act, the articles or
the by-law to a shareholder or director of the Corporation may be sent (a) by
prepaid mail addressed to, or may be delivered personally to, the shareholder at
the shareholder's latest address as shown in the records of the Corporation or
its transfer agent or branch transfer agent and the director at the director's
latest address as shown on the records of the Corporation or in the last notice
of directors or notice of change of directors filed under the Act, and a notice
or document sent in accordance with the foregoing to a shareholder or director
of the Corporation shall be deemed to be received by them at the time it would
be delivered in the ordinary course of mail unless there are reasonable grounds
for believing that the shareholder or director did not receive the notice or
document at the time or at all or (b) by electronic means as permitted by, and
in accordance with, the Act. The secretary may change or cause to be changed the
recorded address of any shareholder, director, officer, auditor or member of a
committee of the board, if any, in accordance with any information believed by
the secretary to be reliable. The foregoing shall not be construed so as to
limit the manner or effect of giving notice by any other means of communication
otherwise permitted by law.
54. Shares registered in more than one (1) name
All notices or other documents required to be sent to a shareholder by the
Act, the articles or the by-law of the Corporation shall, with respect to any
shares in the capital of the Corporation registered in more than one name, be
given to whichever of such persons is named first in the records of the
Corporation or its transfer agent or branch transfer agent and any notice or
other document so given shall be sufficient notice of delivery of such documents
to all the holders of such shares.
55. Persons becoming entitled by operation of law
Every person, who by operation of law, transfer or by any other means
whatsoever shall become entitled to any shares in the capital of the
Corporation, shall be bound by every notice or other document in respect of such
shares which prior to his name and address being entered in the records of the
Corporation or its transfer agent or branch transfer agent shall have been duly
given to the person or persons from whom he derives his title to such shares.
56. Deceased Shareholder
19
Any notice or other document delivered or sent by post or left at the
address of any shareholder as the same appears in the records of the Corporation
or its transfer agent or branch transfer agent shall, notwithstanding that such
shareholder be then deceased and whether or not the Corporation has notice of
his decease, be deemed to have been duly served in respect of the shares held by
such shareholder (whether held solely or with other persons) until some other
person be entered in his stead in the records of the Corporation or its transfer
agent or branch transfer agent as the holder or one of the holders thereof and
such service shall, for all purposes, be deemed a sufficient service of such
notice or other document on his heirs, executors or administrators and all
persons, if any, interested with him in such shares.
57. Signatures to Notices
The signature of any director or officer of the Corporation to any notice
may be written, stamped, typewritten or printed or partly written, stamped,
typewritten or printed or, for the notice given by electronic means, in
accordance with section 252.7 of the Act. The foregoing shall not be construed
so as to limit the manner or effect of affixing a signature by any other means
otherwise permitted by law.
58. Computation of Time
Where a given number of days' notice or notice extending over any period
is required to be given under any provisions of the articles or by-law of the
Corporation, the day of service or posting of the notice shall, unless it is
otherwise provided, be counted in such number of days or other period and such
notice shall be deemed to have been given or sent on the day of service or
posting.
59. Proof of Service
A certificate of any officer of the Corporation in office at the time of
the making of the certificate or of a transfer officer of any transfer agent or
branch transfer agent of shares of any class of the Corporation as to facts in
relation to the mailing or delivery or service of any notice or other documents
to any shareholder, director, officer or auditor or publication of any notice or
other document, shall be conclusive evidence thereof and shall be binding on
every shareholder, director, officer or auditor of the Corporation, as the case
may be.
CHEQUES, DRAFTS, NOTES, ETC.
60. All cheques, drafts or orders for the payment of money and all notes,
acceptances and bills of exchange shall be signed by such officer or officers or
other person or persons, whether or not officers of the Corporation, and in such
manner as the board of directors may from time to time designate by resolution.
20
CUSTODY OF SECURITIES
61. All securities, including warrants, owned by the Corporation shall be
lodged, in the name of the Corporation, with a chartered bank or a trust company
or in a safety deposit box or, if so authorized by resolution of the board of
directors, with such other depositaries or in such other manner as may be
determined from time to time by the board of directors.
All securities, including warrants, belonging to the Corporation may be
issued and held in the name of a nominee or nominees of the Corporation, and, if
issued or held in the names of more than one nominee, shall be held in the names
of the nominees jointly with right of survivorship and shall be endorsed in
blank with endorsement guaranteed in order to enable transfer thereof to be
completed and registration thereof to be effected.
EXECUTION OF CONTRACTS, ETC.
62. Contracts, documents or instruments in writing requiring the signature of
the Corporation may be signed by any director or any officer of the Corporation,
or by any person authorized by resolution of the board of directors. All
contracts, documents or instruments in writing so signed shall be binding upon
the Corporation without any further authorization or formality. The board of
directors is authorized from time to time, by resolution, to appoint any officer
or officers or any other person or persons on behalf of the Corporation, either
to sign contracts, documents or instruments in writing generally or to sign
specific contracts, documents or instruments in writing. Where the Corporation
has only one (1) director and officer being the same person, that person may
sign all such contracts, documents or other written instruments.
The corporate seal, if any, may, when required, be affixed to contracts,
documents or instruments in writing, signed as aforesaid, by an officer or
officers, person or persons, appointed as aforesaid by resolution of the board
of directors.
The term "contracts, documents or instruments in writing", as used in this
by-law, shall include deeds, mortgages, hypothecs, charges, conveyances,
transfers and assignments of property, real or personal, immoveable or moveable,
agreements, releases, receipts and discharges for the payment of money or other
obligations, conveyances, transfers and assignments of shares, warrants, bonds,
debentures or other securities and all paper writings or their equivalent on all
electronic form.
In particular, without limiting the generality of the foregoing, any
director or any officer of the Corporation, or any person authorized by
resolution of the board of directors, is hereby authorized to sell, assign,
transfer, exchange, convert or convey all shares, bonds, debentures, rights,
warrants or other securities owned by or registered in the name of the
Corporation and to sign and execute, under the seal of the Corporation or
otherwise, all assignments, transfers, conveyances, powers of attorney and other
instruments that may be necessary for the purpose of selling, assigning,
transferring, exchanging, converting or conveying or enforcing or exercising any
voting rights in
21
respect of any such shares, bonds, debentures, rights, warrants or other
securities. Where the Corporation has only one (1) director and officer, being
the same person, that person may perform the functions and exercise the powers
herein contemplated.
The signature or signatures of any officer or director of the Corporation
and/or of any person or persons appointed as aforesaid by resolution of the
board of directors may, if specifically authorized by resolution of the
directors, be printed, engraved, lithographed, otherwise mechanically or
electronically reproduced or given in any manner permitted by the law, on all
contracts, documents or instruments in writing or in an electronic form, or,
subject to subsections 49(4) and 49(5) of the Act, on bonds, debentures or other
securities of the Corporation executed or issued by or on behalf of the
Corporation. All such contracts, documents or instruments in writing or in an
electronic form, or bonds, debentures or other securities of the Corporation on
which the signatures of any of the foregoing officers, directors or persons
shall be so reproduced, by authorization by resolution of the board of directors
shall, subject to subsections 49(4) and 49(5) of the Act, be deemed to have been
duly signed by such officers and shall be as valid to all intents and purposes
as if they had been signed manually and notwithstanding that the officers,
directors or persons whose signature or signatures is or are so reproduced may
have ceased to hold office at the date of the delivery or issue of such
contracts, documents or instruments in writing or in an electronic form or
bonds, debentures or other securities of the Corporation.
DECLARATIONS
63. Any director or any officer of the Corporation, or any person authorized by
resolution of the board of directors or any employee authorized by any officer
or director of the Corporation, is authorized and empowered to appear and make
answer for the Corporation to all writs, orders and interrogatories upon
articulated facts issued out of any court and to declare for and on behalf of
the Corporation any answer to writs of attachment by way of garnishment in which
the Corporation is garnishee, and to make all affidavits and sworn declarations
in connection therewith or in connection with any or all judicial proceedings to
which the Corporation is a party and to make demands of abandonment or petitions
for winding up or bankruptcy orders upon any debtor of the Corporation and to
attend and vote at all meetings of creditors of any of the Corporation's debtors
and grant proxies in connection therewith.
FISCAL YEAR
64. The fiscal period of the Corporation shall terminate on such day in each
year as the board of directors may from time to time, by resolution, determine.
22
EXHIBIT 4.1
NUMBER AV- ___________________________________
QUANTITY _______________________________________
DESIGNATION Class A Voting shares
HENRY BIRKS & SONS INC.
HENRY BIRKS ET FILS INC.
INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT
(the "Act")
This certifies that SPECIMEN is the holder of Class A Voting no par value shares
of the capital of the Corporation.
The shares represented by this certificate are subject to certain rights,
privileges, restrictions and conditions. The Corporation will furnish to the
shareholder, on demand, and without charge, a full copy of the text of the
rights, privileges, restrictions and conditions attached to each class
authorized to be issued and to each series in so far as the same have been fixed
by the directors, and the authority of the directors to fix the rights,
privileges, restrictions and conditions of subsequent series.
NOTICE
The shares represented by this certificate are subject to the following
restrictions:
(X) transfer restrictions; (X) unanimous shareholders agreement;
( ) lien of shares; ( ) endorsement in accordance with section 190(10)
of the Act.
IN WITNESS THEREOF, this certificate has been duly signed and executed, on
behalf of the Corporation, by its authorized director(s) or officer(s).
Dated this ______________________________ day of _______________________ 2005
President Secretary
TRANSFER AND POWER OF ATTORNEY
__________________________________________________ hereby sells, transfers and
delivers for value, ____________________________________________________________
of the shares represented by this certificate, in favor of _____________________
residing at _________________________________________________________, and
hereby irrevocably appoints ___________________________________________ as
attorney, authorized to register this transfer in the books of the Corporation,
and if required to appoint his substitute.
Dated this ___________________ day of _____________________________ 20________.
Witness Transferor
(NOTE: The shares represented by this certificate may not be validly transferred
without the express authorization of the person whose name appears on the
reverse side hereof or upon that of his agent or representative.)
"OWNERSHIP, ALIENATION AND ENCUMBRANCE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THE SHAREHOLDERS AGREEMENT
MADE AS OF AUGUST 31, 1998 AS AMENDED, A COPY OF WHICH IS ON FILE AT THE
REGISTERED OFFICE OF THE CORPORATION."
EMISSION / ISSUE
Numero du certificat
Certificate number AV- ________________
Nombre d'actions Designation
Number of shares ____________________ Designation Class A Voting shares
Emis en faveur de
Issued unto Specimen
|
En date du
Dated as of ____________________________ 2005
DELIVRANCE / RECEPTION
J'accuse reception du certificat ci-haut decrit.
I hereby declare to have taken delivery of the certificate described herein.
En date du
Dated as of ____________________________________ ____
Signature _____________________________________________
TRANSFERT / TRANSFER
Nombre d'actions
Number of shares ________________________________
Transfert en faveur de
Transferred unto ________________________________
|
Numero du certificat du cessionnaire Numero du nouveau certificat du cedant
Certificate number of transferee ________ New certificate number of
transferor __________________
ANNULATION / CANCELLATION
Ce certificat a ete presente pour annulation ou l'actionnaire a declare
que ce certificat a ete perdu, vole ou detruit et a satisfait aux
conditions imposees par la loi ou les reglements.
This certificate has been presented for purposes of cancellation or
whereby the holder thereof declared that such certificate has been lost,
stolen or defaced, duly fulfilling the requirements of the law and the
by-laws.
Numero du nouveau certificat
Newly issued certificate number _________________
En date du
Dated as of __________________________________ __________
EXHIBIT 9.1
SHAREHOLDERS' AGREEMENT
BY AND AMONG
THE MANAGEMENT INVESTORS IDENTIFIED IN APPENDIX A HERETO
AND
HENRY BIRKS & SONS HOLDINGS INC.
AND
HENRY BIRKS & SONS INC.
MADE AS OF AUGUST 31, 1998
AMENDED AS OF ______________, 2002
TABLE OF CONTENTS
PAGE NO
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ARTICLE I INTERPRETATION.................................................. 1
1.1 Definitions....................................................... 1
1.2 Gender............................................................ 5
1.3 Headings.......................................................... 5
1.4 Severability...................................................... 5
1.5 Entire Agreement.................................................. 5
1.6 Amendments........................................................ 5
1.7 Waiver............................................................ 5
1.8 Governing Law..................................................... 6
1.9 Language.......................................................... 6
1.10 Delays............................................................ 6
1.11 Conflict.......................................................... 6
1.12 Statutes.......................................................... 6
1.13 Preamble.......................................................... 6
ARTICLE II VOTING AGREEMENT............................................... 6
2.1 Voting Agreement.................................................. 6
ARTICLE III RESTRICTIONS ON TRANSFER...................................... 7
3.1 No Transfer....................................................... 7
3.2 Assignment to and From a Permitted Transferee..................... 7
3.3 Right of First Refusal -- Holdings................................ 7
3.4 Right of First Refusal - Management Investors..................... 9
3.5 Drag Along Rights; Piggy-Back Rights.............................. 10
3.6 Nominee........................................................... 10
3.7 Trigger Event..................................................... 11
3.8 Precedence of Offers and Rights................................... 11
3.9 Refusal of Corporation............................................ 11
3.10 Offer; Third Party Offer Notice................................... 12
3.11 Irrevocability.................................................... 12
3.12 Inscription....................................................... 12
3.13 Determination of Value............................................ 12
ARTICLE IV CONVERSION..................................................... 13
4.1 Conversion Privilege.............................................. 13
4.2 No Fractional Shares.............................................. 13
ARTICLE V CLOSING......................................................... 13
5.1 Time, Place, Terms and Conditions................................. 13
5.2 Further Assurances................................................ 14
ARTICLE VI GENERAL PROVISIONS............................................. 15
6.1 Successors in Interest............................................ 15
6.2 Notice............................................................ 15
6.3 Purported Transfers............................................... 16
6.4 Time.............................................................. 16
6.5 Execution of Counterpart.......................................... 16
6.6 Termination....................................................... 16
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Schedules:
Schedule 6.5 - Counterpart
SHAREHOLDERS' AGREEMENT
MEMORANDUM OF AGREEMENT made at Montreal, Quebec, as of the 31st day of
August, 1998, and amended and restated as of the _______ day of __________,
2002.
BY AND AMONG: THE MANAGEMENT INVESTORS LISTED IN APPENDIX A
HERETO, (hereinafter, the "MANAGEMENT INVESTORS");
AND: HENRY BIRKS & SONS HOLDINGS INC. a corporation
incorporated under the laws of Canada, (hereinafter
"HOLDINGS");
AND: HENRY BIRKS & SONS INC., a corporation amalgamated
under the laws of Canada, (hereinafter, the "CORPORATION").
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THIS AGREEMENT WITNESSETH THAT, in consideration of the mutual covenants
herein contained, it is agreed by and among the Parties as follows:
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS
For the purposes of this Agreement or any offer, acceptance, rejection,
notice, consent, request, authorization, permission, direction or other
instrument required or permitted to be given hereunder, the following words and
phrases shall have the following meanings, respectively, unless the context
otherwise requires:
"ACT" shall mean the Canada Business Corporations Act.
"ADDITIONAL OFFER" shall have the meaning ascribed thereto at Section
3.4(c).
"AFFILIATE" shall have the meaning ascribed thereto in the Act.
"AGREEMENT" shall mean this Shareholders' Agreement and all instruments
supplemental hereto or in amendment or confirmation hereof; "herein",
"hereof", "hereto", "hereunder" and similar expressions mean and refer to
this Agreement and not to any particular Article, Section, Subsection or
other subdivision; "Article", "Section", "Subsection" or other subdivision
of this Agreement means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement.
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"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday, or other
day on which the principal commercial banks in Montreal are not open for
business during normal banking hours.
"BOARD" shall mean the Board of Directors of the Corporation.
"CLOSING" shall mean the sale of Shares pursuant to this Agreement.
"CLOSING DATE" shall mean:
(i) in the case of a Closing pursuant to Section 3.3 or Section
3.4, the date which is ten (10) Business Days after the
acceptance of the Offer or, in the circumstances described in
Section 3.13, the date which is ten (10) Business Days after
the Value is determined.
(ii) in the case of a Closing pursuant to Section 3.5, the date
which is contemplated by the Third Party Offer for the Closing
of the sale; and
(iii) in the case of a Closing pursuant to Section 3.7, the date
which is thirty (30) Business Days after the Trigger Date, or
if the Trigger Event is death or bankruptcy, the date which is
seven (7) Business Days after the receipt of all necessary
releases, consents or approvals required under all Laws to be
obtained in order to effect a valid transfer of the purchased
Shares (the Parties shall use their best efforts to obtain
such releases, consents and approvals).
"CONTROL" means, in relation to a Person that is a corporation or other
body corporate, the ownership, directly or indirectly, of voting
securities of such Person carrying more than 50% of the voting rights
attaching to all voting securities of such Person and which are
sufficient, if exercised, to elect a majority of its board of directors or
other governing body; and "CONTROLLED" shall have a similar meaning.
"CORPORATION" shall mean Henry Birks & Sons Inc.; for the purposes of the
definition of "TRIGGER EVENT" in this Section 1.1, "CORPORATION" shall
also include any corporation or other body corporate Controlled by the
Corporation.
"DOLLAR", "DOLLARS" and the sign "$" shall each mean lawful money of
Canada.
"GOVERNMENTAL BODY" shall mean (i) any domestic or foreign national,
federal, provincial, state, municipal or other government or body, (ii)
any multinational, multilateral or international body, (iii) any
subdivision, agent, commission, board, instrumentality or authority of any
of the foregoing governments or bodies, (iv) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing authority
under or for the account of any of the foregoing governments or bodies, or
(v) any domestic, foreign, international, multilateral or multinational
judicial, quasijudicial, arbitration or administrative court, tribunal,
commission, board or panel.
"HOLDINGS" shall mean Henry Birks & Sons Holdings Inc.
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"LAWS" shall mean (i) all constitutions, treaties, laws, statutes, codes,
ordinances, orders, decrees, rules, regulations, and municipal by-laws,
whether domestic, foreign or international, and (ii) all judgments,
orders, writs, injunctions, decisions, rulings, decrees, and awards of any
Governmental Body, in each case binding on or affecting the Person
referred to in the context in which such word is used; and "LAW" shall
mean any one of them.
"MAJORITY OFFERING PARTY" shall have the meaning ascribed thereto at
Section 3.4(a).
"MANAGEMENT INVESTOR OFFER" shall have the meaning ascribed thereto at
Section 3.3(a).
"MANAGEMENT INVESTORS" shall mean the management investors listed in
Appendix A hereto together with such further management investors as may
become a party to this Agreement pursuant to its terms so long, in the
case of each of the foregoing, as such management investor remains a
Shareholder of the Corporation.
"NOMINEE" shall have the meaning ascribed thereto at Section 3.6.
"NOTIFIED PARTY" and "NOTIFIED PARTIES" shall have the meaning ascribed
thereto at Section 3.3(a).
"OFFER" shall have the meaning ascribed thereto at Section 3.3(a) or
Section 3.4(a), as the case may be.
"OFFER PERIOD" shall have the meaning ascribed thereto at Section 3.3(a)
or Section 3.4(a), as the case may be.
"OFFERED SECURITIES" shall have the meaning ascribed thereto at Section
3.3(a), Section 3.4(a) or Section 3.7, as the case may be.
"OFFERING PARTY" shall have the meaning ascribed thereto at Section
3.3(a), Section 3.4(a) or Section 3.7, as the case may be.
"PARTIES" shall mean the Management Investors, Holdings and the
Corporation; and "PARTY" shall mean any one of them.
"PERMITTED TRANSFEREE" shall, in respect of a Person, mean a corporation
incorporated under the Act, all of the shares of which are held by such
Person and in respect of Holdings, shall mean Henry Birks & Sons Holdings
Inc., Montroluxe S.A., and Investment Regaluxe Sarl.
"PERSON" shall mean an individual, corporation, company, co-operative,
partnership, trust, unincorporated association, Governmental Body; and
pronouns when they refer to a Person shall have a similarly extended
meaning.
"PRIME RATE" shall mean the rate of interest per annum reported, quoted,
published and commonly known as the prime rate of interest of Canadian
Imperial Bank of Commerce for loans in dollars made in Canada to
substantial and responsible customers. Each
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announced change in the prime rate of interest of Canadian Imperial Bank
of Commerce will be effective as of the effective date specified in the
relevant announcement or, if no effective date is so specified, as of the
date of such announcement. With each change in the Prime Rate there shall
be a corresponding change in any rate of interest based thereon and
payable pursuant hereto.
"SHAREHOLDERS" shall mean all of the registered holders of Shares; and
"SHAREHOLDER" shall mean any one of them.
"SHARES" shall mean (i) any share of any class, series or category of the
capital stock of the Corporation, or (ii) any equity security in the
capital of the Corporation including, without limitation, purchase
warrants, options or securities in whole or in part convertible or
exchangeable for or into shares of any class, series or category of the
capital stock of the Corporation; and "SHARE" shall mean any one of them.
"THIRD PARTY" shall have the meaning ascribed thereto at Section 3.3(a) or
Section 3.4(a), as the case may be.
"THIRD PARTY OFFER" shall have the meaning ascribed thereto at Section
3.3(a) or Section 3.4(a), as the case may be.
"TRANSFER", and any derivative thereof, shall, when used as a verb or a
noun in this Agreement, mean to sell, assign, surrender, exchange, give,
donate, transfer, pledge, mortgage, charge, create a security interest in,
hypothecate, grant an option in, or otherwise dispose, alienate, encumber
or deal with any of the Shares; however, if the Shareholder is a body
corporate, then (i) any amalgamation, merger, dissolution, liquidation or
winding up of such body corporate, or (ii) any change of control of such
body corporate, shall each also be deemed a Transfer.
"TRIGGER DATE" shall mean the date on which a Trigger Event occurs.
"TRIGGER EVENT" shall mean any of the following events:
(i) in respect of an individual Management Investor, the death of such
Management Investor;
(ii) in respect of an individual Management Investor, any incapacity or
disability of such severity that such Management Investor shall be
unable to attend to such Management Investor's duties with the
Corporation for more than six (6) consecutive months or for nine (9)
months out of any period of fifteen (15) consecutive months;
(iii) in respect of an individual Management Investor, the resignation of
such Management Investor from the Corporation;
(iv) the termination of an individual Management Investor's employment
with the Corporation.
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"TRIGGER EVENT OFFERING PARTY" shall have the meaning ascribed thereto at
Section 3.7.
"VALUE" shall mean the value of a Share as determined by the auditors of
the Corporation pursuant to Section 3.13 and in accordance with Canadian
generally accepted accounting principles, consistently applied.
1.2 GENDER
Any reference in this Agreement to any gender shall include all genders
and words used herein importing the singular number only shall include the
plural and vice versa.
1.3 HEADINGS
The division of this Agreement into Articles, Sections, Subsections and
other subdivisions and the insertion of headings are for convenience of
reference only and shall not affect or be utilised in the construction or
interpretation of this Agreement.
1.4 SEVERABILITY
Any Article, Section, Subsection or other subdivision of this Agreement or
any other provision of this Agreement which is, or becomes, illegal, invalid or
unenforceable shall be severed herefrom and shall be ineffective to the extent
of such illegality, invalidity or unenforceability and shall not affect or
impair the remaining provisions hereof, which provisions shall be severed from
an illegal or unenforceable Article, Section, Subsection or other subdivision of
this Agreement or any other provisions of this Agreement.
1.5 ENTIRE AGREEMENT
This Agreement together with any other instruments to be delivered
pursuant hereto, constitute the entire agreement among the Parties pertaining to
the subject matter hereof and supersede all prior agreements, understandings,
negotiations, and discussions, whether oral or written, among any or all of the
Parties.
1.6 AMENDMENTS
No amendment of this Agreement shall be binding unless otherwise expressly
provided in an instrument duly executed in writing by the Parties.
1.7 WAIVER
Except as otherwise provided in this Agreement, no waiver of any of the
provisions of this Agreement shall be deemed to constitute a waiver of any other
provisions (whether or not similar) nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided in an instrument duly
executed in writing by the Parties.
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1.8 GOVERNING LAW
This Agreement shall be governed, interpreted and construed by and in
accordance with the Laws of the Province of Quebec and the Laws of Canada
applicable therein and shall be treated in all respects as a Quebec contract.
1.9 LANGUAGE
The Parties have required that this Agreement and all instruments relating
thereto be in the English language; les parties ont exige que la presente
convention et tout autre document afferent aux presentes soient en langue
anglaise.
1.10 DELAYS
When calculating the period of time within which or following which any
act is to be done or step taken pursuant to this Agreement, the day which is the
reference day in calculating such period shall be excluded.
1.11 CONFLICT
If any conflict should appear between this Agreement and the by-laws or
resolutions of the Corporation, then the provisions of this Agreement shall
prevail.
1.12 STATUTES
References in this Agreement to statutes shall include any statute
amending, modifying, re-enacting, restating, extending or made pursuant to the
same or which is amended, modified, re-enacted, restated, or extended by the
same.
1.13 PREAMBLE
The preamble hereto is incorporated herein by reference and deemed to be a
part of this Agreement.
ARTICLE II
VOTING AGREEMENT
2.1 VOTING AGREEMENT
During the period from and including the date hereof through and including
the termination date of this Agreement, each of the Management Investors hereby
appoints Dr. Lorenzo Rossi di Montelera as the nominee of such Management
Investor to attend and act for and on behalf of such Management Investor at any
meeting of the shareholders of the Corporation and at any adjournment thereof to
the same extent and with the same power as if the Management Investors were
personally present at the said meeting or such adjournment thereof. Each
Management Investor represents that any outstanding proxies heretobefore given
in respect of any Shares held by such Management Investor are not irrevocable,
and that such Management Investor shall revoke all such proxies forthwith.
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ARTICLE III
RESTRICTIONS ON TRANSFER
3.1 NO TRANSFER
Except as permitted in this Article III and except for pledges granted by
the Management Investors to the Corporation, the Management Investors may not
transfer, pledge, encumber or otherwise dispose in whole or in part, directly or
indirectly, any Shares or any right, title or interest therein.
3.2 ASSIGNMENT TO AND FROM A PERMITTED TRANSFEREE
A Shareholder may assign some or all of the Shares held by such
Shareholder to a Permitted Transferee, provided that:
(a) in the case of a Management Investor, one or more Shareholders
holding not less than seventy-five percent (75%) of the issued and
outstanding Shares consent to such assignment, which consent cannot
be arbitrarily withheld by such Shareholder or Shareholders, as the
case may be;
(b) the Permitted Transferee has executed prior to such assignment a
counterpart of this Agreement in accordance with Section 6.5; and
(c) the assignor has agreed prior to such assignment, in form and terms
satisfactory to the legal counsel of the Corporation, acting
reasonably, that as long as the Permitted Transferee holds such
Shares the assignor shall (i) not transfer to any Person the legal
and/ or beneficial ownership of any issued and outstanding share,
equity security or ownership, participatory or profit interest in
the Permitted Transferee or otherwise transfer the control of the
Permitted Transferee by any mechanism whatsoever, (ii) not be
relieved of its obligations hereunder and continue to be bound by
this Agreement as if it continued to be a Shareholder, (iii)
represent the Permitted Transferee in all of the Permitted
Transferee's dealings with the Corporation and the other
Shareholders, (iv) guarantee to the other Parties the timely
performance and fulfilment by the Permitted Transferee of its
obligations and covenants under this Agreement, and (v) solidarily
with the Permitted Transferee, each waiving the benefit of division
and discussion, be liable to the other Parties for the obligations
of the Permitted Transferee under this Agreement.
A Permitted Transferee may assign some or all of the Shares held by it to
the Person from whom it acquired such Shares, subject to the consent described
at item (a) above and to compliance with Section 6.5.
3.3 RIGHT OF FIRST REFUSAL -- HOLDINGS
(a) A Management Investor shall not be entitled to transfer Shares it
holds other than by sale of all of the Shares it holds. If a
Management Investor (the "OFFERING PARTY") desires to sell all (but
not less than all) of its Shares (the "MANAGEMENT
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INVESTOR OFFER"), or wishes to accept a bona fide irrevocable written
offer from a person dealing at arms' length (within the meaning the Income
Tax Act (Canada)) with the Offering Party (the "THIRD PARTY") to purchase
all (but not less than all) of the Shares held by the Offering Party (the
"THIRD PARTY OFFER"), then it shall first offer to sell (the "OFFER") such
Shares (the "OFFERED SECURITIES") to the Corporation and to Holdings, or
to Holdings' assignee, as the holder of the majority of the common shares
of the Corporation (the "NOTIFIED PARTIES") in accordance with the
procedure set forth in this Section 3.3. The Offer shall be sent to each
Notified Party and shall respect the following conditions:
(i) in the case of a Third Party Offer, the Offer shall include a copy
of the Third Party Offer, and reasonable detail as to the identity
and, where applicable, the ownership of the Third Party, and the
terms and conditions of the Offer shall be not less favourable, in
the aggregate, for the Notified Parties than those contained in the
Third Party Offer;
(ii) in the case of a Management Investor Offer, the sale price in the
Offer shall be the Value of the Offered Securities as at the last
day of the Corporation's most recently-completed fiscal year, or as
otherwise determined pursuant to Section 3.13 hereof; and
(iii) in all cases, the Offer shall open for acceptance by the Notified
Parties for thirty (30) Business Days (the "OFFER PERIOD") from the
receipt of the Offer by the Notified Parties.
The Notified Parties shall be obliged by delivering notice to the Offering
Party within, but not after the expiration of, the Offer Period at their
sole option to either accept the Offer or reject the Offer. If a Notified
Party does not accept the Offer, then such Notified Party shall be deemed
to have rejected the Offer. If a Notified Party has accepted the Offer,
then the Offering Party shall sell to the Notified Party, and the Notified
Party shall purchase from the Offering Party, the Offered Securities in
accordance with this Agreement. If both Notified Parties accept the Offer,
the Offered Securities shall be sold to the Corporation.
(b) If both of the Notified Parties have or are deemed to have rejected the
Offer, then the Offering Party shall be free for a period of thirty (30)
Business Days from the end of the Offer Period to sell all, but not less
than all, of the Offered Securities
(i) in the case of a Third Party Offer, to the Third Party on terms not
more favourable in the aggregate for the Third Party than those
contained in the Third Party Offer; or
(ii) in the case of a Management Investor Offer, to any Person on terms
not more favourable, in the aggregate, for such Person than those
contained in the Offer;
provided, however, that in either case it shall be a condition precedent
to the right of the Offering Party to sell the Offered Securities that the
purchaser has
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executed a counterpart of this Agreement in accordance with Section
6.5. If no sale takes place within the said thirty (30) Business Day
period, then the Offering Party shall not transfer the Offered
Securities without again following and being subject to this Article
III.
3.4 RIGHT OF FIRST REFUSAL - MANAGEMENT INVESTORS
(a) If one or more Shareholders holding, in the aggregate, not less than
seventy-five percent (75%) of the Shares (collectively, the
"MAJORITY OFFERING PARTY") should receive a bona fide irrevocable
written offer (the "THIRD PARTY OFFER") from a Person dealing at
arms' length (within the meaning of the Income Tax Act (Canada))
with the Majority Offering Party (the "THIRD PARTY"), to purchase
all (but not less than all) of the Shares held by the Majority
Offering Party, which it has accepted or intends to accept, then the
Majority Offering Party shall first offer to sell (the "OFFER") such
Shares (the "OFFERED SECURITIES") to the Management Investors in
accordance with the procedure set forth in this Section 3.4. The
Offer shall be sent to each Management Investor, shall include a
copy of the Third Party Offer, and shall contain terms and
conditions not less favourable, in the aggregate, for the Management
Investors than those contained in the Third Party Offer. The Offer
shall open for acceptance by the Management Investors for thirty
(30) Business Days (the "OFFER PERIOD") from the receipt of the
Offer by the Management Investors.
(b) The Management Investors shall be obliged by notice delivered by the
Nominee to the Majority Offering Party within, but not after the
expiration of, the Offer Period at their sole option to either
accept the Offer or reject the Offer. If a Management Investor does
not accept the Offer, then such Management Investor shall be deemed
to have rejected the Offer. If all of the Management Investors have
accepted the Offer, then the Majority Offering Party shall sell to
each Management Investor, and each Management Investor shall
purchase from the Majority Offering Party, within thirty (30)
Business Days following the end of the Offer Period, such Management
Investor's pro rata share of the Offered Securities in accordance
with this Agreement.
(c) If one or more (but not all) of the Management Investors reject or
are deemed to have rejected the Offer, then every Management
Investor having accepted the Offer shall have the right to purchase
his or her pro rata share of the unaccepted Offered Securities (the
"ADDITIONAL OFFER"); and the Additional Offer shall be repeated
until (i) all of the Offered Securities are accepted or (ii) the
Offer Period expires without all of the Offered Securities having
been accepted. If, following one or more Additional Offers, all of
the unaccepted Offered Securities are accepted, then the Majority
Offering Party shall sell to each Management Investor having
accepted the Offer or the Additional Offer, and each such Management
Investor shall purchase from the Majority Offering Party, within
thirty (30) Business Days following the end of the Offer Period,
such Management Investor's pro rata share of the Offered Securities
and the unaccepted Offered Securities in accordance with this
Agreement. If less than all
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of the Offered Securities are accepted following one or more
Additional Offers, then all of the Management Investors shall be
deemed to have rejected the Offer and the Additional Offer.
(d) If the Management Investors have or are deemed to have rejected the
Offer and the Additional Offer, then the Majority Offering Party
shall be free for a period of thirty (30) Business Days from the end
of the Offer Period to sell all, but not less than all, of the
Offered Securities to the Third Party on terms not more favourable
in the aggregate for the Third Party than those contained in the
Third Party Offer; provided, however, that it shall be a condition
precedent to the right of the Majority Offering Party to sell the
Offered Securities that the purchaser has executed a counterpart of
this Agreement in accordance with Section 6.5. If no sale takes
place within the said thirty (30) Business Day period, then the
Majority Offering Party shall not transfer the Offered Securities
without again following and being subject to this Article III.
3.5 DRAG ALONG RIGHTS; PIGGY-BACK RIGHTS
If the Management Investors have or are deemed to have rejected the Offer
and the Additional Offer pursuant to Section 3.4(d), such that the Majority
Offering Party has the right to sell all but not less than all of the Offered
Securities to the Third Party, then:
(a) the Majority Offering Party shall also have the right, upon written
notice to the other Shareholders, to require that the other
Shareholders sell all of the Shares held by such Shareholders
together with the Shares held by the Majority Offering Party on the
same terms as those contained in the Third Party Offer. In such
event, such Shareholders shall be obliged to sell all of the Shares
held by them in accordance with the terms of the Third Party Offer;
and
(b) each Management Investor shall have the right, at such Management
Investor's option, to require that all of the Shares held by such
Management Investor be included in the sale contemplated by the
Third Party Offer. If a Management Investor wishes to exercise the
right granted in this Section 3.5(b), then it shall do so by notice
sent by the Nominee to the Majority Offering Party within, but not
after, five (5) Business Days of the end of the Offer Period.
3.6 NOMINEE
(a) For the purposes of Section 3.4 and Section 3.5(b), each Management
Investor hereby appoints Thomas A. Andruskevich (or any other
individual designated by the Management Investors in accordance with
Section 3.6(b) below) as its nominee (the "NOMINEE") to represent
such Management Investor in the exercise of its rights under Section
3.4 and Section 3.5(b), including, without limitation, to represent
and act on behalf of each Management Investor, in accordance with
the instructions of each such Management Investor, in all
correspondence and other communications to and from Holdings in
accordance with Section 6.2 hereof.
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(b) The Nominee may be replaced (i) at any time by the Management
Investors, by the vote of the holders of a majority of the Shares
held in the aggregate by Management Investors as at such date; or
(ii) by Holdings, in the event that the Nominee resigns, is
incapable of acting or refuses to act, if the Nominee is not
replaced in accordance with the provisions hereof within five (5)
Business Days of written notice from Holdings of such resignation,
incapacity or refusal to act. All Parties shall be notified of any
such change of Nominee in accordance with the notice provisions set
out in Section 6.2 hereof.
3.7 TRIGGER EVENT
Upon the occurrence of a Trigger Event in connection with a Management
Investor, such Management Investor or his heirs, executors or other legal
representatives, as the case may be, (the "TRIGGER EVENT OFFERING PARTY") shall
be deemed to have offered for sale to Holdings all, but not less than all, of
the Shares held by the Trigger Event Offering Party immediately prior to the
Trigger Event (the "OFFERED SECURITIES") for an amount per share equal to the
Value of the Offered Securities, and Holdings shall have the option to purchase
such Offered Securities.
This option may be exercised by Holdings giving notice thereof to the
Trigger Event Offering Party within fifteen (15) Business Days from the Trigger
Date. The Trigger Event Offering Party shall forthwith give notice to Holdings
of any Trigger Event.
If Holdings does not exercise the option in this Section 3.7, then, to the
extent permitted by law, the Corporation shall purchase from the Trigger Event
Offering Party, and the Trigger Event Offering Party shall sell to the
Corporation, the Offered Securities for an amount per share equal to the Value
of the Offered Security.
3.8 PRECEDENCE OF OFFERS AND RIGHTS
In the event that any Offer or Third Party Offer or Trigger Event shall
take place pursuant to Sections 3.3, 3.4, 3.5 or 3.7, respectively at a time
when any other such Offer or Third Party Offer or Trigger Event may have been
made with respect to Shares, or occurred, and prior to the conclusion of the
transactions contemplated by such Offer, Third Party Offer or Trigger Event,
then:
(a) the provisions of Section 3.5 shall have precedence over the
provisions of Sections 3.3, 3.4 and 3.7; and
(b) the provisions of Section 3.7 shall have precedence over the
provisions of Sections 3.3 and 3.4.
3.9 REFUSAL OF CORPORATION
The Corporation shall record each transfer of Shares; provided, however,
that the Corporation shall refuse to record a transfer of Shares made in
contravention of this Agreement. The Corporation and its board of directors,
prior to consenting to the transfer of Shares, shall be entitled to require
proof that the transfer took place in accordance with this Agreement.
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3.10 OFFER; THIRD PARTY OFFER NOTICE
Each Offer and Third Party Offer Notice shall be in writing signed by the
Offering Party and shall:
(a) identify the Section pursuant to which it is delivered;
(b) identify and provide particulars of the Offered Securities;
(c) state the purchase price per Offered Security;
(d) in the case of a Third Party Offer, state the identity and address
of the Person (who shall deal at arm's length with the Offering
Party within the meaning of the Income Tax Act (Canada)) to whom it
proposes to sell the Offered Securities;
(e) in the case where a Third Party Offer is made, the Offer or Third
Party Offer Notice shall be accompanied by a true copy of the Third
Party Offer;
(f) in the case where a Third Party Offer is made, be accompanied by an
affidavit of the Offering Party attesting that there is no
commission or similar fee that may be or may become due and payable
to any broker, agent or other intermediary in connection with the
sale of the Offered Securities; and
(g) in the case of an Offer, be accompanied by the certificate or
certificates representing the Offered Securities.
3.11 IRREVOCABILITY
All Offers and Third Party Offer Notices and their acceptance, rejection
or deemed acceptance or rejection are irrevocable.
3.12 INSCRIPTION
The Corporation shall cause, and the Shareholders shall vote their Shares
to cause the Corporation to cause, all certificates for Shares to be endorsed
with the following inscription:
"OWNERSHIP, ALIENATION AND ENCUMBRANCE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THE SHAREHOLDERS AGREEMENT
MADE AS OF AUGUST 31, 1998 AS AMENDED, A COPY OF WHICH IS ON FILE AT THE
REGISTERED OFFICE OF THE CORPORATION."
3.13 DETERMINATION OF VALUE
The auditors of the Corporation (the "AUDITORS") shall determine the Value
of a Share at least once in every fiscal year of the Corporation and, in any
event, they shall determine the value as at the last day of each fiscal year of
the Corporation. In the event that, at the time a Value must be attributed to
Shares for purposes of any of the provisions of this Article III or Section 4.1,
the Value has not been determined by the Auditors as at the last day of the most
recently completed fiscal year of the Corporation, then the Closing of the
relevant transaction
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shall be deferred until such Value has been determined, and it is such Value
which shall be applied to such transaction.
Notwithstanding the foregoing, in the event that, at the time that a Value
must be attributed to Shares for purposes of any of the provisions of this
Article III or Section 4.1, more than three (3) months have passed since the
date as of which the Value of the Shares was last determined by the Auditors,
any Management Investor who is selling Shares pursuant to this Article III shall
be entitled to require a new valuation of the Shares, in which case the Auditors
shall determine the Value of the Shares as at the last day of the most
recently-completed monthend of the Corporation, and all costs, fees and expenses
of such valuation shall be borne equally by such Management Investor and the
Corporation.
ARTICLE IV
CONVERSION
4.1 CONVERSION PRIVILEGE
In the event that the Corporation does not issue and does not intend to
issue shares of its share capital to the general public and that Holdings
intends to issue shares in its share capital to the general public and such
offering subsequently occurs, then each Management Investor shall have the right
and option (exercised by written notice to Holdings) to cause Holdings to
exchange the Shares held by such Management Investors for securities in the
share capital of Holdings which securities shall have a value (without reference
to their proposed issue price) identical to the Value of the Shares held by the
Management Investors. In the event of any dispute between Holdings and the
Management Investors as to the number or value of the securities in the share
capital of Holdings to be issued in accordance herewith (or anything incidental
thereto), same shall be absolutely determined by a recognized business valuator
having offices in Montreal, to be designated by Holdings with the approval of
Management Investors holding at least twenty-five percent (25%) of the total
number of Shares held by all Management Investors, whose determination shall be
final and binding on the parties hereto, to the complete exclusion of any court
or trial.
4.2 NO FRACTIONAL SHARES
Notwithstanding anything herein contained, Holdings shall in no case be
required to issue fractional securities upon the conversion of the Shares. If
any fractional share would, except for this Section 4.2, be deliverable upon the
conversion of the Shares, Holdings shall satisfy all of its obligations under
this Agreement with respect to such fractional share by paying to the
Shareholder an amount in cash equal (to the nearest cent) to the value of the
fractional share.
ARTICLE V
CLOSING
5.1 TIME, PLACE, TERMS AND CONDITIONS
(a) Each Closing shall be held at the registered office of the
Corporation at 10:00 a.m. on the Closing Date, or at such other
place, at such other time or on such other
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date as the Parties thereto may agree, in accordance with the
following terms and conditions:
(i) at Closing, the selling Shareholder shall deliver to the
purchaser certificates representing the Shares being
transferred, which certificates shall, in the case of a sale,
be accompanied by a duly executed assignment of the Shares to
the purchaser; and
(ii) payment for Shares shall be made in full at Closing.
(b) At Closing, the selling Shareholder shall deliver to the purchaser a
written warranty that:
(i) there are no contractual or other restrictions on the transfer
of the purchased Shares (other than the restrictions set out
in the Articles of the Corporation and in this Agreement); and
(ii) the Selling Shareholder is the sole beneficial owner of the
purchased Shares with full right, title and authority to
transfer the purchased Shares to the purchaser, free and clear
of all claims, liens and other encumbrances whatsoever.
(c) At Closing, all necessary and proper corporate proceedings required
by counsel for the purchaser, acting reasonably, shall be taken for
the transfer of the purchased Shares.
(d) If the purchaser fails for any reason whatsoever to proceed with
Closing or to pay to the selling Shareholder any amount due
hereunder, then all amounts due hereunder but not paid shall bear
interest from the date of Closing until paid in full at a rate of
interest per annum equal to the Prime Rate plus three percent (3%).
Such interest shall be payable on demand.
The conditions set forth in this Section 5.1 are each made for the
exclusive benefit of the purchaser and if any such conditions is not satisfied
at the Closing, then the purchaser may, at its option, either refuse to proceed
with the Closing or proceed with the Closing, in either case without prejudice
to its remedies and recourses against the selling Shareholder as a result of
such condition not being satisfied.
5.2 FURTHER ASSURANCES
Each Party upon the request of the other, whether before or after the
Closing, shall do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged or delivered all such further acts, deeds, documents,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably necessary or desirable to effect complete consummation of the
transactions contemplated by this Agreement.
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ARTICLE VI
GENERAL PROVISIONS
6.1 SUCCESSORS IN INTEREST
This Agreement and the provisions hereof shall enure to the benefit of and
be binding upon the Parties and their respective heirs, legatees, successors,
testamentary executors and permitted assigns.
6.2 NOTICE
Any offer, acceptance, rejection, notice, consent, request, authorisation,
permission, direction or other instrument required or permitted to be given
hereunder shall be in writing and given by delivery or sent by telecopier or
similar telecommunications device and addressed:
(a) in the case of a Shareholder, to such Shareholder at the address set
forth in the Register of Shareholders of the Corporation; except
that, for the purposes of Section 3.4 and Section 3.5, any such
notice or other communication to be sent to a Management Investor
shall be addressed as follows:
c/ o Thomas A. Andruskevich
HENRY BIRKS & SONS INC.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Telecopier: (514) 397-2577
(b) in the case of the Corporation, to it at:
HENRY BIRKS & SONS INC.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Attention: The President, and Sabine Bruckert, Corporate Secretary
Telecopier: (514) 397-2577
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- with a copy to:
HENRY BIRKS & SONS HOLDINGS INC.
C/O REGALUXE INVESTMENT SARL
25A, boulevard Royal
Luxembourg, 2449
Attention: The President, and Sabine Bruckert, Corporate Secretary
Telecopier: 011 39 118 174 827
Any offer, acceptance, rejection, notice, consent, request, authorisation,
permission, direction or other instrument given as aforesaid shall be deemed to
have been received, if sent by telecopier or similar telecommunications device
on the next Business Day following such transmission or, if delivered, to have
been given and received on the date of such delivery. Any address for service
may be changed by written notice given as aforesaid.
6.3 PURPORTED TRANSFERS
Any purported transfer of Shares contrary to the terms of this Agreement
shall be null and void and have no legal effect.
6.4 TIME
Time shall be of the essence in this Agreement.
6.5 EXECUTION OF COUNTERPART
No Person shall become a holder of Shares of the Corporation without first
having executed a counterpart of this Agreement in accordance with Schedule 6.5.
Each such counterpart so executed shall be deemed to be an original and
such counterparts together shall constitute one and the same instrument.
Each Person who becomes a holder of Shares of the Corporation and who has
executed a counterpart of this Agreement in accordance with Schedule 6.5 shall
become a Party hereto.
6.6 TERMINATION
This Agreement shall terminate automatically upon occurrence of any of the
following events:
(a) the bankruptcy or dissolution (whether voluntary or involuntary) of
the Corporation;
(b) the Corporation ceasing to carry on business for any reason
whatsoever or howsoever arising;
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(c) all issued and outstanding Shares of the Corporation are held by one
Person only;
(d) upon the closing of the initial public offering of Shares of the
Corporation; or
(e) by written agreement of the Shareholders and the Corporation.
IN WITNESS WHEREOF this Agreement was executed on the date and at the
place first mentioned above.
HENRY BIRKS & SONS INC. HENRY BIRKS & SONS HOLDINGS INC.
Per: ______________________________ Per: _____________________________
Per: ______________________________ Per: _____________________________
_____________________________ ____________________________
T.A. AND RUSKEVICH J.D. BALL
_____________________________ ____________________________
J. KEIFER D. OLIVER
_____________________________ ____________________________
M. PASTERIS D. MCNEILL
_____________________________ ____________________________
S. BRUCKERT P. LOMBARDI
_____________________________ ____________________________
M. LUSSIER K. KIRNER
_____________________________ ____________________________
D. KRATOCHVIL P. O'BRIEN
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SCHEDULE 6.5
To the Shareholders Agreement by and among the management investors
identified in Appendix A hereto and Henry Birks & Sons Holdings Inc. and Henry
Birks & Sons Inc. made as of August 31, 1998 as amended by agreement dated as of
-, 2002.
COUNTERPART
THIS INSTRUMENT forms part of the Shareholders Agreement (the "AGREEMENT")
made August 31, 1998 as amended, by and among the management investors
identified in Appendix A thereto, Henry Birks & Sons Holdings Inc. and Henry
Birks & Sons Inc., which Agreement permits execution by counterparts. The
undersigned hereby acknowledges having received a copy of the said Agreement
(which is annexed hereto as Schedule A) and, having read the said Agreement in
its entirety, hereby agrees that the terms and conditions of the said Agreement
shall be binding upon the undersigned as if the undersigned had been an original
party to the Agreement as a Shareholder (as such term is defined in the
Agreement) and such terms and conditions shall enure to the benefit of and be
binding upon the undersigned, its successors and assigns.
IN WITNESS WHEREOF the undersigned has executed this instrument this
[____] day of [____],____.
[SHAREHOLDER]
Per: __________________________________
APPENDIX A
To the Shareholders Agreement by and among the management investors
identified in Appendix A hereto and Henry Birks & Sons Holdings Inc., and Henry
Birks & Sons Inc. made as of August 31, 1998 as amended by agreement dated as of
____________, 2002.
Set forth below, are the names of the Management Investors:
T.A. Andruskevich
J.D. Ball
J. Keifer
D. Oliver
M. Pasteris
D. McNeill
S. Bruckert
P. Lombardi
M. Lussier
K. Kirner
D. Kratochvil
P. O'Brien
EXHIBIT 9.2
SHAREHOLDERS' AGREEMENT
BY AND AMONG
PRIME INVESTMENTS SA
AND
HENRY BIRKS & SONS HOLDINGS INC.
AND
HENRY BIRKS & SONS INC.
MADE AS OF AUGUST 15, 2002
TABLE OF CONTENTS
PAGE
----
ARTICLE I INTERPRETATION................................................... 1
1.1 Definitions................................................... 1
1.2 Gender........................................................ 5
1.3 Headings...................................................... 5
1.4 Severability.................................................. 5
1.5 Entire Agreement.............................................. 5
1.6 Amendments.................................................... 5
1.7 Waiver........................................................ 5
1.8 Governing Law................................................. 5
1.9 Language...................................................... 6
1.10 Delays........................................................ 6
1.11 Conflict...................................................... 6
1.12 Statutes...................................................... 6
1.13 Preamble...................................................... 6
ARTICLE II RESTRICTIONS ON TRANSFER........................................ 6
2.1 No Transfer................................................... 6
2.2 Transfer to a Permitted Transferee............................ 6
2.3 Right of First Refusal - Holdings............................. 7
2.4 Right of First Refusal - Investors............................ 8
2.5 Drag Along Rights............................................. 8
2.6 Tag Along Rights.............................................. 9
2.7 Refusal of Corporation........................................ 9
2.8 Offer; Third Party Offer Notice............................... 9
2.9 Irrevocability................................................ 10
2.10 Inscription................................................... 10
2.11 Determination of Value........................................ 10
ARTICLE III CONVERSION..................................................... 11
3.1 Conversion Privilege.......................................... 11
3.2 No Fractional Shares.......................................... 12
ARTICLE IV PREEMPTIVE RIGHTS............................................... 12
4.1 Preemptive Rights............................................. 12
ARTICLE V CLOSING.......................................................... 13
5.1 Time, Place, Terms and Conditions............................. 13
5.2 Further Assurances............................................ 14
ARTICLE VI REGISTRATION RIGHTS............................................. 14
6.1 Registration Rights........................................... 14
ARTICLE VII CORPORATE GOVERNANCE AND COVENANTS............................. 14
7.1 Board of Directors............................................ 14
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7.2 Right of Inspection........................................... 15
7.3 Financial Information......................................... 15
7.4 Covenants..................................................... 17
7.5 Notices of Certain Events..................................... 18
ARTICLE VIII GENERAL PROVISIONS............................................ 19
8.1 Successors in Interest........................................ 19
8.2 Notice........................................................ 19
8.3 Purported Transfers;Applicability of Certain Provisions....... 21
8.4 Time.......................................................... 21
8.5 Execution of Counterpart...................................... 21
8.6 Termination................................................... 22
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Schedules
Schedule 8.5 - Counterpart
Exhibit A -
|
-ii-
SHAREHOLDERS' AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 15th day of August, 2002.
BY AND AMONG: PRIME INVESTMENTS SA, a corporation organized under the laws of
Luxembourg (hereinafter, the "INVESTOR");
AND: HENRY BIRKS & SONS HOLDINGS INC. a corporation incorporated under
the laws of Canada, (hereinafter "HOLDINGS");
AND: HENRY BIRKS & SONS INC., a corporation amalgamated under the laws
of Canada, (hereinafter, the "CORPORATION").
THIS AGREEMENT WITNESSETH THAT, in consideration of the mutual covenants
|
herein contained, it is agreed by and among the Parties as follows:
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS
For the purposes of this Agreement or any offer, acceptance, rejection,
notice, consent, request, authorization, permission, direction or other
instrument required or permitted to be given hereunder, the following words and
phrases shall have the following meanings, respectively, unless the context
otherwise requires:
"ACT" shall mean the Canada Business Corporations Act.
"AGREEMENT" shall mean this Shareholders' Agreement and all instruments
supplemental hereto or in amendment or confirmation hereof; "herein",
"hereof", "hereto", "hereunder" and similar expressions mean and refer to
this Agreement and not to any particular Article, Section, Subsection or
other subdivision; "Article", "Section", "Subsection" or other subdivision
of this Agreement means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement.
"BOARD" shall mean the Board of Directors of the Corporation.
"BUSINESS DAY" shall mean any day, other than a Saturday, Sunday, or other
day on which the principal commercial banks in Montreal, Quebec are not
open for business during normal banking hours.
"CLOSING" shall mean the sale of Shares pursuant to this Agreement.
"CLOSING DATE" shall mean the date which is ten Business Days after the
acceptance of the Offer or, in the circumstances described in Section
2.10, the date which is ten Business Days after the Value is determined.
"COMMON SHARES" shall mean Common Shares in the capital of the
corporation.
"CONTROL" and any derivative thereof means with respect to any Person
other than an individual the power to direct or cause the direction of the
management or policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
"CORPORATION" shall mean Henry Birks & Sons Inc.
"DOLLAR", "DOLLARS" and the sign "$" shall each mean lawful money of
Canada.
"GAAP" shall have the meaning set forth in Section 7.3(a).
"GOVERNMENTAL BODY" shall mean (i) any domestic or foreign national,
federal, provincial, state, municipal or other government or body, (ii)
any multinational, multilateral or international body, (iii) any
subdivision, agent, commission, board, instrumentality or authority of any
of the foregoing governments or bodies, (iv) any quasi-governmental or
private body exercising any regulatory, expropriation or taxing authority
under or for the account of any of the foregoing governments or bodies, or
(v) any domestic, foreign, international, multilateral or multinational
judicial, quasi-judicial, arbitration or administrative court, tribunal,
commission, board or panel.
"HOLDINGS" shall mean Henry Birks & Sons Holdings Inc.
"INVESTOR" shall mean Prime Investments SA.
"INVESTOR OFFER" shall have the meaning ascribed thereto at Section
2.3(a).
"INSPECTORS" shall have the meaning ascribed thereto at Section 2.3(a)
"LAWS" shall mean (i) all constitutions, treaties, laws, statutes, codes,
ordinances, orders, decrees, rules, regulations, and municipal by-laws,
whether domestic, foreign or international, and (ii) all judgments,
orders, writs, injunctions, decisions, rulings, decrees, and awards of any
Governmental Body, in each case binding on or affecting the Person
referred to in the context in which such word is used; and "LAW" shall
mean any one of them.
"MANAGEMENT INVESTOR" has the meaning set forth in the Management
Shareholders Agreement.
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"MANAGEMENT SHAREHOLDERS AGREEMENT" shall mean the Shareholder Agreement
dated as of April 5, 2002 by and among Holdings, the Management Investors
identified therein and the Corporation.
"MINIMUM NUMBER OF SHARES" shall have the meaning ascribe thereto in
Section 7.3(a).
"NON-VOTING COMMON SHARES" shall mean non-voting Common Shares in the
capital of the corporation.
"NOTES" means the Secured Convertible Notes of the Corporation in the
initial aggregate principal amount of US $5,000,000 issued pursuant to the
Securities Purchase Agreement.
"NOTIFIED PARTY" AND "NOTIFIED PARTIES" shall have the meaning ascribed
thereto at Section 2.1(a).
"OFFER" shall have the meaning ascribed thereto in Article II.
"OFFER PERIOD" shall have the meaning ascribed thereto in Article II.
"OFFERED SECURITIES" shall have the meaning ascribed thereto in Article
II.
"PARTIES" shall mean the Investor, Holdings and the Corporation; and
"PARTY" shall mean any one of them.
"PERMITTED TRANSFEREE" means any Person that directly or indirectly
through one or more intermediaries is controlled by or under common
control with the applicable Person. In connection with the Investor, a
Permitted Transferee is a Person that directly or indirectly through one
or more intermediaries is controlled by Rosy Blue Finance SA Luxembourg.
"PERSON" shall mean an individual, corporation, company, co-operative,
partnership, trust, unincorporated association, Governmental Body; and
pronouns when they refer to a Person shall have a similarly extended
meaning.
"PREFERRED SHARES" shall mean the Corporation's Series A Convertible
Preferred Shares.
"PRIME RATE" shall mean the rate of interest per annum reported, quoted,
published and commonly known as the prime rate of interest of the Canadian
Imperial Bank of Commerce for loans in dollars made in Canada to
substantial and responsible customers. Each announced change in the prime
rate of interest of the Canadian Imperial Bank of Commerce will be
effective as of the effective date specified in the relevant announcement
or, if no effective date is so specified, as of the date of such
announcement. With each change in the Prime Rate there shall be a
corresponding change in any rate of interest based thereon and payable
pursuant hereto.
-3-
"QUALIFIED PUBLIC OFFERING" means the sale by the Corporation of its
Common Shares in a bona fide firm commitment underwritten public offering
pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission under the United States Securities
Act of 1933, as amended (the "US SECURITIES ACT") or under a prospectus
filed with and receipted by, the relevant securities commissions or
similar regulatory authorities in Canada (the "CANADIAN PROSPECTUS"),
raising aggregate net proceeds to the Corporation of at least US
$55,000,000 at a minimum share price of US $4.94 per Common Share
(adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) and in which the Common Shares are listed on a US
national securities exchange or a Canadian stock exchange or quoted on the
National Association of Securities Dealers Automated Quotation System (the
"NASDAQ"), National Market System ("NMS") or Small Cap.
"SECURITIES PURCHASE AGREEMENT" means that certain securities purchase
agreement dated as of August 15, 2002 between the Corporation and the
Investors named therein, including the Investor (as defined herein.)
"SHARES" shall mean (i) any share of any class, series or category of the
share capital of the Corporation, (ii) any equity security in the capital
of the Corporation including, without limitation, purchase warrants,
options or securities in whole or in part convertible or exchangeable for
or into shares of any class, series or category of the capital stock of
the Corporation; and "SHARE" shall mean any one of them.
"SHAREHOLDERS" means the Investor and Holdings together with such other
Persons as may become Parties to this Agreement as a shareholder of the
corporation, collectively and "SHAREHOLDER" means one of such Persons
individually.
"THIRD PARTY" shall have the meaning ascribed thereto in Article II.
"THIRD PARTY OFFER" shall have the meaning ascribed thereto in Article II.
"TRANSFER", and any derivative thereof, shall, when used as a verb or a
noun in this Agreement, mean to sell, assign, surrender, exchange, give,
donate, transfer, pledge, mortgage, charge, create a security interest in,
hypothecate, grant an option in, or otherwise dispose, alienate, encumber
or deal with any of the Shares; however, if the Shareholder is a body
corporate, then (i) any amalgamation, merger, dissolution, liquidation or
winding up of such body corporate, or (ii) any change of control of such
body corporate, shall each also be deemed a Transfer.
"VALUE" shall mean the value of a Share as determined by the auditors of
the Corporation pursuant to Section 2.11 and in accordance with Canadian
generally accepted accounting principles, consistently applied.
-4-
1.2 GENDER
Any reference in this Agreement to any gender shall include all genders
and words used herein importing the singular number only shall include the
plural and vice versa.
1.3 HEADINGS
The division of this Agreement into Articles, Sections, Subsections and
other subdivisions and the insertion of headings are for convenience of
reference only and shall not affect or be utilized in the construction or
interpretation of this Agreement.
1.4 SEVERABILITY
Any Article, Section, Subsection or other subdivision of this Agreement or
any other provision of this Agreement which is, or becomes, illegal, invalid or
unenforceable shall be severed therefrom and shall be ineffective to the extent
of such illegality, invalidity or unenforceability and shall not affect or
impair the remaining provisions hereof, which provisions shall be severed from
an illegal or unenforceable Article, Section, Subsection or other subdivision of
this Agreement or any other provisions of this Agreement.
1.5 ENTIRE AGREEMENT
This Agreement together with any other instruments to be delivered
pursuant hereto, constitute the entire agreement among the Parties pertaining to
the subject matter hereof and supersede all prior agreements, understandings,
negotiations, and discussions, whether oral or written, among any or all of the
Parties.
1.6 AMENDMENTS
No amendment of this Agreement shall be binding unless otherwise expressly
provided in an instrument duly executed in writing by the Parties.
1.7 WAIVER
Except as otherwise provided in this Agreement, no waiver of any of the
provisions of this Agreement shall be deemed to constitute a waiver of any other
provisions (whether or not similar) nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided in an instrument duly
executed in writing by the Parties.
1.8 GOVERNING LAW
This Agreement shall be governed, interpreted and construed by and in
accordance with the Laws of the Province of Quebec and the Laws of Canada
applicable therein and shall be treated in all respects as a Quebec contract.
-5-
1.9 LANGUAGE
The Parties have required that this Agreement and all instruments relating
thereto be in the English language; les parties ont exige que la presente
convention et tout autre document afferent aux presentes soient en langue
anglaise.
1.10 DELAYS
When calculating the period of time within which or following which any
act is to be done or step taken pursuant to this Agreement, the day which is the
reference day in calculating such period shall be excluded.
1.11 CONFLICT
If any conflict should appear between this Agreement and the by-laws or
resolutions of the Corporation, then the provisions of this Agreement shall
prevail.
1.12 STATUTES
References in this Agreement to statutes shall include any statute
amending, modifying, re-enacting, restating, extending or made pursuant to the
same or which is amended, modified, re-enacted, restated, or extended by the
same.
1.13 PREAMBLE
The preamble hereto is incorporated herein by reference and deemed to be a
part of this Agreement.
ARTICLE II
RESTRICTIONS ON TRANSFER
2.1 NO TRANSFER
Except as permitted in this Article II, neither the Investor nor Holdings
may transfer, pledge, encumber or otherwise dispose of in whole or in part,
directly or indirectly, any Shares or any right, title or interest therein.
2.2 TRANSFER TO A PERMITTED TRANSFEREE
Each of Holdings and the Investor may assign some or all of its Shares to
its Permitted Transferee(s), provided that each such Permitted Transferee has
executed prior to such Transfer, a counterpart of this Agreement in accordance
with Section 8.5 hereof. A Permitted Transferee of the Investor will have all of
the rights and be subject to all of the obligations of the Investor with respect
to the Shares Transferred. A Permitted Transferee of Holdings will have all of
the rights and be subject to all of the obligations of Holdings with respect to
the Shares Transferred.
-6-
2.3 RIGHT OF FIRST REFUSAL - HOLDINGS
(a) Subject to Section 2.2, if the Investor desires to sell any or all
of its Shares (the "INVESTOR OFFER"), or wishes to accept a bona
fide irrevocable written offer from a Person dealing at arms' length
(within the meaning of the Income Tax Act (Canada)) with the
Investor (in this section the "THIRD PARTY") to purchase any or all
of the Shares held by the Investor (in this section the "THIRD PARTY
OFFER"), then it shall first offer to sell (the "OFFER") all, but
not less than all, of the Shares (the "OFFERED SECURITIES") to the
Corporation and to Holdings (the "NOTIFIED PARTIES") in accordance
with the procedure set forth in this Section 2.3. The Offer shall be
sent to each Notified Party and shall respect the following
conditions:
(i) in the case of a Third Party Offer, the Offer shall include a
copy of the Third Party Offer, and reasonable detail as to the
identity and, where applicable, the ownership of the Third
Party, and the terms and conditions of the Offer shall be not
less favorable, in the aggregate, for the Notified Parties
than those contained in the Third Party Offer;
(ii) in the case of a an Investor Offer, the sale price in the
Offer shall be the Value of the Offered Securities as at the
last day of the Corporation's most recently-completed fiscal
year, or as otherwise determined pursuant to Section 2.11
hereof; and
(iii) in all cases, the Offer shall be open for acceptance by the
Notified Parties for twenty (20) Business Days (the "OFFER
PERIOD") from the receipt of the Offer by the Notified
Parties.
The Notified Parties shall be obliged by delivering notice to the
Investor within, but not after the expiration of, the Offer Period
at their sole option to either accept the Offer or reject the Offer.
If a Notified Party does not accept the Offer, then such Notified
Party shall be deemed to have rejected the Offer. If a Notified
Party has accepted the Offer, then the Investor shall sell to the
Notified Party, and the Notified Party shall purchase from the
Investor, the Offered Securities in accordance with this Agreement.
If both Notified Parties accept the Offer, the Offered Securities
shall be sold to the Corporation.
(b) If both of the Notified Parties have or are deemed to have rejected
the Offer, then the Investor shall be free for a period of thirty
(30) Business Days immediately following the last day of the Offer
Period to sell all, but not less than all, of the Offered Securities
(i) in the case of a Third Party Offer, to the Third Party on
terms not more favorable in the aggregate for the Third Party
than those contained in the Third Party Offer; or
(ii) in the case of an Investor Offer, to any Person on terms not
more favorable, in the aggregate, for such Person than those
contained in the Offer;
-7-
provided, however, that in either case it shall be a condition
precedent to the right of the Investor to sell the Offered
Securities that the purchaser has executed a counterpart of this
Agreement in accordance with Section 8.5. If no sale takes place
within the said thirty (30) Business Day period, then the Investor
shall not transfer the Offered Securities without again following
and being subject to this ARTICLE II.
2.4 RIGHT OF FIRST REFUSAL - INVESTOR
Subject to Holdings' obligations under Section 3.4 of the Management
Shareholders Agreement, Holdings and the Corporation, if the Management
Investors do not elect to purchase all of the Offered Securities, (as defined in
Section 3.4(a) of the Management Shareholders' Agreement), then the Investor
shall have the right to purchase the Offered Securities (as defined in Section
3.4(a) of the Management Shareholders' Agreement) upon the terms and conditions
set forth in the Offer (as defined in Section 3.4(a) of the Management
Shareholders Agreement) during the twenty (20) Business Day period immediately
following the last day of the Offer Period (as defined in Section 3.4(a) of the
Management Shareholders' Agreement).
Holdings shall provide the Investor with any and all notices it provides
to or receives from the Management Investors under Section 3.4 of the Management
Shareholders' Agreement no later that one (1) Business Day after Holdings sends
or receives such notice. The Investor shall exercise its rights under this
Section 2.3 by notifying Holdings and the Corporation in writing within twenty
(20) Business Days of the Investor's receipt of the Offer (as defined in Section
3.4(a) of the Management Shareholders' Agreement) which Offer shall be sent to
the Investor by Holdings as if the Investor were a Management Investor as
provided in Section 3.4 of the Management Shareholders' Agreement.
If the Investor does not elect to purchase the Offered Securities (as
defined in Section 3.4(a) of the Management Shareholders' Agreement) as provided
in this Section 2.4, then Holdings shall be free to sell all of such Offered
Securities in accordance with Section 3.4(d) of the Management Shareholders'
Agreement, provided that it shall be a condition precedent to the right of
Holdings to sell the Offered Securities (as defined in Section 3.4(a) of the
Management Shareholders' Agreement, that the purchaser has executed a
counterpart of this Agreement in accordance with Section 8.5. If no sale takes
place within the period set forth in Section 3.4(d) of the Management
Shareholders' Agreement, then Holdings shall not transfer the Offered Securities
(as defined in Section 3.4(a) of the Management Shareholders' Agreement),
without again following and being subject to this Article II.
2.5 DRAG ALONG RIGHTS
If Holdings (and/or its Permitted Transferees) holds, in the aggregate,
not less than seventy-five percent (75%) of the outstanding Shares and it
receives a bona fide irrevocable written offer (in this section the "THIRD PARTY
OFFER") from a Person dealing at arms' length (within the meaning of the Income
Tax Act (Canada)) with Holdings (in this section the "THIRD PARTY"), to purchase
all (but not less than all) of the Shares held by Holdings (and its Permitted
Transferees), which it has accepted or intends to accept, then Holdings shall
have the right, upon written notice to the Investor, to require that the
Investor sell all of the Shares held by the
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Investor together with the Shares held by Holdings on the same terms as those
contained in the Third Party Offer. In such event, the Investor shall be obliged
to sell all of the Shares held by it in accordance with the terms of the Third
Party Offer.
2.6 TAG ALONG RIGHTS
If Holdings (and its Permitted Transferees) holds, in the aggregate, not
less than fifty percent (50%) of the outstanding Shares and it receives a bona
fide irrevocable written offer (in this section the "THIRD PARTY OFFER") from a
Person dealing at arms' length (within the meaning of the Income Tax Act
(Canada)) with Holdings (in this section the "THIRD PARTY") to purchase any or
all of the Shares held by Holdings (and/or its Permitted Transferees), which it
has accepted or intends to accept, Holdings shall so notify the Investor in
writing, setting forth the terms of the Third Party Offer, including the name of
the Third Party, the number of Shares Holdings (and/or its Permitted
Transferees) intend to sell to the Third Party (in this section the "OFFERED
SECURITIES") and the material terms of the sale, including the price per Share
and the expected Closing Date. The Investor shall have the right, upon written
notice to Holdings sent within ten (10) days of Investor's receipt of the notice
from Holdings, to require the Third Party (or the Management Investors,
exercising their rights under the Management Shareholders' Agreement) to acquire
from the Investor (rather than from Holdings) a number of Shares equal to the
product of the number of Offered Securities multiplied by a fraction, the
numerator of which is the number of Shares owned by the Investor and the
denominator of which is the number of Shares owned by Holdings (and its
Permitted Transferees). Any Shares sold by the Investor hereunder shall be sold
on the same terms as those contained in the Third Party Offer.
2.7 REFUSAL OF CORPORATION
The Corporation shall record each transfer of Shares; provided, however,
that the Corporation shall refuse to record a transfer of Shares made in
contravention of this Agreement. The Corporation and its board of directors,
prior to consenting to the transfer of Shares, shall be entitled to require
proof that the transfer took place in accordance with this Agreement.
2.8 OFFER; THIRD PARTY OFFER NOTICE
Each Offer and Third Party Offer Notice shall be in writing signed by the
offering party and shall:
(a) identify the Section pursuant to which it is delivered;
(b) identify and provide particulars of the Offered Securities;
(c) state the purchase price per Offered Security;
(d) in the case of a Third Party Offer, state the identity and address
of the Person (who shall deal at arm's length with the offering
party within the meaning of the Income Tax Act (Canada)) to whom it
proposes to sell the Offered Securities;
(e) in the case where a Third Party Offer is made, the Offer or Third
Party Offer Notice shall be accompanied by a true copy of the Third
Party Offer;
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(f) in the case where a Third Party Offer is made, be accompanied by an
affidavit of the offering party attesting that there is no
commission or similar fee that may be or may become due and payable
to any broker, agent or other intermediary in connection with the
sale of the Offered Securities; and
(g) in the case of an Offer, be accompanied by the certificate or
certificates representing the Offered Securities.
2.9 IRREVOCABILITY
All Offers and Third Party Offer Notices and their acceptance, rejection
or deemed acceptance or rejection are irrevocable.
2.10 INSCRIPTION
The Corporation shall cause, and the Shareholders shall vote their Shares
to cause the Corporation to cause, all certificates for Shares to be endorsed
with the following inscription:
"OWNERSHIP, ALIENATION AND ENCUMBRANCE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF THE SHAREHOLDERS' AGREEMENT
MADE AS OF AUGUST 15, 2002 AS AMENDED, A COPY OF WHICH IS ON FILE AT THE
REGISTERED OFFICE OF THE CORPORATION."
2.11 DETERMINATION OF VALUE
The auditors of the Corporation or a nationally recognized valuation or
|
investment banking firm (the "AUDITORS") shall determine the Value of a Share at
least once in every fiscal year of the Corporation and, in any event, they shall
determine the Value as at the last day of each fiscal year of the Corporation.
In the event that, at the time a Value must be attributed to Shares for purposes
of any of the provisions of this Article II or Section 3.1, the Value has not
been determined by the Auditors as at the last day of the most recently
completed fiscal year of the Corporation, then the Closing of the relevant
transaction shall be deferred until such Value has been determined, and it is
such Value which shall be applied to such transaction.
Notwithstanding the foregoing, in the event that, at the time that a Value
must be attributed to Shares for purposes of any of the provisions of this
Article II or Section 3.1, more than three (3) months have passed since the date
as of which the Value of the Shares was last determined by the Auditors, the
Investor who is selling Shares pursuant to this Article III shall be entitled to
require a new valuation of the Shares, in which case the Auditors shall
determine the Value of the Shares as at the last day of the most
recently-completed month-end of the Corporation, and all costs, fees and
expenses of such valuation shall be borne equally by the Investor and the
Corporation.
The standard for determining Value shall be the highest price available in
an open and unrestricted market between informed, prudent parties acting at
arm's length and under no compulsion to act, expressed in terms of money. In
furtherance of the foregoing, in determining the Value for the Shares, no
discount shall be taken with respect to any Shares by virtue of the fact that
they lack marketability, are not freely transferable or that they represent a
minority
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interest in the Corporation, nor shall any premium be attributable to any freely
transferable Shares or Shares that are part of a controlling interest in the
Corporation.
In the event that the outstanding Shares shall be subdivided into a
greater or lesser number of Shares, whether by stock dividend, stock split or
combination of Shares, subsequent to the date as of which the Value is
determined but prior to any Closing pursuant to Article V occasioned by any
event described in Article II or III, the Value for purposes of Articles II, III
and V shall be proportionately decreased or increased as the case may be and the
number of Shares to be sold or purchased shall be adjusted so as to
appropriately reflect such stock dividend, split, subdivision or combination. No
such adjustment shall be made, however, by reason of the issuance of Shares for
cash, property or services, by way of stock options, stock warrants,
subscription rights or otherwise.
ARTICLE III
CONVERSION
3.1 CONVERSION PRIVILEGE
(a) In the event that the Corporation does not issue and does not intend
to issue shares of its share capital to the general public and
Holdings intends to issue shares in its share capital to the general
public and such offering subsequently occurs, then the Investor
shall have the right and option (exercised by written notice to
Holdings) to cause Holdings to exchange the Shares held by the
Investor for securities in the share capital of Holdings, which
securities shall have a value (without reference to their proposed
issue price) identical to the value of the Shares held by the
Investor. In the event of any dispute between Holdings and the
Investor as to the number or value of the securities in the share
capital of Holdings to be issued in accordance herewith (or anything
incidental thereto), such number shall be absolutely determined by
an Auditor to be designated by Holdings with the approval of the
Investor, whose determination shall be final and binding on the
parties hereto, to the complete exclusion of any court or trial. The
standard for determining value shall be the highest price available
in an open and unrestricted market between informed, prudent parties
acting at arm's length and under no compulsion to act, expressed in
terms of money.
(b) Holdings agrees that its rights and obligations under Articles III
and VI hereof shall be assumed by any other issuer of securities
into which all or substantially all of the equity securities of
Holdings are directly or indirectly converted or exchanged if such
issuer has securities which have been sold to the general public or
if such issuer intends to issue such securities to the general
public and such offering subsequently occurs. Such other issuer
shall expressly acknowledge its obligations under Articles III and
VI in connection with any such conversion or exchange by Holdings
with such issuer.
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3.2 NO FRACTIONAL SHARES
Notwithstanding anything herein contained, Holdings shall in no case be
required to issue fractional securities upon the conversion of the Shares. If
any fractional share would, except for this Section 3.2, be deliverable upon the
conversion of the Shares, Holdings shall satisfy all of its obligations under
this Agreement with respect to such fractional share by paying to the
Shareholder an amount in cash equal (to the nearest cent) to the value of the
fractional share.
In determining the value, no discount shall be taken with respect to any
securities by virtue of the fact that they lack marketability, are not freely
transferable or represent a monetary interest in the issues nor shall any
premium be attributable to any freely transferable securities or securities that
are part of a controlling interest in the applicable issuer.
ARTICLE IV
PREEMPTIVE RIGHTS
4.1 PREEMPTIVE RIGHTS
If the Corporation proposes to sell additional equity securities other
than (a) to employees of the Corporation pursuant to employee benefit plans and
other employee compensation plans approved by the Board, (b) pursuant to an
acquisition or business combination approved by the Board, (c) in an offering
registered under the US Securities Act of 1933, as amended or qualified for sale
under the securities laws of any province of Canada, or (d) in connection with
the exercise, exchange or conversion of securities of the Corporation, the
Investor shall have the right to purchase up to such Shareholder's "pro rata
share" of such additional securities. The Investor's "pro rata share" shall be
that number of additional securities that would result in the Investor owning
the same percentage of the Corporation's fully diluted shares (assuming all
convertible securities or instruments were converted into Common Shares or
Non-Voting Common Shares) after the issuance of the additional securities (the
"ISSUANCE") as the Investor owned immediately prior to the Issuance. In the
event of a proposed Issuance, the Corporation shall deliver to the Investor
written notice describing the proposed Issuance, specifying the Investor's pro
rata share and stating the purchase price for the additional securities, and the
date, time and place of settlement for payment for the additional securities
(which shall be no sooner than twenty-five (25) Business Days following the date
of the notice). For a period of twenty (20) Business Days following such notice,
the Investor shall have the right to subscribe, at the offering price
established by the Corporation, by written notice to the Corporation, to
purchase all or any portion of the Investor's pro rata share of the additional
securities. Following such twenty (20) Business Day period, the Corporation
shall be free for a period of ninety (90) Business Days thereafter to sell all
or any part of the unsubscribed for additional securities and any Shares that
have not been purchased as of the applicable Closing Date at a price no more
favorable to such purchasers than the price offered to the Investor
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ARTICLE V
CLOSING
5.1 TIME, PLACE, TERMS AND CONDITIONS
(a) Each Closing shall be held at the registered office of the
Corporation at 10:00 a.m. (Montreal, Canada time) on the Closing
Date, or at such other place, at such other time or on such other
date as the Parties thereto may agree, in accordance with the
following terms and conditions:
(i) at Closing, the selling shareholder shall deliver to the
purchaser certificates representing the Shares being
transferred, which certificates shall, in the case of a sale,
be accompanied by a duly executed assignment of the Shares to
the purchaser; and
(ii) payment for Shares shall be made in full at Closing.
(b) At Closing, the selling shareholder shall deliver to the purchaser a
written warranty that:
(i) there are no contractual or other restrictions on the transfer
of the purchased Shares (other than the restrictions set out
in the Articles of the Corporation and in this Agreement); and
(ii) the selling shareholder is the sole beneficial owner of the
purchased Shares with full right, title and authority to
transfer the purchased Shares to the purchaser, free and clear
of all claims, liens and other encumbrances whatsoever.
(c) At Closing, all necessary and proper corporate proceedings required
by counsel for the purchaser, acting reasonably, shall be taken for
the transfer of the purchased Shares.
(d) If the purchaser fails for any reason whatsoever to proceed with
Closing or to pay to the selling shareholder any amount due
hereunder, then all amounts due hereunder but not paid shall bear
interest from the date of Closing until paid in full at a rate of
interest per annum equal to the Prime Rate plus three percent (3%).
Such interest shall be payable on demand.
The conditions set forth in this Section 5.1 are each made for the
exclusive benefit of the purchaser and if any such conditions is not satisfied
at the Closing, then the purchaser may, at its option, either refuse to proceed
with the Closing or proceed with the Closing, in either case without prejudice
to its remedies and recourses against the selling shareholder as a result of
such condition not being satisfied.
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5.2 FURTHER ASSURANCES
Each Party upon the request of the other, whether before or after a
Closing, shall do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged or delivered all such further acts, deeds, documents,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably necessary or desirable to effect complete consummation of the
transactions contemplated by this Agreement.
ARTICLE VI
REGISTRATION RIGHTS
6.1 REGISTRATION RIGHTS
(a) The Investor shall have the registration rights described in Exhibit
A attached hereto which shall be deemed an integral part hereof with
respect to any Shares now or hereafter acquired by the Investor,
including Shares acquired upon the conversion of the Preferred
Shares, Shares acquired upon conversion of the Notes and Shares
acquired by the Investor under Articles II, III or IV, or otherwise.
(b) Notwithstanding anything herein to the contrary, and without
limiting any of the rights of the Investor hereunder or under
applicable Law, if at any time after the date hereof, there shall be
(i) any reclassification, recapitalization or other change of the
outstanding Shares (other than as a result of a subdivision or
combination thereof), (ii) any consolidation, combination,
amalgamation, merger or similar transaction of the Corporation with
any other entity (other than a merger in which the Corporation is
the surviving or continuing entity and its capital stock is
unchanged) in which the Shares are converted into any other
securities or (iii) any share exchange or similar transaction
pursuant to which the outstanding Shares are converted into other
securities, then the registration rights of the Investor as set
forth in Exhibit A shall be deemed to apply to the securities
received by the Investor in or as a consequence of such transaction
and the issuer of such securities shall expressly acknowledge its
obligations under this Article VI.
ARTICLE VII
CORPORATE GOVERNANCE AND COVENANTS
7.1 BOARD OF DIRECTORS
From and after the date hereof, Holdings agrees to vote (including by
execution of a written consent or in any other manner permitted by Law and the
Corporation's Articles and By-Laws) all of the voting securities in the
Corporation registered or owned beneficially by Holdings and any other voting
securities of the Corporation over which it has control, and will take all other
necessary or desirable actions within its control in order to cause:
(a) the Board of the Corporation at all times to consist of not less
than eight (8) members;
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(b) the election to the Board of one representative designated by the
Investor, which designee shall be reasonably acceptable to the
Corporation;
(c) the removal from the Board of the representative designated by the
Investor at the Investor's written request; and
(d) if the representative of the Board designated by the Investor ceases
to serve as a member of the Board during his or her term of office
for any reason, the resulting vacancy on the Board to be filled by a
representative designated by the Investor and acceptable to the
Corporation.
7.2 RIGHT OF INSPECTION
So long as the Investor owns any Shares or any securities or instruments
convertible into or exchangeable for Shares, the Investor and its
representatives and agents (collectively, the "INSPECTORS") shall have the right
at the Investor's expense, to visit and inspect any of the properties of the
Corporation and its subsidiaries, to examine the books of account and records of
the Corporation and its subsidiaries, to make or be provided with copies and
extracts therefrom, to discuss the affairs, finances and accounts of the
Corporation and its subsidiaries with, to be advised as to the same by, its and
their officers, and independent public accountants (and by this provision the
Corporation authorizes such accountants to discuss such affairs, finances and
accounts, whether or not a representative of the Corporation is present) all at
such reasonable times and intervals and to such reasonable extent as such
Investor may desire; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to the Investor) of any
such information which the Corporation determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the release of such information is ordered pursuant to a subpoena or other
order form a court or government body of competent jurisdiction, or (b) such
information to any Inspector until and unless such Inspector shall have entered
into confidentiality agreements (in form and substance satisfactory to the
Corporation) with the Corporation with respect thereto. The Investor agrees that
it shall, upon learning that disclosure of such information is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Corporation and allow the Corporation, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the information deemed confidential. Notwithstanding the
first sentence of this Section 7.2, the Corporation shall bear the costs of
Investor's expenses under this section 7.2 after and during the continuance of
any Event of Default as defined in the Notes. Notwithstanding the foregoing, the
Corporation shall be entitled to restrict the rights of inspection granted to
the Investors hereunder and shall not be required to disclose to the Investors
any information where the Corporation deems in good faith that the exercise of
such inspection rights or the disclosure of such information would entail
disclosure of a trade secret or other confidential information of the
Corporation or information of a commercially sensitive nature the disclosure of
which would be detrimental to the Corporation or its business.
7.3 FINANCIAL INFORMATION
So long as the Investor owns any Preferred Shares, Notes and/or Shares
which, on an as-converted basis, equal at least twenty-five percent (25%) of the
Shares issuable upon conversion
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of the Preferred Shares and Notes as of the date hereof, subject to adjustment
as a result of any stock dividend, split-up, combination or other similar event
after the date hereof (the "MINIMUM NUMBER OF SHARES"), the Corporation shall
deliver to the Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Corporation, an income
statement of the Corporation and its subsidiaries for such fiscal
year, a balance sheet of the Corporation and its subsidiaries and
statement of shareholder's equity as of the end of such year, and a
schedule as to the sources and applications of funds for such year,
such year-end financial reports to be in reasonable detail, prepared
in accordance with Canadian generally accepted accounting
principles("GAAP"), and audited and certified by independent
chartered accountants of nationally recognized standing selected by
the Corporation;
(b) as soon as practicable, but in any event within forty-five (45) days
after the end of each of the first three (3) quarters of each fiscal
year of the Corporation, an unaudited profit or loss statement,
not-consolidated. If available, Corporation will further provide a
schedule as to the sources and application of funds for such fiscal
quarter and a statement showing the number of Shares of each class
and series of capital stock and securities convertible into or
exercisable for Shares of capital stock outstanding at the end of
the period, the number of Common Shares issuable upon conversion or
exercise of any outstanding securities convertible or exercisable
for Common Shares and the exchange ratio or exercise price
applicable thereto, all in sufficient detail as to permit the
Investor to calculate its percentage equity ownership in the
Corporation;
(c) as soon as practicable, but in any event thirty (30) days after
approval of the Corporation's Board of Directors, a budget and
business plan for the next fiscal year, prepared on a including
balance sheets and sources and applications of funds statements;
(d) with respect to the financial statements called for in subsection
(b) of this Section 7.3, an instrument executed by the Chief
Financial Officer or President of the Corporation and certifying
that such financials were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with
the exception of footnotes that may be required by GAAP) and fairly
present the financial condition of the Corporation and its results
of operation for the period specified, subject to year-end audit
adjustment;
Notwithstanding the foregoing, the Corporation shall not be obligated
under this Section 7.3 to provide the Investors with information which it deems
in good faith to be a trade secret or similar confidential information.
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7.4 COVENANTS
So long as the Investor owns Preferred Shares, Notes and Shares which on
an as-converted basis equal the Minimum Number of Shares, the Corporation agrees
to take the actions listed below.
(a) The Corporation will promptly pay and discharge, or cause to be paid
and discharged when due and payable, all lawful taxes, assessments,
and governmental charges or levies imposed upon the income, profits,
property, or business of the Corporation or any subsidiary;
provided, however, that any such tax, assessment, charge, or levy
need not be paid if the validity hereof shall currently be contested
in good faith by appropriate proceedings and if the Corporation
shall have set aside on its books adequate reserves with respect
thereof, and provided further, that the Corporation will pay all
such taxes, assessments, charges, or levies forthwith upon the
commencement of proceedings to foreclose any lien that may have
attached as security therefor. The Corporation will promptly pay or
cause to be paid when due, or in conformance with customary trade
terms, all other indebtedness incident to the operations of the
Corporation.
(b) The Corporation will keep its properties and those of its
subsidiaries in good repair, working order, and condition,
reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions, and
improvements thereto; and the Corporation and its subsidiaries will
at all times comply with the provisions of all material leases to
which any of them is a party or under which any of them occupies
property so as to prevent any loss or forfeiture thereof or
thereunder.
(c) Except as otherwise decided in accordance with policies adopted by
the Board, the Corporation will keep its assets and those of its
subsidiaries that are of an insurable character insured by
financially sound and reputable insurers against loss or damage by
fire, extended coverage, and explosion insurance in amounts
customary for companies in similar businesses similarly situated;
and the Corporation will maintain, with financially sound and
reputable insurers, insurance against other hazards, risks, and
liabilities to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated.
(d) The Corporation and all of its subsidiaries will keep records and
books of account in which full, true, and correct entries will be
made of all dealings or transactions in relation to its business and
affairs in accordance with GAAP applied on a consistent basis.
(e) The Corporation and all its subsidiaries shall duly observe and
conform to all valid requirements of governmental authorities
relating to the conduct of their businesses or to their properties
or assets.
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(f) The Corporation shall maintain in full force and effect its
corporate existence, rights, and franchises and all licenses and
other rights to use patents, processes, licenses, trademarks, trade
names, or copyrights owned or possessed by it or any subsidiary and
deemed by the Corporation to be necessary to the conduct of its
business.
(g) The Corporation will retain independent public accountants of
recognized national standing who shall certify the Corporation's
financial statements at the end of each fiscal year. In the event
the services of the independent public accountants so selected, or
any firm of independent public accountants hereafter employed by the
Corporation are terminated, the Corporation will promptly thereafter
notify the Investor and will request the firm of independent public
accountants whose services are terminated to deliver to the
Investors a letter from such setting forth the reasons for the
termination of their services. In the event of such termination the
Corporation will promptly thereafter engage another firm of
independent public accountants of recognized national standing. In
its notice to the Investor the Corporation shall state whether the
change of accountants was recommended or approved by the Board of
Directors of the Corporation or any committee thereof.
7.5 NOTICES OF CERTAIN EVENTS
So long as the Investor owns any Preferred Shares or Notes the Corporation
shall not effect any of the transactions listed below unless (i) the Investor
has received written notice of such transaction at least Fifteen (15) Business
Days prior thereto, but in no event later than ten (10) Business Days prior to
the record date for the determination of shareholders entitled to vote with
respect thereto, (ii) if required by the Articles of the Corporation, the Notes
or any other Transaction Document (as defined in the Securities Purchase
Agreement, the consent of the holders of Preferred Shares or Notes shall have
been obtained in accordance with such Articles and Transaction Documents or
(iii) the resulting successor, acquiring or amalgamated entity (if not the
Corporation) assumes by written instrument (in form and substance reasonably
satisfactory to the Investor), the obligations of the Corporation under this
Agreement and the other Transaction Documents:
(a) the declaration or payment of any dividends on Common Shares,
Non-Voting Common Shares or Preferred Shares other than dividends
payable solely in Common Shares, Non-Voting Common Shares or
Preferred Shares;
(b) the Corporation's merger with or into or consolidation, combination
or amalgamation with or into any other Person, or the sale, lease or
other disposition of all or substantially all of the properties or
assets of the Corporation or any of its subsidiaries;
(c) the filing by the Corporation or any of its subsidiaries of a
registration statement under the securities laws of the United
States or of a prospectus under the securities laws of any province
of Canada; and
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(d) the occurrence of an Event of Default under the Note.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SUCCESSORS IN INTEREST
This Agreement and the provisions hereof shall inure to the benefit of and
be binding upon the Parties and their respective heirs, legatees, successors,
testamentary executors and permitted assigns.
8.2 NOTICE
Any offer, acceptance, rejection, notice, consent, request, authorization,
permission, direction or other instrument required or permitted to be given
hereunder shall be in writing and given by delivery or sent by telecopier or
similar telecommunications device and addressed:
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in the case of the Investor, to it at:
PRIME INVESTMENTS SA
Saphine Building 1st Floor
63 Boulevard Prince Felix
L1513- Luxembourg
P.O. Box 415
L-2014 Luxembourg
Attn: Mr. Marco Dijkerman
Telecopier: 352-4271961
with a copy to
Wolf, Block, Schorr and Solis-Cohen LLP
250 Park Avenue
New York, NY 10177
Telephone 212-883-4911
Telecopier: 212-672-1111
Attn: Lawrence L. Ginsburg, Esq.
(a) in the case of Holdings, to it at:
HENRY BIRKS & SONS HOLDINGS INC.
C/O REGALUXE INVESTMENT SARL
25A, Boulevard Royal
Luxembourg, 2449
Attention: The President, and Sabine Bruckert, Corporate Secretary
Telecopier: 011 39 118 174 827
with a copy to:
HENRY BIRKS & SONS INC.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Attention: The President, and the Corporate Secretary
Telecopier: (514) 397-2577
(b) in the case of the Corporation, to it at:
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HENRY BIRKS & SONS INC.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Attention: The President, and the Corporate Secretary
Telecopier: (514) 397-2577
Any offer, acceptance, rejection, notice, consent, request, authorization,
permission, direction or other instrument given as aforesaid shall be deemed to
have been received, if sent by telecopier or similar telecommunications device
on the next Business Day following such transmission or, if delivered, to have
been given and received on the date of such delivery. Any address for service
may be changed by written notice given as aforesaid.
8.3 PURPORTED TRANSFERS; APPLICABILITY OF CERTAIN PROVISIONS
Any purported transfer of Shares contrary to the terms of this Agreement
shall be null and void and have no legal effect. Notwithstanding any other
provisions of this Agreement, the rights of first refusal set forth in Sections
2.3 and 2.4 and the preemptive rights set forth in Section 4.1 shall not apply
to a merger, amalgamation or similar corporate transaction that is taken to
reorganize the relationship between the Corporation and Mayor's Jewelers, Inc.,
provided that all shareholders of the Corporation are treated equally in such
restructuring.
8.4 TIME
Time shall be of the essence in this Agreement.
8.5 EXECUTION OF COUNTERPART
No Person shall become a holder of Shares of the Corporation without first
having executed a counterpart of this Agreement in accordance with Schedule 8.5.
Each such counterpart so executed shall be deemed to be an original and
such counterparts together shall constitute one and the same instrument.
Each Person who becomes a holder of Shares of the Corporation and who has
executed a counterpart of this Agreement in accordance with Schedule 8.5 shall
become a Party hereto. To the extent such Person is the transferee of the
Investor, such person shall be deemed to have the rights and obligations of the
Investor hereunder with respect to the Shares so transferred and to the extent
such Person is the transferee of Holdings, such Person shall be deemed to have
the rights and obligations of Holdings hereunder with respect to the Shares so
transferred. The preceding sentence shall not apply (i) to the Investor (or its
Permitted Transferees) to the extent such Person is the transferee of Shares
from Holdings and/or its Permitted Transferees or (ii) Holdings (or its
Permitted Transferees) to the extent such Person is the transferee of Shares
from the Investor and/or its Permitted Transferees.
-21-
8.6 TERMINATION
(a) This Agreement shall terminate automatically upon occurrence of any
of the following events: (i) all issued and outstanding Shares of
the Corporation are held by one Person only; or (ii) by written
agreement of the Shareholders and the Corporation.
(b) The provisions of Articles II, III, IV, V and VII hereof shall
terminate upon (i) the consummation by the Corporation of a
Qualified Public Offering, or (ii) the conversion by the Investor of
its Shares under Article III hereof or (iii) the consummation of a
transaction described in Section 6.1(b)(ii) or (iii) of the
Shareholders' Agreement with an issuer whose Shares are listed on a
US securities exchange or a national Canadian stock exchange or
quoted on the NASDAQ-NMS or Small Cap.
[SIGNATURE PAGES FOLLOW]
-22-
IN WITNESS WHEREOF this Agreement was executed on the date and at the
place first mentioned above.
HENRY BIRKS & SONS INC. HENRY BIRKS & SONS HOLDINGS INC.
By: /s/ Thomas A. Andruskevich By: /s/ Marc Cantin
---------------------------- --------------------------
Name: Thomas A. Andruskevich Name: Marc Cantin
Title: President and Chief Executive Title: Director
Officer
President et Chef de l'Executif
PRIME INVESTMENTS SA MARCO PASTERIS
By: /s/ Amit B. Bhansali By: /s/ Marco Pasteris
---------------------------- --------------------------
Name: Amit B. Bhansali Name: Marco Pasteris
|
Title:
-23-
SCHEDULE 8.5
To the Shareholders' Agreement by and among Prime Investments SA, Henry
Birks & Sons Holdings Inc. and Henry Birks & Sons Inc. made as of August 15,
2002.
COUNTERPART
THIS INSTRUMENT forms part of the Shareholders' Agreement (the
"Agreement") made as of _________________________ as amended, by and among Prime
Investments SA, Henry Birks & Sons Holdings Inc. and Henry Birks & Sons Inc.,
which Agreement permits execution by counterparts. The undersigned hereby
acknowledges having received a copy of the said Agreement (which is annexed
hereto as Schedule A) and, having read the said Agreement in its entirety,
hereby agrees that the terms and conditions of the said Agreement shall be
binding upon the undersigned as if the undersigned had been an original party to
the Agreement as a Shareholder (as such term is defined in the Agreement) and
such terms and conditions shall inure to the benefit of and be binding upon the
undersigned, its successors and assigns.
IN WITNESS WHEREOF the undersigned has executed this instrument this
[____] day of [____],____.
[SHAREHOLDER]
Per: ______________________
EXHIBIT A TO SHAREHOLDERS' AGREEMENT
This Exhibit A is a part of and is incorporated into that certain
Shareholders' Agreement (the "SHAREHOLDERS' AGREEMENT"), dated as of August 15,
2002, among Henry Birks & Sons Inc., a corporation amalgamated under the laws of
Canada (the "CORPORATION"), Henry Birks & Sons Holdings Inc., a corporation
incorporated under the laws of Canada ("HOLDINGS") and Prime Investments SA, a
Luxembourg corporation (together, with each transferee thereof of Common Shares
that agrees to be bound by the terms of the Shareholders' Agreement in
accordance with Section 8.5 thereof, the "INVESTORS.") Capitalized terms used in
this Exhibit A without definition herein shall have the meanings assigned to
them in the Shareholders' Agreement.
1. Registration on Request.
1.1 Request. Subject to the other provisions of this Section 1 and
the other provisions of this Exhibit A, at any time after (i) the Corporation's
initial Qualified Public Offering (ii) a transaction described in Section
6.1(b)(ii) or (iii) of the Shareholders Agreement with an issuer whose Shares
are listed on a US national securities exchange or a Canadian securities
exchange or quoted on the NASDAQ, NMS or Small Cap, or (iii) the conversion by
the Investor of its Shares as provided in Article III of the Shareholders'
Agreement, upon the written request of the Investor, requesting that the issuer
of the Registrable Securities (the "ISSUER") held by the Investor effect the
registration under the securities laws of the jurisdiction in which such
Issuer's Shares are registered or the qualification for sale in Canada (a
"QUALIFICATION") pursuant to a final prospectus (a "CANADIAN PROSPECTUS") filed
with, and in respect of which a receipt has been issued by, each of the
securities commissions or similar regulatory authority of each of the provinces
of Canada (the "CANADIAN COMMISSIONS"), of all or any part of such the
Investor's Registrable Securities (but not less than 250,000 Registrable
Securities), the Issuer will as soon as is practicable give written notice of
such requested registration or Qualification to all holders of Registrable
Securities, and thereupon will use its reasonable best efforts to effect, as
expeditiously as practicable, the registration or Qualification under the
applicable securities laws of Registrable Securities which the Issuer has been
so requested to register by the Investor. Notwithstanding the foregoing, the
Issuer shall not be required to effect a registration or Qualification pursuant
to this Section 1.1:
(a) if the Issuer has already effected one (1) registration or
Qualification pursuant to this Section 1.1 at the request of Investor and such
registration or Qualification has been declared or ordered effective; or
(b) within one hundred eighty (180) days after a merger, amalgamation or
other reorganization pursuant to which the Common Shares have been exchanged or
converted into common shares of Mayor's Jewelers Inc.
1.2 Registration Statement Form. Registrations under this Section 1
shall be on such appropriate registration form and Qualifications shall be made
pursuant to such appropriate type of Canadian Prospectus, as permitted by
applicable securities
laws and the rules and regulations thereunder and as selected by the Issuer and
as acceptable to the Investor. The Issuer agrees to include in any such
registration statement and Canadian Prospectus all information which the
Investor, upon advice of counsel, shall reasonably request. The Issuer may, if
permitted by applicable law, effect any registration requested under this
Section 1 by the filing of a short-form registration statement (such as a Form
S-3 if the registration statement is filed under the United States Securities
Act) unless the Investor (or, if such registration involves an underwritten
public offering of Registrable Securities, the managing underwriter of such
public offering) shall notify the Issuer in writing that, in the reasonable
judgment of such managing underwriter, the use of a more detailed form specified
in such notice is of material importance to the success of such public offering,
in which case such registration shall be effected on the form so specified.
1.3 Effective Registration Statement. A registration or
Qualification requested pursuant to this Section 1 shall not be deemed to have
been effected (a) unless a registration statement with respect thereto has
become effective or a receipt for a Canadian Prospectus has been issued by each
of the Canadian Commissions, provided that a registration which does not become
effective after the Issuer has filed a registration statement with respect
thereto or a Canadian Prospectus which is not receipted by the Canadian
Commissions solely by reason of the refusal to proceed of the Investor (other
than a refusal to proceed based upon the advice of counsel relating to a matter
with respect to the Issuer or the withdrawal of a request for registration or
Qualification pursuant to Subsection 1.1) shall be deemed to have been effected
by the Issuer unless the Investor shall have elected to pay all Registration
Expenses (as defined in Section 6 below) in connection with such registration or
Qualification, (b) if the registration does not remain effective or the
Registrable Securities do not remain qualified for sale pursuant to a Canadian
Prospectus for a period of at least 180 days or, if earlier, until all the
Registrable Securities requested to be registered or qualified for sale in
connection therewith were sold, (c) if, after it has become effective, such
registration or, after the qualification for sale of the Registrable Securities
in Canada, is interfered with by any stop order, injunction or other order or
requirement of the Securities and Exchange Commission (the "COMMISSION"), if the
registration involves a public offering in the United States, any of the
Commissions or other governmental authority or court for any reason, or (d) if
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration or Qualification are
not satisfied and no such registration or Qualification occurs, other than by
reason of some act or omission by the Investor.
1.4 Priority in Requested Registrations. If a requested registration
or Qualification pursuant to this Section 1 involves an underwritten offering,
and the managing underwriter shall advise the Issuer in writing that, in its
opinion, the number of securities requested to be included in such registration
or Qualification exceeds the number which can be sold in such offering within a
price range acceptable to the Investor (such writing to state the basis of such
opinion and the approximate number of shares of securities which may be included
in such offering without such effect), the Issuer will include in such
registration or qualification for sale in Canada, to the extent of the number of
securities which the Issuer is so advised can be sold in such offering, first,
any
A-2
and all securities proposed to be registered or qualified for sale in Canada by
the Issuer for its own account as part of such registration or qualification,
second, Registrable Securities requested by the Investor, and third all other
securities of the Issuer proposed to be included in such registration or
qualification for sale in Canada, in accordance with the priorities, if any,
then existing among the Issuer and the holders of such securities.
1.5 Registration Expenses. In connection with one registration or
Qualification of Registrable Securities pursuant to this Section 1, the Issuer
shall pay all Registration Expenses and the Investor shall pay all underwriting
discounts and commissions applicable to its Registrable Securities and any fees
of separate counsel employed by the Investor.
2. Incidental Registration.
2.1 Right to Include Registrable Securities. If, following the
public offering of the securities of the Issuer (which in the case of the
Corporation shall be a Qualified Public Offering), the Issuer proposes to
register or qualify for sale any of its securities (which are the same type as
Registrable Securities then held by the Investor) under the US Securities Act or
the securities laws of any province or territory of Canada by registration on
any form or qualification for sale in Canada pursuant to any type of Canadian
prospectus, for public sale for its own account or the account of any other
shareholder, it will each such time give prompt written notice to the Investor
of its intention to do so and of the Investor's rights under this Section 2,
prior to the proposed registration or qualification for sale (such notice, a
"REGISTRATION NOTICE"). Upon the written request of the Investor made as
promptly as practicable and in any event within ten (10) days after the receipt
of any such Registration Notice (which request shall specify the Registrable
Securities intended to be disposed of by the Investor), the Issuer will file a
registration statement or a Canadian Prospectus with respect to, and use its
reasonable best efforts to make effective or obtain receipts therefor from each
of the Commissions, at the earliest possible date, the registration or
qualification for sale in Canada under the applicable securities laws of all
Registrable Securities which the Issuer has been so requested to register by the
Investor thereof; provided, however, that if, at any time after giving written
notice of its intention to register or qualify for sale in Canada any
Registrable Securities and prior to the effective date of the registration
statement filed in connection with such registration or date of issuance of
receipts for a Canadian Prospectus, the Issuer shall determine for any reason
not to register or to delay registration or qualification for sale of such
securities, the Issuer may, at its election, give written notice of such
determination to the Investor and (i) in the case of a determination not to
register or qualify for sale, the Issuer shall be relieved of its obligation to
register or qualify for sale in Canada any Registrable Securities in connection
with such registration or offering and (ii) in the case of a determination to
delay registering or qualifying for sale in Canada, the Issuer shall be
permitted to delay registering or qualifying for sale any Registrable
Securities, for the same period as the delay in registering or qualifying for
sale such other securities.
2.2 Priority in Incidental Registrations. If the managing
underwriter of any underwritten offering shall advise the Issuer that the number
of Registrable Securities
A-3
requested to be included in such registration or qualification exceeds the
number which can be sold in such offering, and the Issuer has so advised the
Investor in writing, then the Issuer will include in such registration or
qualification, to the extent of the number of Registrable Securities which the
Issuer is so advised can be sold in (or during the time of) such offering,
first, any and all securities proposed to be registered or qualified for sale in
Canada by the Issuer for its own account as part of such registration, second,
the Registrable Securities requested to be included in such registration or
qualification by the Investor if exercising its rights under Section 2.1 hereof
and other holders of Registrable Securities, who have exercised demand
registration rights comparable to the Investor's rights under Section 2.1
hereof, pro rata among such holders on the basis of the number of Registrable
Securities requested to be registered or qualified by such holders and third,
all other securities of the Issuer proposed to be included in such registration,
in accordance with the priorities, if any, then existing among the Issuer and
the holders of such securities. In connection with any registration or
qualification for sale in Canada as to which this Subsection 2.2 applies, the
Investor shall have the right, upon written notice to the Issuer within ten (10)
days of receipt of a Registration Notice from the Issuer, to withdraw from such
registration or qualification the Registrable Securities requested to be
registered or qualified for sale by the Investor.
2.3 Registration Expenses. In connection with any registration of
Registrable Securities pursuant to this Section 2, the Issuer shall pay all
Registration Expenses and the Investor shall pay all underwriting discounts and
commissions applicable to its Registrable Securities and any fees of separate
counsel employed by the Investor.
3. Registration Procedures. With respect to any registration pursuant to
Section 1 or Section 2:
3.1 Cooperation. In connection with any registration or
Qualification of Registrable Securities for the account of the Investor, the
Investor shall provide to the Issuer for inclusion in the related registration
statement or Canadian Prospectus any information reasonably requested by the
Issuer or, in the case of an underwritten offering, by the managing underwriter
thereof.
3.2 Withdrawal from Registration. The Investor shall not be
permitted to effect a withdrawal of its Registrable Securities from a requested
registration or Qualification, unless the Investor provides written notice of
such withdrawal to the Issuer not later than 24 hours prior to the pricing of
the Registrable Securities to be sold pursuant to such registration or
Qualification (the "WITHDRAWAL DEADLINE"); provided, that such restriction on
withdrawal shall apply only if (i) not less than 12 hours prior to the
Withdrawal Deadline the Investor shall have been informed by the Issuer or the
managing underwriter of an underwritten offering of the range of prices within
which such Registrable Securities shall be offered in connection with such
registration or Qualification and (ii) the actual price at which such
Registrable Securities are offered in connection with such registration or
Qualification shall have been within such range of prices.
A-4
3.3 Underwriters. The distribution for the account of the Investor
shall in any underwritten offering be underwritten by the same underwriters who
underwrite the distribution of Registrable Securities for the account of any
other holder of Registrable Securities exercising demand registration rights
comparable to those set forth in Section 2.1 hereof and the Issuer.
3.4 Legal Opinions. The Investor shall retain counsel and shall
cause such counsel to deliver to the managing underwriter of any underwritten
offering such opinions of such counsel as such managing underwriter may
reasonably require.
3.5 Execution of Documents. The Investor shall, upon request of the
Issuer, execute power of attorney, deposit and custodian agreements in form and
substance satisfactory to the managing underwriter of any underwritten offering.
The Investor shall execute an underwriting agreement in form and substance
satisfactory to such managing underwriter, which underwriting agreement shall
contain customary representations and warranties to be given by the Investor
(including representations regarding the material accuracy and completeness of
the information provided thereby pursuant to Subsection 3.1) and provisions
whereby the Issuer, on the one hand, and the Investor, on the other hand,
indemnify each other as provided in Section 6.
3.6 Registration Statement. The Issuer will deliver to the Investor
such number of copies of any preliminary Canadian Prospectus, and after the
effectiveness of any registration statement or issuance of receipts in respect
of a Canadian Prospectus such reasonable number of copies of a definitive
prospectus included in such registration statement or Canadian Prospectus and of
any revised or supplemental prospectuses as the Investor may from time to time
request.
4. Hold-Back. Each of the Issuer and the Investor agrees not to effect any
public sale or distribution of Registrable Securities during the period
specified by the managing underwriter or underwriters of an underwritten offer
being made pursuant to such registration statement (which period shall not
exceed seven (7) days prior to and 180 days following the effective date of such
registration statement), except as part of such registration or Qualification,
if and to the extent reasonably requested by such managing underwriter or
underwriters.
5. INTENTIONALLY OMITTED.
6. Indemnity.
(a) The Issuer will indemnify and hold harmless the Investor if its
Registrable Securities were included in a registration statement or Canadian
Prospectuses prepared under Section 1 or Section 2 hereof, against all claims,
losses, damages, liabilities and expenses resulting from any untrue statement or
allegedly untrue statement of a material fact contained or incorporated by
reference in a prospectus or in any related registration statement or in any
Canadian preliminary or final Prospectus, notification or the like or from any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they
A-5
were made, not misleading, except insofar as the same may have been based on
information furnished in writing to the Issuer by the Investor or such
underwriter expressly for use therein and used in accordance with such writing.
The Investor, by acceptance of the provisions herein, agrees to furnish to the
Issuer such information concerning the Investor and the proposed sale or
distribution as shall, in the opinion of counsel for the Issuer, be necessary in
connection with any such registration or Qualification of any Registrable
Securities owned by the Investor, and to indemnify and hold harmless the Issuer,
its officers and directors and each of its underwriters (and any person who
controls the Issuer or such underwriters within the meaning of Section 15 of the
US Securities Act) against all claims, losses, damages, liabilities and expenses
resulting from any untrue statement or allegedly untrue statement of a material
fact furnished in writing by the Investor to the Issuer or to any underwriter of
Registrable Securities sold by the Investor, expressly for use in connection
with such registration or Qualification and used in accordance with such writing
and from any omission therefrom or alleged omission therefrom of a material fact
needed to be furnished or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) Promptly after receipt by the Investor of written notice of the
commencement of any action or proceeding involving a claim referred to in
Section 6(a), the Investor will, if a claim in respect thereof is to be made
against the Issuer, give written notice to the latter of the commencement of
such action; provided, however, that the failure of the Investor to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subsections of this Section 6, except to the extent that the
Issuer is prejudiced by such failure to give notice. In case any such action
shall be brought against the Investor and it shall notify the Issuer of the
commencement thereof, the Issuer shall be entitled to participate therein and,
to the extent that it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to the Investor and after written notice from the Issuer
to the Investor of its election so to assume the defense thereof, the Issuer
shall not be liable to the Investor for any legal or other expenses (including
fees and expenses of attorneys) subsequently incurred by the Investor in
connection with the defense thereof. Notwithstanding the foregoing, in any
action or proceeding in which both the Issuer and the Investor is, or is
reasonably likely to become, a party, the Investor shall have the right to
employ separate counsel at the Issuer's expense and to control its own defense
of such action or proceeding if, in the reasonable opinion of counsel to the
Investor, (a) there are or may be legal defenses available to the Investor or to
other indemnified parties that are different from or additional to those
available to the Issuer or (b) any conflict or potential conflict exists between
the Issuer and the Investor that would make such separate representation
advisable. The Issuer shall not be liable for any settlement of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld. The Issuer shall not, without the consent of the
Investor, which consent shall not be unreasonably withheld, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to Investor
of a general release from all liability in respect to such claim or litigation
or which requires action by the Investor.
A-6
7. Definitions. As used in this Exhibit A, unless the context otherwise
requires, the following terms have the following respective meanings:
"REGISTRABLE SECURITIES" means any Shares of the Corporation or any
securities received by the Issuer pursuant to Article III or Section 4(b) of the
Shareholders' Agreement, but with respect to any such securities, only until
such time as such Shares (i) have been effectively registered under the US
Securities Act or pursuant to the securities laws of each of the provinces of
Canada and disposed of in accordance with the registration statement or Canadian
Prospectuses covering such securities, or (ii) has ceased to be outstanding.
"REGISTRATION EXPENSES" means all expenses incident to the Issuer's
performance of or compliance with Sections 1, 2 or 3, including, without
limitation, all registration and filing fees, all fees of the national
securities exchanges or the National Association of Securities Dealers, Inc., or
the NASDAQ, NMS or Small Cap, or of any Canadian securities exchange all fees
and expenses of complying with applicable securities or laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Issuer and of its independent
public accountants, including the expenses of "cold comfort" letters required by
or incident to such performance and compliance, any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (excluding any
underwriting discounts or commissions with respect to the Registrable
Securities).
A-7
Exhibit 10.10
AMENDED AND RESTATED ACCOUNTS RECEIVABLE MANAGEMENT, LOAN & SECURITY AGREEMENT
BY AND BETWEEN: GMAC COMMERCIAL FINANCE CORPORATION -
CANADA/SOCIETE FINANCIERE COMMERCIALE
GMAC - CANADA;
("LENDER")
AND: HENRY BIRKS & SONS INC.
("BORROWER")
AND: EACH AND EVERY ONE OF THE CREDIT PARTIES
WHEREAS Lender and Borrower are party to an Accounts Receivable Management, Loan
and Security Agreement dated October 15, 1996, as amended by letter agreements
dated July 23, 1998, June 8, 1999, September 23, 1999, May 2, 2000, January 30,
2001, May 29, 2001, November 16, 2001 and November 17, 2003 (the "FORMER
AGREEMENT");
WHEREAS the parties hereto have agreed to amend and restate the terms and
conditions of the Former Agreement pursuant to the terms hereof;
WHEREFORE the parties hereto have agreed as follows:
1. DEFINITIONS AND INTERPRETATION
1.1. Whenever utilized herein:
1.1.1. "ACCEPTED LETTERS OF CREDIT" means any Letters of Credit:
(a) In respect of which there have been any drawing(s), up to the
aggregate amount of such drawing(s); and,
(b) Which are letters of credit unrelated to the purchase of
Inventory, standby letters of credit or letters of guarantee;
Page 2
1.1.2. "ACCOUNT(S)" means all present and future accounts, accounts
receivable, claims, contract rights and all other forms of obligations
owing or to become owing to Borrower or any Credit Party arising out of
the sale of Inventory by Borrower or any Credit Party or the retention of
services (to the extent permitted by Lender, from time to time) of
Borrower or any Credit Party, irrespective of whether earned by
performance, any and all credit insurance, guarantees and security
therefore;
1.1.3. "ACCOUNT DEBTOR(S)" means any Person(s) who is or who may become
obligated under, with respect to, or on account of an Account;
1.1.4. "ADDITIONAL COLLATERAL" means the additional collateral, if any,
stipulated and valued in the Contract Data Sheet;
1.1.5. "ADVANCE(S)" means each and every advance of funds made by Lender
to Borrower or to any other Person for, on behalf of or for the benefit of
Borrower including, without limitation, any advances made or credits given
by Lender to any bank account or other account now or hereafter maintained
by Borrower, any payments made by Lender of any Fees or Expenses, any
payments made by Lender of any amounts in respect of any Letters of Credit
and any payments made by Lender of the Other Indebtedness;
1.1.6. "ADVERSE CHARGE" means any Lien or Encumbrance, other than the
Permitted Charges, against or affecting any property of Borrower or any
Credit Party, whether ranking prior to, equal with or after the Security;
1.1.7. "ARRANGEMENT FEE" means the amount designated as such in the
Contract Data Sheet, the full amount of which shall be deemed to have been
fully earned by Lender upon execution of the present Credit Agreement;
1.1.8. "AUDIT(S)" means the examination and appraisal of the books,
records and Collateral of Borrower or any Credit Party by Lender's staff
auditors or third party professionals and/or evaluators designated by
Lender, which shall be conducted at such greater intervals as Lender may
determine in its discretion;
1.1.9. "AUTHORIZED OVERADVANCE" means Outstandings, at any given time,
under any Overadvance Availability;
1.1.10. "AUTHORIZED OVERADVANCE RATE" has the meaning set forth in the
Contract Data Sheet for Dollars and US Dollars respectively;
1.1.11. "BANK" means the Toronto-Dominion Bank or, in its absence, such
other bank operating in Canada which Lender may, in its discretion,
designate;
Page 3
1.1.12. "BANKERS' ACCEPTANCE(S)" means any bills of exchange payable at a
future time, which are drawn by Borrower on any bank designated by Lender
and are accepted by such bank;
1.1.13. "BANKERS' ACCEPTANCE COSTS" means all fees, charges and other
amounts payable by Borrower and/or Lender to any bank for such bank's
acceptance and processing of Bankers' Acceptances;
1.1.14. "BANKERS' ACCEPTANCE FEE(S)" means, in addition to all Bankers'
Acceptance Costs, an amount equal to the annual rate set forth in the
Contract Data Sheet of the face amount of each particular Bankers'
Acceptance for the term of each particular Bankers' Acceptance, provided,
however, if a Default occurs, such annual rate shall be automatically
increased by two percentage points (2%) effective as of the occurrence of
such Default and continuing for so long as such Default is outstanding;
1.1.15. "BORROWER" means the Person defined as such at the outset of this
Agreement. If Borrower consists of more than one Person then, all
references herein to "Borrower" shall be interpreted in accordance with
the provisions of Clause 14 hereof;
1.1.16. "BORROWING BASE" means:
(a) the aggregate of:
(i) the percentage of Eligible Accounts set forth in the
Contract Data Sheet;
(ii) the lesser of (a) the aggregate of (i) the percentage of
NOLV of eligible Finished Goods Inventory set forth in the
Contract Data Sheet and (ii) the percentage of NOLV of
Eligible Raw Materials Inventory set forth in the Contract
Data Sheet and (b) the Eligible Inventory Availability Limit;
and
(iii) during the months of February through June (inclusive)
only, the Collateral Stretch Facility,
LESS
(b) The aggregate of:
(i) the face amount of all Accepted Letters of Credit;
(ii) the amount of all Letter of Credit Reserves;
(iii) the amount of all Reserves;
(iv) the amount of all Priority Claims;
Page 4
(v) the amount of any Surplus Reserve; and,
(vi) such portion, if any, of the Non-Revolving Loan as set
forth in the Contract Data Sheet.
1.1.17. "BORROWING BASE SURPLUS" means, at any given time, the difference
between (I) the Borrowing Base, and (II) all Outstandings under the
Revolving Loan;
1.1.18. "BUSINESS DAY(S)" means any day that is not a Saturday, Sunday or
other day on which Lender or Banks are authorized or required to close in
the City of Montreal;
1.1.19. "CAPITAL EXPENDITURES" means any and all expenditures made by
Borrower (or, if applicable, any Credit Parties) for or in connection with
the acquisition of capital property (including, without limitation,
leasehold rights, leasehold improvements and trade fixtures);
1.1.20. "COLLATERAL" means all present and future movable and personal
property of Borrower and the Credit Parties, corporeal and incorporeal,
tangible and intangible, of any nature or form whatsoever, wherever
situated, and includes, without limitation, the Accounts, the Inventory,
any Additional Collateral as well as any immovable properties now or
hereafter forming the object of the Security;
1.1.21. "COLLATERAL STRETCH FACILITY" means the amount determined in
accordance with the formula set forth in the Contract Data Sheet;
1.1.22. "COLLECTION(S)" means all cash, cheques, funds electronically
transferred and all other hard copy or electronic payment instruments
(including collection of insurance proceeds, cash sale proceeds, rental
proceeds and tax refunds);
1.1.23. "COMPLIANCE CERTIFICATE" means the "Compliance Certificate" in
form and substance as set forth in Annex 1 hereto or in such other form
and substance as shall, from time to time, be determined by Lender and
communicated to Borrower. Each Compliance Certificate to be delivered to
Lender hereunder shall be certified as correct and accurate by Borrower's
Chief Financial Officer;
1.1.24. "CONTRACT DATA SHEET" means the "Contract Data Sheet" annexed
hereto as well as any and all future amendments, supplements and/or
addendums thereto and/or renewals, replacements and/or restatements
thereof. The Contract Data Sheet shall be deemed, for all purposes, to
form part of the Credit Agreement;
Page 5
1.1.25. "CONTRACT YEAR" means consecutive periods of 12 consecutive months
immediately following the Effective Date;
1.1.26. "CREDIT AGREEMENT" means the present Amended and Restated Accounts
Receivable Management, Loan and Security Agreement as well as any and all
future amendments, supplements and/or addendums hereto and/or renewals,
replacements and/or restatements hereof;
1.1.27. "CREDIT DOCUMENTS" means the Credit Agreement, the Security, any
agreements or documents pertaining to any matter under or arising from the
Credit Agreement or the Security and any other agreements or documents
entered into, now or in the future, in connection with any of the
foregoing or in connection with any matter pertaining to the Credit
Facilities;
1.1.28. "CREDIT FACILITIES" means all credit facilities made available to
Borrower hereunder including the Revolving Loan and any Non-Revolving Loan
hereunder;
1.1.29. "CREDIT PARTY(IES)" means any Person(s), if any, designated as
such in the Contract Data Sheet and who is(are) party to the Credit
Agreement;
1.1.30. "DEBT" means all indebtedness, of any nature or source whatsoever,
at any given time owing by Borrower (or, if applicable, any Credit
Parties), whether due or not, matured or not. Debt includes all
Outstandings under the Credit Facilities;
1.1.31. "DEBT TO EQUITY RATIO" means the ratio of Debt to Tangible Net
Worth;
1.1.32. "DEFAULT" has the meaning set forth in Clause 13.1 hereof;
1.1.33. "DISPUTE" means any cause asserted for non-payment of an Account
including, without limitation, any dispute, claim, complaint, offset,
defense, contra-account or counter-claim, real or asserted, lawful or
unlawful, whether arising from or relating to any sale or any other
transaction or occurrence and includes, for greater certainty, any reason
for non-payment of an Account at its maturity other than solely as a
result of the financial inability of the Account Debtor;
1.1.34. "DOLLAR(S)" or "$" means Canadian dollars and "US DOLLAR(S)" or
"US$" means United States of America dollars;
1.1.35. "EARLY TERMINATION FEE" means a payment due by Borrower to Lender
in the amount of $750,000.00 in the event of (I) Borrower's terminating
this Agreement prior to the expiry of the Minimum Term pursuant to Clauses
14.1.2 hereof, or (II) Lender's terminating this Agreement prior to
Page 6
the expiry of the Minimum Term upon occurrence of an event of Default
pursuant to Clause 14.1.3 hereof;
1.1.36. "EBIT" means Borrower's earnings during any particular fiscal
period before:
(a) payment or provision for payment of interest; and,
(b) payment or provision for payment of income taxes,
all computed in accordance with GAAP;
1.1.37. "EBITDA" means Borrower's earnings during any particular fiscal
period before:
(a) payment or provision for payment of interest;
(b) payment or provisions for payment of income taxes;
(c) depreciation;
(d) amortization; and
(e) any other non-recurring income and expense items,
all computed in accordance with GAAP;
1.1.38. "EFFECTIVE DATE" means the date stipulated as such in the Contract
Data Sheet;
1.1.39. "ELIGIBLE ACCOUNTS" means the aggregate of the Net Face Amount of
all Accounts created by Borrower or any Credit Party in the ordinary
course of business which Lender, in its sole discretion, determines to be
acceptable for purposes of advances hereunder. Without limiting Lender's
discretion, the following shall not be Eligible Accounts:
(a) Accounts which are outstanding for a period exceeding 90 days
immediately following the earlier of (i) delivery of the relevant
Inventory or performance of the relevant services or (II) the date
of the relevant invoice;
(b) Accounts in respect of which Lender (if specifically requested
by Lender) has not been provided with both (I) the Account Debtor's
purchase order therefor and (II) proof of delivery of the
merchandise and/or services forming the object thereof, both in form
and substance satisfactory to Lender;
Page 7
(c) any portion of any Accounts (to the extent not already deducted
in arriving at the Net Face Amount thereof) which may reduce the
amount of such Accounts and/or may be deducted therefrom by the
relevant Account Debtor including, without limitation, all
discounts, rebates, allowances, credits or any other deductions
applicable thereto;
(d) Accounts owed by an Account Debtor which is a Related Person;
(e) Accounts with respect to which goods are placed on a
consignment, guaranteed sale, "bill and hold", sale or return, sale
on approval, or other terms by reason of which the payment by the
Account Debtor may be conditional;
(f) Accounts, the collection of which Lender, in its reasonable
credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(g) Accounts with respect to which goods have not been shipped and
billed to the Account Debtor, the services have not been performed
and accepted by the Account Debtor or does otherwise not represent a
final sale;
(h) Accounts that represent progress payments or other advance
billings that are due prior to the completion of performance by
Borrower of the subject contract for goods or services; and,
(i) Accounts which are the object of any Dispute, to the extent of
such Dispute (if such extent is clearly ascertainable);
1.1.40. "ELIGIBLE ACCOUNTS AVAILABILITY" means Borrower's borrowing
availability under the Revolving Loan based on the Borrowing Base, after
deducting and not taking into account any value attributed to Eligible
Inventory;
1.1.41. "ELIGIBLE FINISHED GOODS INVENTORY" means Eligible Inventory
consisting of finished goods, wares and other finished merchandise;
1.1.42. "ELIGIBLE INVENTORY" means Inventory which is either (i) landed,
duty paid, located in Canada or the United States and in possession of
Borrower or any Credit Party, or (ii) is to be imported by Borrower or any
Credit Party and has been shipped under outstanding Letters of Credit,
both consisting of first quality finished goods owned by Borrower or any
Credit Party and held for sale in the ordinary course of Borrower's or any
Credit Party's business which are in good condition and readily saleable
at prices not less than cost, all of which Lender, in its sole discretion,
determines to be acceptable for purposes of advances hereunder. Without
limiting Lender's discretion, the following shall not be Eligible
Inventory:
Page 8
(a) Inventory held on consignment or not otherwise owned by Borrower
or any Credit Party with good, valid and marketable title thereto;
(b) is of a type no longer sold by Borrower or any Credit Party;
(c) Inventory which is encumbered in favour of any Person whatsoever
other than in favour of Lender under the Security;
(d) Inventory which is damaged or consists of goods returned or
rejected by an Account Debtor;
(e) Inventory which is in the process of being converted from raw
material into finished goods, commonly known as "work in progress";
and,
(f) Inventory which is, in Lender's reasonable determination,
obsolete or slow moving, unmarketable, a restrictive custom item, a
component not forming part of finished goods, spare parts, packing,
shipping and storage materials, supplies used or consumed in
Borrower's or any Credit Party's business, "bill and hold" goods,
defective goods or "seconds";
(g) The portion of the value of Inventory attributable to overhead
allocation in excess of the lesser of (i) the amount excepted by
Lender from time to time as determined by Borrower's auditors in
accordance with GAAP and (ii) the sum of $3,237,000.00;
1.1.43. "ELIGIBLE INVENTORY AVAILABILITY LIMIT" has the meaning set forth
in the Contract Data Sheet;
1.1.44. "ELIGIBLE RAW MATERIAL INVENTORY" means Eligible Inventory
Consisting of Raw Materials;
1.1.45. "ENCUMBRANCE(S)" means any lien, prior claim, legal hypothec,
charge, statutory lien, encumbrance, seizure, form of distress,
attachment, levy or any other right in favour of any Person other than
Lender;
1.1.46. "EXPENSES" means all costs and expenses incurred and/or to be
incurred by and/or on behalf of Lender in the preparation, execution,
registration/publication and/or implementation of the Credit Documents, in
administering the Credit Facilities and the Credit Documents and in
collecting the Obligations and enforcing the Credit Documents including,
without limitation:
(a) costs and expenses (including taxes and insurance premiums)
required to be paid by Borrower or any Credit Party under any of the
Credit Documents that are paid or incurred by Lender;
Page 9
(b) fees or charges paid or incurred by Lender in connection with
Lender's transactions with Borrower or any Credit Party hereunder,
including fees or charges for photocopying, notarialization,
couriers and messengers, telecommunication, public record searches
and environmental audits;
(c) costs and expenses incurred by Lender in the disbursement of
funds to Borrower (by wire transfer or otherwise);
(d) charges paid or incurred by Lender resulting from the dishonour
of cheques or other payment instruments;
(e) costs and expenses paid or incurred by Lender to correct any
Default or enforce any provision of the Credit Documents or in
gaining possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale or advertising to sell the
Collateral or any portion thereof;
(f) costs and expenses of all Audits (at the greater of $750.00 per
day or the then prevailing rate for Lender's internal auditors or at
the actual rate charged by any third party professionals and/or
evaluators plus, in either case, all disbursements and out-of-pocket
expenses associated therewith). Notwithstanding the foregoing, the
costs and expenses of all Audits (other than the costs and expenses
of appraisals of Collateral) shall, in any given calendar year, not
exceed $60,000.00;
(g) costs and expenses of third party claims or any other suit paid
or incurred by Lender in enforcing or defending the Credit Documents
or in connection with the transactions contemplated by the Credit
Documents or any relationship between Lender and Borrower or any
Credit Party;
(h) costs and expenses of converting any foreign currency to Dollars
(or vice-versa);
(i) all collection, bank, postage, photocopy, telephone, telecopy,
courier, credit report charges and other disbursements related to
anything herein contained or contained in the Security; and,
(j) Lender's reasonable attorney's fees and expenses incurred in
advising, structuring, drafting, administering, amending,
terminating, enforcing, defending or concerning the Credit Documents
or the Credit Facilities.
1.1.47. "FEES" means all fees and other amounts of any nature or form
whatsoever payable pursuant to the provisions of any of the Credit
Documents by Borrower or any of the Credit Parties and shall include,
without limitation,
Page 10
the Arrangement Fee, the Monitoring Fee, the Standby Fee and the
Overadvance Fee;
1.1.48. "FISCAL QUARTER(S)" means each consecutive quarter of a Fiscal
Year;
1.1.49. "FISCAL YEAR" means the period (which shall be no less than 50
weeks and no more than 54 weeks) designated as Borrower's or any Credit
Party's fiscal year;
1.1.50. "FIXED CHARGE COVERAGE RATIO" means the ratio of:
(a) the sum of (i) EBITDA, and (ii) all amounts paid or payable
under leasing agreements or leases made for financing purposes, less
Capital Expenditures (except to the extent that such Capital
Expenditures are directly and specifically financed by Persons other
than Lender); to
(b) the sum of (i) all interest paid or payable, (ii) all amounts
paid or payable under leasing agreements or leases made for
financing purposes, (iii) all capital repayments of any portion of
Funded Debt (other than the Revolving Loans), (iv) all income taxes
or taxes on capital paid, and (v) all dividends, share redemptions,
share retractions or other corporate distributions declared, made
and/or paid;
1.1.51. "FORMER AGREEMENT" shall have the meaning ascribed thereto in the
preamble hereof;
1.1.52. "FUNDED DEBT" means, without duplication, the sum of:
(a) all obligations for the borrowing or raising of money including,
without limitation, all Outstandings under the Credit Facilities;
(b) all obligations under leasing agreements or leases made for
financing purposes which are required to appear on a balance sheet
prepared in accordance with GAAP;
(c) all obligations to pay the deferred purchase price of property
or services, except trade accounts payable;
(d) all guarantees (being any obligation, contingent or not,
directly or indirectly guaranteeing any liability or indebtedness of
any Person or protecting any creditor of any Person from a loss in
respect of such liability or indebtedness) in respect of financial
obligations and all reimbursement obligations arising from letters
of credit, letters of guarantee or similar instruments; and
(e) all obligations relative to off-balance sheet financing,
Page 11
other than any indebtedness which now or hereafter is postponed,
subordinated and hypothecated in favour of Lender;
1.1.53. "FUNDED DEBT TO EBITDA RATIO" means the ratio of Funded Debt to
EBITDA;
1.1.54. "GAAP" means generally accepted Canadian accounting principles
applied on a basis at all times consistent with prior periods with all
Inventory accounting being reflected on a first in/first out basis;
1.1.55. "GUARANTOR(S)" means those Persons, as designated in the Contract
Data Sheet, who:
(a) have guaranteed or shall guarantee, in whole or in part; and/or,
(b) have pledged/hypothecated or shall pledge/hypothecate property
in favour of the Lender as continuing and collateral security for,
all present and future indebtedness and obligations of Borrower
towards Lender (including, without limitation, all of the
Obligations and all other indebtedness and obligations of Borrower
under the Credit Documents);
1.1.56. "INTEREST" means all interest payable by Borrower to Lender
pursuant to Clause 6.1 hereof and as set forth in the Contract Data Sheet;
1.1.57. "INVENTORY" means all present and future inventory, goods, wares,
merchandise and stock-in-trade owned by Borrower or any Credit Party,
including goods held for sale or lease or to be furnished under a contract
of service and present and future Raw Materials, work in process, finished
goods and packing, shipping and storage materials, wherever situated;
1.1.58. "LENDER" means GMAC COMMERCIAL FINANCE CORPORATION -
CANADA/SOCIETE FINANCIERE COMMERCIALE GMAC - CANADA, its successors or
assigns;
1.1.59. "LETTER(S) OF CREDIT" means any and all letters of credit and/or
letters of guarantee which Lender causes to be issued for the account of
Borrower;
1.1.60. "LETTER OF CREDIT FEE(S)" means a fee equal to the rate(s) set
forth in the Contract Data Sheet of the face amount of each Letter of
Credit, calculated on the basis of the number of calendar months (or
portions thereof) for which each Letter of Credit is outstanding (with
part of any calendar month being counted as a full calendar month);
1.1.61. "LETTER OF CREDIT LIMIT" has the meaning set forth in the Contract
Data Sheet;
Page 12
1.1.62. "LETTER OF CREDIT RESERVES" means the percentage of the face
amount of all Unaccepted Letters of Credit set forth in the Contract Data
Sheet;
1.1.63. "LIEN(S)" means any hypothec, security interest, trust, deemed
trust, ownership retention device (under conditional sales, finance
leases, capital leases or otherwise) and any other rights in any property
forming part of the Collateral;
1.1.64. "LOAN ACCOUNT(S)" means the account or accounts now or hereafter
established and maintained by Lender on its books in Borrower's name for
the purpose of recording Outstandings under the various Credit Facilities;
1.1.65. "MATERIAL ADVERSE CHANGE" means the occurrence of anything or any
event or the failure of occurrence of anything or event which, in Lender's
reasonable opinion, materially and adversely affects:
(a) Borrower or any Credit Party;
(b) the businesses or financial condition or any other matter of or
pertaining to Borrower or any Credit Party;
(c) the ability of Borrower or any Credit Party to pay the
Obligations or to otherwise fulfill their respective obligations
under the Credit Documents;
(d) the value of the Collateral or the ability of Lender to access
the Collateral and/or realize thereon; and/or,
(e) the level of risk on the part of Lender under the Credit
Facilities;
1.1.66. "MAXIMUM AMOUNT" has the meaning set forth in the Contract Data
Sheet;
1.1.67. "MINIMUM TERM" shall have the meaning set forth in the Contract
Data Sheet;
1.1.68. "MONITORING FEE" means the monthly amount designated as such in
the Contract Data Sheet, the full amount of each monthly amount of which
shall be deemed to have been fully earned by Lender on the first day of
each respective month;
1.1.69. "NET FACE AMOUNT" means the gross amount of any Account less all
discounts (which shall be determined by Lender, in its discretion, where
optional terms are given), returns, allowances, credits and/or reductions
at any time applicable, taken or allowed and shall, under no circumstances
whatsoever, exceed the amount actually owing by the Account Debtor;
Page 13
1.1.70. "NOLV" means the net recovery value (after all expenses and third
party fees and charges have been deducted) of all Eligible Inventory or
any other portion of the Collateral, on an orderly liquidation basis (ie.
supervised sale by or under the auspices of a bankruptcy trustee, a
proposal trustee, an interim receiver, a receiver, a monitor, a liquidator
or a similar person under a protective or other insolvency filing) as
determined, at such intervals as Lender may determine, by such third party
evaluator(s) as Lender may designate;
1.1.71. "NON-REVOLVING LOAN(S)" has the meaning set forth in Clause 5.1
hereof;
1.1.72. "NON-REVOLVING LOAN RATE" has the meaning set forth in the
Contract Data Sheet;
1.1.73. "NOTICE" means written notice by Lender to Borrower or any Credit
Party or by Borrower or any Credit Party to Lender, delivered by personal
delivery, courier, bailiff or facsimile transmission and addressed:
(a) if intended for Borrower or any Credit Party, at the address(es)
set forth in the Contract Data Sheet; or,
(b) if intended for Lender, at:
GMAC COMMERCIAL FINANCE CORPORATION - CANADA/
SOCIETE FINANCIERE COMMERCIALE GMAC - CANADA
500 Rene Levesque Blvd. West
Suite 1400
Montreal, Quebec Canada
H2Z 1W7
Fax: (514) 397-1133
Attention: President
until Notice by one to the other of any change of address(es);
1.1.74. "OBLIGATIONS" means the aggregate at any given time of all present
and future amounts, of any nature or source whatsoever, owing to Lender by
Borrower including:
(a) all amounts under the Credit Agreement (including, without
limitation, all Outstandings under the Credit Facilities, the face
amount of all outstanding Letters of Credit as well as all Interest,
Fees and Expenses);
(b) all amounts under any other Credit Documents;
Page 14
(c) all amounts under any other contract, agreement, arrangement,
occurrence, non-occurrence or operation of law, of any nature
whatsoever, whereby Lender becomes a creditor of Borrower; and,
(d) the full amount, from time to time, of the Other Indebtedness;
1.1.75. "OTHER INDEBTEDNESS" means any indebtedness or liabilities of
Borrower or any Credit Party towards third parties where such third
parties are financed or factored by Lender or GMAC Commercial Finance LLC
or where Lender or GMAC Commercial Finance LLC has assumed the risk of
credit loss in favour of such third parties or where Lender or GMAC
Commercial Credit LLC is or may become otherwise liable, including,
contingently, to such third parties for any debts of Borrower or any
Credit Party;
1.1.76. "OUTSTANDINGS" means the full amount of all Advances and the face
amount of any Bankers' Acceptances owing and outstanding under all of the
Credit Facilities or the relevant Credit Facility (as the case may be),
any US Dollar amount of which, for the purpose of calculating
Outstandings, may (at Lender's discretion) be converted to Canadian
dollars at the then prevailing selling rate of US Dollar to Canadian
Dollar exchange of the Bank;
1.1.77. "OVERADVANCE AVAILABILITY" means the Overadvance Availability, if
any, set forth in the Contract Data Sheet by which Outstandings under the
Revolving Loan may exceed the Borrowing Base and/or the Maximum Amount (as
the case may be as set forth in the Contract Data Sheet) by the amounts
set forth in the Contract Data Sheet during the period(s) set forth in the
Contract Data Sheet;
1.1.78. "OVERADVANCE FEE" means the amount of $10,000.00 per calendar
month (or any portion thereof) for each calendar month (or any portion
thereof) during which an Unauthorized Overadvance exists during any 3
consecutive Business Days or any 5 non-consecutive Business Days, the full
amount of which shall be deemed to have been fully earned by Lender on the
last day of each respective month;
1.1.79. "PERMITTED CHARGES" means:
(a) the Security;
(b) any Liens affecting property acquired by Borrower, any Credit
Party or any Guarantor as specific security for the financing or
acquisition of such specific property and affecting no other
property of Borrower or any Credit Party whatsoever;
(c) inchoate or statutory Liens or Encumbrances for taxes,
assessments or government charges which have not been assessed or
claimed and are not delinquent or, if assessed and claimed, are
being contested in good
Page 15
faith by appropriate proceedings and provided that, in such case,
either the effect of such proceedings is to stay any enforcement or
Lender has been provided with security in form and substance
satisfactory to it in an amount to satisfy such Lien or Encumbrance;
(d) minor title defects or irregularities not in the aggregate
materially and adversely affecting the use of the property of
Borrower or any Credit Party to which they relate;
(e) Liens which are the object of an Intercreditor Agreement or a
Priority Agreement between Lender and the holder of such Liens, in
form and substance satisfactory to Lender;
(f) Liens or Encumbrances which are being diligently contested by
Borrower or any Credit Party in good faith, in respect of which
Lender has been furnished with security to cover the consequences of
such Encumbrances, in form, substance and amount satisfactory to
Lender; and,
(g) any Liens or Encumbrances exhaustively enumerated in the
Contract Data Sheet as well as any other Liens or Encumbrances which
may, in the future, be expressly permitted by Lender in writing at
its discretion.
1.1.80. "PERSON(S)" means and includes all natural persons, corporations,
limited liability companies, unlimited liability companies, limited
partnerships, general partnerships, limited liability partnerships, joint
ventures, trusts or any other entities and includes all municipalities,
governments and agencies thereof;
1.1.81. "PRIME RATE" means (i) for Advances in Dollars, the variable per
annum rate of interest as, from time to time, set and/or announced and
varied by the Bank as its "prime rate", "prime lending rate" or similar
rate for loans in Dollars in Canada and (ii) for Advances in US Dollars,
the variable rate of interest as, from time to time, set and/or announced
and varied by the Bank as its "base rate", "base lending rate","prime
rate", "prime lending rate" or similar rate for loans in US Dollars in
Canada;
1.1.82. "PRIORITY CLAIM(S)" means any claim(s) against Borrower or any
Credit Party which, by effect of law, entitles the beneficiary(ies)
thereof to be paid in priority to payment of the Obligations, whether
resulting from any Lien or Encumbrance or any other mechanism or right
benefiting the holder(s) of such claim(s). In calculating any such
claim(s), any credits or amounts receivable by Borrower or any Credit
Party from any governmental or quasi-governmental authorities shall be
valued as nil;
1.1.83. "RAW MATERIALS" means completely unfinished precious and
semi-precious metals, loose diamonds and gemstones, but specifically
excluding
Page 16
components, accessories, work in progress, supplies, parts, watch faces
and any and all other raw materials and jewellery parts or components of
any kind or nature;
1.1.84. "RELATED PERSON(S)" means any Person(s) who is a "related person"
to Borrower or any Credit Party, any shareholder of Borrower or of any
Credit Party, any officer of Borrower or any Credit Party or any director
of Borrower or any Credit Party, all as set forth and defined in Section 4
of the Bankruptcy and Insolvency Act, Canada (or any successor
legislation) and additionally and without limiting the generality of the
foregoing, "Related Person(s)" includes any Person in which Borrower or
any Credit Party, any shareholder of Borrower or any Credit Party, any
officer of Borrower or any Credit Party or any director of Borrower or any
Credit Party have any direct or indirect equity interest (other than by
way of a passive investment in shares traded on a recognized stock
exchange representing less than a 1% equity interest);
1.1.85. "RESERVES" means any and all reserves (other than those
specifically stipulated herein) now or hereafter created by Lender against
and/or in reduction of its herein stipulated advance rates against
Eligible Accounts and/or Eligible Inventory (which Lender shall be
entitled to create, vary or apply, from time to time, in its discretion)
including, without limitation, any and all amounts established by Lender,
in its discretion from time to time, as Lender's risk in respect of any
foreign exchange facilities utilized by Borrower and/or in respect of the
fluctuation of currency exchange rates in respect of any Credit
Facilities;
1.1.86. "REVOLVING LOAN(S)" has the meaning set forth in Clause 3.1
hereof;
1.1.87. "REVOLVING LOAN RATE" has the meaning set forth in the Contract
Data Sheet for Dollars and US Dollars, respectively;
1.1.88. "ROLLING BASIS" means, at any given time, the then 4 most recently
completed Fiscal Quarters or the then 12 most recently completed
accounting months (as the case may be) reflecting Borrower's financial
results for such period;
1.1.89. "SECURITY" means all Liens, presently or in the future, held by or
on behalf of Lender over the Collateral or any other present and future
property of Borrower, any Credit Party or any other Person as well as any
and all Guarantees presently or in the future held by and/or on behalf of
Lender from any Credit Party or any other Person for the Obligations.
Security includes, without limitation, all of the Liens and Guarantees
enumerated in the Contract Data Sheet;
Page 17
1.1.90. "SENIOR DEBT" means any Debt which, as a result of any Lien,
Encumbrance, agreement, event or law, is to be paid in priority to other
portions of Debt in the event of the liquidation of property of Borrower
or any applicable Credit Party;
1.1.91. "SETTLEMENT DATE" means three (3) Business Days after the day on
which each applicable Collection is actually received by Lender;
1.1.92. "SPECIAL COVENANTS" means the special covenants, if any, set forth
in the Contract Data Sheet;
1.1.93. "STANDBY FEE" means a monthly amount equal to the percentage
designated in the Contract Data Sheet of the difference between:
(a) the Maximum Amount and any Overadvance Availability (which
permits the Revolving Loan to exceed the Maximum Amount) applicable
during any given calendar month; and,
(b) the average Outstandings under the Revolving Loan (including the
face amount of all outstanding Letters of Credit) during the same
calendar month, the full amount of each monthly amount of which
shall be deemed to have been fully earned by Lender on the last day
of each respective month;
1.1.94. "SURPLUS REQUIREMENTS" means the requirements, if any, set forth
in the Contract Data Sheet;
1.1.95. "SURPLUS RESERVE" means the amount, if any, set forth in the
Contract Data Sheet;
1.1.96. "TANGIBLE NET WORTH" means the sum of Borrower's capital, surplus
and debts specifically subordinated, postponed and hypothecated to Lender
less:
(a) any amounts receivable from any Related Person;
(b) research and development costs;
(c) goodwill;
(d) patents, trademarks, trade names, license rights and other
intellectual rights; and,
(e) any and all other intangible property other than Accounts;
1.1.97. "UNACCEPTED LETTERS OF CREDIT" means all Letters of Credit other
than Accepted Letters of Credit;
Page 18
1.1.98. "UNAUTHORIZED OVERADVANCE" means Outstandings under the Revolving
Loans, at any given time, which exceed:
(a) the Borrowing Base and/or the Maximum Amount (as the case may
be); and,
(b) any Overadvance Availability to the extent applicable; and,
1.1.99. "WORKING CAPITAL RATIO" means the ratio of Borrower's current
assets to current liabilities in accordance with GAAP.
1.2. The words or any references to "herein", "hereunder", "hereinafter" or
similar references shall be deemed to be references of the Credit Agreement as
well as to all future amendments, renewals and replacements.
1.3. All references to "days" (unless specifically to Business Days) shall
constitute references to any days whatsoever (including, without limitation,
Business Days). If any delay herein expires on a day which is not a Business
Day, then such delay shall be deemed to expire on the next following Business
Day.
1.4. Whenever utilized herein, the singular shall include the plural and
vice-versa and all genders shall be interchangeable in accordance with the
context hereof.
1.5. The Clause headings herein contained are for ease of reference only, do not
form part hereof and shall not, in any manner be used in the interpretation of
the contents hereof.
1.6. The interpretation, validity and enforcement of the Credit Documents shall
be subject to and governed by the laws of the Province of Quebec and the laws of
Canada applicable therein. Notwithstanding the foregoing, the interpretation,
validity and enforcement of the Security shall be subject to and governed by the
relevant province in which the particular portion of the Security has been
registered/published/recorded as well as the laws of Canada applicable therein.
2. NO NOVATION
2.1. Borrower and each and every one of the Credit Parties hereby agree,
covenant and warrant that:
2.1.1. each of them remains obliged toward Lender for any and all
covenants, representations, warranties, obligations and undertakings of
any kind or nature which are presently existing and outstanding as at the
date hereof, whether arising under the Former Agreement or otherwise
(except in the event of a conflict with the terms and provisions of the
present Agreement, in which event the terms of the present Agreement will
prevail);
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2.1.2. nothing in the present Agreement shall be deemed to constitute
novation of any "OBLIGATIONS" (as such term is defined under the Former
Agreement);
2.1.3. nothing in the present Agreement shall be deemed to constitute an
extinction, diminution, novation or alteration of any such covenants,
representations, warranties, obligations, undertakings or "OBLIGATIONS";
and
2.1.4. all "SECURITY" (as such term is defined in the Former Agreement),
security interests, postponements, subordinations, pledges and guarantees
previously granted in favour of Lender by Borrower or any of the Credit
Parties or by any third party whomsoever shall remain in full force and
effect and shall constitute continuing security in order to secure all
"OBLIGATIONS" under the Former Agreement, as well as any and all
Obligations arising herein.
3. REVOLVING LOAN
3.1. Subject to the terms and conditions of the Credit Documents, Lender may, in
its discretion, make loans and re-make loans to Borrower on a revolving basis in
Dollars and/or US Dollars (collectively the "REVOLVING LOAN(S)") by:
3.1.1. making Advances;
3.1.2. issuing or causing the issuance of Letters of Credit; and/or,
3.1.3. if specifically permitted in the Contract Data Sheet, accepting or
causing the acceptance of Bankers' Acceptances.
3.2. All Outstandings under the Revolving Loan shall not, at any time, exceed
the lesser of:
3.2.1. the Maximum Amount plus any applicable Overadvance Availability (to
the extent only that it permits the Revolving Loan to exceed the Maximum
Amount); or,
3.2.2. the Borrowing Base plus any applicable Overadvance Availability (to
the extent only that it permits the Revolving Loan to exceed the Borrowing
Base),
3.3. Additionally, Lender may, in its discretion, make loans and re-make loans
to Borrower on a revolving basis in Dollars and/or US Dollars (in any of the
manners set forth in Clause 2.1 hereof):
3.3.1. in excess of the amounts and limitations set forth in Clause 3.2
hereof;
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3.3.2. in order to pay the whole or any portion of the Other Indebtedness;
3.3.3. in order to pay, in whole or in part, any and all Fees, Expenses
and/or any other amount(s) for any other purpose with which Lender, in its
discretion, deems advisable in order to protect Lender's rights under the
Credit Documents,
all of which loans shall be deemed to constitute part of the Revolving
Loan. Payment of any Fees or Expenses in such manner shall not relieve
Borrower of its obligations hereunder to pay such Fees and Expenses or
from any Default which may result from the non-payment thereof by
Borrower. Until the above loans have been made to Borrower in order to pay
any of the Other Indebtedness, Fees, Expenses and/or other amounts, such
Other Indebtedness, Fees, Expenses and other amounts shall not be
considered as Outstandings under the Revolving Loan.
3.4. All Outstandings under the Revolving Loan and the face amount of all
outstanding Letters of Credit shall, at all times, be and remain repayable in
full by Borrower to Lender upon the earlier of:
3.4.1. Lender's demand therefor; or,
3.4.2. occurrence of Default,
whether or not the Credit Agreement has been terminated.
3.5. Notwithstanding Clause 3.4 hereof, the full amount of any Unauthorized
Overadvance shall, immediately upon its existence, be repaid by Borrower to
Lender without any necessity of demand therefor or any other formality.
4. LETTERS OF CREDIT
4.1. With respect to all Letters of Credit which Lender may issue or cause to be
issued for and on behalf of Borrower as part of the Revolving Loan:
4.1.1. the face amount of all outstanding Letters of Credit shall not, at
any given time, exceed the Letter of Credit Limit;
4.1.2. the face amount of all outstanding Letters of Credit shall, at any
given time, be deemed to constitute part of the Revolving Loan and,
additionally, if and when Lender is obliged to advance funds under a
Letter of Credit, Borrower shall immediately reimburse such amount to
Lender, in the absence of which, the amount so advanced by Lender under a
Letter of Credit shall automatically be deemed to be an Advance under the
Revolving Loan;
4.1.3. Borrower shall indemnify and hold Lender harmless for and against
any loss, cost, expense, or liability arising out of or in connection with
any Letters of Credit. Borrower agrees to be bound by the issuing bank's
Page 21
regulations and interpretations of any Letters of Credit. Lender shall not
be liable for any error, negligence or mistake (whether of omission or
commission) in following Borrower's instructions or those contained in the
Letters of Credit or any modifications, amendments or supplements thereto;
4.1.4. Borrower hereby authorizes and directs any bank issuing Letters of
Credit to deliver to Lender all instruments, documents and other writings
and property received by the issuing bank pursuant to such Letters of
Credit and to accept and rely on Lender's instructions and agreements with
respect to all matters arising in connection with such Letters of Credit
and the related applications;
4.1.5. any and all charges, commissions, fees and costs incurred by Lender
relating to Letters of Credit shall be considered as Expenses hereunder
and shall immediately be reimbursed by Borrower to Lender; and,
4.1.6. immediately upon issuance of any Letters of Credit, Borrower shall
pay to Lender:
(a) a service charge of $100.00 for each Letter of Credit issued;
(b) the applicable Letter of Credit Fee;
(c) all normal bank and correspondents' charges payable by Lender in
respect of any Letters of Credit; and
(d) any and all standard transaction fees which are charged by
Lender from time to time, including but without limitation, fees in
connection with modifications, extensions, renewals and
cancellations of Letters of Credit.
5. NON-REVOLVING LOANS
5.1. Subject to the terms and conditions of the Credit Documents, Lender may, in
its discretion, lend the non-revolving loan(s), if any, set forth in the
Contract Data Sheet to Borrower in Dollars and/or US Dollars (collectively the
"NON-REVOLVING LOAN(S)") by:
5.1.1. making one or more Advances thereof; and/or,
5.1.2. if specifically permitted in the Contract Data Sheet, accepting or
causing the acceptance of Bankers' Acceptances, as non-revolving (ie.
permanently reducing) loan(s).
5.2. The Outstandings under all Non-Revolving Loans shall:
5.2.1. until demand for payment therefor or occurrence of Default, be
repaid by Borrower to Lender by way of the minimum periodic capital
repayments thereof set forth in the Contract Data Sheet; and,
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5.2.2. notwithstanding the foregoing, be repayable in full by Borrower to
Lender upon the earlier of:
(a) Lender's demand therefor; or,
(b) the occurrence of Default,
whether or not the Credit Agreement has been terminated.
6. CONDITIONS PRECEDENT FOR UTILIZATION OF CREDIT FACILITIES
6.1. Lender shall not make any further Advance under the Credit Facilities or
cause issuance of any Letters of Credit or acceptance of any Bankers'
Acceptances unless and until, each of the following conditions precedent have
been fulfilled, to the complete satisfaction of Lender and its legal counsel,
namely:
6.1.1. proper execution and registration/publication of the Security;
6.1.2. proper execution of all agreements and documents pertaining to the
administration of the Accounts;
6.1.3. Lender's receipt of opinions from legal counsel to Borrower and the
Credit Parties in form and substance satisfactory to Lender and its legal
counsel;
6.1.4. Lender's receipt of all certificates, searches and other documents
deemed by Lender to be necessary, all in form and substance satisfactory
to Lender and its legal counsel;
6.1.5. Lender's receipt of evidence that all insurance required on the
part of Borrower and the Credit Parties hereunder exists and is in full
force and effect;
6.1.6. all representations and warranties of Borrower and the Credit
Parties hereunder being true, accurate and unbreached in all respects;
6.1.7. Borrower shall be in complete conformity with all of the covenants
and obligations incumbent upon Borrower hereunder including, without
limitation, any Surplus Requirements;
6.1.8. the non-existence of Default;
6.1.9. the non-existence of any Material Adverse Change; and,
6.1.10. such other matters, items or documents as Lender or its legal
counsel may reasonably request.
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6.2. After the initial Advance or issuance of the initial Letter of Credit or
acceptance of the initial Bankers' Acceptance, no further Advances shall be
made, no further Letters of Credit shall be issued and no further acceptances of
Bankers' Acceptances shall be made unless and until each of the following
conditions precedent shall have been fulfilled to Lender's satisfaction, namely:
6.2.1. all representations and warranties of Borrower and the Credit
Parties hereunder shall be true, accurate and unbreached in all respects;
6.2.2. Borrower shall be in complete conformity with all of the covenants
and obligations incumbent upon Borrower hereunder including, without
limitation, any Surplus Requirements;
6.2.3. the non-existence of Default; and,
6.2.4. the non-existence of any Material Adverse Change.
6.3. All of the conditions precedent set forth in Clauses 6.1 and 6.2 hereof
shall exist and inure solely to Lender's benefit and may, accordingly, be waived
solely by Lender (and no other Person) in Lender's discretion.
7. INTEREST, FEES AND EXPENSES
7.1. All Outstandings under the Credit Facilities consisting of Advances shall
bear interest and any overdue interest shall in turn bear interest at the
hereafter described rates, calculated and payable as hereinafter set forth (the
"INTEREST").
7.2. All Interest shall be payable by Borrower to Lender in arrears on the last
Business Day of each month, calculated on the average daily Outstandings
resulting from Advances under the Revolving Loan and the Non-Revolving Loan (as
the case may be) at the rates hereafter set forth, commencing with the first
payment of Interest by Borrower to Lender on the last Business Day of the month
during which the initial Advance occurs hereunder. Interest on overdue Interest
will be calculated on the same basis but will be compounded monthly and payable
upon demand. All Interest shall be payable both before as well as after any
demand for payment, any Default or any judgment.
7.3. The rates of Interest on all Outstandings consisting of Advances under:
7.3.1. the Revolving Loan (other than any Authorized Overadvance) shall
be:
(a) for Dollars, a rate equal to the Revolving Loan Rate for
Dollars; and,
(b) for US Dollars, a rate equal to the Revolving Loan Rate for US
Dollars;
7.3.2. any Authorized Overadvance shall be:
Page 24
(a) for Dollars, a rate equal to the Authorized Overadvance Rate for
Dollars: and,
(b) for US Dollars, a rate equal to the Authorized Overadvance Rate
for US Dollars; and
7.3.3. any Non-Revolving Loan(s) shall be:
(a) for Dollars, a rate equal to the Non-Revolving Loan Rate for
Dollars: and,
(b) for US Dollars, a rate equal to the Non-Revolving Loan Rate for
US Dollars,
based upon the weighted average of Prime Rate during each month for
which the foregoing rates of Interest are calculated.
7.4. In the event that, from time to time hereunder, Lender makes loans or
re-makes loans to Borrower under the Revolving Loan and/or the Non-Revolving
Loan by Lender's accepting or arranging for the acceptance of Bankers'
Acceptances, then:
7.4.1. any such Bankers' Acceptances so accepted shall be in multiples of
CDN$100,000.00 or US$100,000.00 (as the case may be) and shall be for
terms equal to multiples of 30 days and not to exceed 180 days;
7.4.2. upon acceptance of any Bankers' Acceptance, the face value of each
such accepted Bankers' Acceptance shall be deemed, for all purposes to
constitute Outstandings under the Revolving Loan or the Non-Revolving Loan
(as the case may be), repayable by Borrower to Lender in accordance with
the provisions of the present Credit Agreement;
7.4.3. upon acceptance of any Bankers' Acceptances, Borrower shall
immediately pay to Lender all Bankers' Acceptance Costs applicable
thereto; and,
7.4.4. in addition to all Bankers' Acceptance Costs, upon acceptance of
any Bankers' Acceptances, Borrower shall immediately pay to Lender the
Bankers' Acceptance Fee applicable thereto;
7.5. All rates of Interest and Bankers' Acceptance Fees under the Revolving
Loan, any Authorized Overadvance and any Non-Revolving Loan(s) hereunder shall
be computed on the basis of a 360 day period. The applicable Revolving Loan
Rate, Authorized Overadvance Rate, Non-Revolving Loan Rate, and/or Bankers'
Acceptance Fees, shall constitute rates on a per annum (ie. yearly) basis
equivalent to such rates divided by 360 and multiplied by the number of days in
any given year (being .01389 times greater than such rates in any ordinary year
and .0667 times greater than such rates in any leap year).
Page 25
7.6. In the event of occurrence of Default, each of the Revolving Loan Rate, the
Authorized Overadvance Rate, the Non-Revolving Loan Rate and the Bankers'
Acceptance Fees shall be automatically increased by two percentage points (2%)
effective as of the occurrence of such Default and continuing for so long as
such Default is outstanding. In the event of existence of any Unauthorized
Overadvance, Borrower shall immediately pay to Lender (and Lender shall be
entitled to charge to Borrower's account as part of the Revolving Loans) the
Overadvance Fee. Such Overadvance Fee shall be in addition to and not constitute
part of the Interest payable hereunder.
7.7. In addition to, and not constituting part of, the Interest, Borrower shall
pay to Lender:
7.7.1. the Arrangement Fee, which shall be paid in full by Borrower to
Lender immediately upon the making of the first Advance hereunder;
7.7.2. the Monitoring Fee, which shall be paid, on a monthly basis on the
last day of each calendar month, by Borrower to Lender during each
calendar month (with a part of any calendar month being counted as a full
calendar month) commencing at the end of the first calendar month
immediately following the Effective Date and thereafter, until both the
Obligations shall have been fully paid and discharged and Borrower is no
longer entitled to avail itself of the Credit Facilities;
7.7.3. the Standby Fee, which shall be paid on a monthly basis on the last
day of each calendar month, by Borrower to Lender during each calendar
month (with a part of any calendar month being counted as a full calendar
month) commencing at the end of the first calendar month immediately
following the Effective Date and thereafter until both the Obligations
shall have been fully paid and discharged and Borrower is no longer
entitled to avail itself of the Credit Facilities;
7.7.4. the Overadvance Fee for and during each calendar month during which
the Overadvance Fee is applicable (with a part of any calendar month being
counted as a full calendar month); and,
7.7.5. all other Fees hereunder as and when due hereunder; and,
7.7.6. all Expenses as and when due hereunder.
7.8. None of the Fees or Expenses shall, under any circumstances, be deemed to
constitute part of the Interest. All Fees and Expenses, on the one hand, and all
Interest, on the other hand, shall operate and be paid by Borrower to Lender
independently of one another;
Page 26
8. ADMINISTRATION OF ACCOUNTS, LOAN ACCOUNTS AND COLLECTION
8.1. Borrower shall, from time to time as directed by Lender, execute and
deliver all such documents and do all such things as may be, in Lender's
opinion, necessary or advisable in order for Lender to obtain and maintain
possession and control of and dominion over all Accounts and all Collections.
Lender shall be entitled, from time to time, to decrease, increase or otherwise
alter the mechanisms whereby Lender possesses, controls and maintains dominion
over the Accounts and the Collections.
8.2. The receipt of any Collections by Lender shall be applied on the Settlement
Date to reduce the Outstandings under the Revolving Loan only to the extent that
such Collection is honoured for payment. Should any Collection not be honoured
for payment, then Borrower shall be deemed not to have made such payment on the
Settlement Date and all Interest will be re-calculated accordingly;
8.3. The Loan Account will be charged with all Advances, Interest, Fees and
Expenses and any other payment obligation of Borrower hereunder. In accordance
with Clause 8.2 hereof, the Loan Account will be credited with all payments
received by Lender from Borrower or for Borrower's account, including all
Collections.
9. STATEMENTS OF ACCOUNT
9.1. To the extent only that Lender possesses, controls and maintains dominion
over the Collections, Lender shall provide Borrower with periodic reports
summarizing Collections. Lender shall not be liable to Borrower or any Credit
Party by reason of any delays in providing reports or inadvertent errors or
omissions unless caused by Lender's willful misconduct or gross negligence.
Borrower and each of the Credit Parties acknowledge that Lender may use the
services of any other organizations in connection with the processing of
Collections and data pertaining to Borrower and the Credit Parties and, in such
case, Lender shall not be liable to Borrower by reason of acts or omissions of
such organizations unless caused by the willful misconduct or gross negligence
of Lender;
9.2. Each month, Lender will deliver to Borrower statements of the Loan Account.
Borrower and each of the Credit Parties shall verify the correctness of such
statements and send Notice to Lender of any errors, irregularities or omissions
within 30 days of the date of such statements. Such statements will, unless
corrected as a result of the aforesaid Notice, be finally and conclusively
binding upon Borrower and each of the Credit Parties and will constitute proof
of the status of the amounts and accounts reflected therein.
10. SECURITY AND POWER OF ATTORNEY
10.1. Borrower and each Credit Party shall grant the Security and shall execute
all documents, do all things and perform all acts which may be necessary or
required, in Lender's sole discretion, in order to maintain, perfect or renew
the Security. All Security
Page 27
shall be held by Lender as continuing and collateral security for all of the
Obligations and any other debts, liabilities and/or obligations stipulated in
the Security.
10.2. At any time, Lender may notify Account Debtors or any other debtors of any
other accounts receivable of Borrower or any Credit Party that Lender has a
hypothec and security interest therein pursuant to the Security and Lender may
directly collect same. All amounts so collected shall be deemed to constitute
Collections and shall be dealt with in accordance with the provisions of the
present Agreement.
10.3. Borrower and each Credit Party hereby irrevocably names and appoints
Lender (as well as any of Lender's representatives) as Borrower's and each
Credit Party's mandatary, agent and power of attorney to sign, execute and/or
deliver, in the names of Borrower or any Credit Party, for each of the following
purposes:
10.3.1. if Borrower or any Credit Party refuses to, or fails timely to
sign, execute and deliver any of the documents required under the present
Agreement, in order to sign, execute and deliver any such documents in the
name of Borrower or any such Credit Party;
10.3.2. at any time after and during continuation of Default, in order to
sign, execute and deliver, in Borrower's or any Credit Party's name, any
invoice or bill of lading relating to an Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts
and notifications to Account Debtors;
10.3.3. in order to endorse and/or negotiate, in Borrower's or any Credit
Party's name, any Collection item;
10.3.4. at any time after and during continuation of Default, in order to
notify the post office authorities to change the address for delivery of
Borrower's or any Credit Party's mail to an address designated by Lender,
in order to receive and open all mail addressed to Borrower and the Credit
Parties and in order to retain all mail relating to the Security and
forward all other mail to Borrower and the relevant Credit Parties; and,
10.3.5. at any time after and during continuation of Default, in order to
settle and adjust Disputes and claims relating to the Accounts directly
with Account Debtors, for such amounts and upon such terms that Lender
determines to be reasonable and Lender may cause to be executed and
delivered any documents and/or releases that Lender determines to be
necessary for such purposes.
10.4. The appointment of Lender as mandatary, agent and power of attorney
hereunder shall be irrevocable until both the Obligations shall have been fully
paid and discharged and Borrower is no longer entitled to avail itself of the
Credit Facilities.
Page 28
10.5. Lender shall be entitled, from time to time as permitted herein, to
conduct Audits at Borrower's sole cost and expense, which cost and expense shall
form part of the Expenses payable by Borrower to Lender hereunder. Borrower and
any Credit Party shall fully co-operate with persons conducting Audits and grant
such person(s) full access to Borrower's and any Credit Party's books, records
and Collateral for the purpose of such Audits.
11. BORROWER'S REPRESENTATIONS AND WARRANTIES
11.1. Borrower represents and warrants to and in favour of Lender, as continuing
representations and warranties, that, for so long as both the Obligations shall
not have been fully paid and discharged and Borrower is entitled to avail itself
of any of the Credit Facilities:
11.1.1. Borrower and each Credit Party is and shall remain a corporation,
duly incorporated, organized, validly subsisting and in good standing
under the laws of the jurisdiction of its incorporation and of all
jurisdictions in which it carries on business with full power and
authority to own its present and future properties and to carry on its
business;
11.1.2. Borrower and each Credit Party has and shall have the full power
and has taken all of the necessary actions in order to fully authorize
each of their executions of the Credit Documents, to borrow hereunder, to
grant the Security and to execute and deliver and perform the Credit
Documents and the obligations herein and therein contained;
11.1.3. each of the Credit Documents have been duly and properly executed
and delivered by duly authorized representatives of Borrower and each
Credit Party and are and shall be and remain legal, valid and binding
obligations on the part of Borrower and each Credit Party, all enforceable
in accordance with the terms, conditions and contents of each
respectively;
11.1.4. Borrower and each Credit Party is and shall remain in compliance
with all laws (including, without limitation, laws relating to
environmental matters) and in substantial compliance with all municipal
by-laws or any other applicable laws, where non-compliance individually or
in the aggregate with which would have a Material Adverse Change;
11.1.5. Borrower and each Credit Party is and shall remain the sole and
absolute owner (other than third party ownership under the Permitted
Charges), with good, marketable and legal title, of all of the property
currently and in the future held and/or acquired by each or utilized by
each in conjunction with the operation of its businesses (including,
without limitation, the Accounts and the Inventory) and that all of the
foregoing is and shall remain free and clear of all Adverse Charges;
Page 29
11.1.6. there is and shall be no action, suit or proceeding pending
against nor, to the knowledge of Borrower or any Credit Party, any action,
suit or proceeding threatened or in any manner relating adversely to any
of the properties of Borrower or any Credit Party in any court or before
any arbitrator of any kind or before any governmental body, other than
actions, suits or proceedings of the character normally incidental to the
kind of business to be operated by Borrower and any Credit Party which, if
adversely determined, would not individually or in the aggregate have a
Material Adverse Change;
11.1.7. all tax returns required in any applicable jurisdiction (including
all Canadian federal, provincial and other tax returns) of each of
Borrower and each Credit Party required by law to be filed have been and
shall be duly filed and all taxes, assessments and other governmental
charges or levies in any applicable jurisdiction (including all Canadian
federal, provincial and other taxes, assessments and other governmental
charges or levies) upon Borrower's and each Credit Party's properties,
income, profits and assets, which are and shall be due and payable, have
been and shall be paid, except that any such payment of which Borrower or
any Credit Party is contesting in good faith by appropriate proceedings
and for which appropriate reserves have been provided on the books of
Borrower or such Credit Party in respect of which no Adverse Charge
exists;
11.1.8. all financial and business information and documentation
(including, without limitation, all financial statements, business plans,
projections, etc.) previously furnished by and/or on behalf of any of
Borrower or any Credit Party to Lender are true and accurate in all
material respects; and,
11.1.9. all financial and business information and documentation
(including, without limitation, all borrowing certificates and borrowing
certificates as well as all financial statements, listings of Accounts,
Inventory, payables and other listings, operating budgets, certificates
and other reports and documents, etc. furnished or required to be
furnished hereunder) hereafter furnished to Lender by and/or on behalf of
Borrower or any Credit Party shall be true and accurate in all material
respects.
11.2. All representations and warranties made hereunder shall be deemed to be
made and shall be true and correct, as of the date of execution hereof, and,
unless otherwise stated, at all times for so long as both the Obligations shall
not have been fully paid and discharged and Borrower is entitled to avail itself
of any of the Credit Facilities.
11.3. All representations and warranties made hereunder shall survive and shall
not be deemed, in any manner whatsoever, to have been waived by execution and
delivery of the Credit Agreement, any investigation by or on behalf of Lender or
any extensions of credit under the Credit Facilities.
Page 30
12. BORROWER'S COVENANTS
12.1. For so long as both the Obligations shall not have been fully paid and
discharged and Borrower is entitled to avail itself of the Credit Facilities,
Borrower covenants and agrees with and in favour of Lender that:
12.1.1. Borrower and each Credit Party shall maintain and cause to be
maintained in good repair, working order and condition, all properties
useful in each of their businesses and, from time to time, make or cause
to be made all needed and appropriate repairs, renewals, replacements,
additions, betterments and improvements thereto;
12.1.2. Borrower shall pay all Interest to Lender on the respective due
dates therefor hereunder;
12.1.3. Borrower shall pay all periodic capital repayments of the
Non-Revolving Loan, if any, set forth in the Contract Data Sheet on the
respective due dates therefor thereunder;
12.1.4. Borrower shall pay all Fees to Lender on the respective due dates
therefor hereunder;
12.1.5. Borrower shall pay all Expenses to Lender on their respective due
dates therefor thereunder;
12.1.6. Borrower shall pay all other amounts owing or which become owing
to Lender under any of the Credit Documents on the due dates therefor
hereunder and thereunder;
12.1.7. Borrower shall maintain and respect each of the financial
covenants, if any, set forth in the Contract Data Sheet;
12.1.8. Borrower shall respect each and every one of the Surplus
Requirements;
12.1.9. Borrower shall respect and comply with each of the Special
Covenants;
12.1.10. Borrower and each Credit Party shall comply with all of the
terms, conditions and obligations set forth in the Credit Documents;
12.1.11. Borrower shall furnish each of the written financial and other
reports and other documents to Lender as set forth in the Contract Data
Sheet and within the delays set forth in the Contract Data Sheet;
12.1.12. Borrower and each Credit Party shall maintain the following
insurance coverage on the following basis:
Page 31
(a) Borrower and each Credit Party shall insure and keep insured for
their full insurable value all of their present and future
corporeal/tangible property (including, without limitation, the
Inventory) by means of one or more policies of insurance, in form
and substance approved by Lender with one or more insurers approved
by Lender;
(b) all such insurance policies shall contain a hypothecary/mortgage
clause or provision benefiting Lender, in form and substance
approved by Lender;
(c) all such insurance policies shall provide that all indemnities
and other amounts payable thereunder shall be payable to Lender;
(d) at least 5 days prior to the expiry or cancellation of any such
insurance policies, evidence of renewals or replacements thereof
shall be delivered to Lender;
(e) should Borrower or any Credit Party fail to insure and keep
insured its property or renew or replace such insurance policies,
Lender may insure and keep insured such property and/or renew or
replace such insurance policies. In such event, Borrower shall pay
to Lender, upon Lender's simple demand therefor, all sums so
expended by Lender in effecting any of the foregoing;
12.1.13. Borrower and each of the Credit Parties shall ensure that all
Accounts arise and will arise from bona fide, final and absolute sales and
delivery of merchandise or services without any special arrangements such
as consignment, "bill and hold", guaranteed sale arrangements or other
similar conditions;
12.1.14. Borrower and each of the Credit Parties shall ensure that all
Accounts arise and will arise from sales with respect to which there is
reasonable belief that the Account Debtor will receive and accept the
Inventory and/or services as invoiced without Dispute;
12.1.15. Borrower and each of the Credit Parties will, at all times, duly
and punctually pay and discharge all wages, salary and other remuneration
of all persons employed by each of them;
12.1.16. Borrower and each of the Credit Parties will keep proper books of
account in accordance with GAAP and will permit Lender's representatives
free and reasonable access to each of their premises, computers (including
all hardware and software) and financial and computer and/or other data,
records and reports relating to Borrower, each of the Credit Parties and
their properties; and,
Page 32
12.1.17. if Borrower or any Credit Party becomes aware or Borrower or any
Credit Party receives any notification to the effect that:
(a) any of their corporeal property violates any applicable
environmental law, by-law, rule and/or regulation and/or creates any
environmental hazard whatsoever;
(b) any act, enterprise or activity carried on from or at any
location of Borrower or any Credit Party is conducted in a manner
which violates any applicable environmental law, by-law, rule and/or
regulation and/or creates any environmental hazard whatsoever;
(c) any contaminant, pollutant, toxic substance and/or dangerous
material has been emitted by or from any locations or property of
Borrower or any Credit Party;
(d) the whole or any part of any properties of Borrower or any
Credit Party has been used as a waste disposal site or for storage
or production of any hazardous materials (including, without
limitation, asbestos and/or PCB's); or,
(e) any underground storage reservoir is located under any locations
of Borrower or any Credit Party,
Borrower shall immediately give Notice to Lender as to the details
thereof and, immediately upon such occurrence, properly and
diligently commence and complete all operations or other matters
necessary in order to completely remedy and rectify any of the
foregoing occurrences.
12.2. For so long as both the Obligations shall not have been fully paid and
discharged and Borrower is entitled to avail itself of any of the Credit
Facilities, Borrower covenants and agrees with and in favour of Lender that:
12.2.1. Borrower and each Credit Party shall not declare, pay or effect
any dividends, share redemptions, share retractions, share repurchases or
any other forms of corporate distributions to shareholders, without the
express prior written consent of Lender and then under such conditions as
Lender may impose unless and until the shares in the capital stock of the
Borrower or any Credit Party (or a successor thereof) are listed and
trading on a recognized North American stock exchange, in which event the
Borrower or any such Credit Party may declare, pay or effect any
dividends, share redemptions, share retractions, share repurchases or any
other forms of corporate distributions to shareholders so long as same
does not render the Borrower or Credit Party in question insolvent or
otherwise impair such entity to meet its obligations as they become due;
Page 33
12.2.2. Borrower and each Credit Party shall not repay, in whole or in
part, any indebtedness whatsoever which has been or may hereafter be
postponed, subordinated and/or hypothecated in favour of Lender;
12.2.3. Borrower and each Credit Party shall not merge, amalgamate or
otherwise consolidate or combine with any other entities whatsoever,
unless Lender has granted its prior written consent, which consent shall
not be unreasonably withheld;
12.2.4. Borrower and each Credit Party shall not sell or otherwise dispose
of any significant portion of their respective property out of the
ordinary course of business without the express prior written consent of
Lender and then on such terms and conditions as Lender may, in its
discretion, impose;
12.2.5. Borrower and each Credit Party shall not, directly or indirectly,
purchase or otherwise acquire any significant property out of the ordinary
course of business without the express prior written consent of Lender and
then on such terms and conditions as Lender may, in its discretion,
impose;
12.2.6. Borrower and each Credit Party shall not allow any Adverse Charge
to exist against any of their respective properties;
12.2.7. neither Borrower nor any of the Credit Parties will:
(a) change the location of its registered or head office from that
which existed as of the date of execution of the Credit Agreement;
(b) establish business operations in any locations other than those
in which it conducted business operations on the date of execution
of the Credit Agreement; or,
(c) establish any location where any of their properties are located
other than those which existed as of the date of execution of the
Credit Agreement,
unless, prior thereto, (i) Lender shall have received Notice as to
the details thereof, and (ii) any properties situated in such
alternate or additional location(s) forms the object of the Security
or all documents are executed in favour of Lender and properly
published, registered or recorded in order to perfect a first
ranking Lien thereon in Lender's favour; and,
12.2.8. neither Borrower nor any of the Credit Parties will create any
Funded Debt beyond and in addition to any Funded Debt existing as of the
Effective Date without the express prior written consent of Lender and
then in accordance with such terms and conditions as Lender may, in its
discretion, determine.
Page 34
12.3. Should Borrower or any Credit Party fail to pay when due any amounts
hereunder (other than repayment of Outstandings under the Credit Facilities,
Interest, Fees and Expenses) or fail to perform any of their obligations
hereunder, Lender may do so, after Notice thereof to Borrower. In such event,
Borrower shall pay to Lender, upon Lender's simple demand therefor, all amounts
so paid by Lender together with Interest thereon. Any such payments made by
Lender shall not negate or remedy any Default which may have existed as a result
of any of the foregoing.
13. DEFAULT
13.1. For so long as both the Obligations shall not have been paid and
discharged and Borrower is entitled to avail itself of any of the Credit
Facilities, the occurrence of any of the following events, automatically and
without necessity of any notification or formality whatsoever (other than as
hereafter expressly stipulated or strictly required under law), shall constitute
are defined as "DEFAULT" hereunder, namely:
13.1.1. the failure by Borrower to pay, as and when due hereunder, any or
all of the Outstandings, the face amount of all outstanding Letters of
Credit or any other Obligations under any of the Credit Facilities where
same remains unremedied following the expiry of five (5) days immediately
following Notice thereof by Lender to Borrower;
13.1.2. should Borrower fail to fully repay all Outstandings under all of
the Credit Facilities, the face amount of all outstanding Letters of
Credit or all other Obligations to Lender upon Lender's simple demand
therefore where same remains unremedied following the expiry of five (5)
days immediately following Notice thereof by Lender to Borrower;
13.1.3. the failure by Borrower to pay, as and when due hereunder, any
Interest where same remains unremedied following the expiry of five (5)
days immediately following Notice thereof by Lender to Borrower;
13.1.4. the failure by Borrower to pay, as and when due hereunder, all
periodic capital repayments, if any, of the Non-Revolving Loan set forth
in the Contract Data Sheet as and when due thereunder where same remains
unremedied following the expiry of five (5) days immediately following
Notice thereof by Lender to Borrower;
13.1.5. the failure by Borrower to pay, as and when due hereunder, any
Fees or Expenses, remaining completely unremedied for a period of seven
(7) consecutive days immediately following Notice thereof by Lender to
Borrower;
13.1.6. the failure by Borrower to fully repay any other amounts which may
become owing by Borrower to Lender under any of the Credit Documents
(other than Outstandings, the face amount of all outstanding Letters of
Credit, Interest, Fees, Expenses or periodic capital repayments of
Page 35
the Non-Revolving Loan) and same remaining unpaid for a period of 14 days
immediately following Notice thereof by Lender to Borrower;
13.1.7. the existence of any Unauthorized Overadvance;
13.1.8. the material untruth or material breach, for any reason
whatsoever, of any of the representations and warranties of Borrower
hereunder, which is not completely remedied within 14 days immediately
following Notice thereof by Lender to Borrower;
13.1.9. the failure, for any reason, by Borrower in the performance or
fulfillment of any of its covenants, undertakings, agreements and/or
obligations under the Credit Agreement (other than those covered by any of
Clauses 13.1.1 through 13.1.8 hereof) remaining completely unremedied for
a period of 14 consecutive days immediately following Notice thereof by
Lender to Borrower;
13.1.10. the failure, for any reason whatsoever, by Borrower in the
performance or fulfillment of any of its covenants, undertakings,
agreements and/or obligations under any of the Credit Documents other than
the Credit Agreement, under any other credit or loan (other than the
Credit Facilities) or any other agreement, contract, undertaking or
document with or in favour of Lender to which Borrower is party, which is
not completely remedied within 14 consecutive days immediately following
Notice thereof by Lender to Borrower;
13.1.11. should Borrower or any Credit Party become insolvent, become
bankrupt, become the object of any Petition for Receiving Order under the
provisions of the Bankruptcy and Insolvency Act, Canada which is not
dismissed or withdrawn within 60 days after its first having been lodged;
13.1.12. should Borrower or any Credit Party file a Notice of Intention to
file a proposal or a proposal under the provisions of the Bankruptcy and
Insolvency Act, Canada;
13.1.13. should Borrower or any Credit Party become the object of any
voluntary or involuntary proceedings under the provisions of the
Winding-Up Act, Canada (or similar legislation in any of the provinces);
13.1.14. should Borrower or any Credit Party seek or attempt to seek
protection from its creditors under the provisions of the Companies
Creditors Arrangements Act, Canada;
13.1.15. should a receiver, liquidator, sequestrator or similar person
take possession or become entitled to take possession of the whole or any
substantial portion of the property of Borrower or any Credit Party;
Page 36
13.1.16. should any creditor (other than Lender) give any notice of
intention to enforce or enforcement of any security interest over any
property of Borrower or any Credit Party except for any notice of
intention to enforce or enforcement of any security interests over
property which is, in Lender's sole opinion, of a minor nature and then
provided that Borrower has furnished to Lender Security, in form and
substance satisfactory to Lender, for any consequences of such enforcement
of such security interests over such property;
13.1.17. should there exist any Adverse Charge;
13.1.18. should Borrower or any Credit Party cease or threaten to cease
carrying on business;
13.1.19. should there occur any transaction or operation of law whereby
the effective ultimate control of Borrower or any Credit Party changes;
13.1.20. should Borrower or any Credit Party sell, transfer or dispose of
or purport to sell, transfer or dispose of all or a significant portion of
its assets; or,
13.1.21. the occurrence of any Material Adverse Change.
13.2. In the event of Default, without any necessity of notification or
formality whatsoever (other than those strictly required under law), the
following shall immediately and automatically occur:
13.2.1. notwithstanding their discretionary nature, any availment by
Borrower of any of the Credit Facilities shall immediately cease and
terminate although Lender shall remain entitled, in its sole discretion,
to continue to make the Credit Facilities available to Borrower (which
shall form part of the Obligations) upon and subject to such terms and
conditions as Lender may, in its discretion, stipulate;
13.2.2. all Obligations (including, without limitation, all Outstandings
under all of the Credit Facilities and the face amount of all outstanding
Letters of Credit) shall immediately become fully due and owing by
Borrower to Lender, bearing Interest accruing up to and after any judgment
rendered in favour of Lender and until full payment of the Obligations;
13.2.3. Lender shall be entitled (but not obliged) to enforce and/or
realize upon the Security; and/or
13.2.4. Lender shall be entitled (but not obliged) to exercise all other
rights, remedies and recourses as may then be available to Lender under
law or otherwise (including, without limitation, all rights, remedies and
recourses against Borrower and any Credit Party and/or their respective
properties).
Page 37
13.3. Lender may grant extensions of time or other indulgence, take up and give
securities, accept compensations, grant releases and discharges and otherwise
deal with Borrower and Credit Party as Lender sees fit, without prejudice to the
liability of Borrower and the Credit Parties towards Lender or to Lender's
rights in respect hereof and/or the Security. Any waiver, delay or forbearance
by Lender in the enforcement or prosecution of its rights under any of the
Credit Documents shall not, in any respect, constitute any waiver, delay or
forbearance or agreement by Lender to grant any other waiver, delay or
forbearance in respect of any future matter or occurrences and shall not render
Lender liable or responsible, in any manner whatsoever, towards Borrower or any
Credit Party for any loss or purported loss which Borrower or any Credit Party
may sustain as a result thereof.
13.4. The failure by Lender to insist upon the strict performance of any
provisions hereof or under any of the other Credit Documents or to assert any
right hereunder or under any other of the Credit Documents shall not be deemed
to be or constitute a waiver or forbearance or an agreement to grant a waiver or
forbearance of any rights, recourses or remedies of Lender hereunder or under
any of the other Credit Documents.
13.5. All other rights, remedies and recourses accruing and/or available to
Lender hereunder or under any of the other Credit Documents and/or under law
(including, without limitation, those enumerated in Clause 13.2 hereof) shall be
cumulative and not alternative.
13.6. In the event of Default, Lender may charge on its own behalf and pay
others reasonable sums for services rendered (expressly including legal,
accounting and other professional advice and services) in connection with
enforcement and/or realization of the Security, collecting, selling,
transferring, delivering and obtaining payment of the Obligations and/or the
Security and/or any other matter pertaining to and/or resulting from such
Default, all of which Lender, under reserve of its other rights and recourses,
shall be entitled to deduct from the proceeds of realization and/or Collections.
14. DURATION OF CREDIT AGREEMENT AND TERMINATION
14.1. The Credit Agreement shall come into force as and from the Effective Date
and shall thereafter remain in force and effect until terminated as follows:
14.1.1. either Lender or Borrower may terminate the Credit Agreement by
Notice of termination (by Lender to Borrower or vice versa) no less than
60 days prior to and effective as of the end of any Contract Year from and
including the third Contract Year, provided however that no Notice of
termination given by either Lender or Borrower pursuant to Clause 14.1.1
hereof will be effective until expiry of the Minimum Term;
14.1.2. either Lender or Borrower may terminate the Credit Agreement by no
less than 60 days prior Notice of termination (by Lender to Borrower or
vice versa) at any time whatsoever. In the event of Borrower's terminating
the Credit Agreement pursuant to the provisions of the present Clause
14.1.2
Page 38
hereof, effective before the expiry of the Minimum Term, Borrower shall
immediately pay to Lender the applicable Early Termination Fee. Such
applicable Early Termination Fee shall be deemed to form part of the
Obligations and shall expressly be deemed not to constitute a penalty.
Notwithstanding the foregoing, the Early Termination Fee shall not be
payable by Borrower to Lender in the event that Borrower terminates the
Credit Agreement pursuant to the foregoing in the event of the occurrence
of both of the following circumstances:
(i) Borrower has furnished to Lender evidence satisfactory to Lender
(acting reasonably) that a minimum of $20,000,000.00 (excluding any
existing loans outstanding with Related Persons and subscriptions
for capital stock in Borrower made prior to the date hereof and
nettable investment, banker, underwriter, brokerage or other fees
and costs associated therewith) has been invested in and delivered
to you as completely fresh unrelated or third party funds (and not
re-financing of existing debt or replacement of existing equity) by
way of either (A) new loans to you fully subordinated in favour of
Lender (or in favour of any Lender referred to in item (ii) below)
and subject to all requirements imposed by us with respect to any
prior indebtedness incurred by Borrower, except for payment of
market rate interest and convertibility features, and/or (B) newly
issued share capital in your capital stock; and
(ii) Borrower having furnished to Lender complete details of any
bona fide, legitimate, unrelated offer to replace Lender's financing
pursuant to the present Agreement and Lender having failed to agree
within fourteen (14) days from Lender's receipt of such details, to
furnish the therein specified financing on the same terms and
conditions contained in such bona fide legitimate third party
financing offer.
14.1.3. Lender may terminate the Credit Agreement at any time whatsoever
without Notice or any other notification to Borrower at any time upon or
after occurrence of Default. In the event of termination of the Credit
Agreement pursuant to the provisions of the present Clause 14.1.3 hereof,
Borrower shall immediately pay to Lender the applicable Early Termination
Fee, which shall be deemed to form part of the Obligations and shall
expressly be deemed not to constitute a penalty.
14.2. Borrower expressly acknowledges that the nature, calculation and amount of
the Early Termination Fee as well as the Minimum Term have been agreed to by
Lender and Borrower as part of the overall agreement as to the Credit Facilities
to be made available by Lender to Borrower hereunder and the pricing of such
Credit Facilities (which pricing includes the rate(s) of Interest as well as the
nature and amounts of Fees and Expenses hereunder). Borrower furthermore
acknowledges that the nature, calculation and amount
Page 39
of the Early Termination Fee and the Minimum Term are an integral part of and
partial consideration for Lender's making the Credit Facilities Available to
Borrower and the pricing thereof and that, in such context, the nature,
calculation and amount of the Early Termination Fee and the Minimum Term are
fair and reasonable in all respects.
14.3. Upon termination of the Credit Agreement:
14.3.1. except as herein otherwise expressly provided, all rights and
obligations arising out of transactions having their inception prior to
such termination will not be affected by such termination; and,
14.3.2. Borrower will fulfill and pay all of the Obligations, without the
necessity of demand, and will obtain and furnish Lender with a written
release and discharge from any and all guarantees, undertakings and/or
obligations (including, without limitation, those under the Letters of
Credit) of Lender which may have then been contracted, undertaken or exist
in favour of any such third parties as well as any and all guarantees,
undertakings and obligations of Lender otherwise relating to the Borrower.
Failing occurrence of all of the foregoing, the Credit Agreement, at
Lender's option, will continue in full force and effect until such
payment, satisfaction, release and discharge are received by Lender and
Lender shall be entitled (without any Notice, other notification or
formality whatsoever), to immediately enforce and realize upon the
Security.
15. MULTIPLE PERSONS CONSTITUTING BORROWER
15.1. In the event that Borrower constitutes more than one Person then, for all
purposes hereof:
15.1.1. all Persons constituting Borrower shall be and remain solidarily
liable and obliged towards Lender for the payment and fulfillment of all
indebtedness and obligations hereunder and under all of the other Credit
Documents including, without limitation, the Obligations;
15.1.2. all Persons constituting Borrower shall be considered as one
single person for the purposes of calculating all matters hereunder in
respect of Borrower;
15.1.3. all references to "Borrower" hereunder shall, whenever the context
requires, be deemed to constitute references to each and every one of the
Persons constituting Borrower;
15.1.4. all extensions of the Credit Facilities by Lender to Borrower
hereunder (whether by Advances, causing issuance of Letters of Credit,
causing acceptances of Bankers' Acceptances or otherwise) shall be deemed,
for all purposes whatsoever, to be extensions of such Credit Facilities to
and
Page 40
for the account of all of the Persons constituting Borrower hereunder
solidarily;
15.1.5. notwithstanding the provisions of Clause 15.1.4 or anything else
herein contained, Lender shall be entitled, in its discretion from time to
time, to keep separate Loan Accounts for each Person constituting Borrower
as to extensions of credit under the Credit Facilities hereunder (whether
by Advances, causing issuance of Letters of Credit, causing acceptances of
Bankers' Acceptances or otherwise). Notwithstanding the keeping of such
separate Loan Accounts, Lender may deal with such Persons constituting
Borrower and with all of their Loan Accounts as if such Person and Loan
Accounts were one sole Loan Account and, without limiting the generality
of the foregoing, Lender shall be and remain fully authorized to apply any
debits and/or credits to any or all of such Loan Accounts and to transfer
debits and credits between such Loan Accounts and/or any of the Persons
constituting Borrower as Lender, in its sole discretion, may deem
appropriate.
16. FORMAL DATE
16.1. This Credit Agreement may be referred to as bearing formal date July 1,
2004, notwithstanding the date of actual signature hereof or the Effective Date
hereof.
17. MISCELLANEOUS
17.1. Any provisions of any of the Credit Documents which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability, without invalidating
the remaining provisions of the Credit Documents in that jurisdiction or
affecting the validity or enforcement of such provision in any other
jurisdiction;
17.2. Subject to the provisions of Section 2 hereof, the Credit Agreement
expressly supersedes, for all purposes, any previous existing commitments and/or
arrangements between Lender and Borrower.
17.3. Every provision of the Credit Agreement is and will be independent of the
other and, in the event that any part of the Credit Agreement is declared
invalid, illegal or unenforceable, the remaining provisions will not be affected
by such declaration and will remain valid, binding and enforceable.
17.4. In the event of any express inconsistency between any of the terms,
conditions or contents of the Credit Agreement and any of the terms, conditions
and contents of the Security then (in the absence of any express written
agreement to the contrary by all of the parties hereto under subsequent date
hereof), the terms, conditions and contents of the Credit Agreement shall
prevail.
Page 41
17.5. These presents may be executed in one or more counterparts, each of which
shall be deemed to be an original, all of which shall constitute one and the
same Credit Agreement.
17.6. There intervened herein each of the Guarantors, which Guarantors, by their
present intervention, hereby:
17.6.1. acknowledge having taken due cognizance of all of the terms,
conditions and contents of all of the Credit Documents; and,
17.6.2. declare their complete satisfaction with all of the terms,
conditions and contents of all of the Credit Documents and consent thereto
for all purposes.
17.7. The parties hereto and the intervenants herein hereto acknowledge that
they have requested and are satisfied that the foregoing, as well as all
notices, actions and legal proceedings be drawn up in the English language./Les
parties et les intervenants a cette convention reconnaissent qu'elles ont exige
que ce qui precede ainsi que tous avis, actions et procedures legales soient
rediges et executes en anglais et s'en declarent satisfaites.
IN WITNESS WHEREOF, the parties hereto and the intervenants herein have executed
the Credit Agreement on November 19, 2004
LENDER: GMAC COMMERCIAL FINANCE CORPORATION -
CANADA/SOCIETE FINANCIERE COMMERCIALE
GMAC - CANADA
Per:
/s/ Carol Edwards
-----------------------------------
Carol Edwards
Senior Vice-President
BORROWER: HENRY BIRKS & SONS INC.
Per:
/s/ Thomas A. Andruskevich
-----------------------------------
Thomas A. Andruskevich
President and Chief Executive Officer
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Page 42
CREDIT PARTY: HENRY BIRKS & SONS U.S., INC.
Per:
/s/ Thomas A. Andruskevich
-----------------------------------
Thomas A. Andruskevich
President and Chief Executive Officer
GUARANTOR: HENRY BIRKS & SONS U.S., INC.
Per:
/s/ Thomas A. Andruskevich
------------------------------------
Thomas A. Andruskevich
President and Chief Executive Officer
HENRY BIRKS & SONS HOLDINGS INC./HENRY
BIRKS ET FILS, SOCIETE DE PORTEFEUILLE
INC.
Per:
/s/ Marco Pasteris
--------------------------------------
Marco Pasteris
Chief Executive Officer
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CONTRACT DATA SHEET
This is the Contract Data Sheet to and forming part of the Amended and Restated
Accounts Receivable Management, Loan & Security Agreement between GMAC
Commercial Finance Corporation - Canada, as Lender, and Henry Birks & Sons Inc.,
as Borrower, bearing formal date July 1, 2004.
1. CREDIT FACILITIES
1.1. REVOLVING LOAN:
1.1.1. Maximum Amount: $60,000,000.00
1.1.2. Eligible Accounts: 80 %
1.1.3. NOLV of Eligible Finished Goods Inventory: 85 %
1.1.4. NOLV of Eligible Raw Materials Inventory: 100 %
1.1.5. Eligible Inventory Availability Limit: N/A
1.1.6. Collateral Stretch Facility: the lesser of:
(a) 7% of the NOLV of Eligible Finished Goods Inventory; and
(b) $5,000,000.00
1.1.7. Value of Additional Collateral: Not Applicable
1.1.8. Overadvance Availablity: Not Applicable
1.2. NON-REVOLVING LOAN(S):
1.2.1. Loan corresponding to Loan number 7015-81 in the principal amount
of $4,993,021.00, first disbursed on July 1, 1999 maturing on January 1,
2005, repayable in equal consecutive monthly installments of $83,333.33
and bearing interest at the annual rate equal to the Prime Rate plus
0.375% per annum;
1.2.2. Loan corresponding to Loan number 7015-82 in the principal amount
of $400,000.00, first disbursed on October 16, 2000 maturing on October 1,
2005, repayable in equal consecutive monthly installments of $6,666.66 and
bearing interest at the annual rate equal to the Prime Rate plus 2.50% per
annum;
1.2.3. Loan corresponding to Loan number 7015-83 in the principal amount
of $2,567,353.14, first disbursed on April 18, 2001 maturing on January 1,
2006, repayable in equal consecutive monthly installments of $50,000.00
and bearing interest at the annual rate equal to the Prime Rate plus 2.50%
per annum;
Page 44
1.2.4. Loan corresponding to Loan number 7015-84 in the principal amount
of $2,901,730.75, first disbursed on May 14, 2001 maturing on September 1,
2006, repayable in equal consecutive monthly installments of $50,000.00
and bearing interest at the annual rate equal to the Prime Rate plus
0.625% per annum;
2. INTEREST
2.1. REVOLVING LOAN RATE:
2.1.1. On all Outstandings resulting from Advances under the Revolving
Loan in Dollars, Prime Rate plus 0.5% per annum; and,
2.1.2. On all Outstandings resulting from Advances under the Revolving
Loan in US Dollars, Prime Rate plus 0.5%;
2.2. AUTHORIZED OVERADVANCE RATE: Not Applicable
2.3. NON-REVOLVING LOAN RATE:
2.3.1. Loan 7015-81: annual rate equal to the Prime Rate plus 0.375%;
2.3.2. Loan 7015-82: annual rate equal to the Prime Rate plus 2.50%
2.3.3. Loan 7015-83: annual rate equal to the Prime Rate plus 2.50%
2.3.4. Loan 7015-84: annual rate equal to the Prime Rate plus 0.625%
3. BANKERS' ACCEPTANCES
3.1. [ ] Permitted
[X] Not Permitted
3.2. BANKERS' ACCEPTANCE FEES: Not Applicable
4. LETTERS OF CREDIT
4.1. LETTER OF CREDIT LIMIT: N/A
4.2. LETTER OF CREDIT RESERVES: 50% of the face amount of all Unaccepted
Letters of Credit
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Page 45
4.3. LETTER OF CREDIT FEE: 0.25% per month, calculated on the average
daily balance of outstanding Letters of Credit for each month
5. FEES
5.1. ARRANGEMENT FEE: $60,000.00
5.2. MONITORING FEE: $7,500.00 per month plus an additional amount
of $5,000.00 per month during the months of February through June,
inclusive
5.3. STANDBY FEE: 0.25 % per annum
6. CREDIT PARTIES Henry Birks & Sons U.S., Inc.
7. GUARANTOR Henry Birks & Sons U.S., Inc.
Henry Birks & Sons Holding Inc. (formerly
Borgosesia Acquisitions Corp.)
8. TERM
8.1. EFFECTIVE DATE: July 1, 2004
8.2. MINIMUM TERM: 3 consecutive Contract Years
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9. ADDRESS FOR BORROWER AND ANY CREDIT PARTIES:
1240 Phillips Square
Montreal, Quebec
H3B 3H4
10. PERMITTED CHARGES:
- Rights in favour of vendors having sold goods to the Borrower by way
of consignment or conditional sale;
Page 46
- Rights in favour of lessors of equipment and/or machinery which have
been leased by lease or capital lease to the Borrower;
- Movable hypothec in the amount of $5,400,000 registered in favour of
La Financiere du Quebec on April 24, 2003 under number 03-0193616-0001,
on strict condition that La Financiere du Quebec cede priority of all
such hypothecary rights in favour of the Lender on terms and conditions
satisfactory to the Lender;
- Movable hypothec in the amount of $1,500,000 registered in favour of
National Bank Trust Inc. on August 21, 2002 under number
02-0368048-0001, on strict condition that National Bank Trust Inc. cede
priority of all such hypothecary rights in favour of the Lender on
terms and conditions satisfactory to the Lender;
11. SURPLUS REQUIREMENTS: N/A
12. SURPLUS RESERVE: N/A
13. FINANCIAL COVENANTS:
Borrower shall maintain the following financial covenants, each to be calculated
on a non-consolidated basis:
13.1. The aggregate of all Capital Expenditures during any Fiscal Year shall be
limited to:
(a) $2,500,000.00 in the Fiscal Year ending March 31, 2005;
(b) $5,000,000.00 in the Fiscal Year ending March 31, 2006; and
(c) $5,000,000.00 in the Fiscal Year ending March 31, 2007.
13.2. Borrower shall have and maintain the following EBITDA, tested quarterly on
a Rolling Basis:
(a) No less than $4,000,000.00 as at September 30, 2004 and as at
December 31, 2004;
(b) No less than $6,500,000.00 as at March 31, 2005 until the
Fiscal Quarter ending September 30, 2005; and
Page 47
(c) No less than $9,500,000.00 as at the Fiscal Quarter ending
December 31, 2005 and for each Fiscal Quarter throughout the
balance of the Minimum Term.
14. SPECIAL COVENANTS:
N/A
15. REPORTING:
Borrower shall provide the following financial information to Lender:
15.1. Annual audited consolidated and unconsolidated financial statements of
Borrower (and if multiple Persons, each Person constituting the Borrower)
containing a profit and loss statement, balance sheet and other reports
normally forming part of financial statements, prepared in accordance with
GAAP by an independent chartered accounting firm satisfactory to Lender,
within 120 days of each Fiscal Year end;
15.2. On a quarterly basis, Compliance Certificates signed by the chief
financial officer, attesting to financial covenant requirements;
15.3. On a monthly basis, as at the end of each accounting month, to be
delivered no later than 30 days following each accounting month end:
15.3.1. financial statements prepared by management and signed by the
chief financial officer of Borrower;
15.3.2. a report of the chief financial officer, signed by the chief
financial officer of Borrower;
15.3.3. a detailed aged listing of Accounts in form and substance
satisfactory to Lender within 15 days of each month end; and
15.3.4. a detailed aged listing of accounts payable, to be delivered to
Lender within 15 days of each month end;
15.4. On a weekly basis, detailed Inventory Declaration in form and substance
satisfactory to Lender within 3 days of each weekly period;
15.5. A month by month projected operating budget and cashflow for borrower in a
form and substance satisfactory to Lender, at such intervals Lender may
from time to time request; and
15.6. Such other additional information and documents as Lender may, from time
to time and at such intervals, request from Borrower.
Page 48
16. SECURITY:
16.1. The hypothecation (in such amount as may be designated by Lender from time
to time) and security interests in favour of Lender of all of Borrower's
and each Credit Party's present and future movable and personal property,
whether corporeal or incorporeal, tangible or intangible, of any nature
whatsoever, wherever situated, properly perfected in all jurisdictions
where any such property is or may hereafter be situated, creating a
first-ranking hypothec and security interest in Lender's favour thereon
except for the Permitted Charges;
16.2. An unlimited Guarantee executed by Henry Birks & Sons U.S., Inc. in favour
of the lender, with respect to any and all obligations due from time to
time by Borrower to Lender supported by a general security agreement in
favour of Lender charging all of such guarantor's present and future
personal property, tangible and intangible, wherever situated, properly
perfected in all jurisdictions where any such property is or may hereafter
be situated, creating a first-ranking hypothec and security interest in
Lender's favour thereon except for the Permitted Charges.
LENDER: GMAC COMMERCIAL FINANCE CORPORATION
- CANADA/SOCIETE FINANCIERE
COMMERCIALE GMAC - CANADA
Per:
/s/ Carol Edwards
------------------------------------
Carol Edwards, Senior Vice-President
BORROWER: HENRY BIRKS & SONS INC.
Per:
/s/ Thomas A. Andruskevich
------------------------------------
Thomas A. Andruskevich
President and Chief Executive Officer
CREDIT PARTY: HENRY BIRKS & SONS U.S., INC.
Per:
/s/ Thomas A. Andruskevich
------------------------------------
Thomas A. Andruskevich
President and Chief Executive Officer
|
Page 49
GUARANTOR: HENRY BIRKS & SONS U.S., INC.
Per:
/s/ Thomas A. Andruskevich
------------------------------------
Thomas A. Andruskevich
President and Chief Executive Officer
HENRY BIRKS & SONS HOLDINGS INC.
/HENRY BIRKS ET FILS,
SOCIETE DE PORTEFEUILLE INC.
Per:
/s/ Marco Pasteris
------------------------------------
Marco Pasteris
Chief Executive Officer
|
Exhibit 10.11
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "AGREEMENT") is entered as of March 15, 2005 to
replace the option agreement dated February 5th , 2005 which is hereby cancelled
BETWEEN: HENRY BIRKS & SONS INC., / HENRY BIRKS ET
FILS INC. (the "BORROWER")
AND: GMAC COMMERCIAL FINANCE CORPORATION -
CANADA / SOCIETE FINANCIERE COMMERCIALE
GMAC - CANADA ("GMAC")
AND: HENRY BIRKS & SONS HOLDINGS INC. / SOCIETE
DE PORTEFEUILLE HENRY BIRKS ET FILS INC. (the
"PARENT")
|
WHEREAS, on July 23, 1998, the Borrower, GMAC (then known as BNY Financial
Corporation - Canada / Corporation Financiere BNY - Canada) and the Parent (then
known as Borgosesia Acquisitions Corporation / Corporation d'Acquisitions
Borgosesia) entered into an agreement (the "AMENDMENT AGREEMENT") pursuant to
which the Parent confirmed having irrevocably given and granted to GMAC the
option to purchase 11,896 Common shares (adjusted so as to equal 0.50% of all
then issued and outstanding shares of all classes and categories in the
Borrower's capital stock) for the purchase price of One Dollar (Cdn.$1.00) per
share (to a maximum of Cdn.$12,000) (the "PARENT'S OPTION") exercisable by GMAC
at any time prior to April 30, 2008, subject to certain conditions;
WHEREAS the Borrower, GMAC and the Parent now wish to cancel the Parent's
Option and to replace it by the New Option (as defined below); and
WHEREAS the Borrower and GMAC are party to that certain "Amended and
Restated Accounts Receivable Management, Loan & Security Agreement" bearing
formal date July 1, 2004 (the "Loan Agreement");
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. The Parent's Option is hereby cancelled and replaced by the New Option (as
defined below).
2. The Borrower hereby irrevocably grants to GMAC the option to purchase
46,845 Class A Voting Shares in its share capital for the purchase price
of Cdn.$0.256 per share (the "NEW OPTION"), exercisable, in whole or in
part, by GMAC at any time prior to April 30, 2008 by GMAC sending to the
Borrower, to the address set forth in the Amendment Agreement, one or more
written notices specifying the number of Class A Voting Shares with
respect to which it wishes to exercise the New Option. The written
notice(s) must be accompanied by a certified cheque to the order of the
Borrower, in the amount of the applicable purchase price for such Class A
Voting Shares. Immediately following the
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receipt of such notice(s) and payment(s), the Borrower shall issue the
Class A Voting Shares underlying the New Option (or any portion thereof
being exercised) and shall transmit to GMAC the share certificate(s)
representing such Class A Voting Shares. The number of shares to which
GMAC shall be entitled pursuant to the New Option shall not be adjusted in
the event the Borrower's share capital is increased or decreased, nor
shall the New Option be affected in any way by virtue of any class of
shares of the capital stock of the Borrower becoming listed on a public
securities exchange.
3. The New Option granted hereby is wholly independent, shall function wholly
independently from the Loan Agreement and shall remain in full force and
effect notwithstanding the termination of the Loan Agreement and/or
repayment of all Obligations (as such term is defined in the Loan
Agreement) due under the Loan Agreement. In addition, the failure by the
Borrower to respect the terms of the present Option Agreement shall
constitute a Default under the Loan Agreement.
4. Article 5 of the Amendment Agreement is hereby repealed. All other terms
and conditions of the Amendment Agreement shall remain unchanged.
5. The Borrower hereby represents and warrants that the rights granted under
the present Option Agreement as well as the issue of all shares in its
share capital in favour of GMAC have been duly authorized by all necessary
corporate authorization and that same is not prohibited or restricted in
any way by virtue of the articles of incorporation, by-laws or shareholder
or other agreement relating to the Borrower.
6. The parties hereto acknowledge that they have requested and are satisfied
that the foregoing, as well as all notices, actions and legal proceedings
be drawn up in the English language. Les parties a cette convention
reconnaissent qu'elles ont exige que ce qui precede ainsi que tous avis,
actions et procedures legales soient rediges et executes en anglais et
s'en declarent satisfaites.
IN WITNESS WHEREOF THE PARTIES HAVE EXECUTED THIS AGREEMENT AT THE DATE FIRT
MENTIONED ABOVE.
HENRY BIRKS & SONS INC. /
HENRY BIRKS ET FILS INC.
/s/ Sabine Bruckert
------------------------
|
-3-
GMAC COMMERCIAL FINANCE
CORPORATION - CANADA /
SOCIETE FINANCIERE COMMERCIALE
GMAC - CANADA
/s/ C. Edwards
-----------------------------
HENRY BIRKS & SONS HOLDINGS INC./
SOCIETE DE PORTEFEUILLE HENRY
BIRKS ET FILS INC.
/s/ Marco Pasteris
-----------------------
|
-3-
1.6. Headings
The headings of the Articles and Sections herein are inserted for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.7. Severability
Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall not invalidate the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
1.8. Governing Law
The parties agree that this Agreement shall be conclusively deemed to be a
contract made under, and shall for all purposes be governed by and construed in
accordance with, the laws of the Province of Quebec and the laws of Canada
applicable therein.
1.9. Jurisdiction
Any suit, action or proceeding against the Borrower with respect to this
Agreement or any judgement entered by any court in respect thereof may be
brought in the courts of the Province of Quebec and the parties hereto hereby
submit to the non-exclusive jurisdiction of such courts for the purposes of any
such suit, action or proceeding.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Borrower
The Borrower represents and warrants to the Lender that, as of the date
hereof:
(a) it is a duly constituted legal person, is validly existing under the laws
of Canada, and it has the power and authority to enter into and perform
its obligations under this Agreement;
(b) the entering into, performance of and compliance with this Agreement (i)
is within its powers and has been duly authorized by all necessary
corporate action on its part, and (ii) will not constitute a material
default under, be in violation of, or be in conflict with, any of its
constating documents or by-laws, or with any other agreement or instrument
to which it is a party or by which it is bound, or of any law, regulation,
ordinance or decree having application within its jurisdiction of
constitution;
(c) this Agreement has been duly authorised, executed and delivered by it and
is binding on it and enforceable against it in accordance with its terms,
subject to (i) any limitation under applicable laws relating to
bankruptcy, insolvency, arrangements or other laws of general application
affecting the enforcement of creditors' rights, and (ii) the discretion
that a court may exercise in the granting of equitable remedies such as
specific performance and injunction; and
(d) there is no litigation and there are no legal proceedings pending or, to
the knowledge of the Borrower, threatened against it or its property
before any court or administrative agency of any country, nor is there any
claim known to it and not disclosed in writing to the Lender, which
materially adversely affects or could so affect its ability to perform its
obligations set forth in this Agreement.
-4-
ARTICLE III
THE LOAN
3.1. Establishment of the Loan
Subject to the terms and conditions of this Agreement, and relying on each
of the representations and warranties set out in Article II hereof, the Lender
hereby establishes the Loan in favour of the Borrower.
3.2. Disbursements by the Lender
(a) The Lender hereby covenants to disburse five hundred thousand dollars
($500,000) of the principal amount of the Loan to the Borrower by no later
than 3:00 p.m. (Montreal time) on February 27, 2004. The Lender and the
Borrower will arrange to have the foregoing sum of money sent by the
Lender and received by the Borrower (by no later than 3:00 p.m. (Montreal
time) on February 27, 2004) by way of wire transfer initiated by the
Lender to an account to be designated by the Borrower.
(b) The Lender hereby agrees to disburse the remaining two million dollars
($2,000,000) of the principal amount of the Loan to the Borrower by no
later than 3:00 p.m. (Montreal time) on March 20, 2004. All such
disbursement(s) shall be made by way of wire transfer initiated by the
Lender to an account to be designated by the Borrower.
ARTICLE IV
INTEREST RATE
4.1. Interest rate
The Principal Amount shall bear interest, before and after maturity,
calculated on a semi-annual basis, from the first date of disbursement of
principal of the Loan, until its repayment in full, at the Interest Rate.
Subject to Section 5.3(a) hereunder, the Borrower will pay accrued interest, if
any, to the Lender on the last day of each successive six-month period, it being
understood that the first such six-month period shall begin on the day upon
which the Lender first disburses money to the Borrower hereunder. Unpaid
interest on the Principal Amount or any unpaid balance thereof will bear
interest at the rate stated hereinabove, the whole compounded semi-annually from
their due date until the date payment is received by the Lender.
ARTICLE V
REPAYMENT OF THE LOAN
5.1. Repayment of the Loan
Subject to Section 5.3(a) hereunder, the Borrower shall repay the
aggregate unpaid Principal Amount of the Loan, as well as all unpaid interest
that has accrued thereon, on February 28, 2005, unless the Borrower has notified
the Lender in writing at least five (5) Business Days prior to February 28, 2005
that it wishes to extend the term of the loan for an additional twelve (12)
months, in which case, subject to Section 5.3(a) hereunder, the Borrower shall
repay the aggregate unpaid principal amount of the Loan, as well as all unpaid
interest that has accrued thereon, on February 28, 2006.
5.2. Prepayment Privilege
Subject to Section 5.3(a) hereunder and notwithstanding any other
provision of this Agreement, the Borrower shall have the right, but not the
obligation, in its sole discretion at any time, to prepay the whole or part of
the Principal Amount as well as any and all interest due thereon to the Lender
without notice, bonus or penalty. Any and all amount repaid upon the Loan cannot
be re-borrowed.
-5-
5.3. Authorization to Effect Repayment
(a) Notwithstanding any other provision of this Agreement, the Borrower's
obligation to pay any amount of the Principal Amount of the Loan and/or
any amount of interest that has accumulated thereon to the Lender, shall
be subject to the Borrower having received all consents necessary so that
the Borrower's payment of such sums to the Lender will not constitute a
default under, be in violation of, or be in conflict with, any of its
constating documents or by-laws, or with any agreement or instrument to
which it is a party or by which it is bound (including, without limitation
(i) any credit or loan agreement, arrangement or facility that it has
entered into prior to this Agreement, or (ii) any agreement, prior to this
Agreement, pursuant to which any party has been granted a hypothec or
other security interest by the Borrower), or of any law, regulation,
ordinance or decree having application within its jurisdiction of
constitution.
(b) Due to Section 5.3(a) above, should the Borrower not repay the aggregate
unpaid Principal Amount of the Loan, as well as all unpaid interest that
has accrued thereon at the expiry of the term of the Loan (as the term of
the Loan is set out at Section 5.1 above), then such term shall be
extended by the Borrower for additional successive twelve (12) month
periods until such time as the Borrower repays (or prepays in accordance
with Section 5.2 above), the whole of the Principal Amount of the Loan as
well as any and all interest due thereon.
5.4. No Set-Off; No Withholding
The Borrower shall make all payments to the Lender pursuant to this
Agreement without set-off, compensation or counterclaim, free and clear of, and
exempt from, and without deduction for or on account of, any Tax under Part XIII
of the ITA (or any successor part) in respect of any such payment ("PART XIII
TAX"). In the event the Borrower is required to deduct or withhold Part XIII
Tax, the Borrower shall:
(a) pay or cause to be paid to the appropriate authority, the amount of the
withholding or deduction (including the full amount of Taxes required to
be deducted or withheld from any additional sums paid by the Borrower to
the Lender under this Section 5.4). The Borrower shall pay such amounts to
such appropriate authority within the time period required by applicable
law;
(b) produce to the Lender not later than 30 days after that payment, the
original receipt of payment thereof or a certified copy of such receipt or
other evidence of such payment reasonably satisfactory to the Lender; and
(c) pay such additional sums to the Lender, as may be necessary so that the
net amount received by the Lender, after all Part XIII Tax, will not be
less than the amount the Lender would have received had no such Part XIII
Tax been applicable, provided that no sum shall be paid by the Borrower
under this paragraph (c) to the extent that the Lender would not have been
subject to such withholding or deduction had the Lender made a declaration
of eligibility for treaty benefit or other similar claim for exemption to
the relevant tax authority or had the Lender taken any action in order to
satisfy any other statutory requirement which would have entitled the
Lender to treaty benefit or other similar claim for exemption but failed
to do so prior to the relevant payment date.
If, as a result of any deduction or withholding, the Borrower makes any
payment of any additional amounts to the Lender and the Lender determines that
it has received or has been granted a credit against or relief or remission for
or repayment of any Tax paid or payable by it in respect of or which takes into
account the deduction or withholding, the Lender will, to the extent it
determines that it can do so without prejudice to the retention of the amount of
such credit, relief, remission or repayment, pay to the Borrower such amount as
the Lender shall determine to be attributable to such Part XIII Tax and which
will leave it (after such payment) in a position which it determines to be no
better and no worse than it would have been if the Borrower had not been
required to make such deduction or withholding.
-6-
5.5. Place of Payment
All payments of principal, interest and other amounts shall be paid by the
Borrower to the Lender by wire transfer to an account to be designated by the
Lender.
ARTICLE VI
HYPOTHEC
6.1. Hypothec
On or prior to February 27, 2004, the Borrower shall have granted to the
Lender a moveable hypothec without delivery in respect of all of its moveable
property, present and future, of whatsoever nature and kind and wheresoever
situated in order to secure the full and final repayment of the Loan. The deed
of moveable hypothec shall be in form and substance satisfactory to both the
Borrower and the Lender acting reasonably.
ARTICLE VII
EVENTS OF DEFAULT
7.1. Events of Default
Each of the following events shall, notwithstanding compliance by the
Borrower with the terms and conditions hereof, constitute an Event of Default by
the Borrower under this Agreement:
(a) the non-payment when due by the Borrower of the Principal Amount or
interest or any portion thereof or any other amount payable hereunder; or
(b) the breach or failure of the Borrower to observe and perform any covenant
or provision of this Agreement; or
(c) the commencement of proceedings for the dissolution, liquidation,
termination, compromise, arrangement or winding-up of the Borrower or for
the suspension of the operations of the Borrower; or
(d) if the Borrower ceases or threatens to cease carrying on its enterprise or
makes or agrees to make a bulk sale of substantially all of its assets
without the written consent of the Lender or if the Borrower is adjudged
or declared bankrupt or insolvent or makes an assignment for the benefit
of its creditors, petitions or applies or allows the petition or
application to any tribunal for the appointment of a receiver,
sequestrator or trustee for it or for substantially all of its property,
or if the Borrower commences any proceedings relating to it under any
reorganisation, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction whether now or hereafter in
effect, or by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding commenced against it or against
substantially all of its property, or suffers the appointment of any such
receiver, sequestrator or trustee.
7.2. Acceleration
Upon the occurrence of any one or more of the Events of Default, but
subject to Section 5.3(a) hereof, (i) the Principal Amount and all accrued and
unpaid interest thereon, all interest on interest and all other amounts owing by
the Borrower to the Lender shall, at the option of the Lender, become due and
payable within ten (10) days of the occurrence of any one or more of the Events
of Default, and this, without presentation, demand, protest or other notice of
any kind, all of which are hereby expressly waived by the Borrower and/or (ii)
the Lender shall thereupon be entitled to enforce its rights under and pursuant
to this Agreement and/or (iii) the Lender may declare any obligation of the
Lender to make any sums available hereunder to the Borrower to be terminated
whereupon the same shall forthwith terminate.
-7-
Any omission by the Lender to notify the Borrower of an Event of Default
shall not be construed as a waiver of such Event of Default or any of the
Lender's rights herein.
ARTICLE VIII
EXPENSES AND INDEMNITY
8.1. Expenses and Indemnity
All statements, reports, certificates, appraisals, examinations and other
documents or information, if any, required to be furnished to the Lender by the
Borrower under this Agreement shall be supplied by the Borrower without cost to
the Lender.
ARTICLE IX
NOTICES AND COMMUNICATIONS
9.1. Notices
Every notice required or permitted to be given hereunder shall, save as
otherwise hereinbefore specifically provided, be in writing to the party for
whom it is intended and such written notice shall be delivered personally, by
messenger or be sent by ordinary mail or by facsimile. The date of receipt of
any such notice shall (i) if delivered personally or by messenger be deemed to
be the date of delivery, (ii) if mailed as aforesaid, be deemed to be the third
(3rd) Business Day next following the date of such mailing, and (iii) if sent by
facsimile shall be deemed to be received on the date of transmission if
transmission occurs prior to 12:00 p.m. (Montreal time) on a Business Day and on
the next Business Day following the date of transmission in any other case.
9.2. Addresses for Notices
The personal delivery, mailing addresses and facsimile number of the
parties hereto for the purposes hereof shall be:
(a) in the case of the Borrower:
HENRY BIRKS & SONS INC./
HENRY BIRKS ET FILS INC.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Attention: Mr. Thomas A. Andruskevich, President and Chief Executive
Officer
Telecopier number: +1 514 397-2577; and
(b) in the case of the Lender:
REGALUXE INVESTMENT SARL
25A boulevard Royal
Luxembourg 2449
Attention: Mr. Filippo Recami, Chief Executive Officer, Managing Director
Telecopier number: + 011-352-817-4827
-8-
or such other mailing address or telecopier number as such parties from
time to time may notify the others as aforesaid.
9.3. Election of domicile
The Borrower hereby elects domicile at the address mentioned in Subsection
9.2(a) above for the purposes of receiving notices, demands or other
communications and for the service of legal proceedings. If the Lender is unable
to locate the Borrower at such address, the giving of any notice, demand or
other communication or the service of any legal proceeding may be made at the
office of the clerk of the Superior Court in the district in which the address
of the Borrower referred to in Subsection 9.2(a) is located, at which office, in
such event, the Borrower also elects domicile for purposes of giving any notice,
demand or other communication or the service of any legal proceeding.
ARTICLE X
GENERAL PROVISIONS
10.1. Amendments
No amendment, modification or waiver of any provision of this Agreement or
consent to any departure by the Borrower from any provision of this Agreement
will be effective unless it is in writing and signed by the Lender, and then the
amendment, modification, waiver or consent will be effective only in the
specific instance and for the specific purpose for which it was given.
10.2. Extension of Time
No extension of time given by the Lender to the Borrower or anyone
claiming under the Borrower, shall in any way affect or prejudice the rights of
the Lender against the Borrower or any other person liable for payment of the
moneys owing hereunder or secured by the Security.
10.3. Assignment
No party shall be permitted to assign its rights under this Agreement
without the express written consent of the other party hereto. This Agreement
shall be binding upon, and shall enure to the benefit of each of the parties
hereto and their respective successors and permitted assigns.
10.4. Whole Agreement
This Agreement and the documents contemplated hereby constitutes the whole
and entire agreement among the parties hereto and cancels and supersedes any
prior agreements or undertakings, written or verbal, in respect thereof.
10.5. Counterparts
This Agreement may be executed in one or more counterparts (including
counterparts by facsimile), each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
10.6. Copy received
The Borrower hereby acknowledges receipt of a copy of this Agreement.
10.7. Language
The parties hereby confirm their express wish that this Agreement and all
the documents and agreements directly and indirectly related hereto be drawn up
in English. Les parties reconnaissent leur volonte expresse que la
-9-
presente convention ainsi que tous les documents et conventions qui s'y
rattachent directement ou indirectement soient rediges en langue anglaise.
[THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
-10-
IN WITNESS WHEREOF, executed by the parties at the place and date first
mentioned above.
HENRY BIRKS & SONS INC./HENRY BIRKS ET FILS INC.
By: /s/ John D. Ball
------------------------------------------------
Name: John D. Ball
Title: Senior Group Vice President and Chief
Financial Officer
|
HENRY BIRKS & SONS INC./HENRY BIRKS ET FILS INC.
By: /s/ Marco Pasteris
------------------------------------------------
Name: Marco Pasteris
Title: Group Vice President Finance
|
REGALUXE INVESTMENT SARL
By: /s/ Filippo Recami
------------------------------------------------
Name: Filippo Recami
Title: Chief Executive Officer and Managing
Director
|
-11-
HENRY BIRKS AND SONS INC.
Att: REGALUXE INVESTMENTS SARL
With reference to the Loan Agreement in the principal amount of CDN $ 2,500,000
executed on February 6th, 2004, hereby we elect to exercise our option to renew
the loan for a period of additional twelve months as per the section 2 "TERM" of
said loan agreement.
Executed this 23rd day of February 2005
HENRY BIRKS AND SONS INC.
Per:
AGREED AND ACCPETED
REGALUXE INVESTMENTS SARL
Per:
Exhibit 10.12
LOAN AGREEMENT
by and between
HENRY BIRKS & SONS INC./HENRY BIRKS ET FILS INC.
and
REGALUXE INVESTMENT SARL
Dated as of February 16, 2004
LOAN AGREEMENT
Entered into in the City of Montreal, Province of Quebec, this 16th day of
February, 2004:
BY AND BETWEEN: HENRY BIRKS & SONS INC./HENRY BIRKS ET FILS INC., a
corporation existing under the Canada Business Corporations
Act and having its head office at 1240 Phillips Square,
Montreal, Quebec, H3B 3H4 (the "BORROWER");
AND: REGALUXE INVESTMENT SARL, a corporation existing under the
laws of Luxembourg and having a place of business at 25A
Boulevard Royal, Luxembourg 2449 (the "LENDER").
ARTICLE I
INTERPRETATION
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1.1. Definitions
In this Agreement, unless something in the subject matter or context is
inconsistent therewith:
"AGREEMENT" means this Agreement, as it may hereafter be amended,
supplemented, modified, renewed, replaced or restated from time to time.
"BORROWER" means Henry Birks & Sons Inc./Henry Birks et Fils Inc., its
successors and assigns, including any person resulting from the
amalgamation of Henry Birks & Sons Inc./Henry Birks et Fils Inc. with any
other person.
"BUSINESS DAY" means any day, excluding Saturday, Sunday and any other day
which, in the City of Montreal, Province of Quebec, is either a legal
holiday or a day on which the banks are not open to the public.
"DEFAULT" means an event or condition the occurrence of which is an Event
of Default or would, with the lapse of time or the giving of notice, or
both, become an Event of Default.
"EVENT OF DEFAULT" means any one of the events described in Section 7.1.
"EXCLUDED TAXES" means any tax on the overall net income of the Lender
(including any branch profits tax or any similar tax on net income from
carrying on business in a particular jurisdiction) and any capital or
franchise tax payable by the Lender.
"GOVERNMENTAL AUTHORITY" means, with respect to any person, any government
or governmental body having authority over such person, including any
regional, municipal, local or other political subdivision thereof and any
agency, department, commission, board, bureau or instrumentality thereof
and any other person exercising executive, legislative, judicial,
regulatory or administrative functions or pertaining to any such
Governmental Authority.
"INTEREST RATE" means (i) an annual rate of eight percent (8%) for the
first six-month period during which any Principal Amount is outstanding
hereunder, (ii) an annual rate of ten percent (10%) for the second
six-month period during which any Principal Amount is outstanding
hereunder, (iii) an annual rate of twelve percent (12%) for the third
six-month period during which any Principal Amount is outstanding
hereunder,
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and (iv) an annual rate of fourteen percent (14%) for all periods
thereafter in which any Principal Amount is outstanding hereunder. For
Taxes refer to Section 5.4 below.
"ITA" means the Income Tax Act (Canada) and the regulations promulgated
thereunder, as amended, supplemented or re-enacted from time to time.
"LENDER" means Regaluxe Investment SARL, its successors and assigns,
including any person resulting from the amalgamation of the Lender with
any other person.
"LOAN" means a term loan in the principal amount of two million five
hundred thousand dollars and zero cents ($2,500,000).
"PERSON" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, unincorporated association, trust, trustee,
executor, government or governmental agency, authority or entity however
designated or constituted.
"PRINCIPAL AMOUNT" means the outstanding principal balance from time to
time of the Loan.
"SECURITY" means all hypothecs or security interests from time to time
granted to or in favour of the Lender as security for the performance of
any and all obligations of the Borrower under this Agreement including,
without limitation, the hypothec to be granted by the Borrower pursuant to
Section 6.1.
"TAX" includes any and "TAXES" includes all, present and future, taxes,
levies, imposts, stamp taxes, duties, charges to tax, fees, deductions,
withholdings and any restrictions or conditions resulting in a charge to
tax and all penalty, interest and other payments on or in respect thereof,
imposed, assessed, levied or collected under the laws of any country or
any political subdivision thereof or by any governmental agency or body or
taxing authority thereof, but does not include Excluded Taxes.
"WRITTEN" or "IN WRITING" shall include printing, typewriting, or any
electronic means of communication capable of being visibly reproduced at
the point of reception including facsimile, telecopier or telegraph.
1.2. References
All references to Sections, Articles are to Sections and Articles of this
Agreement. The words "HERETO", "HEREIN", "HEREOF", "HEREUNDER", "THIS AGREEMENT"
and similar expressions mean and refer to this Agreement as amended from time to
time.
1.3. Singular and Plural
In this Agreement where the context so admits words importing the singular
include the plural and vice-versa.
1.4. Currency
Except as otherwise expressly stated, all dollar amounts expressed herein
are expressed as being of lawful money of Canada and any amounts payable
hereunder shall be paid in lawful money of Canada.
1.5. Binding on Successors, etc.
This Agreement and everything herein contained shall extend to and bind
and enure to the benefit of the respective successors and permitted assigns of
each and every of the parties hereto and the provisions hereof shall be read
with all grammatical changes thereby rendered necessary.
Exhibit 10.13
LOAN OFFER
2002- 11- 27
File D104555
THIS OFFER LETTER TERMINATES AND REPLACES THE OFFER ISSUED
ON OCTOBER 21, 2002 AND THAT OF NOVEMBER 11, 2002
FROM: LA FINANCIERE DU QUEBEC, company created pursuant to the Loi sur
Investissement Quebec et sur La Financiere du Quebec (L.R.Q., c.l-16.1, as
modified by chapter 69 of the laws of 2001), whose head office is located at
1200, route de L'EGLISE, BUREAU 500, SAINTE-FOY (QUEBEC), G1V 5A3, with an
office on 393, rue Saint-Jacques, bureau 500, Montreal (Quebec), H2Y 1N9,
herein referred to as La Financiere.
TO: HENRY BIRKS & FILS INC., duly constituted individual company whose head
offices are located at 1240, Square Phillips, Montreal (Quebec) H3B 3H4, herein
referred to as the Company.
1- LOAN
La Financiere offers to the Company a loan of four million five hundred thousand
dollars (CAN $4,500,000), herein referred to the Loan, under the terms and
conditions set forth herein.
2- AGREEMENT
The acceptance of this loan offer by the Company constitutes an agreement that
binds La Financiere and the Company.
3- PROJECT
3.1- The loan is offered only for the project of acquiring an American jewelry
chain, herein referred to as the Project, which, including the financing, is
structured as follows:
PROJECT
Acquisition of at least 71% of the shares of Mayor's $23,540,000
Jewellers Inc.
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TOTAL $23,540,000
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FINANCING
Regaluxe Investments S.A.R.L. (US $6,000,000) $ 9,480,000
Marco Pasteris (US $50,000) $ 80,000
Prime Investments S.A. (US $6,000,000) $ 9,480,000
Loan from LA FINANCIERE $ 4,500,000
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TOTAL $23,540,000
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3.2- The project must be completed before October 30, 2002 and, for the purposes
hereof, the date of the project execution will be the aforementioned date.
4- DISBURSEMENT
4.1 La Financiere will make the loan in a single disbursement, during the
period of execution of the Project, if the Company has not failed to
comply with any of the terms and conditions of this offer. The
disbursement will be made according to the actual expenses of the project,
so as to respect the proportion of the loan with respect to the Project's
admissible expenses.
5- COMMITMENTS TO BE MET PRIOR TO THE DISBURSEMENT OF FUNDS
5.1- The disbursement of the loan will only take place when La Financiere has
obtained, to its satisfaction:
5.1.1- Written confirmation of the Company of having obtained:
5.1.1.1- An investment by PRIME INVESTMENTS S.A. and Regaluxe Investments
S.A.R.L. of twelve million dollars (US $12,000,000) (approximately nineteen
million dollars (CAN $19,000,000);
5.1.1.2- The transaction with Mayor's Jewellers Inc.
5.1.2- Recent compliance and clearance certificates;
5.1.3- The securities set out under the heading "SECURITIES", with their
registration confirmation, as applicable:
5.1.4- The legal advice of external consultants concerning: the Company, its
corporate status and its borrowing powers, the validity of the securities set
out under the heading "SECURITIES", as applicable, their rank, the Company's
capacity to accept them and any other item La Financiere may require;
5.2- Prior to the disbursement of the loan, the Company must have delivered to
La Financiere, in a fashion that the latter may deem convenient, a report on the
level of execution of the Project and, upon request, a certificate of its
external auditors.
6- OTHER COMMITMENTS
Notwithstanding anything to the contrary, it is agreed that the financial ratios
referred to in Section 6.11, 6.12 and 6.14 will only be calculated once a year
base on the yearly Financial Statements.
6.1- From the date of acceptance of this offer and during the period the loan is
effective or as long as La Financiere has the option to purchase shares or as
long as remains a shareholder of the Company, as applicable, the latter commits
itself to:
6.1.1- Maintaining a minimum working capital ratio of one point fifteen (1.15);
6.1.2- Maintaining an accumulated debt ratio at the maximum equity level of one
point eighty-five (1.85);
6.1.3- Should the Company fail to fulfill its obligations and/or repay any
amount due, as per the terms hereof, authorize, on request, the presence as an
"observer", on its administration board, of a representative assigned by La
Financiere, on the grounds that said representative must be accepted by the
Company (which cannot refuse a representative assigned by La Financiere without
a plausible reason) who will sign a confidentiality, non-competition and
non-solicitation agreement whose terms must be agreed upon and to the
satisfaction of La Financiere and the Company. The Company agrees to hand to
said representative-observer a copy of any notice of meeting, as well as all the
documents handed to the managers, the notification having to be simultaneous to
that of the other managers;
6.1.4- Maintaining, at all times, a minimum equity of thirty million dollars
(CAN $30,000,000). The minimum equity will be calculated on the basis of the
Company's non-consolidated financial statements (without the consolidation
effect of Mayor's Jewellers Inc.'s results)
6.1.5- Notwithstanding the provisions of Section 7.7 of the Annex "General Terms
and Conditions of Loan," not to pay dividends, except in the following cases:
6.1.5.1- If the Company makes a net profit after taxes at the end of the
financial year; nevertheless, the dividend amount will not exceed one-third of
the generated net profit and the financial ratios of the working capital and the
accumulated debt/ equity and of minimum equity in the pro-forma of payment of
dividends, must be respected. Should the Company make a net profit and must pay
a dividend higher than the
aforementioned calculations, it commits itself to repaying the loan in an amount
equivalent to said dividend, provided that said ratio be respected. Finally, if
during the financial year the Company does not use its privilege to pay
dividends, this amount will serve as a reserve to increase the redistribution of
dividends during subsequent years;
6.1.5.2- Should the Company be subject to a takeover bid (TOB), the financial
ratios of the working capital and the long-term liability/equity and minimum
equity in the pro-forma of payment of dividends, must be respected.
7- INTEREST RATE
7.1- The loan will generate interest, as of each disbursement, at a monthly rate
calculated on a monthly basis that is equal to the weekly, variable rate used by
La Financiere. This rate is currently set as a reference only, at 6 per cent
(6%) annually.
7.2- For the purposes hereof, the weekly, variable rate used by La Financiere
equals the preferential, average rate of six (6) Canadian chartered banks
selected by La Financiere, expressed on an annual basis, plus one and a half
percent (1.5 %). This rate is revised once a week and therefore changes every
week.
7.3- The Company accepts as of now any variation in the interest rate La
Financiere may determine from time to time, which La Financiere will consider in
calculating the interest on the loan. Any bill sent to the Company by La
Financiere will constitute an irrefutable proof of the accuracy of such
calculation, unless La Financiere is otherwise notified by the Company within
ten (10) days of receipt of said bill.
7.4- As of the last disbursement of the loan, the Company will be allowed to
request, in writing, that La Financiere change the weekly, variable rate applied
to a loan at the effective rate, in due time.
7.5- In the event that a change of the weekly, variable rate to a fixed rate is
requested, the new rate will remain in effect for five (5) years, as of the date
of the effective conversion, and it will automatically correspond to the new
effective fixed rate of La Financiere until the expiration of this period of
five (5) years, and so on, in five-year periods, until the end of the repayment
period. Nevertheless, the Company will be entitled, at least 1 month before the
deadline for each period of 5 years, to make a written request to La Financiere
that the Loan generate interest at the weekly, variable rate effective at La
Financiere at that time. If the Company has already opted for the weekly,
variable rate, it may at any time return to the fixed rate in effect at La
Financiere at the time of its request, and this rate will remain in effect for a
period of five (5) years.
7.6- If the Company requests that La Financiere change the weekly, variable rate
applied to the loan to the fixed rate, it immediately accepts that this fixed
rate is the one used by La Financiere at the moment of the actual conversion of
the weekly, variable rate to a fixed rate, provided that the latter has not
risen since the date of the conversion request. Otherwise, the Company will
benefit from a delay of twenty-four (24) hours, from the date it is notified by
La Financiere of the new rate in effect to accept or refuse, in writing, the new
rate.
7.7- La Financiere reserves a maximum delay of 3 months to perform the
conversion of the weekly, variable rate to the fixed rate, insofar as the fixed
rate funds are made available to La Financiere in conditions it deems
acceptable.
8- PAYMENT OF INTEREST
The Company will pay interest at the rate agreed upon under the heading
"INTEREST RATE" on the last day of each month as of the last day of the month
following the first disbursement of the loan.
9- REPAYMENT OF THE LOAN
9.1- The Company will repay the capital of the Loan from the month following the
disbursement of the loan, in eighty-four (84) monthly, equal and consecutive
installments of fifty-three thousand five hundred seventy-one dollars and
forty-three cents ($53,571.43) each, payable on the last day of each month.
9.2- For the purposes of the repayment of the loan performed, using debit manual
or electronic transactions from the bank account of the Company, as provided for
in Section 6 of the Annex entitled "GENERAL TERMS AND CONDITIONS OF THE LOAN,"
the Company confirms that at the acceptance date of this offer, it does business
with the bank or financial institution whose name appears on the cheque attached
hereto in payment of the commitment fee set out under the heading "COMMITMENT
FEE."
10- ADVANCED PAYMENT
10.1- The Company will be allowed to fully or partially repay the Loan before
term at any time and without notice, as follows:
10.1.1- Without an indemnity, if the Loan generates interest at a variable rate.
10.1.2- By paying an indemnity equal to 3 months' interest on the amount repaid
before term if the Loan generates interest at the fixed rate.
11- REPAYMENT OF THE BALANCE
11.1- In the event that a balance remains due by the Company seven (7) years
after the date of the first (1sr) disbursement of the loan, the Company will
immediately repay said balance with all the due, unpaid interest at that date.
12- SHARE PURCHASE OPTION
12.1- In consideration of the Loan, the Company grants La Financiere the option
to purchase seventy thousand one hundred ninety-one (75,191) common capital
shares of its authorized capital stock that has not yet been issued for the
price of three dollars and six cents (CAN $3.06) per share, to be paid in cash,
herein referred to as the option, said shares representing one point one
thousand seven hundred sixty-nine percent (1.1769 %) of its issued participating
outstanding shares after the taking up of the option by La Financiere. For the
purposes of this offer, the voting shares that have at least the right to share
in the balance of claim of the Company's assets in case of liquidation are
considered as participating shares.
If the privileged shares stipulated in the Project are converted to common
capital stock before the full repayment of the loan, the option will be about
ninety-nine thousand four hundred twenty-eight (99,428) common capital shares of
its authorized capital stock that has not yet been issued for the price of four
dollars and fifty-two cents (CAN $4.52) per share, to be paid in cash, said
shares representing one point one thousand seven one hundred sixty-nine percent
(1.1769%) of its participating preferred issued outstanding shares after the
taking up of the option by La Financiere.
12.2 The Company declares that its authorized capital stock issued on the date
hereof is structured as follows:
AUTHORIZED
CLASS OF SHARES QUANTITY AMOUNT ISSUED
--------------- -------- -------------
Common, voting and participating capital stock Unlimited 6,313,258
Outstanding shares, class A 2,034,578 2,034,578
Common, non-voting capital stock Unlimited 40
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12.3- Notwithstanding the provisions of 12.1, the Company accepts as of today
that La Financiere may modify the quantity of shares covered by the option and
the taking up price of said shares based on the audited financial statements of
the Company for its financial year ending March 31, 2002.
12.4- La Financiere will be allowed to take up the option at any time by means
of five (5) days' written notice before the latest deadline of the following
events:
12.4.1- The first anniversary of the date of final repayment of the loan;
12.4.2- Ninety (90) days after La Financiere receives the audited financial
statements of the Company for the current financial year at the moment of the
final repayment of the Loan.
12.5- In the event that repayment is made before term, La Financiere will be
able to take up the option at any time, by means of five (5) days' notice before
the second anniversary of the date of total repayment of the Loan.
12.6- The terms, conditions and exercise modes of the option are detailed in the
Annex entitled "GENERAL TERMS AND CONDITIONS OF THE OPTION" that form an
integral part hereof.
13- COMMITMENT FEE
13.1- This offer is subject to the payment of management-related fees, herein
referred to as a Commitment Fee, of one percent (1%) of the amount of the Loan,
namely forty-five thousand dollars ($45,000).
13.2- La Financiere acknowledges having received the amount of twenty-two
thousand five hundred dollars ($22,500) as partial payment of the Commitment
Fee. This Commitment Fee, the balance of which must be paid to La Financiere
upon acceptance hereof, is not partially or fully repayable in any
circumstances.
13.3- Mere receipt of the Commitment Fee gives rise to no right in favour of the
Company and does not bind La Financiere to make any disbursement on the Loan,
and these rights and obligations cannot be generated insofar as the terms and
conditions set out in this offer are met.
14- SURETIES
14.1- As the specific continuing guarantee of the fulfillment of all of the
obligations of the Company vis-a-vis La Financiere under the terms hereof, the
Company must:
14.1.1 Grant La Financiere a principal mortgage of four million five hundred
thousand dollars (CAN $4,500,000) and an additional mortgage of nine hundred
thousand dollars ($900,000) charging all of its current and future tangible,
intangible and movable property, on the grounds that said mortgage will take
precedence after the invested securities that have already been granted by the
Company in favour of GMAC Commercial Credit Corporation and Limark Corporation,
and the former will be written so as to allow the Company to use its stock
property in the normal course of its business, thereby granting the banking
institution an underlying mortgage on the stock property, the proceeds of
insurance on it, and its receivables in guarantee of the operation credits;
14.1.2 Obtain, to the satisfaction of La Financiere, an all-risks insurance
policy including a bank mortgage clause to provide coverage of its assets for
the full amount of the loan, thereby designating La Financiere as the
beneficiary;
14.1.3 Obtain the surety of Regaluxe Investments S.A R.L. or of a body that is
acceptable to La Financiere for four hundred fifty thousand dollars (CAN
$450,000), backed by an irrevocable letter of credit.
15- PARTICIPANTS
Participants in this offer:
- Henry Birks & Sons Holdings Inc., a legally incorporated, individual
company, whose head offices are located at 1000, rue de la
Gauchetiere ouest, bureau 2600, Montreal (Quebec) H3B 4W5, which
holds 86.6% of the voting shares;
- Prime Investments S.A., a legally incorporated, individual company,
whose head offices are located at Saphine Building 1St Floor, 63,
boulevard Prince Felix, L1513-Luxembourg, which holds 12.1% of the
voting shares.
15.1- WHICH PARTIES declare that they hold, as a percentage of the entirety of
the voting rights held by the shareholders of the Company, considering all the
shares that grant the holder voting rights, the aforementioned percentage, under
their respective names.
15.2- They declare that the several exercise of the aforementioned rights of
vote grants them control of the Company as regards any decision to be made by
the shareholders of the Company.
15.3- They declare they are aware of this offer and its option, terms,
conditions and exercise modes, that they understand its scope and they are
satisfied.
15.4- They declare that they have informed all the other shareholders of the
Company of this offer and of the option that it contains, of its terms,
conditions and modes of exercise and that they have understood the scope of it
and they are satisfied.
15.5- They also declare, on their own behalf and on behalf of all the other
shareholders of the Company, that they agree with the option, notwithstanding
any contrary provision or agreement, and they undertake to sign or complete
themselves and to exercise their voting right and their control over the Company
to make the Company sign or complete any necessary document to ensure that La
Financiere or anyone to whom La Financiere may transfer the option may lawfully
take up said option.
15.6- Henry Birks & Sons Holdings Inc. declares that they act in full capacity,
jointly and severally, according to the provisions of Section 1443 of the Quebec
Civil Code, that the other shareholders of the Company will fulfill any
obligation pursuant to this offer and that no shareholder of the Company whether
or not they signed this document, will request its partial or full nullity, as
to the Company, by him/herself or by other shareholders; based on the violation
of the provisions of a unanimous agreement of the shareholders under the
Business Corporation Act (L.R.Q., c. C-38) or a shareholder agreement under the
Canada Business Corporation Act (L.R.C. (1985), ch, C-44).
15. 7- Henry Birks & Sons Holdings Inc., declares that it guarantees,
individually, jointly and severally, that it will indemnify La Financiere for
any harm La Financiere may suffer as a result of any noncompliant elements of
the aforementioned promise made by a third party, by any shareholder of the
Company, including the cost incurred in by La Financiere to exercise its rights
under the terms hereof.
16- SURETY
This offer includes:
Regaluxe Investments S.A.R.L., an individual, legally incorporated company,
whose head offices are located at 25/A, boulevard Royal, L-2086 LUXEMBOURG.
herein referred to as the Stakeholder.
16.1- The Stakeholder declares that it is to its advantage that the loan be
granted to the Company; it adds that it is aware of all the provisions contained
in this offer and that it is satisfied.
16.2- The Company and the stakeholder declare that the Stakeholder is a
Shareholder of the Company or that it has close, ongoing business relations with
the Company.
16.3- As a surety, the Stakeholder hereby jointly and severally guarantees that
La Financiere will be repaid by the Company the total, principal amount,
interest, expenses and accessory of the loan and any other sum payable under the
terms hereof, as those sums respectively become due and payable, by either
expiry of the period allowed or by extension or otherwise, as per the provisions
of this offer, and guarantees also the performance by the Company of any other
obligation set out in this offer, provided that the Stakeholder's liability,
under the terms of this guarantee, be limited to four hundred fifty thousand
dollars ($450,000) plus interest at the aforementioned rate, as of the date of
the payment request.
16.4- The Stakeholder will be deemed and will be in the same situation as that
of the Company, and it expressly waives any payment request, presentation to
payment, protest and notice, as well as any notice of noncompliance, and it also
waives the benefits of division and discussion.
16.5- The Stakeholder consents to La Financiere obtaining and exchanging
information on individuals concerning the solvency of the former, financial
capacity, payment behaviour and any other information it may deem pertinent with
third parties, namely financial institutions, creditors and personal information
agents.
16.6- For the purposes hereof, the Stakeholder chooses to be domiciled in the
Record Office of the Superior Court of the district of Montreal.
17- OTHER PROVISIONS
17.1 The annexes entitled "GENERAL TERMS AND CONDITIONS OF THE LOAN" and
"GENERAL TERMS AND CONDITIONS OF THE OPTION" constitute an integral part hereof.
17.2- Only the French version of this offer will be deemed official, in any
event, and the latter will prevail over any translation that might be provided
with it.
17.3- The Company and the Stakeholders acknowledge that the stipulations of this
offer and its annexes, entitled "GENERAL TERMS AND CONDITIONS OF THE LOAN" and
"GENERAL TERMS AND CONDITIONS OF THE OPTION" have been freely discussed among
themselves and with La Financiere, and that they have had a proper explanation
of its nature and scope.
LA FINANCIERE DU QUEBEC
By: Biagio Carangelo, Director, Portfolio
Daniel Vincent, Regional Director of Montreal Island
Date: 28/ 11/ 02
ACCEPTANCE OF THE COMPANY
Having learned the terms and conditions described herein, and the annexes
entitled "GENERAL TERMS AND CONDITIONS OF THE LOAN" and "TERMS AND CONDITIONS
GENERAL OF THE OPTION", we accept this loan offer and, we therefore attach a
cheque of twenty-two thousand five hundred dollars ($22,500) in payment of the
balance of the Commitment Fee corresponding to twenty-two thousand five hundred
dollars ($22,500) on a total guaranteed amount of forty-five thousand dollars
($45,000).
This cheque bears all the information required to allow La Financiere, as
applicable, to repay any amount due by virtue of the loan, by means of
electronic withdrawals.
Henry Birks & Fils Inc.
e.g. "/s/Marco Pasteris
e.g. "/s/John D. Ball
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STAKEHOLDERS
Henry Birks & Sons Holdings Inc.
e.g. "/s/Marco Pasteris
Prime Investments S. A.
Per: Manacor (Luxembourg) S. A., Managing Director
Date: 30/ 01/ 03
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SURETY
REGALUXE INVESTMENTS S.A.R.L.
GENERAL TERMS AND CONDITIONS OF THE LOAN
1- This agreement will be governed by the laws of Quebec and, if contested, only
the courts of Quebec will be qualified to settle any dispute. In addition, this
offer is subject to the application of the terms and conditions detailed in the
Loi sur I'investissement Quebec et sur La Financiere du Quebec (L.R.Q.,
c.1-16.1, as modified by Chapter 69 of the laws of 2001) and its regulations.
2- In accepting this offer, the Company declares that all the information
provided to La Financiere is true.
3- No significant change can be made to the Project without the prior written
consent of La Financiere. If the real cost of the Project exceeds the expected
total, the Company will provide or will act so as to make its shareholders
provide the necessary sums to cover any amount that exceeds the forecasts in a
way La Financiere will deem satisfactory, before the balance of the loan is
disbursed. If the expenses actually incurred by the Company for the Project are
lower than the total expenses set out under the heading "PROJECT," La Financiere
reserves the right to proportionally reduce the amount of the Loan.
4- For each disbursement of the Loan, the Company will submit a written request.
To support each request, it will submit any supporting document that may be
required by La Financiere.
5- The disbursement of the Loan can be made by La Financiere directly from the
bank account of the Company, by written notice issued by the bank or financial
institution with which La Financiere does business. Nevertheless, La Financiere
reserves the right to disburse the Loan using cheque(s) if it deems that this
mode of disbursement is better, as required.
6- The Company hereby authorizes La Financiere to use debit manual or electronic
transactions for any payment the Company must make to La Financiere pursuant
hereto. To this end, the Company hereby authorizes the bank or financial
institution with which it does business to allow the debit transactions in
favour of La Financiere.
La Financiere will send the Company a debit statement with all the information
on the repayment to be made by the Company.
The Company undertakes to renew the aforementioned authorization if it changes
its bank or financial institution before the loan is fully repaid and to inform
La Financiere of the change, by providing the latter with a specimen cheque from
the new bank or financial institution, bearing the note "VOID", as well as all
the necessary information.
The Company accepts the repayment of any amount due under the loan using
cheques, if La Financiere prefers this mode of payment, as required.
7- From the date of acceptance of this offer and during the period of the Loan
or as long as La Financiere holds the option or is a shareholder of the Company
or of the Assignor, as applicable, the latter commits itself to:
7.1- Providing its audited consolidated and non-consolidated annual financial
statements within ninety (90) days of the end of any financial year, its audited
consolidated annual financial statements (whenever the Company must prepare
these documents, this has to be done according to the accounting practices that
are generally accepted by the Chartered Accountants of Canada), its forecasting
financial statements on an annual basis within de ninety (90) days on the end of
any financial year and its biannual financial statements within sixty (60) days
of the end of each half-year; providing written confirmation of the renewal and
the conditions if its bank line of credit on an annual basis within forty-five
(45) days of the publication of said financial statements; providing also, on
request, its financial statements, those of affiliates and its consolidated
financial statements, as applicable, for any period determined by La Financiere
within the period allowed for making such request;
7.2- Providing annual fiscal forecast, including the working hypothesis within
thirty (30) days of each beginning of a financial year;
7.3- Not modifying its statements or the authorized and issued capital stock or
issuing new shares of its capital stock without the prior written consent of La
Financiere, which will have fifteen (15) working days from the date of receipt
of this request to accept or refuse La Financiere cannot object to these without
good and valid reason; nevertheless, the Company will be allowed to issue share
purchase options for its personnel without the previous consent of La
Financiere;
7.4- Not objecting, unless it has a plausible reason, to any modification made
to the share-stock;
7.5- Not merging, liquidating or dissolve without the prior written consent of
La Financiere. La Financiere cannot object to these without good and valid
reason;
7.6- Not making loans or advances to its shareholders, managers or officers,
except to the shareholder employees of the Company to purchase capital stock of
the Company and for an amount that does not exceed five hundred thousand dollars
(CAN $500,000A) per financial year;
7.7- Dealing on a businesslike basis by remaining at "arm's length" with respect
to its commercial relationships with all individuals;
7.8- Obtaining the prior written consent of La Financiere before declaring or
making payments to one or several shareholder classes;
7.9- Not giving loans or advances to affiliate or partner companies, making
investments, giving securities, unless during the normal course of its
operations;
7.10- Obtaining from new shareholders their commitment to respect the terms and
conditions of the options contained herein:
7.11- Not moving out of Quebec a substantial portion of its assets without the
prior written consent of La Financiere;
7.12- Acting so as to prevent any form of change that has not been previously
authorized by La Financiere in the control of the Company or in the ultimate
control of the Company:
Control refers to the possession of shares with a sufficient number of voting
rights to allow the election of most managers of the Company. Ultimate control
refers to the possession of said shares by one or more physical individuals that
control the Company using several shareholder artificial persons, one or the
other or the Company. If the shareholder who exercises the ultimate control of
the Company dies, the delegation of the shares of the dead shareholder to
his/her heirs cannot be deemed to constitute a change in the ultimate control of
the Company provided that said control remains in the hands of the legal heirs
of the dead shareholder;
7.13- Ensuring and maintaining all-risks insurance coverage for the assets
covered by the Project, for their maximum replacement value, or providing and
maintaining any insurance coverage, as required by La Financiere and to
providing the latter, on request, a copy of the purchased insurance polices and
their renewal. If the Company fails to respect this requirement, La Financiere
will be able to rectify the situation, at the cost of the Company without
prejudice to the exercise of any other right in favour of the former.
7.14- Not disposing of its assets, unless agreed upon by La Financiere, as
applicable.
8- Notwithstanding any provision contrary to this offering, and even if the
conditions are met, La Financiere reserves the right, on its own criteria, to
terminate the loan or any portion that not yet disbursed by the latter, defer
the disbursement and terminate the interest moratorium, as applicable, and the
Company undertakes to
partially or fully repay, on request, the sums disbursed on the Loan, with
interest, expenses and accessory, should the following occur.
8.1- If the project is not completed on the date set out herein;
8.2- If the Company has not presented any request for disbursement within six
(6) months of the acceptance hereof;
8.3- If the loan is not fully repaid by January 31, 2003;
8.4- if the total amount of the financial support granted, in any form
whatsoever, by the government of Quebec, its ministries and bodies, including
the refundable tax credits, exceeds fifty percent (50%) of the Project's
admissible expenses;
8.5- If the Company stops or partially or fully withdraws from the Project;
8.6- If the Company surrenders its property, is under sequestration under the
Loi sur la faillite et l'insolvabilite (L.R.C. (1985) ch. B-3), makes a proposal
to its creditors or falls into bankruptcy under the said Act, avails itself of
the provisions of the Act to facilitate transactions and arrangements among the
companies and their creditors (L.R.C. (1985), ch. C-36) or if it is liable to an
order for winding-up under the Loi sur la liquidation des compagnies (L.R.Q., o.
L4) or any other Act to the same effect, or if it is insolvent or about to
become insolvent or if it does not maintain its legal existence or if its
financial situation, according to La Financiere, deteriorates so as to put at
stake its own survival;
8.7- If the Company loses the benefit of the term with respect to any loan that
has been granted or that gives rise to a request of repayment of any loan
payable upon request;
8.8- If the Company fails to comply with the terms of an agreement or of a
security instrument concerning its loans;
8.9- If, according to La Financiere and without its consent, a significant
change arises in the project or its financing, in the nature of the operations
of the Company or in general terms, the level of risk;
8.10- If the project-related assets are liquidated or the project-related
capital lease is terminated, as applicable;
8.11- If, at any time, the Company enters litigation or proceedings before a
court of justice or a judicial body, a commission or government agency without
failing to notify La Financiere;
8.12- If the Company has paid admissible expenses for the execution of the
Project before the date of receipt, by La Financiere, of the financing request
of the Company;
8.13- In case of error or omission in a declaration, concealment,
misrepresentation, fraud or falsification of documents by the Company;
8.14- If the Company binds or disposes of its project-related fixed assets in
any manner whatsoever, without the prior written consent of La Financiere,
except for the purpose of the operation of its business or company or the
routine course of its business;
8.15- If the Company fails to satisfy any of the clauses and conditions hereof.
9- For the purposes of calculating the accumulated debt ratio on the
aforementioned equity level, the equity level will include the loans granted to
the Company that have no repayment of capital for the next five (5) years and
the new pre-operating expenses of the shareholders in the form of subscription
of shares of any class. The advances declared by the shareholders, the grants
that come from federal, provincial or municipal
governments that have been posted, as well as other items of the same nature
will also be included in the calculation of the equity level, the declared
expenses, non-paid goodwill, the evaluation surplus, the loans granted or
guaranteed by governmental bodies and the other items of the same nature will be
deducted. The research expenses and other intangibles that will be capitalized,
which will not have been paid in cash by the Company will also be deducted from
the calculation of the equity level.
10- La Financiere reserves the right, during the term of the loan, to demand any
document it might deem useful or pertinent.
11- The Company will provide, upon request by La Financiere, the certificates or
documents required by the laws of Quebec.
12- The Company will not be able to surrender or transfer the rights it is
granted under the terms of this offer without the prior written consent of La
Financiere.
13- The Company will sign a term note or an acknowledgement of debt for the
amount of each disbursement of the loan.
14- Any interest that is not paid at maturity will itself generate interest as
of that date at the rate set out in this offer, without notice or formal notice.
15- As applicable, any non-paid premium at maturity will generate interest as of
that date at the rate set out in this offer without notice or formal notice.
16- Upon acceptance of this offer, the Company agrees that public announcement
is made by La Financiere or by its lead minister, which will include the
following information: name and address of the Company, the type of company, the
project's nature and budget, the amount of the loan and the number of employees
involved.
17- If the Company wishes to officially announce its Project or organize an
official inauguration, it will notify La Financiere fifteen (15) days earlier,
so as to allow the latter or its lead minister to participate.
18- The Company commits itself to discharging all the expenses related to the
preparation, the execution and the inscription and, as applicable, the documents
necessary to legalize the offer, as well as any amendment.
19- After having notified the Company, La Financiere will be able to enter,
during normal business hours, the Company's facilities to check any aspect it
may deem useful or necessary.
20- For the purposes of this offer and its annexes, entitled "GENERAL TERMS AND
CONDITIONS OF THE LOAN" and "GENERAL TERMS AND CONDITIONS OF THE OPTION," all
notifications must be sent in writing, by certified mail or by courier.
Notifications from La Financiere will be sent to the Company's head office, to
the attention of the authorized representative who will acknowledge the
acceptance thereof for and on behalf of the Company. All notifications from the
Company or its shareholders will be sent to La Financiere du Quebec, to its
office at 393, rue Saint- Jacques, bureau 500, Montreal (Quebec), H2Y 1N9, to
the attention of its Secretary. All courier notifications will be acknowledged
the day they are received; certified mail deliveries will be acknowledged on the
third working day following their mailing by the sender.
GENERAL TERMS AND CONDITIONS OF THE OPTION
1-If the option is taken up by La Financiere within the expected term, this will
give it the right to obtain from the Company the issuance of one or more fully
paid, discharged share certificates corresponding to the number and the class
(es) of shares for which La Financiere holds the option.
2- The Company undertakes to provide to La Financiere, upon request, a notice
from its legal advisers to the effect that the Company has complied with all the
effective legal framework or regulation in effect at any time whatsoever so as
to allow for the full effect of the option, allow the taking up by La Financiere
and ensure the free supply of the shares so purchased. In addition, the Company
undertakes to obtain, for and on behalf of La Financiere, any waiver, approval,
ratification, instruction, certificate, visa or other document that might be
required under the Loi sur les valeurs mobilieres (L.R.Q., c. V-1.1) or any
other law, regulation or policy of a competent jurisdiction dealing with the
control of securities if the Company is not or no longer is a private company
pursuant to this act or any other act to the same effect.
3- If La Financiere takes up the option, it will be entitled to immediately
demand of the Company, by means of a written notice within thirty (30) days,
that the latter redeem all the shares issued in the name of La Financiere,
herein referred to as Repurchase, for a per-share price to be paid in cash,
equal to the higher of:
3.1- The price of said shares, based on the value at the registries of the
Company, established according to the audited annual financial statements for
the financial year preceding the date of the Repurchase, plus the net profit
after taxes of the Company, established according to the audited annual
financial statements for the two financial years preceding the date of the
Repurchase.
or
3.2- The highest price paid for any share of the same class by anyone in the two
(2) financial years preceding the Repurchase.
3.3- The financial statements to be used to set the value in the registries for
the purposes of the Repurchase will be the consolidated, audited financial
statements of the Company, when the latter has had to prepare them according to
the audit standards that are generally accepted by the Chartered Accountants of
Canada.
4- For the purposes hereof, the value in the registries of the Company will
include the new pre-operating expenses of the shareholders in the form of
subscription of shares of the same class. The grants that come from the federal,
provincial or municipal governments that have been posted, as well as the other
items of the same nature will also be included in calculating the value in the
registries of the Company. Declared expenses, non-paid goodwill and evaluation
surplus will be deducted. The research-related expenses and other intangible
assets that will be capitalized that have not been paid in cash by the Company
will be also deducted from the calculation of the value in the registries of the
Company. Nevertheless, all declared dividends on all classes of shares of the
Company's capital stock will be added.
5- Instead of taking up the option and forcing the Repurchase, La Financiere
reserves the right to demand of the Company, by means of a written notice of
thirty (30) days, that the latter redeem for it the option for the
aforementioned price, set out in Section 3, less the cost that La Financiere
would have paid for the shares if it had taken up the option.
6- For the purposes of the calculation of the Repurchase price of the option or
the participating preferred shares issued in the name of La Financiere, it is
understood that the total value of all the non-participating shares of the
capital stock of the Company will correspond to the initial amount of the
capital paid and written in the Company's audited financial statements.
7- If La Financiere takes up the option without demanding that the Company
immediately Repurchase, La Financiere will be able to become a party to any
shareholder agreement if the provisions of such agreement are satisfactory.
8- The Company and the shareholders that sign the document for this offer
undertake, for themselves and for future shareholders, that any shareholder
agreement or any unanimous shareholder agreement will be modified to the
satisfaction of La Financiere.
9- Unless all the balance of the loan and all the other amounts due are repaid
as per the terms hereof, the Company will be entitled, at all times: to offer to
repurchase from La Financiere the option or the shares issued after the
financial year of the option by La Financiere, and the latter will be compelled
to accept the Repurchase offer for a per-share price to be paid in cash, which
equals the higher of the following:
9.1- The aforementioned price, set out in Section 3.1.
or
9.2- The aforementioned price, set out in Section 3.2.
or
9.3- The price of said shares based on the value of the Company, calculated as
follows: multiplying by five (5) the amount of net profit after taxes of the
Company projected for the financial year beginning in the year following the
date of the Repurchase.
9.4- In the event of a Repurchase offer of the option by the Company, the price
set out as described above will be reduced by the cost La Financiere would have
paid for the shares if it had taken up the option.
10- For the purposes hereof, the projected Company's net profit after taxes, as
set out in Section 9.3 will be set based on standards of prospective financial
data generally accepted by the Chartered Accountants of Canada. Should any
disagreement arise between La Financiere and the Company concerning said
projections, the dispute must be submitted to the decision of a single
arbitrator, if they can agree on their choice. If they fail to reach an
agreement, three arbiters will be appointed, two of them assigned, respectively,
by La Financiere and the Company and the third selected by the two of them.
In order to limit the costs of any dispute or litigation between La Financiere
and the Company the arbitration will be closed. Therefore, the jurisdiction of
the arbitrator(s) will exclude the jurisdiction of courts, in accordance with
section 2638 to 2643 of the Code civil du Quebec and the sections related to the
Code de procedure civile du Quebec. Nevertheless, the arbitrators can simplify
and reduce the procedures to be set.
The arbitrator's(s') decision will be final and without appeal, and will need no
certification.
The arbitration-related fees will be assumed pari passu by La Financiere and the
Company.
11- RIGHT OF PRE-EMPTION
11.1- If the Company decides to issue new participating preferred shares after
La Financiere takes up the option, La Financiere will have the right to
subscribe to the new issuance, at the issuance price, prorating the number of
shares held by La Financiere with respect to the number of outstanding
participating shares at the time of the acceptance of the loan by the Company.
11.2- Nevertheless, the provisions set out in this section do not apply to a new
issuance of participating shares the Company performs in the framework of a
share purchase program by the managers and the employees of the Company.
12- RIGHT OF FIRST REFUSAL
12.1- If La Financiere wishes to sell or otherwise use or dispose of the option
or the shares issued after the taking up of the option, in favour of a third
party, it will first, by written notice, offer to the Company to purchase all
the option or shares. This notice will include the name of the third party in
question, the object of its offer, the price or the offered consideration, the
terms of payment and any other conditions relating to that offer. The Company
will have a period of fifteen (15) days from the date of receipt of the notice
to let La Financiere to indicate that it accepts the offer made by La
Financiere, on the same terms, price and conditions offered by the third party
in question.
12.2- If, within the said time, the Company fails to serve notice of the
acceptance of the offer by La Financiere, following the notification procedure
set out in Section 12.1, the latter will offer the shareholders of the Company
who hold shares of the same class the possibility of purchasing the option or
shares on the same terms and conditions, prorating the number of shares if the
class held by each of them. The shareholders will have a period of ten (10) days
from the date of receipt of the notice to serve notice of their acceptance of
the offer by La Financiere, on the same terms, price and conditions as those
offered by the third party in question.
12.3- If one or several offered shareholders do not avail themselves for the
partial or total offer by La Financiere within the expected term set out in
Section 1:3.2, the proportion or balance of the latter's claim will increase for
the shareholders who accept the offer by La Financiere, which will notify them
in writing. The shareholders will have an additional term of five (5) days, from
the date of receipt of the notice, to purchase the portion of the option or the
non-purchased shares, prorating among them the number of shares they hold or
according to any other agreed upon proportion.
12.4- If, upon expiration of the term of ten (10) days stipulated in Section
12.2, no offeree shareholder has availed him/herself of the offer by La
Financiere or if, upon expiration of the term of five (5) days stipulated in
Section 12.3, all of the option or the shares, as the case may be, has been
purchased by the shareholders of the Company, then La Financiere will be not be
bound by any acceptance of its offer by one or several shareholders, as per
sections 12.2 and 12.3, and La Financiere will then be free to accept the offer
of the interested third party, as described in the notice.
12.5- If the disposition, provision or sale of the option or the shares of La
Financiere in favour of the interested third party is not completed within three
(3) months following the offer of the third party or if the terms and conditions
of said offer are modified, La Financiere will again follow the provisions set
out in sections 12.1. 12.2. 12.3 and 12.4 if it wishes to modify the terms and
conditions of said offer or if it wishes to dispose of the option or shares
again.
13- FOLLOWING RIGHT
13.1- If an individual, herein referred to as the Buyer, wishes to purchase
participating preferred shares of the Company representing at least twenty
percent (20%) of its shares, less twenty percent (20%) of the shares of the
class covered by the Option and, for that purpose, it makes an offer to one or
several shareholders and if one of the shareholders who holds at least twenty
percent (20%) of said shares is willing to accept the offer of the Buyer, this
shareholder or those shareholders, hereinafter referred to as the Sellers, can
partially or totally dispose of their shares only if the following conditions
are met:
13.1.1- The offer of the Option Holder must be in good faith and in writing.
13.1.2- The Writers must notify La Financiere of this offer and hand him/her one
copy thereof.
13.1.3- La Financiere will have fifteen (15) days from the date of receipt of
the Buyer's offer to notify the Sellers of its intention to sell to the Buyer
the option or the shares it holds, as the case may be, at the same price and
conditions as those set out in the Buyer's offer.
13.2- If La Financiere notifies the Sellers of its intention to dispose of the
option or the shares it holds, as the case may be, the Writers must make the
Buyer purchase, in addition to the shares it wishes to sell, the option or
shares of La Financiere, as the case may be.
13.3- Unless they comply fully with the provisions stipulated in sections 13.1
and 13.2, the Sellers cannot accept the Buyer's offer.
EXTRACT OF THE MINUTES
OF A MANAGER'S MEETING OF:
PRIME INVESTMENTS S.A. (herein referred to as the Company) held at its head
offices on 30. 01. 2003.
It has been unanimously decided that the company, as the shareholder HENRY RIRKS
& FILS INC. (hereinafter referred to as the Company), jointly participates with
HENRY BIRKS & SONS HOLDINGS INC in a loan offer of four million five hundred
thousand dollars ($4,500,000), which La Financiere du Quebec (herein referred to
as La Financiere) presented to the Company, on November 27, 2002, to declare:
1) that itself and HENRY BIRKS & SONS HOLDINGS INC are the controlling
shareholders of the Company since their JOINT AND SEVERAL right of
vote grants them control of the Company as to the decisions to be
made by the shareholders, that it is aware of the said loan offer
and its option to buy shares, its terms, conditions and exercise
modes, that it understands the scope and deems itself satisfied.
2) that it notified all the other shareholders of the Company about the
said loan offer and its option to buy shares, its terms, conditions
and exercise modes and that the latter have understood the scope and
deem themselves satisfied.
3) that, on its own behalf and on behalf of all the other shareholders
of the Company, it agrees to the said option, notwithstanding any
contrary provision or agreement, and undertakes to sign or complete
itself and to use its rights of vote and that it has control power
over the Company to make the Company sign or complete any necessary
document so that La Financiere or anyone to whom La Financiere may
transfer the option can legally use the option.
4) that they act in full capacity, jointly and severally, according to
the provisions of Section 1443 of the Code Civil du Quebec, that the
other shareholders of the Company will fulfill any obligation as a
result of the said loan offer and its share purchase option, and
that no shareholder of the Company, that has or not signed the
document for the said loan offer, will request the partial or total
nullity thereof, with respect to the Company, to him/herself or to
other shareholders, based on the fact that it violates the
provisions of a unanimous shareholders agreement, under the Business
Corporation Act or a shareholders agreement under the Joint Stock
Company Act.
5) that it jointly and severally guarantees that it hold La Financiere
harmless against any damage it may suffer as a result of any
noncompliant elements of the aforementioned promise made by a third
party, by any shareholder of the Company, including the cost
incurred by La Financiere to use its rights under the terms hereof.
In addition, it has been decided that they be authorized and they are hereby
authorized by the Company, to participate in said loan offer for the
aforementioned purposes and sign any necessary or useful document to give rise
to this resolution.
Carbon copy of a resolution passed by the managers of PRIME INVESTMENTS S.A.
during a meeting lawfully held on
Signed on 30. 01. 2003.
Manacor (Luxembourg) S. A., Managing Director
La Financiere's representative
Initials of the Company's representative
Initials of the institution granting surety and the stakeholders
Secretary's name and signature.
OFFER OF LOAN GUARANTEE
1999- 12- 15
File : D052950
FROM: GARANTI - QUEBEC, (successor to the rights of the Societe de developpement
industriel du Quebec, chap. 64 of the Lois du Quebec of 1971), a corporation
legally incorporated pursuant to the Loi sur Investissement - Quebec et sur
Guarantee - Quebec, chap. 17 of the Lois du Quebec, of 1998, whose head offices
are located at 1200, route de l'Eglise, bureau 500, Sainte-Foy (Quebec), G1V
5A3, with an office at 393, rue Saint Jacques, bureau 500, Montreal (Quebec),
H2Y 1N9, Q.
TO: INVESTISSEMENTS INIZIATIVA CORPORATION AND HENRY BIRKS & FILS INC., legally
incorporated artificial persons with their main office at 1240, Carre Phillips,
Montreal (Quebec), H3B 3H4, herein sometimes collectively referred to as the
Company.
1. LOAN GUARANTEE
1.1 G.Q., offers a guarantee to the company, herein referred to as the
Guarantee, in the form of a security deposit of thirty percent (30%) of
the net loss on a loan herein referred to as the Loan, in the maximum
amount of five million dollars ($5,000,000) granted by a financial
institution, herein referred to as the Creditor, to the Company.
1.2 For the purposes of the Guarantee, the net loss refers to the amount of
interest and capital of the Loan that has been authorized for disbursement
by G.Q., due and not paid, on the date of recall of the Loan, plus the
interest accumulated during a maximum period of three (3) months from the
date of recall of the Loan, upon deduction of the proceeds and achievement
of the securities granted in guarantee of the repayment of the Loan, based
on the understanding, nevertheless, that the interest accumulated to date
and since the date of the recall of the Loan at no time can exceed, in the
calculation of the net loss, ten percent (10%) of the balance in capital
of the Loan at the moment of its recall.
1.3 The loan will exclusively serve to finance the project below which,
accompanied by its financing, is as follows:
Project
LEASEHOLD IMPROVEMENTS :
Store Bloor Street, Toronto $2,950,000
Store Rideau Centre, Ottawa $ 800,000
Store Guilford, Surrey $ 269,600
Store Scarborough, Ontario $ 650,000
Store Pen Centre, Ste-Catherines, Ontario $ 300,000
Store Edmonton, Alberta $ 250,000
Part of the store Regina, Saskatchewan $ 335,4000
$5,555,000
|
Financing
Term loan (guaranteed by G.Q.) $5,000,000
Working capital $ 555,000
$5,555,000
|
2. DURATION OF THE GUARANTEE
The Guarantee is granted for a period of six (6) years from the date of the
first disbursement of the Loan.
3. UNDERTAKING TO BE FULFILLED PRIOR TO THE EFFECTIVE GRANT OF THE GUARANTEE.
3.1- Before the effective grant of the Guarantee, the Company must meet the
following conditions to the satisfaction of G.Q., namely:
3.1.1- The confirmation of the Creditor that the latter has made available for
the Company a maximum line of credit of $50,000,000, according to generally
accepted terms and conditions.
3.1.2- The provision to G.Q., of legal advice from external legal consultants of
the Company on the corporate status of the latter, its capacity to enter into
this offer and any other aspect G.Q., may request
3.1.3- The provision to G.Q. of any loan-related documentation (including, among
others, the Loan Agreement, the chattel mortgage and real estate agreements)
whose terms and conditions must be to the satisfaction of G.Q.
3.2- Prior to the implementation of the Guarantee, a security deposit agreement
will be reached by the Creditor and G.Q., whose terms must be satisfactory to
the latter.
4. FEES
4.1- COMMITMENT FEE
4.1.1 This offering generates the payment of management-related fees,
hereinafter referred to as the Commitment Fee, of zero point five percent (0.5%)
of the amount of the Loan, that is, twenty-five thousand dollars ($25,000) to
which the Federal Goods and Services Tax and the Sales Tax of Quebec,
hereinafter referred to respectively as GST and STQ, apply.
4.1.2- G.Q. acknowledges having received the amount of $21,878.13 in partial
payment of the Commitment Fee (including the GST and STQ), which amount
encompasses a credit of $7,5000 for a previous terminated business. This
Commitment Fee, whose balance is $6,878.13, must be paid to G.Q. upon acceptance
hereof, and is not partially or fully refundable, under any circumstances.
4.1.3- The mere receipt of the Commitment Fee creates no right in favour of the
Company and in no manner binds G.Q. to put the Guarantee into effect, these
rights and obligations not being created until the conditions and terms set out
in this offer are met.
4.1.4- As information, G.Q., has the GST registration number 142625136 RT for
the federal government and the STQ: registration number 1021665521 TQ 0001 for
the government of Quebec.
4.2. GUARANTEE FEES
4.2.1- Upon each disbursement of the Loan, guarantee fees of 1% annually,
calculated on the amount of the disbursement, will be payable to G.Q., upon
receipt by the Company of an invoice to that effect. The fees so required will
be proportionally adjusted with respect to the number of days between the date
of disbursement of the Loan and March 31 of the following year, using 365 days
as a reference.
4.2.2- In addition, in consideration of the Guarantee, the Company undertakes to
pay to G.Q. on an annual basis, on the last working day of April of each year, a
guarantee fee of one percent (1%) annually, calculated on the balance of the
Loan on March 31, preceding each payment.
4.2.3- Said guarantee fees will be always payable in advance for the unexpired
period of guarantee, and will not be fully or partially refundable, under any
circumstances.
4.2.4- Notwithstanding the above, G.Q. may at its own discretion reduce the
percentage of the claimed guarantee fees to the Company if the percentage of the
net loss it guarantees decreases.
4.3- The Commitment Fee and the guarantee fees due by the Company to G.Q., under
the terms hereof, are payable without notice or formal notice within the
aforementioned term, in the offices of G.Q. or in any other location G.Q., in
writing, to the Company. G.Q. will be allowed to claim from the Company, on any
amount due, as of the deadline, interest calculated on a monthly basis that is
equal to the weekly, variable rate used by G.Q.
5. ELECTRONIC DEBITS
5.1- The Company hereby authorizes G.Q. to perform manual or electronic debit
transactions on its bank account to make any payment the Company must make to
G.Q. concerning the guarantee fees due under the terms hereof, as well as any
amount G.Q. paid to the Lender, as per the Guarantee. To this effect, the
Company hereby authorizes the bank or financial institution with which it does
business to honour the debits carried out by G.Q.
5.2- G.Q. will send, in advance, to the Company a debit note including all the
information related to the payments to be made by the Company.
5.3- The Company undertakes to renew the aforementioned authorization if it
changes its bank or financial institution, as long as the Guarantee remains in
effect or the Company is indebted to G.Q., with respect to any payment made by
G.Q., by virtue of the Guarantee, as well as to notify G.Q. on said change by
sending it a specimen cheque of its new bank or financial institution, bearing
the legend "VOID", and including all the necessary information.
5.4- The Company accepts that the payment of the guarantee fees due by virtue
hereof be made using cheques, if G.Q. deems this payment mode more convenient,
as required.
6. REPAYMENT
The Company undertakes to repay G.Q., on request, any amount the latter is
required to pay to the Lender by virtue of the Guarantee, in capital and
interest, and to hold it harmless from any other loss, damage or expense that
might arise from the commitment of G.Q. vis-a-vis the Lender, under the terms of
the Guarantee.
7. SURETIES
7.1- During any period of the Guarantee, the Company undertakes to grant the
Creditor, in guarantee of the repayment of the Loan, in addition to the
securities set out in the Loan Contract to be signed by them, which are
described below:
7.1.1- A chattel mortgage on all current and future movable, tangible and
intangible property, of Henry Birks & Fils Inc., in the principal amount of five
million dollars ($5,000.00) that takes precedence pursuant to existing mortgage
law in favour of the lender, for the following long-term credits:
NAME SURETY RANK AMOUNT DUE ON 27/11/99
---- ----------- ----------------------
Mortgages C.D.P.Q. Inc. 1st $5,632,917 (building 1240, Phillips
Square, Montreal)
Mortgages C.D.P.Q. Inc. 2nd $1,000,000$ (building 1240, Phillips
Square, Montreal)
Banque de Montreal 1st $204,516 (Store Whistler Village
Centre, Whistler, British Colombia)
Societe de Credit commercial GMAC- 1st $32,500 (building 87, King St- John
Canada Street, New Brunswick)
|
7.1.2- A chattel mortgage on all current and future movable, tangible and
intangible property, of Henry Birks & Fils Inc., in the principal amount of five
million dollars ($5,000.00) that takes precedence pursuant to existing mortgage
law in favour of the lender, for the following short-term credits:
NAME SURETY RANK AMOUNT DUE ON 27/11/99
---- ----------- ----------------------
Societe de Credit commercial GMAC- Canada 1st (accounts receivable $39,822,922
and inventories)
Societe de Credit commercial GMAC- Canada 1st (moules) $ 312,500
Limark Anstalt 2nd (inventories) $12,817,193
|
The Company notifies that there are securities of mortgage in favour of
(illegible) and that said guarantees are in the process of being deleted.
7.1.3- Addition of the Creditor, according to the interests, as the beneficiary
of the indemnity from the insurance coverage, on the security deposit assets.
7.2- Each priority Creditor mentioned in paragraphs 7.1.1 and 7.1.2 will commit
itself towards the creditor to the effect that the initial assets in view of
their respective loan are the only assets that may guarantee this Loan and that
said assets will not serve to guarantee any other loan.
7.3- It is understood that the securities of the Creditor must be recorded
according to the effective laws in the jurisdictions where Henry Birks & Fils
Inc. has an office and in other jurisdictions where its assets can be found.
8. OBLIGATIONS OF THE COMPANY
8.1- Upon acceptance hereof, for any period of the Guarantee, and until full
payment of any sum that might be due to G.Q. by the Company by virtue hereof or
by virtue of the security deposit agreement, the Company undertakes to:
8.1.1- Provide its audited, annual financial statements within 90 days on the
end of any financial year; providing also, on request, its bi-annual financial
statements, the financial statements of its affiliates and, as applicable, its
consolidated financial statements or any other financial statement required by
G.Q. within the term provided for by the latter.
8.1.2- Provide annual fiscal forecast with the working hypothesis at the
beginning of each financial year.
8.1.3- Provide G.Q., on an annual basis, as soon as it is made available, one
copy of the terms and conditions of renewal of its line of credit.
8.1.4- Provide G.Q., on the latter's written request and within the terms
provided for said request, any information and document it may deem useful and
pertinent to the application of the Guarantee and the Regulation on the
Programme d'aide au financement des entreprises.
8.1.5- Not to modify its capital stock, which is authorized and issued on the
date hereof without the prior written consent of G.Q., unless otherwise stated
herein. (illegible, handwritten text)
8.1.6- Not to wind up or dissolve without the prior written consent of G.Q.
8.1.7- Not to grant loans or advances to its shareholders, managers or officers,
except for the employee shareholders, but only to allow the purchase of capital
stock of Henry Birks & Fils Inc., provided that the total amount of the loan or
the advances is $500,000 for the period of the Guarantee.
8.1.8- Trade on a business basis by remaining at "arm's length" with respect to
its commercial relationships with all individuals.
8.1.9- Obtain the prior written consent of G.Q., before declaring or paying any
dividend to one or several classes of shareholders.
Notwithstanding the above, if the Company makes a net profit at the end of the
financial year, it may pay a dividend, but the dividend amount will not exceed
one-third of the net profit, and the financial ratios of the working capital and
the accumulated debt on the equity level mentioned herein, after the installment
of the dividend, must be respected; the Company may pay an amount of dividend
higher than the one set out herein, under the reservation that it will make a
repayment on the loan of an amount equivalent to the surplus of the dividend,
and that said ratios, after the installment of the dividend and the repayment on
the loan, be respected. Finally, if, during a financial year or if a net profit
is made, the Company does not avail itself to pay dividends, the amount that
could have been paid in dividends may be accumulated and paid during subsequent
financial years.
8.1.10- Not to give loans or advances to affiliate or partner companies, to make
investments, give securities or make transactions, unless during the normal
course of its operations.
8.1.1.1- Act in such a way as to prevent any change that is not previously
authorized by G.Q., in the control of the Company or the ultimate control
thereof.
Control refers to the possession of shares with a sufficient number of voting
rights to allow the election of most managers of the Company. Ultimate control
refers to the possession of said shares by one or more physical individuals that
control the Company using several shareholder artificial persons, one or the
other or the Company. If the shareholder who exercises the ultimate control of
the Company dies, the transfer of the shares of the dead shareholder to his/her
heirs cannot be deemed to constitute a change in the ultimate control of the
Company provided that said control remains in the hands of the legal heirs of
the dead shareholder.
8.1.12- Not to sell its assets, unless otherwise previously authorized by G.Q.,
as applicable, and except in the routine course of the Company's business.
8.1.13- Upon notification to the Company, to allow the representatives of G.Q.,
or any external auditor assigned by G.Q., to visit the offices of the Company
during the normal business hours to check, at G.Q's expense, the Company's
registries, physical facilities and stocks, in a way they will deem convenient,
and to obtain copies of any document.
8.1.14- Allowing G.Q. or the Minister of Industry and Commerce to publicly
release, if deemed appropriate, the outlines of the financial support granted to
the Company, including, among other things, but without being limited, the name
of the Company, type of business, location, nature and amount of the financial
transaction set out herein, as well the number of employees in the service of
the Company.
8.1.15- Notify G.Q., 15 days in advance if the Company wishes to officially
announce its project or to officially inaugurate it, so as to allow G.Q. or the
Minister of Industry and Commerce to participate.
8.1.16- Discharge all expenses related to the preparation, execution and
registration, as applicable, of the documents necessary to give rise to this
offer or to amend it.
8.1.17- Maintain a minimum working capital ratio of 1.1/ 1.0 at the end of each
financial year; G.Q., recognizes the seasonal nature of the Company and accepts
that said ratio cannot be reached from time to time, during a given financial
year.
8.1.18- Maintain an accumulated debt ratio on the maximal equity level of
1.85/1.0, of the equity level, including, in addition, the advances of
shareholders and the posted grants.
8.1.19- Not to repurchase capital stock from Henry Birks et Fils Holding Inc.
(this company holds 98.5% of the capital stock of Henry Birks et Fils Inc., the
balance being held by the administration board and the employees (capital shares
and share purchase options).
8.1.20- Not to move its production activities out of Quebec or drastically
reduce the number of current jobs in Quebec.
8.1.21- Should the Company become a government corporation upon a first public
call for savings, the financial ratios of the working capital and the
accumulated debt / equity required in paragraphs 8.1.17 and 8.1.18, upon payment
of a dividend, must be respected at all times.
9. EVENT OF DEFAULT
9.1- Notwithstanding any contrary provision that may be contained in this offer,
and even if the conditions are met, G.Q. reserves the right to terminate any
portion of the Guarantee that has not been used or to postpone its
implementation, at its own discretion, and the Company commits itself to
repaying, on request, the loan with interest, expenses and accessory, in the
following cases, which constitute an event of default:
9.1.1- If the Company, without the G.Q's prior written authorization, moves out
of Quebec a substantial portion of its assets that are located in Quebec, except
during the routine course of the Company's business.
9.1.2- If the Company deeds its property, is liable for sequestration pursuant
to the Loi sur la faillite et l'insolvabilite (L.R.C. (1985), ch. B-3), makes a
proposal to its creditors or falls into bankruptcy pursuant to the said act, or
if it is liable to an order for winding-up under the Loi sur la liquidation des
compagnies (L.R.Q., c. L-4) or any other act to the same effect, or if it is
insolvent or about to become insolvent or if it does not maintain its legal
availability or if its financial situation, according to La Financiere,
deteriorates so as to compromise its own survival.
9.1.3- If the Company avails itself of the provisions of the act to facilitate
the transactions and arrangements among the companies and their creditors
(L.R.C. (1985), ch. c-36).
9.1.4- If the Company suspends or threatens to suspend the normal operation of a
significant portion of its business.
9.1.5- If, according to G.Q., and without its consent, significant changes arise
in the nature of the operations of the Company or in its financial and economic
risk level;
9.1.6- If, at any time, the Company enters litigation or proceedings before a
court of justice or a judicial body, a commission or government agency without
notifying G.Q., each said litigation will have an impact on the operations of
the Company.
9.1.7- In case of fraud, misrepresentation or falsification of the documents
submitted to G.Q., or to the Creditor by the Company or its representatives.
9.1.8- If the Company fails to repay to G.Q. any amount that may become due
under the terms hereof.
9.1.9- If the Company does not allocate the proceeds of the Loan to the project
submitted in the financing request.
9.1.10- If the Company fails to satisfy any of the clauses and conditions
hereof, of the Loan Contract to be signed by the creditor and the Company, of
any other document accessory to the loan and of any amendment thereto, as
applicable, and generally, of any loan-related agreement.
10. INALIENABILITY
10.1- The Company will not be able to transfer the rights it is granted by
virtue of the terms hereof.
11. DECLARATION
11.1- Upon acceptance of this offer, the Company declares that all the
information it provided to G.Q. during the period of negotiations that led
to this offer are accurate and true.
12. INTERPRETATION
12.1- This document is subject to the application of the terms and conditions
stipulated in the Loi sur L'Investissement- Quebec et sur garantie- Quebec
and its regulations.
12.2- Only the French version of this offer will be deemed official, in any
event, and the latter will prevail over any translation that might be provided
with the original.
GUARANTEE- QUEBEC
By: Louis Desrosiers, Director, Portfolio
By: Jean- Charles Vincent, Regional Director
Date: 99/ 12/ 15
ACCEPTANCE BY THE COMPANY
Upon acknowledging the terms and conditions described herein, we severally
accept this loan guarantee and we include a cheque for $6,878.13$ in payment of
the balance of the Commitment Fee of a total amount of $25,000.00, plus GST of
$418.58 and STQ of $479.87.
We also attach a cheque with the legend "VOID" bearing all the information
necessary to allow G.Q., as applicable, to receive the repayment of any
applicable amount under the Guarantee, performing electronic debit transactions.
INVESTISSEMENTS INIZIATIVA CORPORATION
By: Marco Pasteris, Chief Operating Officer
Date: December 17, 1977
Henry Birks Fils Inc.
By: Marco Pasteris, V.P. Finances
Date: December 17, 1977
Initials of G.Q's representative
Initials of the Company's representative
LOAN OFFER
2002- 11- 27
File: D104555
FROM: GUARANTEE QUEBEC, a company legally incorporated by virtue of the Loi sur
Investissement-Quebec et sur Guarantee- Quebec (L.R.Q., c.1-16.1), whose head
office is located at 1200, route de l'Eglise, bureau 500, Sainte-Foy (Quebec),
G1V 5A3, with a place of business at 393, rue Saint- Jacques, bureau 500,
Montreal (Quebec), H2Y 1N9, hereinafter referred to as G.Q.
TO: HENRY BIRKS & FILS INC., SOCIETE DE PORTEFEUILLE INC. and HENRY BIRKS & FILS
INC. legally incorporated artificial persons whose head offices are located at
1240, carre Phillips, Montreal (Quebec) H3B 3H4, hereinafter collectively
referred to as the Company.
1. LOAN GUARANTEE
1.1- G.Q. offers the Company a guarantee, hereinafter referred to as to the
Guarantee, in the form of a security deposit of sixty five percent (65%) of the
net loss on a loan, hereinafter referred to as the Loan, in the maximum amount
de $3,000,000 granted by Societe de credit commercial GMAC- Canada, by virtue of
a Loan contract signed by the Lender and the Company on October 15, 1996, which
was later amended by letters dated July 23, 1998, June 8, 1999, September 23,
1999, May 2, 2000 and January 30, 2001, hereinafter collectively referred to as
the Loan Contract.
1.2- For the purposes of the Guarantee, net loss refers to the amount of
interest and capital of the loan that requires disbursement authorization by
G.Q., which are due and not paid on the date of recall of the Loan, plus the
interest accumulated during a maximum period of three (3) months from the date
of recall of the Loan, after deduction of the net proceeds from the sale of the
securities granted in guarantee of the repayment of the Loan, all of this based,
nevertheless, on the understanding that the interest accumulated to date and
from the date of the recall of the loan at no time can exceed, in calculating
the net loss, 10% of the balance in capital of the Loan at the moment of its
recall.
1.3- The Loan will exclusively serve to finance the refurbishing and opening of
new stores, whose financing can be broken down as follows:
Project
new location store of Victoria, Government Street, (British Colombia) $ 622,100
Refurbishing store Southgate (Alberta) $ 473,500
Refurbishing store Chinook (Alberta) $ 532,600
Refurbishing store Hillside, (Refurbishing store) $ 254,300
New store "Canada 1" out of Quebec $ 495,000
New store "Canada 2" out of Quebec $ 495,000
Refurbishing a new location of a store out of Quebec, (London, Halifax or other) $ 485,000
$3,330,500,00
|
Financing
Term loan (guaranteed at 65%) $3,000,000.00
Working capital $ 330,500.00
Total $3,330,500.00
|
Date of the beginning of the project: 2000- 06- 01
Date of end of the project: 2001- 11- 30
2. DURATION OF THE GUARANTEE
The Guarantee is granted for a period of 5 years as of the date of the first
disbursement of the Loan.
3. REQUIREMENTS TO BE MET PRIOR TO THE IMPLEMENTATION OF THE GUARANTEE
3.1- Prior to the implementation of the Guarantee, the Company must meet the
following conditions to the satisfaction of G.Q., namely:
3.1.1- The minimum securities stipulated in paragraph 7.1 hereof must be
lawfully granted by the Company, include a written confirmation to this effect,
and be acknowledged by GMAC (Societe de Credit Commercial GMAC- Canada)
3.1.2- The Company undertakes to meet the requirements included in the Lender's
letter of offer accepted by the Company on January 30, 2001.
3.1.3- Commitment to maintain the current level of employment for the period of
the Guarantee, namely over 300 jobs in Quebec.
4. FEES
4.1- COMMITMENT FEE
4.1.1- This offer is subject to the payment of management-related fees, herein
referred to as a Commitment Fee, of 1% of the amount of the loan, namely
$30,000. 4.1.2- This Commitment Fee, whose balance must be paid to G.Q. upon
acceptance hereof, is not partially or fully refundable in any circumstances.
4.1.3- The mere receipt of the Commitment Fee gives rise to no right in favour
of the Company, and in no manner binds G.Q., to implement the Guarantee, those
rights and obligations only being created if the aforementioned terms and
conditions hereof are met.
4.2- GUARANTEE FEES
4.2.1- Upon each disbursement of the Loan, guarantee fees of two percent (2%)
annually, calculated on the amount of the disbursement, will be payable to G.Q.,
upon receipt, by the Company, of an invoice. The fees so due will be
proportionally adjusted to the number of remaining days between the date of the
disbursement of the loan and March 31 of the following year, using 365 days as a
reference.
4.2.2- In addition, in consideration of the Guarantee, the Company undertakes to
pay annually to G.Q., on the last working day of April of each year, guarantee
fees of 2% annually, calculated on the balance of the loan on March 31 preceding
each payment.
4.2.3- Said guarantee fees will always be payable in advance for the period of
the unexpired guarantee, and it will be not fully or partially refundable under
any circumstances.
4.2.4- Notwithstanding the above, at its own discretion, G.Q. may reduce the
percentage of the guarantee fees claimed of the Company if the percentage of the
net loss it guarantees decreases.
4.3- The Commitment Fee and the guarantee fees due by the Company to G.Q. under
the terms hereof are payable without notice or formal notice within the
aforementioned term, in the offices of G.Q. or at any other location of which
G.Q. may notify the Company in writing. G.Q. will be allowed to collect from the
Company interest calculated on a monthly basis equal to the weekly, variable
rate used by G.Q., on any amount due, as of the deadline.
5. ELECTRONIC CHARGES
5.1- The Company hereby authorizes G.Q. to perform manual or electronic debit
transactions on its bank account to make any payment the Company must make to
G.Q., concerning the guarantee fees due under the terms hereof, as well as any
amount G.Q. paid to the Lender, pursuant to the Guarantee. To this effect, the
Company hereby authorizes the bank or financial institution with which it does
business to honour the debits carried out by G.Q.
5.2- G.Q. will send to the Company in advance a debit note including all the
information related to the payments to be made by the Company.
5.3- The Company undertakes to renew the aforementioned authorization if it
changes its bank or financial institution, as long as the Guarantee is in effect
or during the time the Company remains indebted to G.Q., with respect to any
payment made by G.Q., by virtue of the Guarantee, and to notify G.Q., of the
said change by sending to it a specimen cheque of its new bank or financial
institution, bearing the legend "VOID", and including al the necessary
information.
5.4- The Company accepts that the payment of the guarantee fees due by virtue
hereof be made using cheque, if G.Q. deems this payment mode more convenient, as
required.
6. REPAYMENT
6.1- The Company undertakes to repay G.Q., on request, any amount the latter is
required to pay to the Lender by virtue of the Guarantee, in capital and
interest, and to hold it harmless from any other loss, damage or expense that
might arise from the commitment of G.Q., vis-a-vis the Lender, under the terms
of the Guarantee.
7. SURETIES
7.1- For the period of the Guarantee, the Company undertakes to provide the
Lender, as a guarantee of the repayment of the Loan, the securities set out in
the Loan contract, which will grant the Lender the following mortgage rights,
derived from the Loan, as follows:
- a chattel mortgage on all current and future movable, tangible and intangible
property, of Henry Birks & Fils Inc., in the amount of $3,000,000 that takes
precedence pursuant to existing mortgage law in favour of the lender, for the
following credits granted by virtue of the Loan Contract:
- operating credit GMAC (maximum $50 M)
- GMAC term loan of $750,000 (maximum balance of $262,500)
- GMAC term loan of $400,000 (maximum balance of $387,000)
- GMAC term loan of $3,000,000
- GMAC term loan of $5,000,000, G.Q., file # D052950.
8. OBLIGATIONS OF THE COMPANY
8.1- As of the date of acceptance hereof, for any period of the Guarantee and
until full payment of any amount that might be due to G.Q., by the Company by
virtue hereof or by virtue of the security deposit agreement, the Company
undertakes:
8.1.1- to provide its audited annual financial statements, its audited
consolidated financial statements (the Company must prepare this documentation
according to accounting practices generally accepted by Chartered Accountants of
Canada) within 90 days of the end of each financial year; to provide also, on
request, its bi-annual financial statements, the financial statements of its
affiliates and, as applicable its consolidated financial statements or any other
financial statement required by G.Q., within the term required by the latter;
8.1.2- to provide the annual fiscal forecast, including working hypothesis at
the beginning of every financial year;
8.1.3- to provide G.Q., on a annual basis, a copy of the renewal of its line of
credit;
8.1.4- to provide G.Q., at the latter's written request and within the
stipulated terms, any information and document it may deem useful and pertinent
to the application of the Guarantee and the Programme d'aide au financement des
entreprises;
8.1.5- Not to modify its capital - authorized shares issued at the date of this
document without the prior written consent of G.Q. (illegible handwritten text);
8.1.6- Not to wind up or dissolve without the prior written consent of G.Q.
8.1.7- Not to grant loans or advances to its shareholders, managers or officers,
except during the routine course of the Company's business or to act as surety
for them;
8.1.8- To trade on a businesslike basis by remaining at "arm's length" with
respect to its commercial relationships with all individuals;
8.1.9- To obtain the prior written consent of G.Q. before declaring or paying
any dividend to one or several classes of shareholders, except in the event set
out in 8.1.19;
8.1.10- Not to grant loans, advances or any other form of financial support to
affiliate or partner companies, make investments, grant them securities, or
carry out with them transactions that are not related to the routine course of
its business;
8.1.11- To act in such a way as to prevent any change not previously authorized
by G.Q. in the control of the Company or the ultimate control thereof; control
refers to the possession of shares with a sufficient number of voting rights to
allow the election of most managers of the Company. Ultimate control refers to
the possession of said shares by one or more persons that control the Company
using several shareholder artificial persons, one or the other or the Company.
If the shareholder who exercises the ultimate control of the Company dies, the
transfer of the shares of the dead shareholder to his/her heirs cannot be deemed
to constitute a change in the ultimate control of the Company provides that said
control remains in the hands of the legal heirs of the dead shareholder;
8.1.12- Not to sell its assets beyond ten percent (10%) (according to the last
audited financial statements) except if previously authorized by G.Q., as
applicable;
8.1.13- Upon notice to the Company, to allow the representatives of G.Q., or any
external auditor assigned by G.Q., to visit the offices of the Company during
normal business hours to check, at G.Q's expense, the Company's registries,
physical facilities and stocks, in a way they will deem appropriate, and to
obtain copies of any document;
8.1.14- To allow G.Q. or the Minister of Industry and Commerce to publicly
release, if it is deemed appropriate, the outlines of the financial support
granted to the Company, including, among other things, but without being
limited, the name of the Company, type of business, location, nature and amount
of the financial transaction set out herein, as well as the number of employees
in the service of the Company;
8.1.15- To notify G.Q. 15 days in advance if the Company wishes to officially
announce its project or to officially inaugurate, so as to allow G.Q. or its
representative to participate.
8.1.16- To discharge all expenses related to the preparation, execution and
registration, as applicable, and any necessary documents to make this offer take
effect or to amend it.
8.1.17- To maintain a minimum working capital ratio of 1.15, and a long-term
debt ratio on the equity level of up to 1.5, the equity level including in
addition the advances for shareholders and the posted grants; G.Q., acknowledges
the seasonal nature of the Company and accepts that this ratio is not met from
time to time, during a given financial year.
8.1.18- To maintain the same aforementioned ratios with respect to the guarantee
that was previously granted by G.Q. to the Company under # D052950 in its files.
8.1.19- Not to pay dividends, except in the following cases:
- If the Company makes a net profit after taxes at the end of the financial
year; nevertheless, the dividend amount will not exceed one-third of the
generated net profit, and the financial ratios of the working capital and the
accumulated debt/ equity and of minimum equity in the pro-forma of payment of
dividends must be respected. Should the Company make a net profit and must pay a
dividend higher than the aforementioned calculations, it undertakes to repay the
loan in an amount equivalent to said dividend, provided that said ratio be
respected. Finally, if during of a financial year the Company does not use its
privilege to pay dividends, this amount will serve as a reserve to increase the
redistribution of dividends during subsequent years;
- If the Company is subject to a Public Purchasing Offer (PPO); in that case,
the financial ratios of the working capital and the pro-forma accumulated debt/
equity to pay the dividend must be respected.
8.1.20- Not to repurchase capital shares from Henry Birks et Fils Holding Inc.
(this company holds 98% of the capital shares of Henry Birks et Fils Inc., the
balance being held by the administration board and the employees (capital stock
and share purchasing option).
8.1.21- Not to make loans or advances to its shareholders, managers or officers,
except to the shareholder employees of the Company to purchase capital stock of
the Company and for an amount that does not exceed five hundred thousand dollars
(CAN $500,000) per financial year;
8.1.22- To maintain the number of permanent jobs in Quebec at a minimum, current
level of 300.
9. EVENT OF DEFAULT
9.1- Notwithstanding any contrary provision that may be contained in this offer,
and even if the conditions are met, G.Q. reserves the right to terminate any
portion of the Guarantee that has not been used or to postpone its
implementation, at its own discretion, and the Company undertakes to repay, on
request, the loan with interest, expenses and accessory, in the following cases,
which constitute an event of default:
9.1.1- If the Company, without G.Q.'s previous, written authorization, moves out
of Quebec a substantial portion of its assets that are located in Quebec, except
during the routine course of the Company's business.
9.1.2- If the Company deeds its property, is liable to sequestration pursuant to
the Loi sur la faillite et l'insolvabilite (L.R.C. (1985), ch. B-3), makes a
proposal to its creditors or falls into bankruptcy by virtue of said act, or if
it is liable to an order for winding-up pursuant to the Loi sur la liquidation
des compagnies (L.R.Q., c. L-4) or any other act to the same effect, or if it is
insolvent or about to become insolvent or if it does not maintain its legal
availability or if its financial situation, according to La Financiere,
deteriorates so as to compromise its own survival.
9.1.3- If the Company avails itself of the provisions of the act to facilitate
the transactions and arrangements among the companies and their creditors
(L.R.C. (1985), ch. c-36).
9.1.4- If the Company suspends or threatens to suspend the normal operation of a
significant portion of its business.
9.1.5- If, according to La Financiere and without its consent, a significant
change arises in the project or its financing, in the nature of the operations
of the Company or, in general, the level of risk.
9.1.6- If, at any time, the Company enters litigation or proceedings before a
court of justice or a judicial body, a commission or a government agency without
notifying La Financiere, and that said litigation has an impact upon the
Company's operations.
9.1.7- In case of error or omission in a declaration, concealment,
misrepresentation, fraud or falsification of documents by the Company or its
representatives;
9.1.8- If the Company fails to repay G.Q., any amount that may become due under
the terms hereof.
9.1.9- If the Company does not allocate the proceeds of the Loan to the project
submitted in the financing request.
9.1.10- If the Company fails to satisfy any of clauses and conditions hereof of
the Loan Contract to be signed by the creditor and the Company, of any other
document accessory to the loan and of any amendment thereto, as applicable, and
generally, of any loan-related agreement.
10. INALIENABILITY
10.1- The Company may not surrender or transfer the rights it is granted under
the terms of this offer.
11. DECLARATION
11.1- Upon acceptance of this offer, the Company declares that all the
information it provided to G.Q. during the period of negotiations that led to
this offer are accurate and true.
12. INTERPRETATION
12.1- This document is subject to the application of the terms and conditions
set out in the Loi sur L'Investissement- Quebec et sur garantie - Quebec and its
regulations.
12.2- Only the French version of this offer will be deemed official, in any
event, and the latter will prevail over any translation that might be provided
with the original.
GUARANTEE- QUEBEC
By: Biagio Carangelo, Director, Portfolio
Date: 2001/ 04/ 09
By: Jean- Charles Vincent, Regional Director
Date: 2001/ 04/ 09
ACCEPTANCE OF THE COMPANY
Upon learning the terms and conditions hereof, we severally accept this loan
guarantee offer, and we therefore attach a cheque for thirty thousand dollars
($30,000) in payment of the Commitment Fee that totals $30,000.
This cheque bears all the information required to allow G.Q., as applicable, to
repay any amount due by virtue of the Guarantee, by means of electronic
withdrawals.
HENRY BIRKS & FILS, SOCIETE DE PORTEFEUILLE INC.
By:
Date: April 12, 2001
HENRY BIRKS FILS INC.
By:
Date: April 12, 2001
Initials of G.Q.'s representative
Initials of the Company's representative
Exhibit 10.14
EXPENSE REIMBURSEMENT AGREEMENT
MEMORANDUM OF AGREEMENT made at Montreal, Quebec, Canada on April 1st, 2005
BY AND BETWEEN: HENRY BIRKS & SONS INC., a company incorporated under the
laws of Canada and having its head office at 1240 Phillips
Square, Montreal, (Quebec)
(hereinafter referred to as "Birks")
AND: INIZIATIVA S.A., a body incorporated under the Laws of
Luxembourg and having its head office at 23 rue Monterey,
Luxembourg
(hereinafter referred to as "Iniziativa"),
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THIS AGREEMENT WITNESSETH THAT, in consideration of the mutual covenants herein
contained, it is agreed by and between the Parties as follows:
ARTICLE ONE
INTERPRETATION
1.1. DEFINITIONS. For the purposes hereof, the following words and phrases
shall have the following meanings, respectively, unless otherwise
specified by the context:
(a) "Advisory, Management and Corporate Services" shall have the
meaning ascribed thereto at Section 2.1 and shall be hereinafter
referred to as AMCS;
(b) "Agreement" shall mean this Expense Reimbursement Agreement and
all instruments supplemental hereto or any amendment or
confirmation hereof; "herein", "hereof", "hereto" and "hereunder"
and similar expressions mean and refer to this Agreement and not
to any particular Article, Section, Subsection or other
subdivision;
(c) "Event of Default" shall have the meaning ascribed thereto at
Section 5.2;
(d) "Event of Force Majeure" shall have the meaning ascribed thereto
at Section 4.1;
(e) "Parties" shall mean Birks and Iniziativa and "Party" shall mean
any one of them;
1.2 GENDER. Any reference in this Agreement to any gender shall include all
genders and words used herein importing the singular number only shall
include the plural and vice versa.
1.3 HEADINGS. The division of this Agreement into Articles, Sections,
Subsections and other subdivisions and the insertion of headings are for
convenience or reference only and shall not affect or be utilized in the
construction or interpretation hereof.
1.4 SEVERABILITY. Any Article, Section, Subsection or other subdivision of
this Agreement or any other provision of this Agreement which is, or
becomes, illegal, invalid or unenforceable shall be severed here from and
shall be ineffective to the extent of such illegality, invalidity or
unenforceability and shall not affect or impair the remaining provisions
hereof, which provisions shall be severed from any illegal, invalid or
unenforceable Article, Section, Subsection or other subdivision of this
Agreement or any other provisions of this Agreement.
1.5 ENTIRE AGREEMENT. This Agreement, together with any documents to be
delivered pursuant hereto or thereto, constitute the entire agreement
between the Parties pertaining to the subject matter hereof and supersede
all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties.
1.6 WAIVER. No waiver of any of the provisions of this Agreement shall be
deemed to constitute a waiver of any other provisions (whether similar or
not) nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided in writing and duly executed by the Party to
be bound thereby.
1.7 GOVERNING LAW. This Agreement shall be governed, interpreted and
construed in accordance with the Laws of the province of Quebec and Laws
of Canada applicable therein and shall be treated in all respects as a
Quebec contract.
1.8 LANGUAGE. The parties have required that this Agreement and all documents
or notices relating thereto be in the English language; les parties ont
exige que cette convention et autre document ou avis y afferent soient en
langue anglaise.
1.9 ACCOUNTING PRINCIPLES. Accounting terms not otherwise defined have the
meanings ascribed thereto under Generally Accepted Accounting Principles
(GAAP). Wherever in this Agreement reference is made to GAAP, such
reference shall be deemed to be Generally Accepted Accounting Principles,
from time to time approved by the Canadian Institute of Chartered
Accountants applicable as at the date on which such calculation has been
made, is made or required to be made in accordance with GAAP.
1.10 CURRENCY: Unless otherwise indicated, all dollar amounts in this
Agreement are expressed in Canadian funds.
1.11 INDEPENDENT CONTRACTOR. Nothing contained in this Agreement shall be
construed as creating any relationship between the Parties other than
that of independent contractors. Iniziativa shall not represent to third
parties being authorized or entitled to execute or agree on behalf of
Birks' or bind Birks to any agreement or document of any kind whatsoever.
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ARTICLE TWO
SERVICES
2.1 ADVISORY, MANAGEMENT AND CORPORATE SERVICES. On Birks's request,
Iniziativa agrees to provide to Birks the following services
(collectively known as the "AMCS"):
(a) provide Birks with general assistance concerning strategic issues
and opportunities and make recommendations as to the development,
planning and formulation of business strategies;
(b) assist Birks on financial matters especially financial projections
and financing structures and models, reporting systems and
control;
(c) assist in the coordination of the relations and/or negotiations
with external bodies and other companies including without
limitation, banks and financial institutions;
(d) assist Birks in the preparation of various reports and in any
necessary coordination relating thereto;
(e) perform professional visits to or on behalf of Birks as Birks may
so request;
(f) perform a variety of services, as requested, including but not
limited to support to production, marketing, merchandising,
production etc.
2.2 REPRESENTATIONS AND WARRANTIES. Iniziativa hereby represents and warrants
to Birks as follows and acknowledges that Birks is relying upon such
representations and warranties in connection with this agreement:
(a) the personnel of Iniziativa will have the required skills and
capacity to provide AMCS in accordance with this Agreement; and
(b) Iniziativa knows of no facts or circumstances, which would prevent
it from providing personnel to Birks hereunder.
(c) Iniziativa represents that the amounts to be invoiced to Birks
shall be reasonable in all of circumstances, having regard to the
nature of the services to be rendered, the qualifications of the
person providing such services and generally prevailing market
conditions.
2.3 STANDARD OF PERFORMANCE. The personnel of Iniziativa will perform AMCS in
a professional and prudent manner, using sound and proven principles and
procedures, and in accordance with the best of care in the industry.
2.4 NOTIFICATION. Each Party shall forthwith notify the other Party of any
circumstances or facts that materially and adversely affect or could
reasonably be expected to materially and adversely affect such Party's
performance of its obligations hereunder.
ARTICLE THREE
FEES
3.1 Effective the date hereof, Birks shall, in consideration of Iniziativa
agreeing to provide AMCS to Birks, reimburse or cause to be reimbursed to
Iniziativa an amount equal to a maximum monthly amount of (euro)28,750
payable on the 1st calendar day after the receipt of the invoice
including but not limited all the details listed in Section 3.3 and the
presentation of documents satisfactory to support said payments.
3.2 OTHER OUT-OF-POCKET DISBURSEMENTS : Birks will also reimburse, upon
presentation of supporting documents, Iniziativa for the following direct
out-of-pocket disbursements reasonably and actually incurred by
Iniziativa in the performance of AMCS:
(a) lodging and transportation expenses reasonably incurred by the
personnel of Iniziativa in the performance of AMCS; and
(b) such other out-of-pocket disbursements as are reasonably required
to be made by Iniziativa in providing AMCS under this Agreement.
3.3 INVOICES. Iniziativa will invoice Birks for amounts payable pursuant to
Sections 3.1 and 3.2. Each invoice will be itemized to show, among other
things, the personnel who during the calendar month rendered AMCS and the
number of hours worked by each, the details of services rendered during
the period and details of out-of-pocket disbursements and expenses
covered by such invoice together with supporting vouchers and receipts.
If needed any applicable exchange rate will be calculated in accordance
with GAAP.
3.4 WHITHOLDING TAXES. Birks will withhold the applicable tax(es) if any on
the gross amount representing payment for services rendered by a
non-resident at the prescribed rate.
ARTICLE FOUR
FORCE MAJEURE
4.1 EVENT OF FORCE "MAJEURE". Subject to Section 5.2, a Party shall be
excused from its failure to perform any of its obligations hereunder if
such Party is unable to perform such obligation by reason of an Event of
Force Majeure. "Event of Force Majeure" shall mean any of, and "Events of
Force Majeure" shall be limited to:
(a) Acts of God;
(b) expropriation, confiscation or requisitioning of facilities or
compliance with any law which affects to a degree not presently
existing the supply, availability of use of materials or labour;
(c) acts or inaction on the part of any governmental authority or
person purporting to act therefor;
(d) embargoes, or acts of war or the public enemy, whether war be
declared or not;
(e) public disorder, insurrection, rebellion, riots or violent
demonstrations;
(f) floods, earthquakes, lightning, hail, inclement weather conditions
or other natural calamities; and
(g) any circumstances whether or not of the class or kind specifically
named above not within the reasonable control of the Party
affected and which, despite the exercise of reasonable diligence,
such Party is unable to prevent, avoid or remove.
4.2 NOTICE OF FORCE MAJEURE. If any Party wishes to invoke an Event of Force
Majeure, then it shall (i) immediately following the commencement of such
Event of Force Majeure notify the other Party of the occurrence of such
Event of Force Majeure, the reasonably estimated date and time on which
it commenced and the nature of the Event of Force Majeure, and (ii) as
soon as reasonably practicable thereafter submit to the other Party proof
of the nature of such Event of Force Majeure. The Parties shall thereupon
consult with one another concerning the effects of such Event of Force
Majeure and will make all reasonable efforts to prevent and reduce to a
minimum and mitigate the effect of any Event of Force Majeure.
4.3 TERMINATION OF FORCE MAJEURE. The Party affected by an Event of Force
Majeure shall forthwith upon the termination of such Event of Force
Majeure resume the performance of all of its obligations hereunder and
notify the other Party of such termination.
ARTICLE FIVE
TERM; REMEDIES
5.1 TERM. This Agreement will become effective on April 1, 2005 and will
remain in effect until March 31st, 2006. Notwithstanding anything to the
contrary, the Board of Directors of Birks may at any time and its sole
and absolute discretion terminates this Agreement upon written notice to
Iniziativa. This Agreement will automatically terminated upon the change
of control of either party.
5.2 EVENT OF DEFAULT. An "Event of Default" will mean any of the following:
(a) The failure by any Party to perform or fulfill any obligation
pursuant to the Agreement;
(b) The bankruptcy of any Party or the making by such Party of an
assignment for the benefit of creditors, or the appointment of a
trustee or receiver and manager or liquidator to such Party for
all or a substantial part of its property, or the commencement of
bankruptcy, reorganization, arrangement, insolvency or similar
proceedings by or against such Party under the laws of any
jurisdiction, except where such proceedings are defended in good
faith by such Party.
5.3 REMEDIES. If any Event of Default shall have occurred to any Party, then
the other Party may exercise the remedies permitted by the law of Quebec
and/or Canada.
5.4 DEFAULT INTEREST. If any Party fails to pay as and when due and payable
any amount hereunder, then such Party shall pay interest on such amount
from the due date up to and including the date when such amount and all
interests thereon are paid in full at the rate per
annum equal to (i) the rate of interest commonly known and referred to as
the prime rate of the National Bank of Canada plus (ii) one percent (1%).
Such interests shall be payable on demand.
ARTICLE SIX
GENERAL
6.1 NOTICES. Any notice, consent, approval, direction or other instrument
required or permitted to be given hereunder shall be in writing and given
by delivery or sent by telex, telecopier or similar telecommunication
device and addressed:
(a) in the case of Birks to:
Attention: President & CEO and to the Chief Financial Officer
Copy to: Vice-President and General counsel
Henry Birks & Sons Inc, 1240 Phillips Square,
Montreal, Quebec, H3B 3H4, Canada
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(b) in the case of Iniziativa to:
Attention: The Director Finance
Iniziativa S.A.
23 rue Monterey
L-2086, Luxembourg
and a copy to: - The Group CEO;
Regaluxe Investment SarL - Branch Office
Via Pomba 1, 10123,
Turin, Italy.
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Any notice, consent, approval, direction or other instrument given as
aforesaid shall be deemed to have been effectively given and received, if
sent by telex, telecopier or similar telecommunications device on the
next Business day following such transmission or, if delivered, to have
been given and received on the date of such delivery. Any Party may
change its address for service by written notice given as aforesaid.
6.2 TIME. Time shall be of the essence of this Agreement.
6.3 ASSIGNMENT. Either Party, upon written notice to the other, may assign
this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the date and at
the place first above mentioned.
INIZIATIVA S.A.
Per: /s/ Filippo Recami
----------------------------------------
Per:
----------------------------------------
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HENRY BIRKS & SONS INC.
Per: /s/ Thomas A. Andruskevich
----------------------------------------
Thomas A. Andruskevich, President and Chief
Executive Officer
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Exhibit 10.15
FORM OF
INDEMNITY AGREEMENT
This indemnity agreement made the day of ,
Between: HENRY BIRKS & SONS INC., a corporation amalgamated
under the laws of Canada and having its head office at
1240, Phillips Square, Montreal, (Quebec) H3B 3H4
(hereinafter called "Birks")
And: XX Director (or an Officer),
having a place of business at
(hereinafter called "XX")
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WHEREAS Birks is amalgamated under the laws of Canada;
WHEREAS Birks has requested that XX act as a Director (or an Officer) of
Birks;
WHEREAS XX has agreed to act as a Director of Birks upon the condition that
Birks provide this indemnity;
In consideration of the premises and the mutual covenants herein contained the
parties hereto agree as hereinafter set forth:
1. Birks will indemnify and save harmless XX as follows:
1.1 except in respect to actions by or on behalf of Birks to procure a
judgment in its favor, Birks will indemnify XX against any and all
costs, charges, expenses, fines, and penalties, including any amounts
paid to settle an action or investigative proceeding or satisfy a
judgment or investigative determination, which are reasonably incurred
by XX in respect of any civil, criminal, or administrative action or
proceeding to which XX is made a party by reason of being or having
been a Director (or an Officer) of Birks provided that:
AMENDED INDEMNITY AGREEMENT
PAGE 2
o (I) XX acted honestly and in good faith with a view to the best
interest of Birks; and
o (II) in the case of criminal or administrative action or
proceeding that is enforced by a monetary penalty, XX had
reasonable grounds for believing that her/his conduct was lawful.
1.2. in respect to actions by or on behalf of Birks to procure a judgment
in its favor to which XX is made a party by reason of being or having
been a Director (or an Officer) XX of Birks, Birks will (to the extent
required by law) apply to a court of competent jurisdiction for an
order approving the indemnity of XX and subject to such approval when
required by law, Birks will indemnify XX respecting any and all costs,
charges and expenses reasonably incurred by XX in connection with such
action provided XX acted in accordance with paragraphs 1.1 (I) and
1.1(II) hereof.
1.3. Birks will indemnify XX against all costs, charges and expenses
reasonably incurred by XX in connection with the defense of any civil,
criminal, or administrative action or proceeding to which XX is made a
party by reason of being or having been a Director (or Officer) of
Birks provided that:
o XX acted in accordance to paragraphs 1.1 (I) and 1.1 (II) hereof
with respect to the behavior which is the subject of the action
or proceeding and with respect to the conduct of its defense or
her/his participation in the proceeding.
2. Birks will advance or pay to XX from time to time, but no more frequently
than monthly, amount required by XX, and claimed by XX in order to pay the
cost of participation in any action or investigation or like proceeding,
including derivative actions. Such amounts shall include sums sufficient to
cover all legal fees and expenses incurred or to be incurred by XX, on a
solicitor to client basis.
When advances are made to cover cost or expenses such shall be reasonable
and shall not exceed the foreseeable costs, fees/expenses to cover amounts
due during the following month.
AMENDED INDEMNITY AGREEMENT
PAGE 3
3. This agreement is severable and in the event that a part or portion of a
provision contained herein is rendered to be void, the remaining part or
portion thereof and the remaining provisions of this agreement shall be
deemed to be in full force and effect and binding upon the parties hereto.
4. No provision contained in this agreement shall prevent XX from resigning as
a Director (or an Officer) of Birks.
5. This agreement shall be interpreted in accordance with the law of the
Province of Quebec.
6. This agreement shall enure to and be binding upon the parties hereto, and
upon their personal representatives, heirs, successors and assigns.
7. In witness whereof the parties hereto have duly executed this agreement on
the day and year first above written.
8. This agreement has been drawn up in the English language at the express
request of the parties.
HENRY BIRKS & SONS INC. / HENRY BIRKS ET FILS INC.
per: ______________________________
Name:
Title:
Director / Officer
Signature
Exhibit 10.16
HENRY BIRKS & SONS INC.
EMPLOYEE STOCK OPTION PLAN
EFFECTIVE AS OF MAY 1, 1997
AMENDED AS OF JUNE 20, 2000
HENRY BIRKS & SONS INC.
EMPLOYEE STOCK OPTION PLAN
1. PURPOSE
The Plan is designed to attract and retain the services of selected
employees of the Company who are in a position to make a material contribution
to the successful operation of the business of the Company. The Plan also
provides for awards to Non-Employee Directors. The Plan shall be effective May
1, 1997.
2. DEFINITIONS
As hereinafter used in the Plan:
"BOARD" means the Board of Directors of the Company or such person or
persons as it may choose to delegate any of its powers hereunder pursuant to
section 10.1.
"COMPANY" means Henry Birks & Sons Inc. and any successor corporation, and
any reference herein to action by the Company means action by or under the
authority of the Board. For the purposes of the definitions of "Participant",
"Disability" and "Retirement", and of sections 4.5, 4.6, 4.7, 4.8, 11.5 and 11.6
hereof, "Company" shall also include any corporation that the Company controls.
"CONTROL" means, in relation to a Person that is a corporation or other
body corporate, the ownership, directly or indirectly, of voting securities of
such Person carrying more than 50% of the voting rights attaching to all voting
securities of such Person and which are sufficient, if exercised, to elect a
majority of its board of directors or other governing body; and "CONTROLLED"
shall have a similar meaning.
"DISABILITY" means a physical or mental impairment sufficient to make the
individual eligible for benefits under a long-term disability program of the
Company.
"FAIR MARKET VALUE" of a Share on a particular date shall be as determined
by the auditors of the Company as of that date or, if the Shares have been
listed on a securities exchange in Canada or the United States, shall mean the
closing price thereof on that date on such exchange. If no sale of the Shares
shall have occurred on such exchange on that date, it shall mean the closing
price on the next preceding day on which there was a sale. If the Shares are
listed on two or more exchanges and the closing prices on such exchanges differ
on a particular date, reference shall be had to the highest closing price. Any
determination of value by the Auditors as of a date may be made in conjunction
with its annual audit as of the next year end of the Company.
- 2 -
"MATERIAL EVENT" means any of the following events:
(i) the completion of the sale of a majority of the shares of the capital
stock of the Company resulting from a formal bid for such shares being
made (other than by the Company or an employee benefit program
established or maintained by the Company);
(ii) approval by the Company's shareholders of:
(a) an amalgamation, merger or consolidation of the Company with or
into another corporation (other than a Non-Material Transaction),
or
(b) a plan of liquidation or dissolution of the Company.
"NON-EMPLOYEE DIRECTOR" means any director of the Company who is not an
employee of the Company.
"NON-MATERIAL TRANSACTION" means an amalgamation, merger or consolidation
the definitive agreement for which provides that at least 51 percent of the
directors of the surviving or resulting corporation immediately after the
transaction were directors of the Company immediately prior to the transaction.
"OPTION" means an option to acquire Shares awarded to a Participant, as
provided in article 4.
"OPTION PERIOD" means the period from the date of award of an Option to the
date of its expiry, specified by the Board pursuant to section 4.3.
"PARTICIPANT" means an employee of the Company or a Non-Employee Director
who has been selected by the Board to receive an award under the Plan.
"PLAN" means this Employee Stock Option Plan, as it may be amended from
time to time.
"PROFITABLE" means that the Company during the course of a fiscal year of
the Company shall have achieved a net profit before taxes as confirmed by the
audited financial statements of the Company for such year.
"RETIREMENT" means a cessation of employment with the Company at or after
age 55, except in the case of a termination for cause (other than mental or
physical incapacity).
- 3 -
"SHARES" means non-voting common shares without nominal or par value in the
capital stock of the Company. If the common shares without nominal or par value
in the capital stock of the Company are listed on a securities exchange in
Canada or the United States, "Shares" shall thenceforth mean such common shares,
and all Options granted prior to such listing shall automatically be converted
into Options for the acquisition of common shares.
Unless the context otherwise requires, references to the masculine shall be
deemed to include references to the feminine, and vice versa, and references to
the singular shall be deemed to include references to the plural, and vice
versa.
3. AWARDS AND GENERAL LIMITATIONS
3.1 PLAN AWARDS. The Board in its sole discretion shall select those employees
and/or Non-Employee Directors to whom awards are made under the Plan and shall
specify the number of Shares with respect to which in each case Options are
awarded and the Option Period applicable to the awards. The Board in its sole
discretion may include as a condition to the exercise of an Option under the
Plan that the Company shall have been Profitable with respect to its most
recently completed fiscal year prior to the exercise of the Option. Participants
may be selected and awards may be made at any time. Participants do not have to
be selected and awards do not have to be made at the same time by the Board. Any
award made to a Participant shall not obligate the Board to make any subsequent
awards to that Participant.
3.2 SOURCE AND NUMBER OF SHARES. Shares acquired under the Plan shall be
treasury Shares. Subject to article 8, the maximum aggregate number of treasury
Shares which may be issued under the Plan shall not exceed the lesser of 237,907
Shares or 10 percent of the common shares issued and outstanding from time to
time. The number of Shares available at any time for awards under the Plan shall
be determined in a manner which reflects the number of Shares then subject to
outstanding awards and the number of Shares previously acquired under the Plan.
For purposes of such determination, Shares attributable to Options which are
cancelled, expire or terminate shall again be available for awards under the
Plan, and the same shall not be deemed an increase in the number of Shares
reserved for issuance under the Plan. No reduction in the number of common
shares outstanding shall affect rights under Options previously awarded.
3.3 DISTRIBUTION REQUIREMENTS. The maximum aggregate number of Shares with
regard to which awards may be made to any one Participant under the Plan
(together with the maximum aggregate number of shares available to such
participant under any other plan or arrangement) shall not exceed 5 percent of
the common shares issued and outstanding after giving effect to the
reorganization described in section 3.2.
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4. OPTIONS
4.1 AWARDS. Subject to the provisions of article 3 and this article 4, the
Board may award Options to Participants. Each Option award shall be evidenced by
a written agreement between the Company and the Participant which contains the
terms and conditions specified by this article 4 and such other terms and
conditions as the Board in its sole discretion shall specify.
4.2 EXERCISE PRICE. The exercise price per Share with respect to each Option
shall not be less than the Fair Market Value of a Share on the date the Option
is awarded.
4.3 OPTION PERIOD AND VESTING CRITERIA. The Option Period in respect of a
particular award shall be specified by the Board, but in all cases shall end no
later than the day preceding the tenth anniversary of the date of award. The
Board shall prescribe the date or dates upon which Options become exercisable
and may establish any performance criteria which must be met by the Company in
order for all or any Options to become exercisable. Notwithstanding anything to
the contrary in the Plan, upon the occurrence of a Material Event, all
outstanding Options shall become exercisable in full immediately.
4.4 MEANS OF PAYMENT. At the time any Options are exercised, the Participant or
other person exercising the Options shall pay to the Company in cash the full
exercise price of the Shares acquired.
4.5 CESSATION OF EMPLOYMENT. If a Participant ceases to be employed by the
Company prior to the end of the Option Period, other than by reason of death,
Disability or Retirement, each Option then held by the Participant shall remain
exercisable, to the extent that it was exercisable at the time of such
cessation, for a period of up to three (3) months from the date of such
cessation, but not later than the end of the Option Period, and thereafter any
such Option shall expire. Notwithstanding the provisions of this section 4.5, if
a Participant voluntarily terminates his employment or if his employment is
terminated by the Company for cause, his Options shall expire immediately.
4.6 DISABILITY. If a Participant ceases to be employed by the Company prior to
the end of the Option Period by reason of Disability, each Option then held by
the Participant shall remain exercisable, to the extent that it was exercisable
at the time of Disability, for a period of six (6) months from the date of
cessation of employment as a result of Disability, but not later than the end of
the Option Period, and thereafter any such Option shall expire.
4.7 RETIREMENT. If a Participant ceases to be employed by the Company prior to
the end of the Option Period by reason of Retirement, each Option then held by
the Participant shall remain exercisable, to the extent that it was exercisable
at the time of Retirement, for a period of three (3) months from the date of
Retirement, but not later than the end of the Option Period, and thereafter any
such Option shall expire.
4.8 DEATH. If a Participant ceases to be employed by the Company prior to the
end of the Option Period by reason of death, each Option then held by the
Participant shall remain exercisable by his estate, to the extent that it was
exercisable at the time of death,
- 5 -
for a period of three (3) months from the date of death, but not later than the
end of the Option Period, and thereafter any such Option shall expire.
5. BROKERAGE FEES UPON TRANSFER
The Participant shall be responsible for the payment of any brokerage fees
in respect of the sale or transfer of Shares acquired under the Plan.
6. ADHERENCE TO SHAREHOLDERS AGREEMENT
It shall be a condition precedent to the issuance of Shares pursuant to an
option that the Participant become party to the shareholders agreement by and
among certain management investors, Borgosesia Acquisitions Corporation (its
successors and assigns) and the Company made as of August 31, 1998, as the same
may be amended from time to time, except if the Shares have been listed on a
securities exchange in Canada or the United States of America.
7. PARTICIPANT'S RIGHTS NOT TRANSFERABLE
Except as provided herein, the rights of a Participant pursuant to the
provisions of the Plan are non-assignable and non-transferable, in whole or in
part, either directly or by operation of law or otherwise in any manner. No
attempted assignment or transfer thereof, otherwise than in accordance with the
provisions hereof, shall be effective.
8. FOREIGN PARTICIPANTS
The Plan is equally open to Participants employed or resident in
jurisdictions other than Canada. The terms and conditions offered to foreign
Participants may vary and be more limited than those set forth herein, depending
upon local regulations and restrictions.
9. REORGANIZATION OF SHARE CAPITAL
In the event that the Shares are subdivided, consolidated, converted or
reclassified by the Company, or that any other action of a similar nature
affecting such Shares is taken by the Company, then the Options held by each
Participant shall be appropriately adjusted, and the number of Shares reserved
for issuance under the Plan shall be adjusted in the same manner.
- 6 -
10. NON-EMPLOYEE DIRECTORS
If a Participant who is a Non-Employee Director ceases to serve on the
Board for any reason, he shall be deemed for purposes of this Plan to have
ceased to be employed by the Company on the date he ceases to serve on the
Board.
11. INTERPRETATION, REGULATIONS, AMENDMENT AND TERMINATION
11.1 REGULATION AND DELEGATION. -- The Company may make, amend and repeal at any
time and from time to time such regulations not inconsistent herewith, as it may
deem necessary or advisable for the issuance of Shares under the Plan, and
generally for the proper administration and operation of the Plan. In
particular, the Board may delegate to a committee of the Board the powers
described in sections 3.1 and 4.1 and to any person, group of persons or
corporation such other administrative duties and powers as it may see fit,
subject to applicable legislation.
11.2 INTERPRETATION AND AMENDMENT. -- The Company shall have the power to
interpret the provisions of the Plan and to make such changes in the Plan as,
from time to time, the Company deems proper; provided, however, that any
amendment increasing the number of Shares which may be issued under the Plan
must be ratified by shareholders holding a majority of the Company's common
shares. All decisions and interpretations of the Company respecting the Plan
shall be binding and conclusive on the Company and all Participants and their
respective legal representatives.
11.3 PRESERVATION OF ACQUIRED RIGHTS. -- For greater certainty, and
notwithstanding anything herein contained to the contrary, the Plan shall not be
construed so as to authorize the Company to alter the provisions of the Plan as
it applies to Participants in such a way as to affect their rights and
obligations thereunder to their detriment, without the consent of the
Participants thereby affected.
11.4 TERMINATION. -- The Plan shall terminate following the final termination of
the Option Periods of all awarded Options. Notwithstanding the foregoing, the
rights and obligations of the Company, the Participants and all other parties in
respect of the Plan following such expiry shall continue to be governed by the
Plan.
11.5 NO RIGHT OF CONTINUED EMPLOYMENT. The fact that an employee of the Company
or Non-Employee Director has been designated a Participant shall not confer on
that employee or Non-Employee Director any right to be retained by the Company,
to re-election to the Board, or to subsequent awards under the Plan.
11.6 RESPONSIBILITY FOR TAX. The Company shall not be responsible for any tax
which may be payable by a Participant as a consequence of participation in the
Plan.
- 7 -
12. COSTS
The Company shall pay all costs of administering the Plan.
13. APPLICABLE LAW
This Plan shall be governed by the laws of the Province of Quebec and the
laws of Canada applicable therein.
Exhibit 10.17
EMPLOYMENT AGREEMENT
BY AND BETWEEN: HENRY BIRKS & SONS, INC., a corporation duly incorporated
according to the laws of Canada, having its head office
at 1240, Phillips Square, Montreal, Quebec, herein acting
and represented by its Chairman, Lorenzo Rossi di
Montelera, duly authorized for the purposes hereof as
he hereby declares (hereinafter referred to as the
"EMPLOYER"),
AND: THOMAS A. ANDRUSKEVICH, residing and domiciled at
22 Roxiticus Road, Mendham, New Jersey, United States of
America (hereinafter referred to as the "EMPLOYEE")
|
WHEREAS pursuant to an agreement entered into as of the 15th day of May, 1996
(the "1996 Agreement"), the EMPLOYEE was hired as the President and Chief
Executive Officer of JOALLIERS BIRKS INC./BIRKS JEWELLERS INC., a
predecessor-in-title of the EMPLOYER;
WHEREAS the 1996 Agreement was superseded and replaced by an agreement entered
into by and between the EMPLOYER and the EMPLOYEE on the 19th day of June, 1998
extending the term of employment of EMPLOYEE as President and Chief Executive
Officer of the EMPLOYER to March 31, 2002, the whole upon the terms and
conditions set forth therein (the "1998 Agreement");
WHEREAS the 1998 Agreement was amended and renewed by way of an employment
agreement dated October 24, 2001 (the "2001 Agreement");
WHEREAS the 2001 Agreement was amended by way of an amending agreement dated
December 20, 2002 (the "Amendment");
WHEREAS the EMPLOYER is engaged in the business of the operation of a chain of
retail stores specializing in jewellery, timepieces, crystal and giftware (the
"Business");
- 2 -
WHEREAS the EMPLOYEE is a resident of the United States of America who possesses
certain expertise in the fields in which the EMPLOYER specializes and who is not
currently legally prevented from working in Canada or travelling abroad;
WHEREAS the EMPLOYER and the EMPLOYEE wish to amend certain of the terms and
conditions and to provide for the renewal of the 2001 Agreement and its
Amendment, the whole upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, FOR THE REASONS SET FORTH ABOVE, AND IN CONSIDERATION OF THE
MUTUAL PREMISES AND AGREEMENTS HEREINAFTER SET FORTH, THE PARTIES HERETO
ACKNOWLEDGE AND AGREE AS FOLLOWS:
1. PRELIMINARY
1.1 The preamble hereto shall form an integral part hereof as if recited herein
at length.
1.2 The parties acknowledge that this Agreement constitutes the entire
agreement between the parties concerning the employment of the EMPLOYEE by the
EMPLOYER during the term hereof and supersedes any and all prior negotiations,
agreements or understandings with respect thereto. Without limiting the
generality of the foregoing, this Agreement supersedes and replaces the terms
and conditions originally set forth in the 1998 Agreement, unless otherwise
specified herein.
2. NATURE OF SERVICES
2.1 The EMPLOYER hereby engages and hires the EMPLOYEE to continue to be its
President and Chief Executive Officer during the term of this Agreement and the
EMPLOYEE hereby accepts and agrees to such engagement and employment. In
addition, the EMPLOYEE hereby agrees to serve as a director of the EMPLOYER
should he be elected as such by the shareholders(s) of the EMPLOYER, provided
the insurance described in Section 4.6 is available and the EMPLOYEE is
indemnified by the EMPLOYER to the fullest extent permitted by law.
2.2 It is hereby agreed that the EMPLOYEE shall provide his services to the
EMPLOYER in Canada and spend in Canada the time necessary to appropriately
provide effective and quality leadership to the Senior Management Team and shall
also provide his services outside of Canada by participating in trade shows and
other business travel.
2.3 The EMPLOYEE shall perform such executive duties and have such
responsibilities as are consistent with his capacity as President and Chief
Executive Officer, as well as those duties and responsibilities which the Board
of Directors of the EMPLOYER may reasonably delegate to the EMPLOYEE from time
to time.
2.4 The EMPLOYEE shall have control over the organization of his work and shall
be responsible, in his best judgment, for determining the means and methods for
performing his services hereunder. The EMPLOYEE shall have, subject to the
general directions of
- 3 -
the Board of Directors, full power and authority to manage the business and
affairs of the EMPLOYER, including power and authority to enter into contracts,
engagements or commitments of every nature or kind in the ordinary course of
business in the name of or on behalf of the EMPLOYER and to engage and employ
and to dismiss all managers and other employees of the EMPLOYER.
2.5 The EMPLOYEE shall perform his duties as President and Chief Executive
Officer diligently and conscientiously and loyally and shall use his best
efforts to promote the interests of the EMPLOYER.
2.6 During the term of employment, the EMPLOYEE shall devote himself to the
business of the EMPLOYER and shall not be employed or engaged in any capacity in
promoting, undertaking or carrying on any other business, without the prior
written approval of the EMPLOYER. The EMPLOYER hereby acknowledges that the
EMPLOYEE may render consulting services to Iniziativa S.A. or any successor
thereto, in connection with its international operations and that the EMPLOYEE
also serves as a member of the Board of Directors of Brazilian Emeralds Inc. and
may serve as a member of the Board of Directors of The Robbins Company with all
of the duties commensurate with such positions. The EMPLOYER further
acknowledges that the EMPLOYEE has, since October 1, 2002, been employed by
Mayors Jewelers Inc. ("Mayors") as President and Chief Executive Officer, and
has agreed to serve on the Board of Directors of that company. The EMPLOYER
continues to hold a substantial interest in Mayors and therefore fully approves
EMPLOYEE's involvement in this company.
3. TERM
3.1 The term of this Agreement and the continued employment of the Employee
(the "Term") shall begin on April 1, 2005 and shall terminate on the 31st day of
March, 2008. Until March 31, 2005, the 2001 Agreement and its Amendment shall
continue to govern the employment relationship of the EMPLOYER and the EMPLOYEE
save and except for Sections 8.2 and 8.3 hereof which shall apply immediately
and bind both the EMPLOYER and the EMPLOYEE as and from the date hereof. For the
purposes of this Agreement, a "Contract Year" shall mean the twelve (12) month
period commencing on April 1st of a particular calendar year and terminating on
March 31st of the immediately subsequent calendar year.
3.2 The parties agree to negotiate in good faith for the renewal of this
Agreement or extension of the employment of the EMPLOYEE by the EMPLOYER for a
further period of three (3) years, upon such terms and conditions as they may
then determine, prior to the end of March, 2007. Either party shall be entitled,
however, to definitively terminate their relationship on March 31, 2008 by
sending to the other, on or before March 31, 2007, a written notice of such
desire to terminate. In the event that the EMPLOYER terminates the relationship
and should the EMPLOYEE be unable to find another suitable employment position
commencing April 1, 2008, then the EMPLOYER shall compensate the EMPLOYEE by
continuing to pay to the EMPLOYEE the same base salary as that which was payable
to him pursuant to Section 4.1 during the fiscal year terminating March 31,
- 4 -
2008, as increased, where applicable, by the amount that would otherwise have
constituted his salary increase for the period April 1, 2008 to March 31, 2009
pursuant to Section 4.2 hereof, the whole for the period in which the EMPLOYEE
is unable to find a suitable position, to a maximum of twelve (12) months.
Should the EMPLOYER so desire, however, the EMPLOYEE shall continue to render
services to the EMPLOYER during the period in which such additional compensation
is paid. Notwithstanding the generality of the foregoing, in the event that the
EMPLOYEE makes a diligent attempt to negotiate the renewal of this Agreement
prior to the end of March, 2007, but the EMPLOYER has neither finalized its
decision with respect thereto nor provided the EMPLOYEE with a written notice of
termination, then the maximum period within which the additional compensation
hereunder shall be paid, in the event that the EMPLOYER subsequently determines
not to renew this Agreement, shall be extended by one month for each month
between March 31, 2007 and the date upon which the written notice of termination
is ultimately delivered to the EMPLOYEE.
4. REMUNERATION AND BENEFITS
4.1 In consideration of the services to be rendered pursuant to this Agreement,
the EMPLOYER shall pay to the EMPLOYEE a base salary of a minimum of $US
364,000, which amount will be determined in accordance with Section 4.2 of the
2001 Agreement, during the first (1st) Contract Year ending March 31, 2006, and
a minimum base salary, subject to the provisions of Section 4.2 below, of $US
364,000 (or such greater amount paid to the EMPLOYEE in the first Contract Year)
for the three Contract Years ending March 31, 2007, March 31, 2008 and March 31,
2009.
The amount described above shall be paid in arrears on a bi-weekly basis.
4.2 The base salary of the EMPLOYEE will be adjusted annually, at the beginning
of each Contract Year, and the EMPLOYEE will also be entitled to a bonus (the
"Special Net Income Bonus"), in both cases, based upon the percentage of the
adjusted net income goal of the EMPLOYER (as established on an annual basis in
the profit plan and compared to the adjusted net income goal set forth in the
strategic plan of the EMPLOYER approved by the Board of Directors of the
EMPLOYER, the most recent of which shall be approved in July or November, 2004)
actually earned by the EMPLOYER during the preceding Contract Year, the whole in
accordance with the provisions of this Section 4.2. No amount will be payable to
the EMPLOYEE, on account of the Special Net Income Bonus or salary increase
pursuant hereto, unless the net income earned by the EMPLOYER, during the
relevant Contract Year, is at least 80% of the adjusted net income goal of the
EMPLOYER for such Contract Year. The maximum amount payable to the EMPLOYEE
pursuant hereto, in the event that 100% of the adjusted net income goal is
achieved, will be as follows:
- 5 -
MAXIMUM
CUMULATIVE SALARY MAXIMUM SPECIAL NET
INCREASE BASED ON INCOME BONUS BASED
CUMULATIVE PRIOR CONTRACT ON CURRENT CONTRACT
CONTRACT YEAR TARGET AMOUNT YEAR'S RESULTS YEAR'S RESULTS
---------------- ------------- ----------------- ---------------------------
April 1, 2005 to $US100,000 $US100,000 $US100,000
March 31, 2006
April 1, 2006 to $US150,000 $US100,000 $US150,000 less current
March 31, 2007 year's salary increase
April 1, 2007 to $US200,000 $US100,000 $US200,000 less cumulative
March 31, 2008 salary increases during
prior and current years
April 1, 2008 to N.A. $US150,000 N.A.
March 31, 2009
|
The maximum Special Net Income Bonus shall be subject to adjustment based on a
comparison of the adjusted net income goal of the EMPLOYER established annually
and the amount of the adjusted net income goal for such Contract Year stipulated
in the strategic plan. If the adjusted net income goal of the EMPLOYER
established for any Contract Year is more than ninety percent (90%) of the
amount of the adjusted net income goal for such Contract Year stipulated in the
strategic plan, then there shall be no adjustment to the Special Net Income
Bonus. If the adjusted net income goal of the EMPLOYER established for any
Contract Year is ninety percent (90%) or less (the "Percentage") of the amount
of the adjusted net income goal for such Contract Year stipulated in the
strategic plan, then the amount of the Special Net Income Bonus cumulative
target shown above shall be proportionately adjusted by multiplying such
cumulative target amount by the Percentage. However, if the Special Net Income
Bonus is adjusted in accordance with the foregoing and the actual net income of
the EMPLOYER is determined to be more than 100% of the adjusted net income goal,
then the Special Net Income Bonus shall be proportionately increased so that if
the net income of the EMPLOYER is equal to or greater than the adjusted net
income goal for such Contract Year stipulated in the strategic plan, the
EMPLOYEE shall receive 100% of the maximum Special Net Income Bonus. In
addition, if the adjusted net income goal of the EMPLOYER established annually
exceeds the amount of the adjusted net income goal for such Contract Year
stipulated in the strategic plan, then, for the purposes of determining the
Special Net Income Bonus, the amount stipulated in the strategic plan for such
Contract Year shall be used.
The strategic plan or profit plan adjusted net income goal shall be reevaluated
and adjusted, if necessary, by the Human Resource Committee of the EMPLOYER in
case of a major uncontrollable event that causes a dramatic change in the
EMPLOYER's ability to achieve such goals such as a terrorist attack which
- 6 -
dramatically impacts retail sales for an extended period of time. In addition,
the adjusted net income goal shall be re-established for any combined entity
resulting from a merger of the EMPLOYER with any other entity or a consolidation
of the business of the EMPLOYER with that of another, if appropriate.
At the end of each Contract Year, the salary increase for the following Contract
Year shall be calculated by multiplying the percentage of the adjusted net
income goal actually earned by the EMPLOYER during such Contract Year by the
Target Amount set forth above with respect to such year. The Special Net Income
Bonus shall be calculated at the same time, in accordance with the above table
and potential adjustments and shall be payable to the EMPLOYEE within ten (10)
days following the issue of the audited financial statements of the EMPLOYER for
the relevant Contract Year. For the purposes hereof, the net income shall be
determined by the auditors of the EMPLOYER, solely from the relevant audited
financial statements of the EMPLOYER. Three examples follow which assume that
the EMPLOYEE's base salary for the first Contract Year is $364,000 and that the
adjusted net income goal established for each Contract Year is at least 90% of
the corresponding adjusted net income goal provided in the strategic plan:
(i) In the event that 100% of the adjusted net income goal is achieved by the
EMPLOYER in each of the Contract Years ending 2006 through 2008, then the
amounts due to the EMPLOYEE hereunder would be as follows:
Contract Salary Special Net
Year Ending Increase Income Bonus Salary
----------- -------- ----------------------------------- ----------
2006 Nil $US100,000 $US364,000
2007 $US100,000 $US150,000 - $US100,000 = $US50,000 $US464,000
2008 $US50,000 $US200,000 - $US150,000 = $US50,000 $US514,000
2009 $US50,000 N.A. $US564,000
|
(ii) If the actual net income earned by the EMPLOYER during the Contract Year
ending March 31, 2006 were less than 80% of the adjusted net income goal,
but the actual net income earned by the EMPLOYER in the Contract Years
ending March 31, 2007 and March 31, 2008 were 100% of the adjusted net
income goal, then the results would be as follows:
Contract Salary Special Net
Year Ending Increase Income Bonus Salary
----------- -------- ------------------------------------ ----------
2006 Nil Nil $US364,000
2007 Nil $US150,000 $US364,000
2008 $US100,000 $US200,000 - $US100,000 = $US100,000 $US464,000
2009 $US100,000 N.A. $US564,000
|
(iii) the actual net income earned by the EMPLOYER during the Contract Year
ending March 31, 2006 was 87% of the adjusted net income goal, while the
actual net income earned by the EMPLOYER in the Contract Years ending
- 7 -
March 31, 2007 and March 31, 2008 was 92% of the adjusted net income goal,
then the results would be as follows:
Contract Salary Special Net
Year Ending Increase Income Bonus Salary
----------- -------- ------------------------------------------------- ----------
2006 Nil $US87,000 $US364,000
2007 $US87,000 $US138,000 - $US87,000 = $US51,000 $US451,000
2008 $US51,000 $US184,000 - ($US87,000 + $US51,000) = $US46,000 $US502,000
2009 $US46,000 N.A. $US548,000
|
If the EMPLOYEE is awarded his full salary increase for the first Contract Year
ending March 31, 2006 based on the 2001 Agreement, then the EMPLOYEE's base
salary would be $US 464,000 and the above examples would have to be adjusted
accordingly.
Another three examples follow which explain the adjustments to the Special Net
Income Bonus, if necessary:
(i) in the event that the adjusted net income goal for Contract Year Ending
2006 stipulated in the strategic plan is $4 Million but as established for
such year is $3 Million, then the Special Net Income Bonus shall be
reduced by 25% to $75,000. If the actual net income earned by the EMPLOYER
during the Contract Year ending March 31, 2006 is $3 Million, then the
EMPLOYEE would receive a Special Net Income Bonus of $75,000 for Contract
Year Ending 2006 and a salary increase of $75,000 for Contract Year Ending
2007.
(ii) in the event that the adjusted net income goal for Contract Year Ending
2006 stipulated in the strategic plan is $5 Million but as established for
such year is $4 Million, then the Special Net Income Bonus shall be
reduced by 20% to $80,000. If the actual net income earned by the EMPLOYER
during the Contract Year ending March 31, 2006 is $5 Million, then the
EMPLOYEE would receive a Special Net Income Bonus of $100,000, as 100% of
the strategic plan adjusted net income goal was achieved. In addition the
EMPLOYEE would receive a salary increase of $100,000 in Contract Year
Ending 2007.
(iii) In the event that the adjusted net income goal for 2006 stipulated in the
strategic plan is $6.2 Million but as estimated for such year is $6
Million, then the Special Net Income Bonus shall not be adjusted as the
adjusted net income goal established for such year is within 90% of the
amount stipulated in the strategic plan.
4.3 In addition to the base salary and Special Net Income Bonus, the EMPLOYEE
shall also be entitled to an annual performance-based bonus (the "Performance
Bonus") for
- 8 -
each Contract Year throughout the Term, in an amount ranging from 0% to 150% of
his base salary during the relevant Contract Year, based upon certain results
achieved by the EMPLOYER, as set forth in this Section 4.3 and in accordance
with the performance criteria set forth in Exhibit A. The target for the
Performance Bonus shall be 100% of the EMPLOYEE'S base salary, and the
Performance Bonus shall be made of two (2) elements in the following proportions
(i) quantifiable operating results objectives of the EMPLOYER (60% to
75%); and
(ii) strategic objectives (25% to 40%).
Exhibit A provides an example of the objectives and respective bonus allocation
weight in each category. Each Contract Year, the EMPLOYEE, the EMPLOYER's
Compensation Committee and a shareholder representative of the EMPLOYER (who is
currently Filippo Recami) shall meet and determine the objectives, the level,
amount and respective bonus allocation weight within each category which shall
be based on the profit plan objectives of the EMPLOYER. The parties shall have
the flexibility to adjust the range of objectives (eg. the prior year base
amounts and the 150% maximum amount) from year to year provided such adjustments
are reasonable and mutually agreed by the parties. Such determinations shall be
made no later than thirty (30) days after the approval of the profit plan by the
EMPLOYER's Board of Directors for the ensuing Contract Year.
Notwithstanding anything contained in this Section 4.3, it is agreed and
understood that the thresholds for determining the EMPLOYEE's Performance Bonus
should be consistent with the senior management performance bonus plan currently
in place for senior management of the EMPLOYER. The EMPLOYEE shall not be
eligible for any bonus under such plan as his bonuses are contained in this
Agreement. The parties further acknowledge that the current thresholds under
such plan require at least 75% of the adjusted net income for any fiscal year of
the EMPLOYER to be achieved for a performance bonus to be paid. Such threshold
is subject to change and may be established at a different level in the future.
If the threshold for such plan is achieved, it is the intention of the parties
that the EMPLOYEE will also receive his Performance Bonus in accordance with
Exhibit A and the terms hereof. Therefore, if the actual adjusted net income for
a given fiscal year of the EMPLOYER is less than 75% of the goal (provided that
such percentage is still the threshold under the senior management performance
bonus plan), the EMPLOYEE shall not be eligible for the Performance Bonus.
For greater certainty, the EMPLOYEE shall not be required to pay any amount to
the EMPLOYER in the event that the calculation of the annual bonus results in a
negative amount for any particular year.
An annual profit plan shall be prepared by the EMPLOYEE and the EMPLOYER's
senior management team prior to the beginning of each fiscal year and submitted
to the Board of Directors. The final profit plan for any fiscal year shall be
mutually agreed upon for presentation to the Board of Directors by the EMPLOYER
and the EMPLOYEE and approved by the Board of Directors.
- 9 -
Payment of the Performance Bonus shall be due within ten (10) days following the
issue of the audited financial statements for the relevant Contract Year.
4.4 The EMPLOYEE shall be entitled to five (5) weeks paid vacation leave in
each calendar year throughout the Term. The EMPLOYEE shall be entitled to carry
forward any unused vacation time for one (1) calendar year, which shall accrue
in his favour until used.
4.5 The EMPLOYER shall reimburse the EMPLOYEE for the entire cost of a term
life insurance policy on his life and the life of his spouse and/or a long-term
disability policy, in an aggregate amount not exceeding $US 18,000 per Contract
Year, the whole upon proof of payment thereof by the EMPLOYEE.
4.6 The EMPLOYER shall provide the EMPLOYEE with comprehensive health and
dental insurance in such amounts as is available to all other executives of the
EMPLOYER and in this regard, the EMPLOYEE shall not be prejudiced by the fact
that he and his family reside in the United States. The EMPLOYER shall also
provide the EMPLOYEE with adequate "Directors and Officers" liability insurance
coverage, commensurate with existing coverage and industry standards.
4.7 Recognizing the requirement for entertainment of suppliers, special
customers and others by the EMPLOYEE, the EMPLOYER shall pay for initiation fees
and annual golf and other club memberships of the EMPLOYEE, to a maximum of $CDN
10,000 per Contract Year.
4.8 In addition, the EMPLOYEE shall be reimbursed for all reasonable expenses
incurred by him in the fulfilment of his duties hereunder, the whole upon the
presentation of appropriate receipts or vouchers.
4.9 In the event that the EMPLOYEE should decide to move his family to Canada,
the EMPLOYER shall reimburse the EMPLOYEE for all costs of such move and will
work together with the EMPLOYEE to minimize the taxes and costs which will
become payable by the EMPLOYEE upon his becoming a resident of Canada (for
example, by compensating the EMPLOYEE for the increased mortgage or other costs
of living in Montreal, the whole without being obliged to increase his aggregate
remuneration hereunder).
4.10 For greater clarity, all calculations made under the terms of Section 4.2
and 4.3 hereof shall be made without reference to any sums that the EMPLOYER may
receive on account of any interest it may have in the securities of Mayors
Jewelers Inc. or of any other corporation unless such sums were provided for in
EMPLOYER's business plan. In addition, the impact on inter-company accounts as
between the EMPLOYER and Mayors (such as, without limitation, consulting fees,
dividends or sale of common stock, etc.) shall be reviewed and determined by the
Human Resources Committee of the EMPLOYER on an annual basis so that the
EMPLOYER and the EMPLOYEE mutually agree as to the impact of these inter-company
accounts on the calculations.
- 10 -
4.11 The EMPLOYEE shall have access to and be entitled to the non-exclusive use
of a company car and company apartment when in Montreal performing his duties
for EMPLOYER. While such use shall be non-exclusive, the EMPLOYEE shall be
entitled to such use on a priority basis.
4.12 The parties acknowledge that the EMPLOYEE is entitled to certain benefits
in this Agreement and pursuant to his Employment Agreement with Mayors. It is
the intention of the parties that the EMPLOYEE shall not be entitled to the
duplication of any such benefits. However, benefits such as dental and health
insurance coverage should be available to the EMPLOYEE both in Canada and the
United States.
5. STOCK OPTIONS
5.1 The EMPLOYER hereby confirms the grant to the EMPLOYEE, in 1996, of an
option to subscribe for that number of shares which, immediately following their
issue, would represent two percent (2%) of the issued and outstanding shares in
the capital stock of the EMPLOYER (on a fully diluted basis), upon the terms and
conditions originally set forth in the 1996 Agreement, as clarified in the 1998
Agreement, and as further clarified herein, as follows:
(a) the purchase price shall be an amount equal to $CDN 6.00 per share,
which the parties, together with the auditors of the EMPLOYER, had
determined to be the fair market value for such shares as at the
original date of the grant of such option (the "Exercise Price"). The
parties acknowledge that this price was determined based on the then
current number of issued and outstanding shares being 2,379,100. In
the event that the shares in the capital stock of the EMPLOYER are
consolidated or split, or in the event that any new shares are issued
prior to the exercise of the option, then the purchase price and/or
the number of shares, as the case may be, will be adjusted
accordingly;
(b) the option shall be exercisable at any time prior to the expiry of a
period of three (3) months following the date upon which the EMPLOYEE
ceases to be employed by the EMPLOYER, by notice in writing to the
EMPLOYER;
(c) in the event of the death of the EMPLOYEE, the estate of the EMPLOYEE
shall continue to be entitled to exercise the option hereunder for a
period of three (3) months following the date of his death;
(d) the EMPLOYEE (or his estate, as the case may be) shall have a put
option, exercisable at any time within (I) the six (6) month period
following the death or departure of the EMPLOYEE, or (II) the three
(3) month period following a notice by the EMPLOYER or its parent
company, Iniziativa S.A., of an impending change of control of the
EMPLOYER, to require Iniziativa S.A., to purchase his shares, for a
price equal to the fair market value thereof, as determined by the
auditors of the EMPLOYER, in a manner consistent with
- 11 -
the method used by Coopers & Lybrand to establish the Exercise Price
(the "Put Price"). The Purchase Price shall be payable, in full,
within fifteen (15) days following the exercise of the put option
herein described, unless the exercise of the option to subscribe and
the exercise of the put option occur simultaneously, in which event
Iniziativa S.A. or the EMPLOYER, shall simply remit to the EMPLOYEE
(or his estate, as the case may be), an amount equal to the difference
between the Put Price and the Exercise Price within such fifteen (15)
day period. In the event that the EMPLOYER shall have offered its
securities to the public on or before the date of the death or
departure of the EMPLOYEE, then the put option shall automatically
expire upon such offering. For the purposes hereof a "change of
control" shall mean any sale or transfer of shares or any other act or
transaction which will result, directly or indirectly, in any party
other than Iniziativa S.A., or entities with which it is currently
related, owning more than fifty percent (50%) of the voting shares in
the capital stock of the EMPLOYER. For greater certainty, the EMPLOYER
and Iniziativa S.A. shall be required to give notice to the EMPLOYEE
of any proposed change of control such that the EMPLOYEE shall have
sufficient time to exercise his option hereunder; and
(e) Iniziativa S.A. shall have a call option to require the EMPLOYEE to
sell his shares of the EMPLOYER, upon the terms and conditions
described in paragraph 5.1(d), mutatis mutandis. In the event that any
securities of the EMPLOYER are offered to the public within six (6)
months following the exercise of the call option herein described, or
substantially all of the shares of the EMPLOYER are sold to an arm's
length third party within the same period, then the EMPLOYER shall be
obliged to pay to the EMPLOYEE (or his estate, as the case may be), an
amount equal to the difference between the proceeds which the EMPLOYEE
would have received had he still owned two percent (2%) of the shares
of the EMPLOYER at the time of the public offering or sale and the
price actually paid upon the exercise of the call option.
5.2 The EMPLOYER hereby confirms, as well, the grant to the EMPLOYEE in 1998,
of a second option to subscribe for an additional two percent (2%) of the issued
and outstanding shares in the capital stock of the EMPLOYER as at January 1,
1999, regardless of the date of exercise of this option (and not on a
fully-diluted basis after January 1, 1999), namely, 126,272 out of a total of
6,313,618 shares then issued and outstanding, the whole upon the terms and
conditions set forth in the 1998 Agreement, as clarified herein, as follows:
(a) the option exercise price is an amount equal to $CDN 6.25 per share,
which the parties had determined to be the fair market value of the
shares as at January 31, 1999, based upon the report prepared by
Coopers & Lybrand on March 31, 1999;
- 12 -
(b) the EMPLOYEE agrees that following the exercise of this second
option, he shall vote the shares issued pursuant thereto (only) in
accordance with the instructions of Lorenzo Rossi di Montelera, until
the earlier of
(i) the termination of the employment of the EMPLOYEE hereunder; or
(ii) an offer to the public of the securities of the EMPLOYER.
(c) the option shall be exercisable at any time prior to the expiry of a
period of three (3) months following the date upon which the EMPLOYEE
ceases to be employed by the EMPLOYER, by notice in writing to the
EMPLOYER. In the event of the death of the EMPLOYEE, the estate of the
EMPLOYEE shall continue to be entitled to exercise the option
hereunder for a period of three (3) months following the date of his
death;
(d) The EMPLOYEE (or his estate, as the case may be) shall have a put
option, exercisable solely in the event that the shareholder(s) of the
EMPLOYER decided not to proceed with an initial public offering of the
shares of the EMPLOYER in accordance with any reasonable offer to take
the EMPLOYER public proposed by a reputable securities underwriter,
the whole upon the terms and conditions set forth in paragraph 5.1(d),
mutatis mutandis.
5.3 In addition to the options described in Sections 5.1 and 5.2 above, the
EMPLOYER hereby confirms the grant to the EMPLOYEE in 2001, of a third option to
subscribe for an additional two percent (2%) of the issued and outstanding
shares in the capital stock of the EMPLOYER as at April 1, 2002, regardless of
the date of the exercise of this option (and not on a fully-diluted basis after
April 1, 2002), upon the following terms and conditions:
(a) this third option will be exercisable at any time after April 1,
2002, and the option exercise price will be an amount equal to the
fair market value of the shares as at April 1, 2002, the whole as
determined by auditors of the EMPLOYER, in a manner consistent with
the method used by Coopers & Lybrand to establish the Exercise Price,
the fair market value of the shares of the EMPLOYER as at January 1,
1999 and the fair market value of the shares of the EMPLOYER as at
March 31, 2001; and
(b) the provisions of paragraphs (b), (c) and (d) of Section 5.2 shall
also apply to this third option, mutatis mutandis.
5.4 For the purposes of this Article 5, in the event that an offering of the
securities of a corporation which owns a majority of the shares in the capital
stock of the EMPLOYER is made to the public, rather than an offering of the
shares of the EMPLOYER itself, or, alternatively, the EMPLOYER is involved in a
reverse takeover with Mayors or a similar business reorganization that results
in a new entity the stock of which is publicly traded, then the provisions
hereof which refer to an offering of securities of the EMPLOYER shall be
automatically deemed to mean and refer to an offering of the securities of the
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corporation owning a majority of the shares of the EMPLOYER or to the reverse
takeover transaction, mutatis mutandis. For greater certainty, any options
herein granted to the EMPLOYEE shall be convertible, at the option of the
EMPLOYEE, into an appropriate number of shares of the corporation which has
offered its securities to the public or trades on a recognized stock exchange.
5.5 Notwithstanding the existing terms of the stock options described in
Sections 5.1, 5.2 and 5.3 hereof, the parties agree that the exercise period for
all stock options shall be extended on April 1, 2005 so that they are all
exercisable at any time prior to the expiry of a period of twenty-four (24)
months following the date of the termination of employment of the EMPLOYEE, for
any reason whatsoever including death. In the event of the retirement of the
EMPLOYEE at the expiry of the Term, all of these options shall remain valid and
exercisable for ten (10) years following the date of retirement.
6. TERMINATION
6.1 In the event of the death of the EMPLOYEE or the non-renewal of this
Agreement, then this Agreement shall be terminated automatically and the
EMPLOYEE (or his estate, as the case may be) shall be entitled, thereafter, to
the following payments:
(a) The base salary described in Section 4.1 which shall have accrued to
the date of such death or departure;
(b) Any accrued but unpaid vacation pay;
(c) Any Special Net Income Bonus and Performance Bonus earned in
connection with each Contract Year terminating prior to the date of
such death or non-renewal, as well as a pro-rated Special Net Income
Bonus and a pro-rated Performance Bonus for the number of months in
which services were rendered hereunder prior to the date of such death
or non-renewal.
6.2 This Agreement may also be terminated by the EMPLOYER in the event of a
just and sufficient cause for such termination, provided that the EMPLOYEE shall
be provided with a written notice of the alleged cause and a chance to defend
his actions and/or eliminate the cause within a period of thirty (30) days, save
and except where the EMPLOYER is able to establish theft of its property, in
which case the termination may be effected without notice or delay. Termination
of the EMPLOYEE's employment with Mayors Jewelers Inc. for cause shall be deemed
to constitute cause for termination of this Agreement.
6.3 In the event that the EMPLOYER is unable to obtain the renewal of his work
permit for any reason during the term of this Agreement, then the EMPLOYEE
hereby agrees to continue to render his services hereunder from the United
States for a transition period of up to six (6) months, to allow the EMPLOYER to
find a suitable replacement, at the end of which this Agreement shall be
automatically terminated, save and except that the provisions of Section 3.2
hereof shall apply, mutatis mutandis, such that the EMPLOYER
- 14 -
shall continue to be obliged to pay the EMPLOYEE an amount equal to his then
base salary for such period until the EMPLOYEE is able to find suitable
employment, to a maximum of twelve (12) months.
7. CONFIDENTIAL INFORMATION AND NON-COMPETITION COVENANT
7.1 For the purposes of this Agreement, the term "Confidential Information"
shall mean, but shall not be limited to, any technical or non-technical data,
budgets, business plans, pricing policies, financial records and any information
regarding the EMPLOYER's marketing, sales or dealer network, which is not
generally known to the public through legitimate origins, but shall not include
any information and knowledge which the EMPLOYEE himself possessed at the
commencement of his employment with the EMPLOYER.
7.2 Unless otherwise required by law or expressly authorized in writing by the
EMPLOYER, the EMPLOYEE shall not, at any time during or after his employment by
the EMPLOYER, directly or indirectly, in any capacity whatsoever, except in
connection with services to be performed hereunder, divulge, disclose or
communicate to any person, moral or physical, entity, firm or any other third
party, or utilize for his personal benefit or for the benefit of any other
party, any Confidential Information.
7.3 During the Term of this Agreement and for a period terminating:
(a) in the event that the EMPLOYEE does not desire to renew this Agreement
upon the expiry of the Term: December 31, 2008; or
(b) in the event that the EMPLOYER does not desire to renew this Agreement
upon the expiry of the Term: December 31, 2008; or
(c) in the event that this Agreement is terminated by the EMPLOYEE prior
to the expiry of the Term: twelve (12) months following the date of
such termination;
then the EMPLOYEE, provided he shall have received all amounts due to him
hereunder to the date of the termination of his employment or the expiry of the
period described in Section 3.2, as the case may be, on account of base salary,
vacation pay, Special Net Income Bonus, Performance Bonus, purchase price for
shares of the EMPLOYER or otherwise, shall not, on his own behalf or on behalf
of another, either alone or in combination with others, directly or indirectly,
in any capacity whatsoever, engage in the Business, for and on behalf of any
entity whose operations are located principally in Canada.
8 NO DUPLICATION OF BENEFITS
8.1 The parties acknowledge that the EMPLOYEE is entitled to certain benefits
in this Agreement and pursuant to his Employment Agreement with Mayors. It is
the intention of
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the parties that the EMPLOYEE shall not be entitled to the duplication of any
such benefits. However, benefits such as dental and health insurance coverage
should be available to the EMPLOYEE both in Canada and the United States.
8.2 However, in the event of the merger or consolidation of the EMPLOYER and
Mayors, both this Agreement and the EMPLOYEE's employment agreement with Mayors
will bind the successor entity and the EMPLOYEE should not lose any rights,
monetary benefits or compensation as a result. The parties also agree that the
terms of the Mayors Employment Agreement will prevail and the compensation
(including salary, bonuses and benefits) payable hereunder will be added to such
agreement. To the extent that as a result of such merger the EMPLOYEE no longer
receives the equivalent after tax value of both agreements, then the successor
entity of the EMPLOYER and Mayors will compensate the EMPLOYEE accordingly. All
stock options then held by the EMPLOYEE will also be converted into options of
the successor entity (to the extent that they are not or have not been exercised
by the EMPLOYEE) on the same basis of conversion as the shares of the respective
entities with no lesser terms and conditions of exercise than as provided in
this Agreement.
8.3 The combined or resulting compensation of the EMPLOYEE (in the event of a
merger or consolidation of the EMPLOYER and MAYORS) and the amended agreement,
if any, will be presented to the Compensation Committee of surviving entity to
ensure the EMPLOYEE receives an appropriate combined compensation package
considering the nature and specifics of his duties and position and the market
in general.
9 MISCELLANEOUS
9.1 The EMPLOYEE and the EMPLOYER acknowledge and agree that the covenants,
terms and provisions contained in this Agreement and the rights of the parties
hereunder cannot be transferred, sold, assigned, pledged, or hypothecated;
provided, however that this Agreement shall be binding upon and shall enure to
the benefit of the EMPLOYER and any successor to or assignee of all or
substantially all of the business and property of the EMPLOYER.
9.2 In the event of the reorganization of the EMPLOYER, then it is hereby
acknowledged and agreed that the provisions hereof which are binding upon it,
will continue to bind its successors or the entity resulting from the merger,
amalgamation or other combination or arrangement of the EMPLOYER with any other
person or entity.
9.3 The EMPLOYEE hereby represents and warrants that, in entering into this
Agreement, he is not in violation of any contract or agreement, whether written
or oral, with any other person, moral or physical, firm, partnership,
corporation or any other entity to which he is a party or by which he is bound
and will not violate or interfere with the rights of any other person, firm,
partnership, corporation or other entity.
9.4 This Agreement contains the entire agreement between the parties and shall
not be modified except in writing by the parties hereto.
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9.5 The waiver by the EMPLOYER or the EMPLOYEE of any breach of any term or
condition of this Agreement shall not be deemed to constitute the waiver of any
other breach of the same or any other term or condition hereof.
9.6 The parties hereto agree that this Agreement shall be construed as to both
validity and performance and shall be enforced in accordance with and governed
by the laws of the Province of Quebec and the laws of Canada applicable therein.
9.7 The parties hereto have requested and hereby confirm that this Agreement as
well as any notice, document, or proceeding relating to same be drawn up in
English; Les parties aux presentes ont demande et par les presentes confirment
leur demande que la presente convention ainsi que tous avis, documents, ou
procedures s'y rapportant soient rediges en anglais.
(Signatures on next page)
- 17 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the dates indicated below.
SIGNED AT ROME , HENRY BIRKS & SONS, INC.
THIS 27TH DAY OF SEPTEMBER, 2004.
PER: /S/ LORENZO ROSSI DI MONTELERA
-------------------------------
LORENZO ROSSI DI MONTELERA
|
SIGNED AT MONTREAL
THIS 1ST DAY OF SEPTEMBER, 2004.
/S/ THOMAS A. ANDRUSKEVICH
------------------------------
THOMAS A. ANDRUSKEVICH
|
INTERVENTION
AND THERE INTERVENED HERETO, Iniziativa S.A. who, after taking cognizance of the
foregoing Agreement, agrees to be bound hereby insofar as its interests may
appear and to guarantee all obligations of the EMPLOYER in favour of the
EMPLOYEE hereunder.
SIGNED AT , INIZIATIVA S.A.
-------------------------
THIS 25TH DAY OF SEPTEMBER, 2004.
PER: /S/ FILIPPO RECAMI
-------------------------------
FILIPPO RECAMI
|
EXHIBIT A
APPENDIX II
PERFORMANCE BONUS APPRAISAL CRITERIA
EXAMPLE (*) (**)
150% OF
50% OF INCREASE/ INCREASE IN BONUS FY TARGET ACTUAL
DECREASE IN PP PP VS ALLOCATION 2007 ADJUSTED BONUS BONUS
COMPANY OBJECTIVES PRIOR YEAR VS PRIOR YR PLAN PRIOR YR WEIGHT ACTUAL % VALUE VALUE
------------------ ---------- ---------------- ---- ------------ ---------- ------ -------- ------ -------
Bonus Payout %
QUANTITATIVE OPERATING
RESULTS OBJECTIVES
(60 - 75%)
Sales 130,000K 135,000K 140,000K 145,000K 10% 142,500K 12.5% 36,400 45,500
Gross Profit 40,000K 45,000K 50,000K 55,000K 15% 50,000K 15.0% 54,600 54,600
Operating Expense 70,000K 65,000K 60,000K 55,000K 20% 65,000K 10.0% 72,800 36,400
Net Income 0 475K 949K 1,424K 20% 712K 15.0% 72,800 54,600
Financial Debt/Equity 2.5 2.25 2.0 1.75 10% 2.25 5.0% 36,400 18,200
Ratio
--------- ------- -------
SUB TOTAL 75% 57.5% 273,000 209,300
--------- ------- -------
|
FY
STRATEGIC OBJECTIVE 2007
(25-40%) WEIGHT ACTUAL % VALUE
------------------ ---------- ------ -------- -------
EXAMPLES:
Development of Private 25% Over 30% 91,000 109,200
Label Achieved
Goals
--------- ------- -------
25% 30% 109,200
--------- ------- ------- -------
TOTAL 100% 87.5% 364,000* 318,500
--------- ------- -------
|
* For this example the Target Bonus Value is calculated using 100% of
EMPLOYEE's hypothetical annual base of $364,000 for Fiscal Year 2007
** EXTRACT OF SECTION 4.3 OF THIS AGREEMENT STATES THAT IF THE ACTUAL ADJUSTED
NET INCOME FOR A GIVEN FISCAL YEAR OF THE EMPLOYER IS LESS THAN 75% OF THE
GOAL (PROVIDED THAT 75% IS STILL THE THRESHOLD UNDER THE SENIOR MANAGEMENT
PERFORMANCE BONUS PLAN), THE EMPLOYEE SHALL NOT BE ELIGIBLE FOR THE
PERFORMANCE BONUS.
Exhibit 10.18
[SEAL]
BEFORE MTRE. SHELDON MERLING, the undersigned Notary for the Province of
Quebec, practising in the City and District of Montreal,
APPEARED:
ANGLO CANADIAN INVESTMENTS, L.P., a limited partnership constituted under
Section 121-201 of the Revised Limited Partnership Act of the laws of the
State of New York having its principal place of business, c/o EPIC LLC, 12
East 44th Street, 6th Floor, New York, New York 10017, represented herein
by Birkmont Corp., having its principal place of business at the same
address, its sole General Partner, herein acting and represented by Robert
Vineberg, its representative, duly authorized for all purposes in virtue
of a Resolution of its Board of Directors adopted on the fourth day of
December, Two Thousand; a certified extract whereof being hereunto annexed
to form part hereof after having been acknowledged as true and signed for
identification by the signing officer of the said Corporation with and in
the presence of the undersigned Notary "ne varietur",
(hereinafter sometimes referred to as the "Landlord"),
OF THE FIRST PART;
AND:
HENRY BIRKS & SONS INC. / HENRY BIRKS ET FILS INC., a corporation duly
constituted under the Canada Business Corporations Act by Certificate of
Amalgamation bearing Corporation Number 357267-6 dated December 26th, 1998
and which Corporation resulted from an amalgamation, under Section 185 of
the Canada Business Corporations Act, of "Henry Birks & Sons Inc. - Henry
Birks et Fils Inc." (Corporation Number 3332667) and "3138712 Canada Inc."
(Corporation Number 3138712), having its head office at 1240 Carre
Phillips, Montreal, Quebec, H3B 3H4, herein acting and represented by
Thomas A. Andruskevich, its President and CEO and John D. Ball, its Vice
President and Chief Financial and Administrative Officer, both duly
authorized for all purposes hereof in virtue of a Resolution of its Board
of Directors adopted on the 7th day of April ---- Two Thousand; a
certified extract whereof being hereunto annexed to form part hereof after
having been acknowledged as true and signed for identification by the
signing officer of the Company with and in the presence of the undersigned
Notary "ne varietur".
(hereinafter sometimes referred to as the "Tenant")
OF THE SECOND PART.
2
ARTICLE I
DEFINITIONS
The parties hereto agree that when used in this Lease or in any
Schedule attached to this Lease, the following words or expressions have the
meaning hereinafter set forth.
1.1 "Additional Rent" means any and all sums of money or charges required to
be paid by the Tenant under this Lease (except Minimum Rent) whether or
not the same are designated "Additional Rent" or whether or not the same
are payable to the Landlord or otherwise, and all such sums are payable in
lawful money of Canada without any deduction, abatement, set-off or
compensation whatsoever. Additional Rent is due and payable with the next
monthly installment of Minimum Rent unless otherwise provided, but in any
event is not payable as part of Minimum Rent.
1.2 "Consumer Price Index" (hereinafter referred as the "C.P.I.") means the
Consumer Price Index, all items, for the Montreal area as published from
time to time by Statistics Canada. In the event that the Consumer Price
Index is no longer published or ceases to be calculated in substantially
the same fashion as at the date hereof, the parties hereto shall agree
upon another formula or index upon which the Option Rent (as hereinafter
defined) for the Option Term (as hereinafter defined) of the Lease shall
be adjusted. In the event of disagreement, the independent Canadian
national auditors of the Landlord shall select the applicable formula or
index which most closely mirrors the CPI and their determination shall be
final and binding.
1.3 "Landlord" means the party of the First Part. Wherever the word "Landlord"
is used in this Lease, it is deemed to have the same meaning as "lessor"
and shall include the Landlord and its duly authorized representatives.
For the purpose of Section 8.4, "Landlord" also includes the officers,
servants, employees and agents of the Landlord.
1.4 "Lease Interest Rate" means, at any time, the annual percentage rate of
interest which is the higher at such time of (i) 18% and (ii) the rate per
annum which is 5 percentage points in excess of the annual percentage rate
of interest which is announced from time to time by the Royal Bank of
Canada as its prime rate of interest for loans made in Canada in Canadian
funds.
1.5 "Minimum Rent" means the annual rent payable by the Tenant pursuant to
Section 4.2 hereof. During the First Option, the Second Option, the Third
Option and the Fourth Option,
3
"Minimum Rent" shall mean the annual rent payable by the Tenant pursuant
to Section 16.1 hereof.
1.6 "Mortgagee" means any and every mortgagee or hypothecary creditor
(including any trustee for bondholders) of the Premises.
1.7 "Person", if the context allows, includes any person, firm, partnership or
corporation, or any group of persons, firms, partnerships or corporations
or any combination thereof.
1.8 "Premises" means the premises leased to the Tenant as referred to and
described in Section 3.1 hereof.
1.9 "Rental Year" means a period of time, the first Rental Year commencing on
the first day of the Term hereof, and ending twelve (12) calendar months
thereafter. Rental Years shall consist of consecutive periods of twelve
(12) calendar months. If, however, the Landlord considers it necessary or
convenient for its accounting purposes, the Landlord may at any time and
from time to time, by written notice to the Tenant, specify an annual date
from which each subsequent Rental Year is to commence and, in such event,
the then current Rental Year shall terminate on the day preceding the
commencement of such new Rental Year. The last Rental Year of the Term
shall terminate upon the expiration of the Term or earlier termination of
this Lease, as the case may be. Notwithstanding any change to the Rental
Year, the Minimum Rent as stated in Section 4.2 and the Term of the Lease
as stated in Section 3.2 shall not be modified as a consequence.
1.10 "Tenant" means the party of the Second Part and is deemed to include the
word "lessee" and to mean each and every Person mentioned as Tenant in
this Lease, whether one or more. Any reference to "Tenant" includes, where
the context allows, the officers, servants, employees, agents and invitees
of the Tenant and all others over whom the Tenant may reasonably be
expected to exercise control.
1.11 "Term" means the period of time referred to and ,described in Section 3.2
hereof and any extension or renewal thereof.
|
ARTICLE II
INTENT AND INTERPRETATION
2.1 Net Lease:
The Tenant acknowledges and agrees that it is intended that this Lease is
a completely net net net lease to the Landlord, except as expressly herein
set out, that the Landlord is not responsible during the Term for any
costs, charges, expenses and outlays of any nature whatsoever arising from
or relating to
4
the Premises, or the use and occupancy thereof, or the contents thereof or
the business carried on therein, and the Tenant shall pay all charges,
impositions, costs and expenses of every nature and kind relating to the
Premises except as expressly herein set out. Any obligation which is not
expressly declared herein to be that of the Landlord pertaining to the
Premises shall be deemed to be the obligation of the Tenant to be
performed by and/or at the expense of the Tenant.
2.2 Obligations:
Each agreement of the Landlord or the Tenant expressed in this Lease, even
though not expressed as an obligation, is considered to be an obligation
for all purposes.
2.3 Captions and Section Numbers:
The captions, section numbers and article numbers appearing in this Lease
are inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or intent of such sections or articles of
this Lease nor in any way affect this Lease.
2.4 Extended Meanings:
The words "hereof", "herein", "hereunder" and similar expressions used in
any section or subsection of this Lease relate to the whole of this Lease
and not to that section or subsection only, unless otherwise expressly
provided. The use of the neuter singular pronoun to refer to the Landlord
or the Tenant is deemed a proper reference even though the Landlord or the
Tenant is an individual, a partnership, a corporation or a group of two or
more individuals or corporations. The necessary grammatical changes
required to make the provisions of this Lease apply in the plural sense
where there is more than one Landlord or Tenant and to either
corporations, associations, partnerships, or individuals, males or females
shall in all instances be assumed as though in each case fully expressed.
2.5 Partial Invalidity:
If for any reason whatsoever any term, obligation or condition of this
Lease, or the application thereof to any Person or circumstance, is to any
extent held or rendered invalid, unenforceable or illegal, then such term,
obligation or condition:
(a) is deemed to be independent of the remainder of the Lease and to be
severable and divisible therefrom, and its invalidity,
unenforceability or illegality does not affect, impair or invalidate
the remainder of the Lease or any part thereof, and
5
(b) continues to be applicable and enforceable to the fullest extent
permitted by law against any Person and circumstances other than
those as to which it has been held or rendered invalid,
unenforceable or illegal.
Neither party is obliged to enforce any term, obligation or condition of
this Lease against any Person if, or to the extent by so doing, such party
is caused to be in breach of any laws, rides, regulations or enactments
from time to time in force and nothing in this Lease entitles the Landlord
to stipulate the price or price range at which any article or service is
to be supplied, offered or advertised by the Tenant.
2.6 Entire Agreement:
This Lease and the Schedules, Appendices and Riders, if any, attached
hereto form a part hereof, and set forth all the obligations, promises,
agreements, conditions and understandings between the Landlord and the
Tenant concerning the lease of the Premises and there are no promises,
agreements, conditions or understandings, either oral or written, between
them other than as herein set forth. For greater certainty, this Lease
supersedes and terminates any previous agreement, if any, between the
Landlord and the Tenant with respect to the lease of the Premises, as of
the Commencement Date hereof whether such agreement is in the form of a
lease, an offer to lease or the like. Except as herein otherwise provided,
no subsequent alteration, amendment, change or addition to this Lease
shall be binding upon the Landlord or the Tenant unless in writing and
signed by the Tenant and a duly authorized representative of the Landlord.
2.7 Governing Law:
This Lease shall be construed in accordance with and governed by the laws
of the Province of Quebec.
2.8 Time of the Essence:
Time is of the essence of this Lease and of every part hereof.
ARTICLE III
LEASE AND TERM
3.1 Premises:
In consideration of the vents, obligations and agreements herein contained
on the part of the Tenant to be paid, observed and performed, the Landlord
leases to the Tenant, and the Tenant leases from the Landlord, those
certain Premises consisting of the Land more fully described in Schedule
"A" hereto and the buildings thereon erected. The Tenant
6
acknowledges that it is leasing the Premises on an "as is" basis, without
any work, improvement or alteration from the Landlord.
3.2 Term:
Subject to Sections 16.1, 16.2 and 16.4, the Term of the Lease is twenty
(20) years commencing on December 12th 2000 (the "Commencement Date") and
expiring on December 11th, 2020, unless sooner terminated under the
provisions hereof.
ARTICLE IV
RENT
4.1 Obligation to Pay:
The Tenant shall pay Minimum Rent and Additional Rent as herein provided.
4.2 Minimum Rent:
The Tenant shall pay from and after the Commencement Date to Friedman &
Friedman, the rental agent of the Landlord, at the office of the agent
located at 8000 Decarie Blvd., Suite 500, Montreal, Quebec, H4P 2S4 or to
Landlord or to such other agent of Landlord as Landlord may direct in
writing from time to time, which payment shall be made to "Friedman &
Friedman In Trust Anglo Canadian Investments, L.P." or in such other
manner as may be directed in writing from time to time by Landlord, in
lawful money of Canada, without any prior demand therefor and without any
deduction, abatement, set-off or compensation whatsoever, as Minimum Rent
the sum of:
(i) One Million Three Hundred Seventy-Five Thousand Dollars ($1,375,000)
for the period commencing on December 12th, 2000 and terminating on
December 11th, 2003, inclusive;
(ii) One Million Five Hundred Twelve Thousand Five Hundred Dollars
($1,512,500) for the period commencing on December 12th, 2003 and
terminating December 11th, 2006, inclusive;
(iii) One Million Six Hundred Sixty-Three Thousand Seven Hundred and Fifty
Dollars ($1,663,750), for the period commencing December l2th, 2006
and terminating December 11th, 2009, inclusive;
(iv) One Million Eight Hundred Thirty Thousand One Hundred and
Twenty-Five Dollars ($1,830,125), for the period commencing December
12th, 2009 and terminating December 11th, 2012, inclusive;
7
(v) Two Million Thirteen Thousand One Hundred and Thirty-Eight Dollars
($2,013,138), for the period commencing December 12th, 2012 and
terminating December 11th, 2015, inclusive.
(vi) Two Million Two Hundred Fourteen Thousand Four Hundred Fifty-Two
Dollars ($2,214,452) for the period commencing December 12th, 2015
and terminating December 11th, 2020 inclusive.
Minimum Rent shall be payable in equal monthly instalments in each year in
advance on the first (1st) day of each calendar month.
The Minimum Rent will be adjusted on a per diem basis based on a period of
three hundred and sixty-five (365) days if the first Rental Year or the
last Rental Year is less than twelve (12) months.
If the Commencement Date is on a day other than the first (1st) day of a
calendar month, then the Tenant shall pay, upon the Commencement Date, a
portion of the Minimum Rent prorated on a per diem basis from the
Commencement Date to the end of the month in which the Commencement Date
occurs, based upon a period of three hundred and sixty-five (365) days.
From the Commencement Date until August 1, 2001, the Landlord authorizes
the Tenant to make its monthly payment of Minimum Rent in the following
manner:
(i) the Tenant shall make a payment to "Friedman & Friedman In
Trust-Anglo Canadian Investments, L.P." and to "Gespa CDPQ Inc., as
mandatary for N-45o First CMBS Issuer Corporation and Montreal Trust
Company, to the extent of their respective interests" jointly in the
amount (the "Mortgage Payment Amount") then owed pursuant to the
terms of the Deed of Loan entered into between Caisse de depot et
placement du Quebec ("CDPQ") and 3138712 Canada Inc. before Kevin
Leonard, Notary, on July 2, 1998 under his minute number 3250 (the
"1998 Mortgage");
(ii) the Tenant shall make a second payment to "Friedman & Friedman In
Trust Anglo Canadian Investments, L.P." and to "Hypotheques CDPQ
Inc." jointly in the amount (the "Second Mortgage Payment Amount")
then owed pursuant to the terms of the Deed of Loan entered into
between Hypotheques CDPQ Inc. and Henry Birks et Fils Inc. before
Kevin Leonard, Notary, on
8
November 4, 1999 under his minute 3764 (the "1999 Mortgage"); and
(iii) the Tenant shall make a third payment to "Friedman & Friedman In
Trust-Anglo Canadian Investments, L.P." in the amount which
represents the difference between the monthly payment of Minimum
Rent payable for the month in question less the Mortgage Payment
Amount and the Second Mortgage Payment Amount paid by Tenant for the
said month.
From and after September 1, 2001, the Tenant shall make its monthly
payment of Minimum Rent to "Friedman & Friedman In Trust-Anglo
Canadian Investments, L.P." or as Landlord shall otherwise from time
to time direct.
4.3 Non-Resident Tax
The Tenant shall make the Canadian tax withholding provided for under Part
XIII of the Income Tax Act (Canada) (the "Non-Resident Tax") as required
with respect to each entire payment of Minimum Rent and Additional Rent
unless, at the Commencement Date, the Landlord or a person acting on
behalf of the Landlord has confirmed to the Tenant in writing (the "Tax
Confirmation") that the Non-Resident Tax relating to said payments will be
paid within the prescribed delay to the Canadian tax authority. The Tax
Confirmation will remain in effect until written notice to the contrary is
received by the Tenant or until Tenant is informed that Landlord or agent
effecting payment on behalf of Landlord has not remitted to the Canadian
tax authority the Non-Resident Tax within the prescribed delay. In the
latter case, the Tenant will provide the Landlord with a notice informing
it that unless the Landlord pays all outstanding amounts of Non-Resident
Tax within 10 days of the said notice, the Tenant will withhold from the
payments of Rent an amount equal to the Non-Resident Tax and remit same to
the Canadian tax authority as required.
The Landlord shall promptly indemnify and keep indemnified the Tenant from
and against any loss, costs, charges and expenses resulting or arising
from any tax assessment of the Tenant by the Canadian tax authority for
failure to have withheld the Non-resident Tax with respect to a payment of
Minimum and Additional Rent for which the Tenant had obtained a Tax
Confirmation from the Landlord.
4.4 Rent and Additional Rent Past Due:
If the Tenant falls to pay, when the same is due and payable, any Minimum
Rent, Additional Rent (collectively referred to as the "Rent") or other
amount payable by the Tenant under this
9
Lease, such unpaid amounts bear interest from the due date thereof to the
date of payment at the Lease Interest Rate from time to time.
In addition, in the event of any failure by Tenant referred to in the
preceding paragraph, which failure extends beyond the five (5) day notice
period referred to in Section 14.1(a), there shall immediately become due
and payable by the Tenant to the Landlord, as an indemnity in respect of
the loss of the Landlord arising from such failure, an amount equal to
five percent (5%) of the amount which the Tenant failed to pay when due.
ARTICLE V
TAXES
5.1 Taxes - Definition:
"Taxes" shall mean and include all real estate taxes, property taxes,
surtaxes on non-residential properties and/or similar, municipal taxes,
school taxes, ecclesiastical taxes, rates including local improvement
rates, duties and assessments (as they presently exist and as they may
hereafter exist during the term hereof) that may be levied, rated, charged
or assessed against the Premises and/or all fixed equipment and facilities
thereon or therein or any property on or in the Premises owned or brought
thereon or therein by Landlord or Tenant, and any and every of its
assignees or subtenants and its and their respective officers, agents,
employees, servants, visitors or licensees and/or against Landlord or
Tenant in respect thereof, whether such Taxes, rates, duties or
assessments are charged by a municipal, parliamentary, school, or any
other body of competent jurisdiction. Taxes shall exclude amounts
attributable to Landlord's tax on capital, large corporation's tax,
Landlord's Federal and Provincial income taxes and any amounts payable
pursuant to Part XIII of the Income Tax Act (Canada).
Real estate taxes shall also include, without limitation:
(a) Any governmental charges, duties or taxes (other than income tax),
including goods and services tax and provincial sales tax assessed
with respect to rents payable to the Landlord by any tenant or
occupant of the Premises, in lieu of, in replacement for, or in
addition to any of the real estate taxes; and
(b) All reasonable costs and fees incurred by the Landlord in contesting
and/or negotiating with public authorities as to the real estate
taxes.
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If the system of real estate taxation shall be altered or varied and any
new tax or levy shall be levied or imposed on the Premises in substitution
(in whole or in part) for and/or in addition to real estate taxes
presently levied or imposed on immoveables in the city, or urban community
in which the Premises are situated, then any such new tax or levy shall be
included within the term "real estate taxes".
5.2 Taxes Payable by the Tenant:
Landlord shall estimate from time to time the amount of the Taxes payable
by Tenant hereunder for such periods, not exceeding twelve (12) months, as
Landlord shall from time to time determine acting reasonably, Tenant shall
pay to the Landlord monthly, in advance, on the first day of each calendar
month 1/12th of the amount as so reasonably estimated by Landlord. In
addition, if at any time Landlord determines that the amount paid to it by
Tenant, after deduction of amounts previously paid by Landlord on account
of Taxes, is not sufficient to pay any instalment on account of Taxes
coming due, the Tenant shall pay the amount of the deficiency to the
Landlord within ten (10) days of notice from the Landlord, (provided that
if such notice is received by Tenant more than forty (40) days prior to
the date when such Taxes are due, Tenant shall be entitled to pay such
deficiency in equal monthly instalments, provided that the entire
deficiency shall be paid not less than twenty (20) days prior to the date
when such Taxes are due) the intent being that at the time at which any
instalment on account of or other payment in respect of Taxes comes due
(the "Due Date") the Landlord shall have received from the Tenant an
amount (net of amounts previously paid by the Landlord on account of
Taxes) sufficient to pay the amount of such instalment or other payment in
full and overpayments or underpayments of instalments by Tenant shall be
adjusted on a periodic basis, as Landlord shall determine acting
reasonably. Conversely, if at the Due Date, the Tenant has paid amounts in
excess of the amounts due on account of Taxes, Landlord shall give Tenant
credit for the amount of the excess payment against future instalments for
Taxes.
Notwithstanding the provisions of this Section 5.2, the Tenant shall pay
directly to the CDPQ, as required by the 1998 Mortgage, all amounts
payable in respect of Taxes.
5.3 Business Taxes and Other Taxes of the Tenant:
In addition to the Taxes payable by the Tenant pursuant to Section 5.2,
the Tenant shall pay as Additional Rent to the lawful taxing authorities,
or to the Landlord, as Landlord may direct, and shall discharge in each
Rental Year when the same become due and payable:
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(a) all taxes, rates, duties, assessments and other charges that are
levied, rated, charged or assessed against or in respect of all
improvements, equipment and facilities of the Tenant on or in the
Premises or any part or parts thereof, or the Landlord on account of
its ownership thereof or interest therein; and
(b) every tax and license fee which is levied, rated, charged or
assessed against or in respect of any and every business carried on
in the Premises or in respect of the use or occupancy thereof and
every subtenant of the Tenant, or against the Landlord on account of
its ownership thereof or interest therein, in respect of the
business carried on in the Premises or in respect of the use or
occupancy thereof.
all of the foregoing being collectively referred to as "Business Taxes"
and whether in any case, any such taxes, rates, duties, assessments or
license fees are levied, rated, charged or assessed by any federal,
provincial, municipal, school or other body during the Term. For greater
certainty, Business Taxes shall not include amounts attributable to
Landlord's tax on capital, large corporations tax nor Landlord's federal
and provincial income taxes.
5.4 Tenants Responsibility:
The Tenant shall:
(a) upon request of the Landlord:
(i) promptly deliver to the Landlord for inspection, receipts for
payment of all Business Taxes payable by the Tenant pursuant
to Section 5.3;
(ii) promptly deliver to the Landlord notices of any assessments of
any Business Taxes or other assessments received by the Tenant
which relate to the Premises;
(iii) furnish such other information in connection with any Taxes
and any Business Taxes payable by the Tenant pursuant to
Sections 5.2 or 5.3 as the Landlord reasonably determines from
time to time; and
(b) promptly deliver to the Landlord notice of any appeal or
contestation which the Tenant shall intend to institute with respect
to any Taxes payable pursuant to Section 5.2 or any Business Taxes
payable pursuant to Section 5.3 and consult with and obtain the
prior written approval of the Landlord to any such appeal or
contestation which prior written approval shall not be
12
unreasonably withheld. If the Tenant obtains such approval, the
Tenant shall deliver to the Landlord such security for the payment
of such Taxes and Business Taxes as the Landlord deems advisable,
acting reasonably, and the Tenant shall diligently prosecute any
such appeal or contestation to a speedy resolution and shall keep
the Landlord informed of its progress in that regard, from time to
time.
The Tenant shall promptly indemnify and keep indemnified the Landlord from
and against all loss, costs, charges and expenses occasioned by or arising
from all Taxes and Business Taxes and any taxes which may in future be
levied in lieu of Taxes or Business Taxes or which may be assessed against
any rentals payable pursuant to this Lease in lieu of Taxes or Business
Taxes, whether against the Landlord or the Tenant, including, without
limitation, any increase whensoever occurring in Taxes or Business Taxes
directly or indirectly arising out of any appeal or contestation by the
Tenant of the Taxes or Business Taxes relating to the Premises or any part
thereof.
5.5 Per Diem Adjustment:
If any Rental Year during the Term of this Lease is less than twelve (12)
calendar months, the Taxes that the Tenant is required to pay pursuant to
Section 5.2 hereof shall be subject to a per diem adjustment on the basis
of a period of three hundred and sixty-five (365) days.
ARTICLE VI
UTILITIES AND HEATING, VENTILATING AND AIR-CONDITIONING
6.1 Charges for Utilities:
The Tenant shall be solely responsible for and shall promptly pay the
aggregate of:
(i) the total cost of supplying water, fuel, power, telephone and other
utilities (the "Utilities") used or consumed in or with respect to
the Premises; and
(ii) the cost of any other charges levied or assessed in lieu of or in
addition to such Utilities.
Tenant shall also be responsible for and shall promptly pay all costs and
expenses including charges from the public utilities providing same for
fittings, machines, apparatus, meters or other items or machinery leased
in respect of any Utilities and
13
for all work or services performed by any corporation or commission in
connection therewith.
In no event is the Landlord liable for, nor has the Landlord any
obligation with respect to an interruption or cessation of, or a failure
in the supply of any such Utilities, services or systems in, to or serving
the Premises, whether supplied by the Landlord or others.
6.2 Heating. Ventilating and Air-Conditioning:
The Tenant shall, throughout the Term, cause the Premises to be heated,
ventilated and cooled, as appropriate in such a manner as to maintain such
reasonable conditions of temperature and humidity within the Premises as
are determined by the Landlord. All costs and expenses of the heating,
ventilating and air-conditioning of the Premises including, without
limitation, the cost of maintaining, repairing and replacing any heating,
ventilating and air-conditioning systems shall be paid by the Tenant.
ARTICLE VII
USE OF PREMISES
7.1 Use of Premises:
The Tenant shall use the Premises in accordance with the uses permitted by
the applicable city by-laws; substantially all of the portion of the
Premises used presently for retail purposes shall continuously be used
throughout the Term of this Lease for the purpose of retail sales or
corporate sales of jewellery, flatware, giftware and similar products; the
balance of the Premises may be used for any lawful purpose provided that
with respect to such non-retail portion of the Premises, if Tenant wishes
to materially change its use from its present use, it shall obtain the
prior written consent of the Landlord and the Landlord shall be entitled
to withhold such consent if, in the opinion of Landlord, reasonably
expressed, such proposed use may materially adversely affect the value of
the Premises. The Tenant will not use or permit or suffer the use of the
Premises or any part thereof for any other business or purpose.
7.2 Conduct of Business:
The Tenant shall occupy the Premises from and alter the Commencement Date
and, thereafter throughout the Term, shall conduct continuously and
actively the business set out in Section 7.1 hereof.
14
7.3 Observance of Law:
The Tenant shall, at its sole cost and expense and subject to Sections 9.1
and 9.2 hereof, promptly:
(a) observe and comply with all provisions of law including, without
limiting the generality of the foregoing, all requirements of all
governmental authorities, including federal, provincial and
municipal legislative enactments, by-laws and other regulations now
or hereafter in force which pertain to or affect the Premises, the
Tenant's use of the conduct of any business in the Premises, or the
making of any repairs, replacements, alterations, additions,
changes, substitutions or improvements of or to the Premises;
(b) observe and comply with all requirements of, and pay for all costs
and expenses in connection with the controls imposed by governmental
authorities for ambient air and environmental standards;
(c) observe and comply with all police, fire, sanitary and environmental
regulations imposed by any governmental (federal, provincial or
municipal) authorities, or made by fire insurance underwriters; and
(d) carry out all modifications, alterations or changes of or to the
Premises and the Tenant's conduct of business in or use of the
Premises which are required by any such authorities as set out
above.
7.4 Extra-Provincial License:
If at any time during the Term, the Tenant is or becomes a corporation
which, under the laws of the Province of Quebec, is required to obtain an
extra-provincial license in order to carry on business in the manner
contemplated by this Lease, the Tenant shall obtain such license and shall
promptly and at its sole cost and expense take all steps that are
necessary to maintain same in good standing throughout the Term. The
Tenant shall from time to time, at the request of the Landlord, provide
the Landlord with evidence satisfactory to the Landlord and its solicitors
of the status and the particulars of any such license, or the basis on
which the Tenant is not so obliged to obtain or maintain such license.
15
ARTICLE VIII
INSURANCE AND INDEMNITY
8.1 Insurance:
(a) The Tenant, from the Commencement Date and throughout the Term, at
its sole cost and expense, shall take out and keep in full force and
effect and in the names of the Tenant, the Landlord and the
Mortgagee as their respective interests may appear, the following
insurance:
(i) Insurance upon:
(A) the Premises, together with all the improvements,
alterations and additions thereto and machinery and
equipment therein and thereon owned by the Landlord or
installed by or on behalf of the Landlord for the full
replacement cost thereof with coverage against at least
the perils of fire and standard extended coverage
including sprinkler leakages (if applicable),
earthquake, flood and collapse (as defined by the
policy);
(B) property of every description and kind owned by the
Tenant, or for which the Tenant is legally liable, or
installed by or on behalf of the Tenant, and which is
located within the Premises, including, without
limitation, furniture, fittings, installations,
alterations, additions, partitions, fixtures and
anything in the nature of a leasehold improvement (but
specifically excluding the Tenant' s stock-in-trade,
furniture and moveable equipment), in an amount of not
less than ninety per cent (90%) of the full replacement
cost thereof, with coverage against at least, the perils
of fire and standard extended coverage including
sprinkler leakages (where applicable), earthquake, flood
and collapse (as defined by the policy); and
(C) the Tenant's stock-in-trade, furniture and moveable
equipment in an amount of not less than ninety percent
(90%) replacement factory selling price thereof with
coverage against at least the perils of fire and
standard extended coverage
16
including sprinkler leakages (where applicable),
earthquake, flood and collapse (as defined by the
policy).
The amount of full replacement cost shall be determined from
time to time by an appraiser mutually acceptable to Landlord
and Tenant. In the event that Landlord and Tenant fall to
agree on a mutually accepted appraiser and if there is a
dispute as to the amount which comprises full replacement
cost, the decision of the Landlord and the Mortgagee shall be
conclusive;
(ii) broad form boiler and machinery insurance on a blanket repair
and replacement basis with limits for each accident in an
amount not less than the repair or the replacement cost of the
Premises and all leasehold improvements and of all boilers,
pressure vessels, air-conditioning equipment and miscellaneous
electrical apparatus owned or operated by the Tenant or by
Landlord or by others on behalf of the Tenant or the Landlord
in the Premises, or relating to or serving the Premises;
(iii) business interruption insurance in such amount as will
reimburse the Tenant for direct or indirect loss of earnings
attributable to all perils insured against in Section
8.1(a)(i) and 8.1(a)(ii) and other perils commonly Insured
against by prudent tenants or attributable to prevention of
access to the Premises as a result of such perils;
(iv) rental interruption insurance in such amount as will be
sufficient to pay Minimum Rent and Additional Rent for a
twelve (12) month period during the then current Rental Year.
(v) public liability and property damage insurance including
personal injury liability, employers' liability, and owners'
and contractors' protective insurance coverage with respect to
the Premises, such coverage to include the activities and
operations conducted by the Tenant and any other Person on the
Premises. Such policies shall:
(A) be written on a comprehensive basis with inclusive
limits of not less than Ten Million Dollars
($10,000,000) for bodily injury to any one or more
Persons or property damage, or such higher limits as the
17
Landlord, acting reasonably, or the Mortgagee requires
from time to time;
(B) not be invalidated as respects the interests of the
Landlord and the Mortgagee by reason of any breach or
violation of any warranties, representations,
declarations or conditions contained in the policies;
and
(C) contain a severability of interests provision and
cross-liability clause;
(vi) any other form of insurance as the Tenant or the Landlord,
acting reasonably, or the Mortgagee requires from time to time
in form, in amounts and for insurance risks against which a
prudent owner or tenant would insure.
(b) All policies required to be written on behalf of the Tenant pursuant
to Sections 8.1(a)(i), 8.1(a)(ii) and 8.1(a)(iii) shall contain the
Mortgagee's standard mortgage clause and all policies required to be
written on behalf of the Tenant pursuant to Sections 8.1(a)(i), 8.1
(a) (il), 8.1(a)(iii), 8.1(a)(iv) and 8.1(a)(v) shall contain a
waiver of any subrogation rights which the Tenants insurers may have
against the Landlord and against those for whom the Landlord is in
law responsible, whether any such damage is caused by the act,
omission or negligence of the Landlord or those for whom the
Landlord is in law responsible. All policies written on behalf of
Landlord with respect to the Premises shall contain a waiver of
subrogation of rights which Landlord's insurers may have against
Tenant and against those for whom the Tenant is in law responsible.
(c) All policies required to be written on behalf of the Tenant pursuant
to this Lease shall name Landlord and Mortgagee as additional
insured as its interest may appear, it being understood that their
rights in the proceeds payable with respect to the policies
described in Section 8.1(a)(i)(B) and 8.1(a)(i)(C), other than with
respect to the leasehold improvements, shall be subordinate to the
rights of secured creditors of Tenant;
(d) All policies:
(i) shall be taken out with reputable insurers acceptable to the
Landlord and the Mortgagee;
(ii) shall be in a form satisfactory from time to time to the
Landlord and the Mortgagee;
18
(iii) shall be non-contributing with, and shall apply only as
primary and not as excess to any other insurance available to
the Landlord or the Mortgagee; and
(iv) shall not be invalidated as respects the interests of any of
the Landlord, and of the Mortgagee by reason of any breach of
violation of any warranties, representations, declarations or
conditions contained in the policies.
All policies shall contain an undertaking by the insurers to notify
the Landlord and the Mortgagee in writing not less than thirty (30)
days prior to any material change, cancellation, or termination
thereof.
(e) The Tenant agrees that:
(i) certificates of insurance duly executed by the Tenant's
insurers evidencing the required insurance, or, if required by
the Landlord or the Mortgagee, certified copies of each such
insurance policy, will be delivered to the Landlord and the
Mortgagee as soon as practicable after the placing of the
required insurance;
(ii) no review or approval of any such insurance certificate by the
Landlord or the Mortgagee shall derogate from or diminish the
Landlord's or the Mortgagee's rights or the Tenant's
obligations contained in this Lease including, without
limitation, those contained in this Article VIII.
(f) The Tenant agrees that if the Tenant falls to take out or to keep in
force any such insurance referred to in this Section 8.1, or should
any such insurance not be approved by either the Landlord or the
Mortgagee, the Landlord has the right without assuming any
obligation in connection therewith, to effect such insurance at the
sole cost of the Tenant and all outlays by the Landlord shall be
immediately paid by the Tenant to the Landlord as Additional Rent on
the first (1st) day of the next month following said payment by the
Landlord without prejudice to any other rights and remedies of the
Landlord under this Lease.
8.2 Increase in Insurance Premiums:
The Tenant shall not keep, use, sell or offer for sale in or upon the
Premises any article which may be prohibited by any fire insurance policy
in force from time to time covering the Premises. If:
19
(a) the occupancy of the Premises;
(b) the conduct of business in the Premises;
(c) the sale of any merchandise from or on the Premises (whether or not
the Landlord has consented to the sale of such merchandise); or
(d) any acts or omissions of the Tenant in the Premises or any part
thereof,
causes or results in any increase in premiums for the insurance carried
from time to time by the Landlord with respect to the Premises, the Tenant
shall pay any such increase in premiums for the insurance carried from
time-to time by the Landlord as Additional Rent forthwith after invoices
for such additional premiums are rendered by the Landlord. The Tenant
shall comply promptly with all requirements of the Groupement Technique
des Assureurs or of any insurer now or hereafter in effect, pertaining to
or affecting the Premises.
8.3 Cancellation of Insurance:
If any insurance policy upon the Premises or any part thereof shall be
cancelled or shall be threatened by the insurer to be cancelled, or the
coverage thereunder reduced in any way by the insurer by reason of the use
and occupation of the Premises or any part thereof by the Tenant or by any
assignee or subtenant of the Tenant, or by anyone permitted by the Tenant
to be upon the Premises or for any other reason, and if the Tenant fails
to remedy the condition giving rise to cancellation, threatened
cancellation, or reduction of coverage within five (5) business days after
written notice thereof by the Landlord or within a shorter delay if same
is required by the insurer, the Landlord may, at its option, either:
(a) repossess the Premises forthwith by delivering to Tenant a notice in
writing of its intention so to do and thereupon the Landlord shall
have the same rights and remedies as are contained in Article XIV,
or
(b) enter upon the Premises and remedy the condition giving rise to such
cancellation, threatened cancellation or reduction, and the Tenant
shall forthwith pay the cost thereof to the Landlord, which cost may
be collected by the Landlord as Additional Rent, and the Landlord
shall not be liable for any damage or injury caused to any property
of the Tenant or of others located on the Premises as a result of
any such entry. The Tenant agrees that any such entry by the
Landlord is not a breach of any obligation for peaceable enjoyment
contained in this Lease
20
8.4 Loss or Damage:
Landlord shall not be liable for any death or injury arising from or out
of any occurrence in, upon, at, or relating to, the Premises, or damage to
property of the Tenant or of others located on the Premises, nor shall it
be responsible for any loss of or damage to any property of the Tenant or
others from any cause whatsoever, whether or not any such death, injury,
loss or damage results from the negligence of the Landlord or its agents,
servants or employees or other Persons for whom it may, in law, be
responsible. Without limiting the generality of the foregoing, the
Landlord shall not be liable for any injury or damage to Persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, water, rain, flood, snow, ice or leaks from any part of the
Premises or from the pipes, appliances, plumbing works, roof, or
subsurface of any floor or ceiling or from the street or any other place
or by dampness or by any other cause whatsoever. Landlord shall not be
liable for any such damage caused by other tenants or Persons in the
Premises or by occupants of property adjacent thereto, or the public, or
caused by construction or by any private, public or quasi-public work. All
property of the Tenant kept or stored on the Premises shall be so kept or
stored at the risk of the Tenant only and the Tenant shall indemnify the
Landlord and save it harmless from any claims arising out of any damages
to the same, including, without limitation, any subrogation claims by the
Tenant's insurers.
8.5 Indemnification of Landlord:
Notwithstanding any other terms, obligations and conditions contained in
this Lease, the Tenant shall indemnify the Landlord and save it harmless
from and against any and all loss (including loss of all rent payable by
the Tenant pursuant to this Lease), claims, actions, damages, liability
and expense in connection with loss of life, personal injury, damage to
property or any other loss or injury whatsoever arising from or out of
this Lease, or any occurrence in, upon or at the Premises, or the
occupancy or use by the Tenant of the Premises or any part thereof, or
anyone permitted to be on the Premises by the Tenant whether or not such
loss, claims, actions, damages, liability or expense results from the
negligence of the Landlord or its agents, servants or employees or other
Persons for whom it may, in law, be responsible. If any claim is made
against the Landlord with respect to this Lease, the Premises or the
Tenant or if the Landlord shall be made a party to any litigation
commenced by or against the Tenant, then the Tenant shall protect,
indemnify and hold the Landlord harmless and shall pay all costs, expenses
and reasonable legal fees incurred or paid by the Landlord in connection
with such claim or litigation. The Tenant shall also pay all costs,
expenses and legal fees that may be incurred or paid by the
21
Landlord in enforcing the terms, obligations and conditions in this Lease.
It is agreed by the parties hereto that any indemnification for which the
Tenant is responsible shall be less any insurance proceeds paid to
Landlord or for the benefit of Landlord in respect of such loss, claims,
actions, damages, liability or expense.
ARTICLE IX
MAINTENANCE, REPAIRS AND ALTERATIONS
9.1 Maintenance and Repairs by Tenant:
The Tenant shall, at all times during the Term at its sole cost, repair,
keep and maintain the Premises in good order and repair (which shall
include, without limitation, periodic painting and decoration), in at
least as good condition as at the Commencement Date as determined by the
Landlord and shall, subject to Section 9.2, make all needed repairs and
replacements thereto (including, without limitation, all major and minor
repairs), with due diligence and dispatch to:
(a) the whole of the Premises, interior and exterior (including without
limitation, the structure thereof, entrances, all glass, show window
mouldings and exterior surfaces); and
(b) all equipment in and appurtenances of the Premises and improvements
to the Premises (including, without limitation, lighting, wiring,
plumbing fixtures and equipment and heating, air-conditioning and
ventilating fixtures and equipment),
the whole notwithstanding any law or regulation to the contrary relating
to maintenance and repair of leased premises.
9.2 Landlord's Approval of the Tenant's Repairs:
The Tenant shall not make any repairs, alterations, replacements, or
improvements to any part of the Premises without first obtaining the
Landlord's written approval not to be unreasonably withheld or delayed.
The Tenant shall submit to the Landlord:
(a) details of the proposed work including drawings and specifications
prepared by qualified architects or engineers and conforming to good
engineering practice;
(b) such indemnification against privileges, costs, damages and expenses
as the Landlord requires; and
(c) evidence satisfactory to the Landlord that the Tenant has obtained,
at its expense, all necessary consents,
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permits, licenses and inspections from all governmental and
regulatory authorities having jurisdiction. All such repairs,
replacements, alterations, or improvements by the Tenant to the
Premises approved by the Landlord shall be performed:
(i) at the sole cost of the Tenant;
(ii) by competent workmen whose labour union affiliations are
compatible with others employed by the Landlord and its
contractors;
(iii) in a good and workmanlike manner;
(iv) in accordance with the drawings and specifications approved by
the Landlord; and
(v) subject to the reasonable regulations, controls and inspection
of the Landlord.
Any such repairs, replacements, alterations, or improvements made by the
Tenant without the prior written consent of the Landlord or which are not
made in accordance with the drawings and specifications approved by the
Landlord shall, if requested by the Landlord, be promptly removed by the
Tenant at the Tenant's expense and the Premises restored to their previous
condition. Where Landlord's approval is required hereunder, Landlord shall
be deemed to have approved any such request if Landlord shall have not
communicated its disapproval thereof within twenty-one (21) days following
the date when the Landlord shall have received all of the documents
required to be submitted by Tenant pursuant hereto with respect to such
proposed repair, replacement, alteration or improvement. Notwithstanding
the foregoing, the approval of Landlord shall not be required in respect
of (i) minor nonstructural repairs replacements, improvements or
alterations having a cost of not more than Fifty Thousand Dollars
($50,000) in respect of each repair or alteration, (ii) repairs having a
cost of Ten Thousand Dollars ($10,000) or less; (iii) repairs of an
emergency nature irrespective of the cost thereof, provided that notice of
such repair be provided contemporaneously to Landlord; and (iv)
renovations of the interior portion of the Premises used for retail sales
provided that such renovations be non-structural and that in the case of
subsections (i) and (iv) only, Tenant shall have given prior notice in
writing to Landlord in respect to such proposed repairs, alterations or
renovations not less than ten (10) days prior to the commencement of work
with respect thereto.
No repairs, alterations, additions, decorations or improvements to the
Premises by or on behalf of the Tenant shall be permitted which may weaken
or endanger the structure or adversely affect the condition or operation
of the Premises or diminish the
23
value thereof, or restrict or reduce the Landlord's coverage for zoning
purposes.
The parties hereto acknowledge that the Tenant has agreed to undertake to
renovate the Premises within the first three (3) years of the Term in the
amount of not less than Two Million Five Hundred Thousand Dollars
($2,500,000). The Tenant has submitted to the Landlord, and the Landlord
acknowledges having received, details of the proposed work including
drawings and specifications prepared by qualified architects. The Landlord
has given its written approval to the said renovations as evidenced in a
letter dated November 28th, 2000. It is understood by the parties hereto
that a failure by the Tenant to undertake the renovations described herein
shall constitute a default under this Lease in accordance with the
provisions of Article XIV.
9.3 Maintenance by Landlord:
The Landlord shall not be required to perform any maintenance or repair of
any nature whatsoever to the Premises or any part thereof, the whole
notwithstanding any law or regulation to the contrary, the intent of the
parties being that Tenant shall be solely liable and responsible for the
performance of all maintenance and repairs of every nature whatsoever to
the Premises.
If the Tenant refuses or neglects to commence promptly any repairs as
required pursuant to Section 9.1 hereof following written notice thereof
from Landlord and to carry out and complete such repairs on an expeditious
basis or to the responsible satisfaction of the Landlord, the Landlord
may, but shall not be obliged to, perform such maintenance and repairs and
replacements without liability to the Tenant for any loss or damage that
may result to the Tenant's merchandise, fixtures or other property or to
the Tenant's business by reason thereof, and upon completion thereof, the
Tenant shall pay to the Landlord as Additional Rent upon demand, both the
Landlord's costs relating to any such maintenance and repairs and
replacements plus a sum equal to fifteen percent (15%) thereof
representing the Landlord's overhead the whole without prejudice to the
Landlord's rights arising pursuant to Section 14.1 relating to the
Tenant's failure to perform its obligations as herein contained. The
Tenant agrees that the making of any maintenance and repairs and
replacements by the Landlord pursuant to this Section 9.3 is not a breach
of any obligation for peaceable enjoyment contained in this Lease.
9.4 Repair on Notice:
In addition to the obligations of the Tenant contained in Section 9.1
hereof, the Tenant shall effect all repairs referred to
24
therein according to notice from the Landlord but failure by the Landlord
to give notice shall not relieve the Tenant from its obligations under
Section 9.1 hereof.
9.5 Return of the Premises:
At the termination of this Lease, the Tenant will quit the Premises and
will peaceably surrender and yield and deliver the same up to the Landlord
together with all alterations, decorations, additions and improvements
thereon (save such fixtures as are specifically excepted by the terms of
this Lease) in good order and repair in at least as good condition as at
the Commencement Date, and no compensation shall be paid by the Landlord
to the Tenant therefore, and all such improvements shall remain the sole
property of the Landlord.
9.6 Tenant Not to Overload Facilities:
The Tenant shall not install any equipment which will exceed or overload
the capacity of any utility, electrical or mechanical facilities in the
Premises and the Tenant will not bring into the Premises or install any
utility, electrical or mechanical facility or service which the Landlord
does not approve. The Tenant agrees that if any equipment installed by the
Tenant requires additional utility, electrical or mechanical facilities,
the Landlord may in its sole discretion, if they are available, elect to
install them at the Tenants expense and in accordance with plans and
specifications to be approved in advance in writing by the Landlord.
9.7 Tenant Not to Overload Floors:
The Tenant shall not bring upon the Premises or any part thereof, any
machinery, equipment, article or thing that by reason of its weight, site
or use, might in the opinion of the Landlord damage the Premises and shall
not at any time overload the Floors of the Premises. If any damage is
caused to the Premises by any machinery, equipment, object or thing or by
overloading, or by any act, neglect, or misuse on the part of the Tenant,
or any of its servants, agents, or employees, or any Person having
business with the Tenant, the Tenant shall forthwith repair such damage,
or in the event the Tenant shall fall to forthwith repair such damage
following request by Landlord, at the option of the Landlord, pay the
Landlord forthwith on demand as Additional Rent, the cost of repairing
such damage plus a sum equal to fifteen percent (15%) of such cost
representing the Landlord's overhead.
9.8 Environmental Condition of Property:
The Tenant warrants and represents that during its occupancy of the
Premises, as described above, it will not store, process or cause to
remain on the Premises any contaminants,
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pollutants, toxic or dangerous or hazardous substances or materials or
wastes, PCBs, friable asbestos, or oil contaminants which may have
penetrated into the soil and/or building areas, and/or any other
substances which create an environmental problem, or any other similar
contamination except certain small quantities of acid used in the ordinary
course of the production of jewellery (hereinafter altogether referred to
as "Contaminants"). Furthermore, should there be evidence that
Contaminants have been placed on the Premises by the Tenant during or
prior to the Term, the Tenant shall be responsible for the cost of an
environmental audit of the Premises prepared by the Landlord's reputable
Environmental Consultant and shall comply, at its cost, with the methods
of removal of said Contaminants as specified by the said Environmental
Consultant. Landlord acknowledges that it is aware that friable asbestos
is presently on the Premises and Tenant shall not be required to remove
same as long as during the Term same remains in compliance with all
applicable legislation; all liability of every nature whatsoever arising
from such friable asbestos or any asbestos which has previously been
within the Premises shall be borne exclusively by Tenant and Tenant shall
indemnify Landlord and hold Landlord harmless in respect thereof. The
obligations of the Tenant outlined in this Section 9.8 shall survive the
termination of this Lease.
9.9 Removal and Restoration by Tenant:
(a) All alterations, decorations, additions and improvements made by the
Tenant, or made by the Landlord on the Tenant's behalf (other than
the Tenants trade fixtures), shall immediately become the property
of the Landlord upon affixation or installation without compensation
therefore to the Tenant. Such alterations, decorations, additions or
improvements shall not be removed from the Premises either during or
at the expiration of the Term or earlier termination of this Lease
without compliance with the provisions of Section 9.2, except that:
(i) the Tenant may during the Term in the usual or normal course
of its business remove its trade fixtures, provided such trade
fixtures have become excess for the Tenant's purposes or the
Tenant is substituting new and similar trade fixtures
therefor, and provided that in each case,
(A) the Tenant is not in default under this Lease; and
(B) such removal is done at the Tenant's sole cost and
expense; and
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(ii) the Tenant shall, at the expiration of the Term, at its own
cost, remove all its trade fixtures, including without
limitation, any free-standing safes and such of its leasehold
improvements and fixtures installed in the Premises by or for
the Tenant or by or for its predecessors as the Landlord
requires to be removed. Landlord shall give Tenant notice at
least thirty (30) days prior to the expiration of the Term as
to those leasehold improvements and fixtures which Landlord
requires Tenant to remove and if it shall be not possible for
Tenant, using all reasonable diligence, to remove all of same
prior to the expiration of the Term, Landlord shall grant to
Tenant such additional period of time as Landlord may
determine, acting reasonably, that shall be necessary in order
to permit Tenant to completely remove such leasehold
improvements and fixtures.
(b) If the Tenant does not remove its trade fixtures at the expiration
of the Term or earlier termination of this Lease, the trade fixtures
shall, at the option of the Landlord, become the property of the
Landlord and may be removed from the Premises and sold or disposed
of by the Landlord in such manner as it deems advisable. The Tenant
shall be responsible for the reasonable costs incurred by the
Landlord to remove the said property plus fifteen percent (15%).
(c) The Tenant shall, in the case of every such installation or removal
either during or at the expiration of the Term effect the same at
times designated by the Landlord and promptly make good any damage
caused to the Premises by the installation or removal of any such
alterations, decorations, additions or improvements.
(d) For greater certainty, the Tenant's trade fixtures shall not include
any:
(i) heating, ventilating or air-conditioning systems, facilities
and equipment in, or serving the Premises;
(ii) floor covering affixed to the floor of the Premises;
(iii) light fixtures;
(iv) store front and doors; and
(v) internal stairways;
all of which are deemed to be leasehold improvements.
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9.10 Notice by Tenant:
The Tenant shall, when it becomes aware of same, notify the Landlord of
any damage to or deficiency or defect in any part of the Premises, any
equipment or utility systems, or any installations located therein,
notwithstanding the Tact that the Landlord may have no obligations with
respect to them, provided that no such notice shall be required in the
case of damage, deficiency or defect having a cost to repair in the
aggregate of Ten Thousand Dollars ($10,000) or less and provided that the
Tenant shall nonetheless have the obligation to repair or replace same
promptly.
9.11 Tenant to Discharge All Privileges, Charges and Legal Hypothecs:
The Tenant shall at all times throughout the Term promptly pay all its
contractors, suppliers and workmen and all charges incurred by or on
behalf of the Tenant for any work, materials or services which may be
done, supplied, or performed at any time in respect of the Premises and
the Tenant shall do any and all things necessary so as to ensure that no
privilege, charge or legal hypothec is created or registered against the
Premises or any part thereof or against the Tenant' s interest in the
Premises and if any such privilege, charge or legal hypothec is created or
registered, the Tenant shall discharge it or cause it to be discharged
forthwith at the Tenants expense.
If the Tenant falls to discharge or cause any such privilege, charge or
legal hypothec to be discharged as aforesaid then, in addition to any
other right or remedy of the Landlord, the Landlord may, but it shall not
be obligated to, discharge the same by paying the amount claimed to be due
into court or directly to any such creditor, and the amount so paid by the
Landlord and all costs and expenses including attorney's fees incurred for
the discharge of such privilege, charge or legal hypothec shall be
immediately due and payable by the Tenant to the Landlord as Additional
Rent on demand.
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ARTICLE X
DAMAGE AND DESTRUCTION AND EXPROPRIATION
10.1 Destruction of Premises:
If the Premises are at any time destroyed or damaged by any cause
whatsoever, then:
(a) there shall not be any abatement of any Minimum Rent or any
Additional Rent and the Tenant shall remain liable to perform all of
its obligations under this Lease notwithstanding such damage and
destruction, save in
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28
the event of termination of this Lease as hereinafter provided;
(b) Tenant shall notify Landlord and the Mortgagee within forty five
(45) days of the happening of such damage or destruction as to
whether or not it shall restore, repair or reconstruct the Premises
and in the event that Tenant notifies the Landlord and the Mortgagee
that it shall restore, repair or reconstruct the Premises, then the
Tenant shall proceed diligently to effect the necessary repairs,
restoration or reconstruction and Sections 9.2 and 9.11 shall apply,
mutatis mutandis. Tenant shall be deemed to have notified Landlord
and the Mortgagee that it shall repair, restore and reconstruct if
no notice is given by it within such delay;
(c) if pursuant to Section 10.1(b) Tenant notifies the Landlord and the
Mortgagee that it shall not restore, repair or reconstruct the
Premises then Landlord may, within thirty (30) days following
receipt of Tenants notice, notify the Tenant that the Landlord
requires the Tenant to restore, repair or reconstruct the Premises,
in which case the Tenant shall proceed diligently to restore, repair
or reconstruct in the mariner contemplated in paragraph (b) above.
If no notice is given by Landlord within such delay, Landlord shall
be deemed to have notified Tenant that it does not require the
Tenant to restore, repair or reconstruct the Premises;
(d) In the event that the Tenant has elected not to restore, repair or
reconstruct the Premises and Landlord has notified or is deemed to
have notified Tenant that Tenant shall not be obliged to restore,
repair or reconstruct the Premises, then Landlord may terminate this
Lease provided Landlord gives Tenant a written notice within five
(5) days of the end of the notice period provided for in Section
10.1(c) of its intention to terminate this Lease. If Landlord elects
to terminate this Lease as aforesaid, Tenant shall notify Landlord
within fifteen (15) days of receipt of said written notice of the
Tenants intention to either restore, repair or reconstruct the
Premises or accept the termination of this Lease. In the event that
within such fifteen (15) day period, the Tenant notifies the
Landlord of its intention to restore, repair or reconstruct the
Premises, it shall proceed to do so promptly and the provisions of
Section 10.1(e) and following shall apply thereto. In the event the
Tenant notifies the Landlord within such period of time that it
accepts the termination of this Lease, or in the event that the
Tenant falls to send such notice to Landlord within such period of
time, then this Lease shall terminate at
29
the expiry of such fifteen (15) day period and the provisions of
Section 9.5 of this Lease shall apply;
(e) in the event that Tenant elects or is required to restore, repair or
reconstruct, the Premises shall be restored to substantially the
same condition as they were immediately prior to the occurrence of
the damage or destruction and in the event of total destruction, the
Premises shall be substantially of the same size, construction and
design as the Premises prior to the damage and destruction, unless
the Tenant elects to modify the size, construction and design of the
Premises the whole subject to the authorization in writing by the
Landlord, which may be arbitrarily withheld;
(f) all insurance proceeds payable as a result of such damage or
destruction shall be paid directly to the Landlord and the
Mortgagee, each to the extent of its respective interest. In the
event of termination of this Lease in accordance with Section
10.1(d), such proceeds shall remain the absolute property of the
Landlord and the Mortgagee respectively.
(g) subject to the provisions of Section 10.1(h) the Landlord shall,
upon completion of the repair, restoration or reconstruction and
payment of all costs and expenses incidental thereto, pay over to
the Tenant, from any insurance proceeds received by Landlord (which,
for greater certainty, shall not include proceeds paid to and
retained by Mortgagee), an amount equal to the aggregate amount of
the costs and expenses incurred by the Tenant in connection with the
repair, restoration or reconstruction but only to the extent of such
insurance proceeds. In the event that the total estimated cost of
repair, restoration or reconstruction as certified by Architect's
Certificate, is greater than the total amount of insurance proceeds
relating to such damage or destruction paid to Landlord and the
Mortgagee, Tenant shall be responsible for such excess (the
"Excess") without reimbursement by Landlord. In the event that such
an Excess does exist, the Tenant shall pay the Excess first and only
thereafter seek reimbursement for the costs incurred over and above
the Excess in accordance with this Article X.
(h) notwithstanding the provisions of Section 10.1(8), the Landlord
will, after its approval of all matters set forth in Section 9.2
with respect to the aforesaid restoration or reconstruction, if
requested by the Tenant and provided Tenant has paid the Excess, if
any, pay such proceeds in installments against proper Architect's
Certificates during the period of reconstruction. The Landlord (or
its
30
agent as hereinafter provided) shall have the right to have
exhibited to it, in addition to the Architect's Certificates,
receipted accounts for all sums expended by the Tenant. For such
purposes the Landlord shall arrange to have the proceeds of
insurance policies paid to Landlord's Canadian legal counsel who
shall hold such funds and disburse same to Tenant in accordance with
the provisions of this Section 10.1(h). At the time of the Tenant's
request for payment, the Landlord may deduct from the amount
requested an amount not to exceed ten per cent (10%) (the
"Holdback") to pay a potential claim of the supplier of materials
and/or services (the "Supplier") identified in the account in
question who may have a legal hypothec against the Premises. Upon
completion of the entire restoration and reconstruction and
presentation of an acquittance from the Supplier, the Landlord shall
forthwith reimburse the Tenant the Holdback in question. The
reasonable costs of Landlord's Canadian legal counsel incurred in
connection with this process shall be borne by Tenant and shall
constitute Additional Rent.
(i) in the event of failure by Tenant to proceed to restore, repair or
reconstruct the Premises as herein provided within a reasonable
delay, Landlord may, alter notice in writing to Tenant putting the
Tenant in default, without prejudice to any of Landlord's other
rights, remedies and recourses arising from such failure of Tenant
including the rights arising from the default of Tenant as set forth
in Article XIV hereof, elect to cause such repair, restoration or
reconstruction to be effected and any and all costs and expenses
incurred by Landlord over and above the amount of the insurance
proceeds payable to Landlord and Mortgagee together with an
administration fee of fifteen percent (15%) shall be due and payable
by Tenant to Landlord, on demand.
(j) in the event the insurance proceeds payable to the Mortgagee are not
made available to Tenant by the Mortgagee to finance the
restoration, repair or reconstruction of the Premises (the "Retained
Proceeds"), then the following shall apply:
(i) the Landlord shall make any proceeds paid to it available to
Tenant for Tenant's restoration, repair or reconstruction, in
accordance with Sections 10.1(8) and (h) unless the Tenant
decides to purchase the Premises in accordance with Section
10.1(j)(iii)(A);
(ii) the Landlord may elect to provide the Tenant with an amount
equal to the Retained Proceeds, the
31
whole in accordance with Sections 10.1(g) and (h). The
Landlord shall inform the Tenant in writing of its decision
(the "Landlord's Decision") within the delay provided in
Section 10.1(c);
(iii) in the event the Landlord elects not to provide the Tenant
with an amount equal to the Retained Proceeds, the Tenant
shall inform the Landlord in writing, within thirty (30) days
of receipt of the Landlord's Decision, of whether it will:
(A) purchase the Premises at the "Adjusted Price" (as
hereinafter defined) for the year in which the damage
occurred less the amount of the total insurance proceeds
paid to Landlord and Mortgagee;
or
(B) carry out the restoration, repairs or reconstruction of
the Premises, the Landlord agreeing to reimburse the
Tenant up to the amount of the total insurance proceeds
payable to the Landlord and Mortgagee in the manner
provided herein. The Landlord shall reimburse the Tenant
in accordance with Section 10.1(8) and (h) from the
insurance proceeds received by the Landlord (which, for
greater certainty, shall not include proceeds paid to
and retained by Mortgagee). In addition, the Landlord
shall reimburse the costs incurred by the Tenant up to
the amount of the Retained Proceeds (the "Loan Amount")
by providing the Tenant with a credit applicable against
the Rent payable by the Tenant during the lesser of five
(5) years or the remainder of the Term (the "Repayment
Period"). The Loan Amount shall be amortized in equal
monthly installments over the Repayment Period with
deemed interest applicable at the rate paid by Landlord
to Mortgagee and the amount of such monthly installment
shall be credited against Tenants obligation to pay
Minimum Rent. In the event the Loan Amount is not fully
repaid at the end of the Repayment Period, the Landlord
may repay the outstanding Loan Amount on the last day of
the Repayment Period. If the Landlord elects not to
repay the outstanding Loan Amount, the Tenant shall
32
have the option to purchase the Premises at the Adjusted
Price for the then current year less the outstanding
amount of the Loan Amount. The Landlord shall inform the
Tenant of its decision to repay the outstanding Loan
Amount no later than one hundred and twenty (120) days
prior to the end of the Repayment Period. If the
Landlord elects not to pay the outstanding Loan Amount,
the Tenant shall inform the Landlord of its decision to
exercise the option to purchase described above no later
than ninety (90) days prior to the end of the Repayment
Period. If the Tenant elects not to purchase the
Premises, the Landlord shall pay to Tenant the
outstanding amount of the Loan Amount on the last day of
the Repayment Period.
"Adjusted Price" as used in this Article X means the
amount equal to 10.3636 multiplied by the annual Minimum
Rent payable at the time the purchase referred to in
this Article X is closed.
10.2 Expropriation:
Both the Landlord and the Tenant agree to cooperate with each other in
respect of any expropriation of all or any part of the Premises so that
each may receive the maximum award in the case of any expropriation to
which they are respectively entitled at law. For greater certainty, the
Tenant acknowledges that the entirety of any indemnity or award related to
the expropriation of all or any part of the land and building constituting
the Premises shall be for the account of the Landlord, and the Tenant
shall not in any event be entitled to any portion thereof. If at any time
during the Term all or a substantial part of the Premises (such that
business is unable to be carried on in the Premises for a period of three
hundred and sixty-five (365) days or more), is acquired or expropriated by
any lawful expropriating authority, or if reasonable access to the
Premises is materially and adversely affected by any such acquisition or
expropriation for a period of three hundred and sixty-five (365) days or
more, then in any of such events, at the option of the Landlord or the
Tenant, this Lease shall cease and terminate as of the date of the
transfer to such expropriating authority and the Tenant shall have no
claim against the Landlord for the value of any unexpired portion of the
Term or for damages or for any reason whatsoever. If neither the Landlord
nor the Tenant elects to cancel this Lease by notice as aforesaid, this
Lease shall continue in full force and effect, without any reduction or
abatement of Rent provided that if any part of the
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33
Premises is expropriated, and as a result thereof the area of the Premises
is physically reduced, then, from and after the date of such physical
reduction the Minimum Rent payable by the Tenant pursuant to Section 4.2
be adjusted in proportion to the area of such reduction.
ARTICLE XI
ASSIGNMENT AND SUBLETTING
11.1 Consent Required:
The Tenant will not, in any event, assign this Lease in whole or in part,
nor sublet all or any part of the Premises, nor suffer or permit the
occupation, or part with or share possession, of all or any part of the
Premises by or with any Person, (all of the foregoing being hereinafter
collectively referred to as a "Transfer") without the prior written
consent of the Landlord in each instance, which consent shall not be
unreasonably withheld. The Tenant shall not in any event hypothecate or
encumber this Lease or its interest therein or the Premises or any part
thereof.
Notwithstanding the provisions of this Article XI and the definition of
Transfer, the following shall not constitute a Transfer:
(a) a change of control exclusively among the persons and entities which
are the present shareholders of the Tenant;
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(b) a change of control of the Tenant;
(c) an amalgamation of the Tenant;
(d) a transfer of the Lease or a sublease of the Premises in whole or in
part, to, a parent, an affiliate or an associate of the Tenant, as
these expressions are defined in the Canada Business Corporations
Act,
(e) any public offering of the shares or securities of the Tenant
pursuant to the Securities Act (Quebec);
(f) any transfer of the shares or securities of the Tenant once it has
become a reporting issuer within the meaning of the of the
Securities Act (Quebec), or once it has acquired a similar status
under any similar securities legislation;
(g) any lease by the Tenant of a small portion of the retail part of the
Premises for boutiques or other concessions as well as concessions
related to the operation of Tenant's business such as the Tenant's
employee
34
cafeteria and other space which may be occupied by providers of
service to the Tenant or Tenant's customers that form an integral
part of the conduct of the Tenant's business operations such as,
without limiting the generality of the foregoing, repair services
for watches; or
(h) the lease of the space located at 630 Ste-Catherine Street West,
Montreal, Quebec that as of date hereof is leased to 2867-8985
Quebec Inc. provided that the nature of the business of the new
tenant will not diminish the rentable value of the Premises as
compared to the nature of the business presently being carried out
by 2867-8985 Quebec Inc.;
the Landlord and the Tenant agreeing that such operations shall be
permitted without requiring compliance with the provisions of this Article
XI. The Tenant undertakes to provide the Landlord, upon the Landlord's
written request, a copy of any subleases entered into by the Tenant
pursuant to this Section 11.1.
Notwithstanding the provisions of this Article XI and the definition of
Transfer, subject to obtaining the consent of any Mortgagee, the Tenant
shall be entitled to Transfer this Lease if such Transfer is effected in
connection with the sale of not less than fifty percent (50%) of the
retail stores operated by Tenant and its affiliates to a third party
acting at arm's length with Tenant and its affiliates, provided that as a
condition precedent to any such Transfer, Tenant shall (i) not be in
default of the Lease at the time of the Transfer and (ii) provide Landlord
with all information requested by Landlord with respect to the financial
position of the proposed transferee and Landlord shall have determined,
acting reasonably, that such proposed transferee has a credit standing at
least equal to that of Tenant.
The Landlord acknowledges and accepts that as of the Commencement Date, a
portion of the Premises are leased to 2867-8985 Quebec Inc. pursuant to
the following terms and conditions:
The leased premises consist of one thousand one hundred ninety-seven
(1,197) square feet on the ground floor and eight hundred eight
(808) square feet in the basement and the term expires July 31,
2002, subject to renewal.
Landlord shall not be obliged to provide its consent to any such Transfer
unless the entity to which the Transfer is proposed to be made shall have
a credit rating at least equal to, or be considered by Landlord's bankers
to be as creditworthy as, Tenant on the date hereof and the proposed use
of the
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Premises by such entity will not, in the judgment of Landlord, reasonably
expressed, impair the value or leasability of the Premises. No Transfer of
this Lease will be permitted if such Transfer would result in a breach or
non-compliance with the provisions of this Lease or of any agreement in
favour of any Mortgagee which appears on title to the Premises or of which
Landlord has provided notice in writing to Tenant within thirty (30) days
after request therefor from Tenant.
If there is a Transfer of this Lease, the Landlord may collect rent from
the assignee, subtenant or occupant (all of the foregoing being
hereinafter collectively referred to as the "Transferee"), and apply the
net amount collected to the Rent required to be paid pursuant to this
Lease, but no acceptance by the Landlord of any payments by a Transferee
shall be deemed a waiver of the requirements contained herein, or the
acceptance of the Transferee as Tenant, or a release of the Tenant from
the further performance by the Tenant of the obligations on the part of
the Tenant herein contained. Any document or consent evidencing such
Transfer of this Lease if permitted or consented to by the Landlord shall
be prepared by the Landlord or its attorneys, and all reasonably legal
costs with respect thereto shall be paid by the Tenant to the Landlord
forthwith upon demand. Any Transfer or transaction contemplated in
subparagraph (d) of the second paragraph of this Section 11.1 shall be
subject to the Tenants causing any such Transferee to promptly execute an
agreement directly with the Landlord assuming and agreeing to be bound by
all of the terms, obligations and conditions contained in this Lease (to
the extent that such terms, obligations and conditions are applicable to
the portion of the Premises subject to such Transfer of Lease) as if such
Transferee had originally executed this Lease as Tenant. Notwithstanding
any such transfer permitted hereunder or consented to by the Landlord, the
Tenant shall be solidarily liable with the Transferee on this Lease and
shall not be released from performing any of the terms, obligations and
conditions of this Lease.
It is understood by the parties hereto that upon any assignment by Tenant
of all or substantially all of the Tenants rights under this Lease, Tenant
shall also assign to such assignee the Options to Purchase, the renewal
options and the Tenants Hypothec.
11.2 No Advertising of Premises:
The Tenant shall not advertise the whole or any part of the Premises or
this Lease for the purposes of a Transfer and shall not print, publish,
post, display or broadcast any notice or advertisement to that effect, and
shall not permit any broker or other Person to do any of the foregoing,
unless the complete text and format of any such notice, advertisement, or
offer is
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36
first approved in writing by the Landlord. Without in any way restricting
or limiting the Landlord's right to refuse any text or format on other
grounds, any text or format proposed by the Tenant shall not contain any
reference to the rental rate of the Premises.
11.3 Assignment by Landlord:
In the event of the sale, lease or other disposition by the Landlord of
the Premises or any part thereof, or the assignment by the Landlord of
this Lease or any interest of the Landlord hereunder, and to the extent
that such purchaser or assignee assumes the obligations of the Landlord
hereunder, the Landlord shall, thereupon and without further agreement, be
freed and relieved of all liability with respect to such obligations.
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ARTICLE XII
ACCESS AND ALTERATIONS
12.1 Right of Entry:
The Landlord and its agents have the right to enter the Premises after
having given the Tenant a twenty-four (24) hours' prior notice during
Tenant's regular business hours (and for greater certainty except in the
case of an emergency or deemed emergency in which case no notice shall be
necessary) at all times to examine the same.
The Landlord and its agents have the right to enter the Premises during
Tenants regular business hours after having given the Tenant twenty-four
(24) hours prior notice to show them to prospective purchasers, or
hypothecary creditors and during the twelve (12) months prior to the
expiration of the Term, the Landlord may show the Premises to prospective
lessees on the basis hereinabove stated. During such period of time as
Tenant is in default hereunder, the Landlord may place upon the Premises
"For Rent" or "For Sale" notices which the Tenant shall permit to remain
thereon without interference or complaint.
If subject to the above conditions the Tenant is not personally present to
open and permit an entry into the Premises, at any time when for any
reason an entry therein is necessary, the Landlord or its agents may
forcibly enter the same, without rendering the Landlord or such agents
liable therefor, and without in any manner affecting the obligations under
this Lease. Nothing herein contained, however, is deemed or construed to
impose upon the Landlord any obligation, responsibility
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37
or liability whatsoever for the care, maintenance or repair of the
Premises, or any part thereof. The Tenant agrees that any entry by the
Landlord upon the Premises in accordance with this Section 12.1 is not a
breach of any obligation for peaceable enjoyment contained in this Lease
or implied by law.
12.2 Excavation:
If an excavation is made upon land adjacent to the Premises, or is
authorized to be made by the Landlord or its duly authorized
representatives, the Tenant shall grant the Person making or authorized to
make such excavation, permission to enter upon the Premises for the
purpose of doing such work as the Landlord considers necessary to preserve
the walls of the building of which the Premises form a part from injury or
damage and to support the same in an appropriate manner, without giving
rise to any claim for damages or indemnification against the Landlord or
any diminution or abatement of Rent. The Tenant agrees that any work
undertaken by or on behalf of the Landlord pursuant to this Section 12.2
is not a breach of any obligation for peaceable enjoyment contained in
this Lease or implied by law.
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ARTICLE XIII
STATUS STATEMENT AND SUBORDINATION
13.1 Status Statement:
Within ten (10) days after written request therefor by the Landlord, or if
upon any sale, assignment, lease or hypothecation of the Premises or the
land thereunder by the Landlord, a status statement is required from the
Tenant, the Tenant shall, without cost to the Landlord, deliver in a form
supplied by the Landlord, a status statement or a certificate to any
proposed hypothecary creditor, lessee or purchaser, or to the Landlord,
stating (if such is the case):
(a) that this Lease is unmodified and in full force and effect (or if
there have been modifications, that this Lease is in full force and
effect as modified and identifying the modification agreements) or
if this Lease is not in full force and effect, the certificate shall
so state;
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(b) the Commencement Date;
(c) the amount of and the date to which Rent has been paid under this
Lease;
(d) whether or not there is any existing default by the Tenant in the
payment of any Rent or other sum of money under
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this Lease, and whether or not there is any other existing or
alleged default by either party under this Lease with respect to
which a notice of default has been served and if there is any such
default, specifying the nature and extent thereof;
(e) whether there are any set-offs, defences or counterclaims against
enforcement of the obligations to be performed by the Tenant under
this Lease; and
(f) with reasonable particularity, details (which may be limited to a
letter from the Tenants banker) respecting the Tenants and any
Surety's, as the case may be, financial standing and corporate
organization; and
(g) any other matter that may be requested by the Landlord, acting
reasonably
13.2 Subordination:
(a) It is a condition of this Lease and the Tenants rights granted
hereunder that this Lease and all of the rights of the Tenant
hereunder are, and shall at all times be, subject and subordinate to
any and all hypothecs, trust deeds and the charge or privilege
resulting therefrom, and any instruments of any financing,
refinancing or collateral financing and any renewals or extensions
thereof from time to time in existence against the lands, buildings
and improvements forming the Premises, the whole subject to Section
16.5 hereof. Upon request and subject as hereinafter provided, the
Tenant shall subordinate this Lease and all of its rights hereunder
in such form as the Landlord requires to any and all hypothecs,
trust deeds and the charge resulting therefrom, and any instruments
of any financing, refinancing or collateral financing and to all
advances made or hereafter to be made upon the security thereof, the
whole subject to Section 16.5 hereof and, if requested, the Tenant
shall become the tenant of the holder thereof or the registered
owners of the Premises. The foregoing subordination by Tenant shall
be subject to each Mortgagee agreeing to enter into a
non-disturbance agreement with Tenant in which the Mortgagee
undertakes to respect all terms of the Lease from and after the date
the Mortgagee assumes possession of the Premises, it being
understood that the Mortgagee will respect the terms of the Lease
concerning the Tenants Options to Purchase and the options to renew
as hereinafter described from and after the date the Mortgagee
realizes on its security, regardless of whether it has assumed
possession of the Premises, the whole subject to Section 16.5
hereof.
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(b) The Tenant shall, if possession is taken under, or any proceedings
are brought for the foreclosure or giving in payment of the
Premises, or in the event of the exercise of the power of sale under
any hypothec, charge, lease or sale and leaseback transaction, trust
deed, or the security resulting from any other method of financing,
refinancing or collateral financing made by the Landlord or
otherwise in existence against the Premises, become the tenant of
the Mortgagee, chargee, lessee, trustee, other encumbrancer or the
purchaser upon any such foreclosure, giving in payment or sale and
recognize such Mortgagee, chargee, lessee, trustee, other
encumbrancer or the purchaser as the Landlord under this Lease.
13.3 Attorney:
The Tenant shall, upon request of the Landlord or the Mortgagee or any
other Person having an interest in the Premises, execute promptly and
deliver such instruments and certificates to carry out the intent of
Section 13.2 as are requested by the Landlord. If ten (10) days after the
date of a request by the Landlord to execute and deliver any such
instruments and certificates the Tenant has not executed the same, the
Tenant hereby irrevocably appoints the Landlord as the Tenant's attorney
with full power and authority to execute and deliver in the name of the
Tenant any such instruments and certificates. If the Tenant fails to
provide the Landlord with the instruments and certificates requested, the
Landlord shall provide Tenant with a fifteen (15) day written notice of
the Tenant's failure to perform its obligation and Tenant shall be in
default, if within such period, it fails to provide the Landlord with the
instruments and certificates requested.
13.4 Financial Statements:
The Tenant shall annually, as soon as available and in any event within
ninety (90) days after the end of each of Tenant's financial years,
deliver or cause to be delivered to the Landlord the audited financial
statements of the Tenant for such financial year. Landlord agrees to keep
the information in such financial statements confidential and to disclose
same only as required for Landlord's business purposes including to
Landlord's Mortgagee, any mortgage broker, prospective lender, agent for
any prospective lender provided prior to the transmission of the
information, the said persons execute a confidentiality agreement in a
form mutually acceptable to the Tenant and the Landlord, acting
reasonably.
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ARTICLE XIV
DEFAULT
14.1 Right to Repossess:
If:
(a) the Tenant falls to pay any Rent or other sums due pursuant to this
Lease on the day or dates appointed for the payment thereof,
provided the Landlord first gives five (5) days' written notice to
the Tenant of any such failure; or
(b) the Tenant fails to observe or perform any other of the terms,
obligations or conditions of this Lease to be observed or performed
by the Tenant provided the Landlord first gives the Tenant fifteen
(15) days' written notice, or such shorter period of time as is
otherwise provided herein (other than the terms, obligations or
conditions set out in subparagraphs (c) to (o) inclusive, for which
no notice shall be required), of any such failure to perform and the
Tenant within such period of fifteen (15) days falls to commence
diligently and thereafter to proceed diligently to cure any such
failure to perform; or
(c) the Tenant or any agent or mandatary of the Tenant falsifies any
report required to be furnished to the Landlord pursuant to this
Lease; or
(d) the Tenant becomes bankrupt or insolvent or takes the benefit of any
act now or hereafter in force for bankrupt or insolvent debtors or
files any proposal or makes any assignment for the benefit of
creditors or any arrangement or compromise; or
(e) a receiver or a receiver and manager is appointed for all or a
portion of the Tenant's property; or
(f) any steps are taken or any action or proceedings are instituted by
the Tenant or by any other party including, without limitation, any
court or governmental body of competent jurisdiction for the
dissolution, winding-up or liquidation of the Tenant or its assets;
or
(g) the Tenant makes a sale in bulk of any of its assets wherever
situated other than a bulk sale made to an assignee or sub-lessee
pursuant to a permitted assignment or subletting hereunder; or
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(h) the Tenant abandons or attempts to abandon the Premises; or
41
(i) the Premises become and remain vacant for a period of five (5)
consecutive days or are used by any Persons other than such as are
entitled to use them hereunder; or
(j) the Tenant assigns, transfers, encumbers, sublets or permits the
occupation or use or the parting with or sharing possession of all
or any part of the Premises by anyone except in a manner permitted
by this Lease; or
(k) this Lease or any of the Tenant's assets are seized under any writ
of execution with respect to a judgment rendered against the Tenant;
or
(l) repossession of the Premises or termination of the Lease resulting
from a default by Tenant as may be set forth herein under any other
terms of this Lease; or
(m) the Tenant defaults under the terms of the 1998 Mortgage or the 1999
Mortgage as defined in Section 4.2; or
(n) the Tenant defaults in its obligation to indemnify the Landlord in
accordance with Section 9 of the Purchase and Sale Agreement entered
into between the Landlord and the Tenant which bears the same date
as this Lease; or
(o) the Tenant is in default of any of its obligations with respect to
one of the Options to Purchase as hereinafter defined in Section
16.2,
then in any such event the balance of all Rent and Additional Rent for the
remainder of the Term shall immediately become due and payable to the
Landlord and the Landlord, in addition to any other rights or remedies it
has pursuant to this Lease or by law, shall, to the extent permitted by
law, have the immediate right to repossess the Premises and it may expel
all Persons and remove all property from the Premises and such property
may be removed and sold or disposed of by the Landlord as it deems
advisable or may be stored in a public warehouse or elsewhere at the cost
and for the account of the Tenant, all without service of notice or resort
to legal process and without the Landlord being considered guilty of
trespass or becoming liable for any loss or damage which may be occasioned
thereby.
14.2 Right to Relet:
If the Landlord elects to repossess the Premises as herein provided, or if
it takes possession pursuant to legal proceedings or pursuant to any
notice provided for by law, it may either terminate this Lease or it may
from time to time without,
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42
terminating this Lease, make such alterations and repairs as are necessary
in order to relet the Premises or any part thereof for such term or terms
(which may be for a term extending beyond the Term) and at such rent and
upon such other terms and conditions as the Landlord in its sole
discretion considers advisable and, in any such event, the balance of all
Minimum Rent and Additional Rent for the remainder of the Term shall
immediately become due and payable by the Tenant to the Landlord. No such
taking possession of the Premises by the Landlord shall be construed as an
election on its part to terminate this Lease unless a written notice of
such intention is given to the Tenant. Notwithstanding any such reletting
without termination, the Landlord may at any time thereafter elect to
terminate this Lease for such previous breach. In addition to any other
remedies, the Landlord may have at law or under this Lease and to any
amounts owing to it hereunder, the Landlord may recover from the Tenant
all damages incurred by reason of the Tenant's breach, including but not
limited to, the cost of repossessing the Premises and attorney's fees. No
reletting of the Premises or any part thereof by the Landlord will have
the effect of reducing the obligation of the Tenant to pay to the
Landlord, upon the repossession of the Premises by the Landlord the
balance of all Minimum Rent and Additional Rent for the remainder of the
Term of the Lease as set out hereinabove. Should the Premises or any part
thereof be relet by the Landlord for all or any portion of the period
stipulated herein as the Term and whether or not this Lease shall have
been terminated, Landlord shall, out of any rents collected or received by
the Landlord from such reletting: first, pay to itself the cost and
expense of retaking, repossessing, repairing and/or altering the Premises,
and the cost and expense of removing all persons, and property therefrom;
second, pay to itself any and all costs and expenses incurred in securing
any new tenant and, if Landlord shall maintain and operate the Premises,
the cost and expense of operating and maintaining the Premises; and, third
pay to itself any balance of Minimum Rent and Additional Rent due to it by
the Tenant for the remainder of the Term of the Lease at the time of
repossession of the Premises by the Landlord in accordance with the terms
of this Section 14.2. Should there remain any excess amounts from the
rents collected or received by the Landlord from such reletting of all or
part of the Premises, after Landlord has paid to itself all of the costs
and expenses referred to above, and any balance of rent and Additional
Rent due to it by the Tenant for the remainder of the Term of the Lease at
the time of repossession of the Premises by the Landlord, Landlord shall
remit to the Tenant such excess up to an amount equal to the amount paid
by the Tenant to the Landlord in respect of the balance of all Rent and
Additional Rent for the remainder of the Term of the Lease at the time or
repossession of the Premises in accordance with the terms of this Section
14.2.
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14.3 Expenses:
If legal action is brought for recovery of possession of the Premises, for
the recovery of Rent or any other amount due under this Lease, or because
of the breach of any other terms, obligations or conditions herein
contained on the part of the Tenant to be kept or performed, or because of
any action or any inaction of the Tenant and a breach is established, the
Tenant shall pay to the Landlord all expenses incurred therefor, including
legal fees, unless a court shall otherwise award.
14.4 Landlord May Cure Tenants Default or Perform Tenant's Obligations:
If the Tenant falls to pay, when due, any amounts or charges required to
be paid pursuant to this Lease, the Landlord, after giving five (5) days'
notice in writing to the Tenant, may, but shall not be obligated to, pay
all or any part of the same. If the Tenant is in default in the
performance of any of its obligations hereunder (other than the payment of
Rent or other sums required to be paid pursuant to this Lease) the
Landlord may. from time to time after giving such notice as it considers
sufficient (or without notice in the case of an emergency) having regard
to the circumstances applicable, perform or cause to be performed any of
such obligations, or any part thereof, and for such purpose may do such
things as may be required, including, without limitation, entering upon
the Premises and doing such things upon or in respect of the Premises or
any part thereof as the Landlord reasonably considers requisite or
necessary. All expenses incurred and expenditures made pursuant to this
Section 14.4 plus a sum equal to fifteen percent (15%) thereof
representing the Landlord's overhead shall be paid by the Tenant as
Additional Rent forthwith upon demand. The Landlord shall have no
liability to the Tenant for any loss or damages resulting from any such
action or entry by the Landlord upon the Premises and same is not a breach
of any obligation for peaceable enjoyment contained in this Lease or
implied by law.
14. Additional Rent:
If the Tenant is in default in the payment of any amounts or charges
required to be paid pursuant to this Lease, they shall, if not paid when
due, be collectible as Additional Rent with the next monthly instalment of
Minimum Rent thereafter falling due hereunder, but nothing herein
contained is deemed to suspend or delay the payment of any amount of money
or charges at the time it becomes due and payable hereunder, or limit any
other remedy of the Landlord. The Tenant agrees that the Landlord may, at
its option, apply or allocate any sums received from or due to the Tenant
against any amounts due and payable hereunder in such manner as the
Landlord sees fit, provide
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44
that if Landlord allocates sums received from Tenant to amounts other than
those to which Tenant intended such sum to be allocated, Landlord shall
inform Tenant in writing forthwith of such allocation.
14.6 Remedies Generally:
Mention in this Lease of any particular remedy of the Landlord in respect
of the default by the Tenant does not preclude the Landlord from any other
remedy in respect thereof, whether available at law or in equity or by
statute or expressly provided for in the Lease. The remedy shall not be
exclusive or dependent upon any other remedy, but the Landlord may from
time to time exercise any one or more of such remedies generally or in
combination, such remedies being cumulative and not alternative. Whenever
the Tenant seeks a remedy in order to enforce the observance or
performance of one of the terms, obligations and conditions contained in
this Lease on the part of the Landlord to be observed or performed
(excluding however the Landlord's obligations with respect to the renewal
options and the option to purchase the Premises as described herein, as
well as the Landlord's failure to allow continued possession of the
Premises by the Tenant during the Term), the Tenant's only remedy shall be
for damages if it shall be able to prove in a Court of competent
jurisdiction that it has suffered as a result of a breach (if established)
by the Landlord in the observance or performance of any of the terms,
obligations and conditions contained in this Lease on the part of the
Landlord to be observed or performed.
14.7 Tenant's Recourse
Notwithstanding anything to the contrary contained in this Agreement, the
Tenant shall look solely to the assets of the Landlord for the
satisfaction of the Tenant's rights and remedies arising under this Lease
and no property or assets of any partner of Landlord or of any parent of
any partner of Landlord or of any affiliate of any partner of Landlord or
of any director or officer or shareholder of the general partner of
Landlord shall be subject to any lien, levy, execution or other
enforcement procedure for the satisfaction of any rights of Tenant under
this Lease.
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ARTICLE XV
MISCELLANEOUS
15.1 Overholding - No Tacit Renewal:
If the Tenant remains in possession of the Premises after the end of the
Term with the consent of the Landlord, there is no
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tacit renewal of this Lease notwithstanding any statutory provisions or
legal presumption to the contrary, and the Tenant shall be deemed to be
occupying the Premises as a Tenant from month to month by sufferance of
the Landlord at a monthly Minimum Rent payable in advance on the first
(1st) day of each month equal to the aggregate of the following:
(a) twice the monthly amount of Minimum Rent payable during the last
month of the Term;
(b) one-twelfth (1/12th) of the amount of Additional Rent payable by the
Tenant in the last full twelve-month Rental Year of the Term;
and otherwise, upon the same terms and conditions as are set forth in this
Lease (including the payment of all Additional Rent), so far as these are
applicable to a monthly tenancy.
15.2 Successors:
All rights and liabilities herein granted to, or imposed upon the
respective parties hereto, extend to and bind the successors and assigns
of the parties, provided that (i) the assigns of Landlord shall be bound
by the liabilities only to the extent that they expressly assume such
liabilities and (u) no rights shall enure to the benefit of any assignee
or successor of the Tenant unless such successor or the assignment to such
assignee has been approved by the Landlord in writing as provided in
Section 11.1 hereof.
15.3 Tenant Partnership:
If the Tenant is a partnership (the "Tenant Partnership") each Person who
is presently a member of the Tenant Partnership, and each Person who
becomes a member of any successor Tenant Partnership hereafter, shall be
and continue to be liable jointly and severally for the full and complete
performance of, and shall be and continue to be subject to the terms,
obligations and conditions of this Lease, whether or not such Person
ceases to be a member of such Tenant Partnership or successor Tenant
Partnership.
15.4 Waiver:
The waiver by the Landlord of any breach of any term, obligation or
condition herein contained is not deemed to be a waiver of such term,
obligation or condition or of any subsequent breach of the same or of any
other term, obligation or condition herein contained. The subsequent
acceptance of Rent hereunder by the Landlord is not deemed to be a waiver
of any preceding breach by the Tenant of any term, obligation or condition
of this Lease, regardless of the Landlord's knowledge of such preceding
breach at the time of acceptance
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of such rent. No term, obligation or condition of this Lease is deemed to
have been waived by the Landlord unless such waiver is in writing by the
Landlord.
All Minimum Rent and Additional Rent to be paid by the Tenant to the
Landlord hereunder, shall be paid without any deduction, abatement,
set-off or compensation whatsoever and the Tenant hereby waives the
benefit of any statutory or other rights in respect of abatement, set-off
or compensation in its favour at the time hereof or at any future time.
15.5 Accord and Satisfaction:
No payment by the Tenant or receipt by the Landlord of a lesser amount
than the monthly payment of Minimum Rent herein stipulated is deemed to be
other than on account of the earliest stipulated Minimum Rent, nor is any
endorsement or statement on any cheque or any letter accompanying any
cheque or payment as Rent deemed an acknowledgement of full payment or an
accord and satisfaction, and the Landlord may accept and cash such cheque
or payment without prejudice to the Landlord's right to recover the
balance of such Rent or pursue any other remedy provided in this Lease.
15.6 Brokerage Commissions:
Except with respect to any real estate broker engaged by Landlord, any
brokerage commission with respect to this Lease transaction shall be borne
exclusively by the Tenant and the Tenant shall indemnify and hold harmless
the Landlord from any and all claims with respect thereto.
15.7 No Partnership or Mandate:
The Landlord does not in any way or for any purpose become a partner of
the Tenant in the conduct of its business, or otherwise, or a joint
venturer or a member of a joint enterprise with the Tenant, nor is the
relationship of mandator and mandatary created.
15.8 Force Majeure:
Notwithstanding anything to the contrary contained in this Lease, if
either party hereto is bona fide delayed or hindered in or prevented from
the performance of any term, obligation or act required hereunder by
reason of strikes, labour troubles, inability to procure materials or
services; power failure, restrictive governmental laws or regulations;
riots, insurrection; sabotage; rebellion, war, act of God, or other reason
whether of a like nature or not which is not the fault of the party
delayed in performing work or doing acts required under the terms of this
Lease, then performance of such term, obligation or act is excused for the
period of the delay and the party so delayed
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shall be entitled to perform such term, obligation or act within the
appropriate time period after the expiration of the period of such delay.
However, the provisions of this Section do not operate to excuse the
Tenant from the prompt payment of Minimum Rent, Additional Rent or any
other payments required by this Lease.
15.9 Notices:
Any notice, demand, request or other instrument which may be or is
required to be given under this Lease shall be in writing and delivered in
person, sent by registered mall postage prepaid, by telecopier or by
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courier and shall be addressed:
(a) if to the Landlord:
Anglo Canadian Investments, L.P. c/o Epic LLC
12th East 44th Street 6th Floor
New York, NY 10017
Attention: President
or to such other Person or at such other address as the Landlord
designates by written notice, with a copy to each of the following:
1) Goodman Phillips & Vineberg
1501 McGill College Avenue
26th Floor
Montreal, Quebec
H3A 3N9
Attention: Robert Vineberg
Telecopier: 514-841-6499
2) Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Michael Korotkin
Telecopier: 212-715-8000
(b) If to the Tenant:
Henry Birks & Sons Inc.
1240 Square Phillips
Montreal, Quebec H3B 3H4
Attention: President
Telecopier: 514-397-2577
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with a copy to each of the following:
1) Henry Birks & Sons Inc.
1240 Square Phillips
Montreal, Quebec
H3B 3H4
Attention: Vice President, Finance
Telecopier: 514-397-2472
2) Henry Birks & Sons Inc.
1240 Square Phillips
Montreal, Quebec
H3B 3H4
Attention: Vice President & General Counsel
Telecopier: 514-397-2537
3) Stikeman Elliott
1155 Rene-Levesque Blvd. West
Suite 4000 Montreal, Quebec
H3B 3V2
Attention: Peter O'Brien
Telecopier: 514-397-3222
(c) if to the Mortgagee:
Gespa CDPQ Inc. & Hypotheques CDPQ Inc.
1981 McGill College Avenue,
#675 Montreal, Quebec
H3A 3C7
Attention: Chief Mortgage Administrator
Telecopier: (514) 847-2397
Any such notice, demand, request or consent is conclusively deemed to have
been given or made on the day upon which such notice, demand, request or
consent is delivered, or if sent by Telecopier, it shall be deemed to have
been delivered on the date of transmission if such transmission occurs
prior to 5:00pm (Montreal time) on a business day and otherwise on the
next business day following the date of transmission, or, if mailed, then
seventy-two (72) hours following the date of mailing, as the case may be,
and the time period referred to in the notice commences to run from the
time of delivery or seventy-two (72) hours following the date of mailing.
Either party may at any time give notice in writing to the other of any
change of address of the party giving such notice and from and alter the
giving of such notice, the address therein specified is
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deemed to be the address of such party for the giving of notices
hereunder. If the postal service is interrupted or if substantially
delayed, any notice, demand, bequest or other instrument shall only be
delivered in person.
15.10 Registration:
Neither the Tenant nor anyone on the Tenant's behalf or claiming under the
Tenant shall register this Lease or any permitted assignment or permitted
sublease of this Lease or any document evidencing any interest of the
Tenant in the Lease or the Premises or any part thereof other than in
accordance with Article 2999.1 of the Civil Code of Quebec. If either
party intends to register a notice of any permitted assignment or
permitted sublease of this Lease then, upon request of such party, both
parties may join in the execution of a notice which shall:
(i) be prepared by the Tenant or its attorneys at the Tenant's expense;
and
(ii) describe the parties, the Premises, the Commencement Date and
expiration date of the Term, the Tenant's options to renew and the
option to purchase and any other provisions deemed relevant by the
Tenant other than any financial terms; and
(iii) if prepared by the Tenant or its attorneys, submitted to the
Landlord for its approval prior to registration thereof, which
registration shall not take place before the Commencement Date.
15.11 Peaceable Enjoyment:
So long as the Tenant pays the Rent and other sums herein provided, and
observes and performs all the terms, obligations and conditions on the
Tenants part to be observed and performed, the Tenant shall peaceably hold
and enjoy the Premises during the Term without hindrance or interruption
by the Landlord, or any other Person lawfully claiming by, through or
under the Landlord subject, nevertheless, to the terms, obligations and
conditions of this Lease.
ARTICLE XVI
SPECIAL CLAUSES
16.1 RENEWAL OPTIONS:
Subject to the terms and conditions set out in this Section 16.1, the
Tenant shall have the option to renew and extend the Term of this Lease
for three (3) further terms of five (5) years each
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and a fourth (4th) term of five (5) years minus eleven days the first
option (the "First Option") commencing December 12th 2020 and ending
December 11th , 2025 (the "First Option Period"), the second option (the
"Second Option") commencing December 12th 2025 and ending December 11th,
2030 (the "Second Option Period"), the third option (the 'Third Option")
commencing December 12th, 2030 and ending December 11th, 2035 (the 'Third
Option Period") and the fourth option (the "Fourth Option") commencing
December 12th, 2035 and terminating November 30, 2040 (the "Fourth Option
Period").
The terms and conditions upon which this Lease may be renewed and extended
are as follows:
(a) the extended terms shall be subject to the same terms and conditions
as this Lease, save and except that there shall be no further option
to renew in the case of the Fourth Option and the Minimum Rent shall
be equal to:
(i) during the First Option Period, the greater of:
(A) the Minimum Rent for the Rental Year immediately
preceding the commencement of the First Option Period;
and
(B) the then current market rental rate for premises
comparable to the Premises in a location comparable to
the location of the Premises (less any amount
attributable to the value added to the said location by
the particular operations of the Tenant's business in
the Premises) and such market rental rate is herein
referred to as the "Market Rate";
the sum so obtained being hereinafter referred to as the
"First Option Minimum Rent". If the First Option Minimum Rent
is based on the then current Market Rate, then it shall be
increased each year of the First Option Period by the
percentage increase in the Consumer Price Index, using as a
base the Consumer Price Index for the month during which the
First Option Period commences;
(ii) during the Second Option Period, the greater of
(A) the First Option Minimum Rent for the last year of the
First Option Period preceding the commencement of the
Second Option Period; and
(B) the then current Market Rate,
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the sum so obtained being hereinafter referred to as the
"Second Option Minimum Rent". If the Second Option Minimum
Rent is based on the then current Market Rate, then it shall
be increased each year of the Second Option Period by the
percentage increase in the Consumer Price Index, using as a
base the Consumer Price Index for the month during which the
Second Option Period commences;
(iii) during the Third Option Period, the greater of:
(A) the Second Option Minimum Rent for the last year of the
Second Option Period preceding the commencement of the
Third Option Period; and
(B) the then current Market Rate,
the sum so obtained being hereinafter referred to as the
"Third Option Minimum Rent". If the Third Option Minimum Rent
is based upon the then current Market Rate, then it shall be
increased each year of the Third Option Period by the
percentage increase in the Consumer Price Index, using as a
base the Consumer Price Index for the month during which the
Third Option Period commences;
(iv) during the Fourth Option Period, the greater of:
(A) the Third Option Minimum Rent for the last year of the
Third Option Period preceding the commencement of the
Fourth Option Period, and
(B) the then current Market Rate,
the sum so obtained being hereinafter referred to as the
"Fourth Option Minimum Rent". If the Fourth Option Minimum
Rent is based upon the then current Market Rate, then it shall
be increased each year of the Fourth Option Period by the
percentage increase in the Consumer Price Index, using as a
base the Consumer Price Index for the month during which the
Fourth Option Period commences;
(b) the Tenant, at the time of the exercise of the option in question,
shall not then be materially in default under the provisions of this
Lease;
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(c) in the case of the Second Option, the Tenant shall have exercised
the First Option;
(d) in the case of the Third Option, the Tenant shall have exercised the
Second Option;
(e) in the case of the Fourth Option, the Tenant shall have exercised
the Third Option;
(f) the Tenant shall have notified the Landlord in writing of its
intention to exercise the First Option on or before December 12th,
2019; of its intention to exercise the Second Option on or before
December 12th, 2024; of its intention to exercise the Third Option
on or before December 12th, 2029 and of its intention to exercise
the Fourth Option on or before December 12th, 2034;
(g) the Market Rate shall be determined by the Landlord and submitted to
Tenant within sixty (60) days following Tenant providing to Landlord
its notice of intention to exercise the First Option, the Second
Option, the Third Option or the Fourth Option, as the case may be.
If Landlord and Tenant shall not have agreed on the Market Rate
within thirty (30) days following the submission of the proposed
Market Rate by Landlord to Tenant, the Landlord and Tenant shall
jointly submit the question to arbitration in accordance with the
provisions hereinafter set forth. Such dispute shall be submitted to
arbitration before a single arbitrator, whose decision as to the
Market Rate shall be final and binding on the parties and
non-appealable. The arbitrator shall be a person properly qualified
in the evaluation of real estate rentals for comparable premises in
the City of Montreal and shall be chosen jointly by Landlord and
Tenant or, if they are unable to agree, shall be chosen jointly by
the auditors of Landlord and of Tenant or, if they are unable to
agree, shall be appointed by a judge of the Superior Court of
Quebec, sitting in the judicial district of Montreal, at the request
of either the Landlord or the Tenant.
(h) the costs and expenses of the arbitrator and the arbitration
proceeding shall be borne equally by the Landlord and the Tenant but
each party shall bear the costs of its own legal counsel and any
professional advisors, appraisers or evaluators appointed by it. If
the decision of the arbitrator is not rendered prior to the
commencement of the First Option Period, the Second Option Period,
the Third Option Period or the Fourth Option Period, as the case may
be, the Tenant shall pay as Minimum Rent the same amount as payable
in the immediately preceding Rental Year, with appropriate
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adjustments being made forthwith following the delivery of a
decision by the arbitrator with such adjustments being retroactive
to the commencement of the First Option Period, the Second Option
Period, the Third Option Period or the Fourth Option Period, as the
case may be. Provided and to the extent that they do not derogate
from the foregoing, the present provisions of the Code of Civil
Procedure of Quebec pertaining to arbitrations will apply in
addition to the foregoing provisions with respect to the arbitration
herein contemplated. In determining the Market Rate, the arbitrator
shall assume no brokerage fees, no tenant improvements by Landlord,
and that the Premises constitute vacant space free of tenancy ready
to be leased in whole or in part for its highest and best uses
and/or purposes;
(i) for the purposes hereof, the First Option Period, the Second
(j) Option Period, the Third Option Period and the Fourth Option Period
are herein collectively referred to as the "Option Term" and the
First Option Minimum Rent, the Second Option Minimum Rent, the Third
Option Minimum Rent and the Fourth Option Minimum Rent are herein
collectively referred to as the "Option Rent".
16.2 Option to Purchase the Premises;
Tenant shall have two (2) options to purchase the Premises from the
Landlord, who agrees to transfer title to the Premises to the Tenant, the
whole in accordance with this Section 16.2 provided, (i) the Tenant is not
materially in default of any of its obligations hereunder at the time of
the exercise of the option to purchase or at the time of closing of the
sale of the Premises and (u) that during the period between the exercise
of the option to purchase and the closing of the sale (the "Interim
Period"), the Tenant shall not be materially in default of its obligations
hereunder. However, the Landlord agrees that if the Tenant is materially
in default of its obligations during the Interim Period, the Landlord
shall provide the Tenant with a written notice of default permitting the
Tenant to cure the default within fifteen (15) days and if cured, the
default shall be set aside and the Tenant shall not lose any rights with
respect to the option to purchase it has exercised. The first option to
purchase ("First Option to Purchase") the Premises may be exercised at the
end of the 15th year of the Term and the second option to purchase
("Second Option to Purchase") the Premises may be exercised at the end of
the 20th year of the Term (the First Option to Purchase and the Second
Option to Purchase shall be collectively referred to as the "Options to
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54
Purchase" and individually as an "Option to Purchase"), the whole subject
to the following terms and conditions:
(a) Tenant may not exercise the First Option to Purchase or the Second
Option to Purchase earlier than nine (9) months nor later than six
(6) months prior to December 12th, 2015 or December 12th, 2020
respectively;
(b) a good faith deposit of Six Hundred Twenty-Five Thousand Three
Hundred and Nine Dollars ($625,309) shall accompany a notice of
exercise of the First Option to Purchase. In the event of the
exercise of the Second Option to Purchase, a good faith deposit in
the amount of Six Hundred Eighty-Seven Thousand Eight Hundred Forty
Dollars ( $687,840) shall accompany the notice of exercise of the
Second Option to Purchase. The deposit shall be forfeited to
Landlord in the event that such transaction of purchase and sale
shall fall to close for any reason attributable to the fault or
default of Tenant, it being understood that Landlord shall have no
further recourse against the Tenant with respect to the option to
purchase exercised by the Tenant referred to in this Section 16.2;
(c) the purchase price with respect to the First Option to Purchase
shall be the greater of the sum of Twenty Million Eight Hundred
Sixty-Three Thousand, Four Hundred and Thirty Dollars ($20,863,430)
and the then current market price for properties comparable to the
Premises in a location comparable to the location of the Premises,
evaluated as if the Premises were totally free and clear of all
hypothecs and other encumbrances and this Lease and the Premises
were ready to be dedicated to its then highest and best use or
purpose (the "Market Value");
(d) the purchase price with respect to the Second Option to Purchase
shall be the greater of the sum of Twenty-Two Million Nine Hundred
Forty-Nine Thousand Seven Hundred Seventy-Three Dollars
($22,949,773) and the Market Value;
(e) within thirty (30) days following Tenant's exercise of its option in
accordance with the provisions of paragraph 16.2(a), Landlord shall
submit to Tenant Landlord's estimate of such Market Value. The
Tenant shall pay all taxes applicable to such transaction (other
than the Landlord's income taxes) including, without restriction,
all GST, provincial sales tax and transfer taxes. In the event that
Landlord and Tenant have not agreed upon the Market Value within
sixty (60) days
55
following Landlord's submission of Landlord's estimated Market Value
to Tenant, then the parties shall refer such issue to arbitration
and such arbitration shall be effected in accordance with the
provisions of Section 16.1 above. The decision of such arbitrator
shall be final and binding and non-appealable for all purposes;
(f) the Premises shall be sold by Landlord to Tenant free and clear of
all hypothecs, liens and encumbrances other than (i) servitudes for
public utilities and such other servitudes and encumbrances which do
not in the aggregate materially affect the use of the Premises for
the purposes for which they are presently being used and (ii)
encumbrances (other than hypothecs) and other imperfections to title
which exist on the date of execution of this Lease and to any other
such encumbrances or imperfections resulting from the actions or
omissions of Tenant;
(g) the Premises will be sold on a basis "as is" without any warranty
whatsoever except as to title, with respect to which the warranty
shall only apply to the period commencing from the date hereof in
respect of title matters not attributable to Tenant's actions or
omissions;
(h) the deed of sale shall be passed before Tenant's notary, and the
Tenant shall pay the notarial fees and the cost of registering the
deed of sale,
(i) the purchase price shall be allocated as to the land in an amount
equal to its value for municipal tax purposes and the balance to the
buildings thereon; the purchase price shall be payable by certified
cheque or wire transfer at closing;
(j) Landlord shall be obliged to provide Tenant only with all such title
deeds and other documents relating to the land and building as are
in its possession within ten (10) business days of the exercise of
the Tenants option;
(k) if there are any other tenants in the building at the time of
execution of the deed of sale, in the deed of sale Tenant shall
assume, to the exoneration of Landlord, all obligations pursuant to
such lease from and after the deed of sale;
(l) the parties will make the customary closing adjustments as at the
closing date;
(m) the closing in respect of such transaction shall occur sixty (60)
days following the date when the purchase price in respect of the
Premises has been determined it being understood that until the date
of the closing the
56
Tenant will continue to pay Rent at the rate applicable at the time
of the exercise of the First Option to Purchase or the Second Option
to Purchase, as the case may be;
(n) the Landlord shall provide an affidavit as to Canadian residency,
falling which the provisions of Section 116 of the Income Tax Act
(Canada) and the analogous provisions of the Quebec Taxation Act
shall be applicable;
(o) if legal action is brought by either party for the enforcement of
their respective rights pursuant to Sections 16.2, 16.4 or 16.6 or a
party in whose favour judgment is awarded shall be entitled to
receive from the other party all expenses incurred in connection
therewith, including legal fees, unless a court shall otherwise
award; and
(p) at closing any non-material monetary defaults will be cured by the
Tenant.
16.3 Adjustment of Certain Amounts:
The dollar amounts referred to in Article IX shall be increased throughout
the Term, commencing with the lease year commencing December 12th, 2003,
by the same percentage as is equal to the percentage increase in the
Minimum Rent using as base the Minimum Rent as set forth in subsection (i)
of Section 4.2 hereof.
16.4 Deemed Renewal:
In the event that (i) Tenant has exercised an Option to Purchase and
fulfilled each of its obligations as contained in Section 16.2 hereof,
(ii) the sale and purchase of the Premises pursuant to the exercise of the
Option to Purchase is prevented and, (iii) Tenant has exercised its rights
pursuant to the provisions of Section 16.6 hereof to take the Premises and
has fulfilled all of its obligations thereunder, including the tender and
deposit of the sum referred to in Section 16.6, then (x) the Term of the
Lease shall continue without interruption in the event the Tenant
exercised the First Option to Purchase or (y) the Tenant shall be deemed
to have exercised the First Option to renew the Lease in respect of the
First Option Period in the event Tenant exercised the Second Option to
Purchase. The Tenant's notice to exercise the First Option to renew the
Lease shall, for purposes of Section 16.1, be deemed to have been given to
Landlord on the day the tender and deposit of the sum referred to in
Section 16.6 was made by the Tenant.
Neither the continuation of the Term nor the deemed exercise of the First
Option to renew the Lease shall preclude the Tenant from exercising its
rights to obtain title to the Premises.
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16.5 Mortgagees to Honour Option to Purchase:
The Landlord undertakes to ensure that all future Mortgagees agree to
honour the provisions of the Options to Purchase. To that end, all
hypothecs entered into in favour of future Mortgagees of the Premises
shall contain a covenant on the part of the Mortgagee to be bound by the
Options to Purchase and to release and discharge the Mortgagees hypothec
so as to transfer the Premises pursuant to the exercise of one of the
Options to Purchase, free and clear of the Mortgagees hypothec, subject to
the agreed upon purchase price being paid or distributed among all
Mortgagees as their rights may appear. The Tenant hereby subordinates the
Tenants Hypothec (as hereafter defined) to that of a future Mortgagee but
only in the event the Mortgagees hypothec contains a covenant on the part
of the Mortgagee to be bound by the Options to Purchase and provided that
the Tenant and the said Mortgagee shall enter into a subordination
agreement which shall contain the Mortgagees covenant to be bound by the
Options to Purchase and to discharge and release its hypothec on the
Premises in the event of the exercise by the Tenant of one of the Options
to Purchase and to subordinate the Tenants Hypothec to the hypothec of the
Mortgagee.
16.6 Tenants Hypothec:
(a) In the event the Tenant exercises one of the Options to Purchase and
fulfils all its obligations with respect thereto, including the
deposit of the sum of $625,309 in the event the First Option to
Purchase is exercised or the sum of $687,840 in the event the Second
Option to Purchase is exercised, the whole as described in Section
16.2 of this Lease and the sale and purchase of the Premises
pursuant to the exercise of the said option is prevented for reasons
other than the fault or default of the Tenant, then the Tenant shall
have recourse to the hypothec described in this Section 16.6 and be
entitled to exercise any rights and remedies available to the Tenant
under the provisions of the Civil Code of Quebec.
(b) As security for the fulfilment by the Landlord of its obligations
pursuant to the provisions of Section 16.2 of this Lease, the
Landlord hereby hypothecates to and in favour of the Tenant to the
extent of the sum of the ONE HUNDRED MILLION DOLLARS
($100,000,000.00) in lawful money of Canada with interest thereon at
the rate of TWENTY-FIVE PERCENT (25%) per annum, (the 'Tenants
Hypothec"), the following property:
(i) the Premises described in Schedule A hereof, together with all
present and future works, constructions and appurtenances
related thereto;
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(ii) all corporeal and incorporeal property which, with respect to
the Premises hereinabove hypothecated are covered by any of
Articles 901 through 904 of the Civil Code of Quebec;
(iii) all corporeal moveable property which at any time ensures the
utility of the Premises hereinabove hypothecated.
(c) Upon the exercise of the Tenant's hypothecary recourse to take the
Premises in payment, the Tenant shall be entitled to take the
Premises in payment subject only to the deposit in Court of either:
(i) the sum of TWENTY MILLION EIGHT HUNDRED SIXTY-THREE THOUSAND
FOUR HUNDRED AND THIRTY DOLLARS ($20,863,430.00) in the event
the said hypothecary recourse is exercised with respect to the
First Option to Purchase; or
(ii) TWENTY-TWO MILLION NINE HUNDRED FORTY-NINE THOUSAND SEVEN
HUNDRED AND SEVENTY-THREE DOLLARS ($22,949,773.00) in the
event the said hypothecary recourse is exercised with respect
to the Second Option to Purchase; or
(iii) such greater amount as may have been determined in accordance
with Section 16.2(c) of the Lease or, if not determined, then
as the Court may determine, in its discretion, to give effect
to Section 16.2(c) of the Lease.
The said amount shall be distributed to the Landlord, the parties
having a prior claim or a hypothec registered against the Premises,
according to their respective interests and priorities.
16.7 Language:
The Lessee hereby confirms that it has required that the present document
be drawn up in the English language. Le Locataire confirme par les
presentes qu'il a exige que le present document soit redige dans la langue
anglaise.
16.8 Adhesion:
Each of the parties hereto acknowledge that the essential stipulations of
these presents were negotiable, and that consequently the present
Agreement of Lease does not constitute a contract of adhesion.
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SCHEDULE A
An emplacement situated between the streets Sainte-Catherine West,
Union and Cathcart in Ville de Montreal, Province of Quebec, Canada, known and
designated as lot 1 340 553 on the Official Cadastre of Quebec.
With all the improvements therein erected including without limitation
the buildings thereon erected bearing civic numbers 1240 Union Avenue (also
referred to as 1240 Place Phillips), 620-630 Sainte-Catherine Street West and
635 Cathcart Street in the City of Montreal.
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EXECUTED at the said City of Montreal, on the 12th day of December Two thousand
and under the number 33,585 of the original Notarial Minutes of the undersigned
Notary.
AND AFTER DUE READING HEREOF, the parties have signed with and in the presence
of the undersigned Notary.
ANGLO CANADIAN INVESTMENTS, L.P.
by its general partner BIRKMONT CORP.
(SIGNED) Per: Robert Vineberg
Robert Vineberg, Representative
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HENRY BIRKS & SONS INC. I
HENRY BIRKS ET FILS INC.
(SIGNED) Per
Thomas A. Andruskevich, President & CEO
(SIGNED) Per: John D. Ball
John D. Ball, Vice-President & Chief Financial
and Administrative Officer
(SIGNED) Per: Sheldon Merling
Sheldon Merling, Notary
TRUE COPY of the original hereof
remaining of record in my office
(SIGNED) Sheldon Merling
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No. 33,585
December 12th, 2000
INDENTURE OF LEASE
BY
ANGLO CANADIAN INVESTMENTS, L.P.
to
HENRY BIRKS & SONS INC./
HENRY BIRKS ET FILS INC.
3RD COPY
MERLING & MERLING
NOTAIRES - NOTARIES
SUITE 830
615 RENE LEVESQUE BLVD. W.
MONTREAL.QUE,
H3B 1P5
Exhibit 10.19
PRIME INVESTMENTS SA
Saphir Building 1st Floor
63 Boulevard Prince Felix
L1513 - Luxembourg
as of August 15, 2002
Henry Birks & Sons Inc.
1240 Phillips Square
Montreal, Quebec H3B 3H4
Attention: Thomas A. Andruskevich
RE: Diamond Inventory Supply Agreement
Dear Sirs:
We write to you to confirm our understanding with respect to your diamond
inventory needs. In accordance with the terms and conditions set out in this
letter, we or a related entity designated by us, will be entitled to supply you
and your subsidiaries and affiliates as of December 31st, 2002 (collectively,
"Birks") with at least 45% on an annualized cost basis in Canadian dollars of
your aggregate loose diamond requirements including Canadian diamonds if the
following conditions are met a) our prices remaining competitive relative to
market, and b) meeting your needs in terms of quality, cut, standards and
specifications. We shall also be required to provide you with satisfactory
evidence of origin for Canadian diamonds.
To implement the foregoing, Birks will provide us, on at least an annual
basis -- during the early part of February [the first being due February,
2003(1) for the current calendar year] -- with the diamond requirements of Birks
and each of its subsidiaries and affiliates ("Requirements"). Such Requirements
will be broken down by each entity in the Birks group, and shall provide as much
detailed specifications as possible, including delivery requirements.
Based on your Requirements, we will provide you, by the end of each
February, with the quotes for each requested category of diamonds (and for each
weight, color and clarity requested). Shortly after receipt of said quotes,
Birks will confirm its Requirements ("Confirmed Requirements") and its forecast
for the current year. These Confirmed Requirements will constitute an
understanding that prices quoted are deemed competitive for the purpose of this
agreement. If Birks is concerned about quotes received not being competitive
compared to market, Birks shall inform us and we both agree to reasonably
attempt to come to an agreement. The price quoted or agreed upon shall apply
(1) From the date hereof until the first Requirements ("Trial Period"), Birks
will provide Prime (or its designee) with the first opportunity to fulfill
Birks' special and supplemental requirements for loose diamonds. We hereby
confirm that the attached quote (Attachment A) is valid for the Trial
Period.
Henry Birks & Sons, Inc.
August 15, 2002
Page 2
to all comparable items until submission of the next Requirements. By the end of
April, we will begin delivering according to your Confirmed Requirements.
There shall be an annual reconciliation (conducted in approximately January
- February) to determine: (a) the actual amount of diamonds purchased by Birks
and by each of its subsidiaries and affiliates (and the cost thereof); and (b)
the percentage of those purchases supplied by us. The parties will thereafter
make reasonable attempts to adjust future transactions based on such
reconciliation and consistent with the obligations and rights created hereunder.
We will provide you with an audit trail of the diamond manufacturing from
the Rough Stage to the Polished Stage as the production is from our NWT factory
and comes with a GNWT Certificate. In order to establish the provenance of
Canadian diamonds, it is understood that we assign unique diamond identification
numbers to each rough diamond, which can be tracked back to the original invoice
of the mine from which the original rough diamond was extracted. On your
invoice, this identification number, along with the rough diamond crystal
weight, will be indicated next to each polished diamond listed. In addition the
invoice will include a certification that each Canadian diamond listed has been
indeed mined from Canada. A copy of the original invoice from the mine clearly
identifying the parcel from which the rough diamond came will accompany the
invoice(s) to you.
Accompanying this letter is a list of diamond parameters (Attachment B)
which, we are advised, provides details about what is and is not acceptable to
you. We understand that you only want to offer to your customers diamonds you
feel are cut to take maximum advantage of a diamond's ability to affect light.
The standards reflect the stringent characteristics necessary for a
top-of-the-line diamond. Our strict compliance with the attached parameters
shall in each instance be deemed acceptable.
We understand that you will need a Sarin report with each diamond
submitted, each in its own stonepaper, to you for consideration for weights
above 0.18 ct. We understand that you only sell 1.00 cts.+ diamonds with an
accompanying GIA Diamond Report, along with your own Birks Diamond Certificate.
Therefore, we recognize that you must be comfortable with and agree with the GIA
report. Once you have approved the GIA diamond report, the diamond will be sent
back to GIA to laser engrave Birks' identification number and logo. On the
revised GIA report there will be notations that indicate your laser-engraving
trademarks. All diamonds sent for your review over one carat will have a
photocopy of the GIA report. We will also provide you with a copy of the GIA
report for each diamond less than one carat that has a GIA report.
Henry Birks & Sons, Inc.
August 15, 2002
Page 3
We understand that your present policy does not allow you to accept any
color lower than I color. We also understand that you are only purchasing those
diamonds that fall within the D-H, VS1-SI1 ranges. If agreeable, those diamonds
that are higher clarity (IF, VVS) may be consigned to you on a long-term basis,
the whole according to a satisfactory consignment agreement. We recognize that
you mount these diamonds in diamond engagement rings, and will request an
invoice for each as they are sold. Unless otherwise agreed, you understand that
we will not be able to laser engrave diamonds delivered on consignment
We authorize you to laser-engrave 'Birks", a maple leaf, and your
identification number on the girdle. There should be no other identification
marks other than the Birks trademark and ID numbers on the diamonds. With the
above VVS+ consignment program, we understand that you would not require the NWT
ID # be removed, but would also require that your marks be laser-engraved on the
girdle. If a diamond is returned, you understand that your numbers would have to
be polished out.
We agree to 60 days payment terms.
We represent and warrant that our diamond weights are accurate, that all
diamonds are natural and not synthetic, that there will be no diamond
enhancement or treatment.
We agree to comply and provide you with the information and documentation
required under the Voluntary Code of Conduct for Authentication of Canadian
Diamond propounded by Industry Canada, Competition Bureau, as may be amended
from time to time, a current copy of which is annexed (Attachment C).
We understand that you and your subsidiaries may from time to time enter
into agreements whereby your subsidiaries will be required to present a proposed
purchase plan to an independent committee setting forth (i) a schedule of the
goods to be purchased from you for a fiscal year and (ii) the cost of such goods
(a "Purchase Plan"). We further understand that such independent committee shall
review the Purchase Plan and approve the Purchase Plan either (i) as proposed or
(ii) as modified by the independent committee in consultation with the
management of the subsidiary. We recognize that at any time during the pendency
of such agreement between you and your subsidiaries, the independent committee
shall have authority to investigate, audit, review or otherwise examine any
goods purchased or to be purchased hereunder from you, including without
limitation, the cost to you of such goods, the quality of such goods, your rate
of return, comparable goods, third-party vendors and other matters deemed
important by the independent committee. We both agree to use our best effort to
comply with the reasonable requests and directions of such independent committee
and we further agree to accept any determinations made by such committee with
respect to
Henry Birks & Sons, Inc.
August 15, 2002
Page 4
diamonds to be provided by us to you or your subsidiaries. Such determinations
shall not reduce our continued entitlement to supply diamonds hereunder for the
future. Our obligations in this regard shall not require that we provide any
information or documentation that we deem to be confidential (such as pricing,
etc.)
In the event that we or one of our affiliates takes any affirmative action
to reduce our initial investment in Birks (and for this purpose our failure to
convert our debenture by the fifth anniversary of the date of issuance shall be
deemed such affirmative action), our entitlement to supply your diamond needs
will be reduced as follows. For every percentage reduction from US$7.5 million
to US$5 million, there will be a proportionate reduction from 45% of your
diamond needs (at US$7.5 million) to 33% of your diamond needs (at US$5
million). For example, a reduction of US$1.25 million in our initial investment
of US$7.5 million to US$6.25 million will result in a reduction of our
entitlement to supply 45% of your diamond needs to 39% of your needs, i.e, 50%
of the difference between 45% and 33%. For every percentage reduction of our
initial investment below US$5 million, there shall be a corresponding reduction
in the percentage of diamonds to be supplied by us to you. As additional
example, if there is a further reduction from US$5 million to US$2.5 million our
entitlement shall be reduced from 33% to 16.5% Otherwise, this agreement shall
remain in full force and effect until terminated by either party on at least six
(6) months written notice.
Any claim or dispute under this Agreement (including, but not limited to, a
determination as to whether there has been a material breach hereof) will be
resolved exclusively through arbitration in New York before and under the rules
and procedures of the New York Diamond Dealers Club. That forum will not be
empowered to resolve any disputes of any nature between user arising under any
other agreement.
Finally, we understand that you may consider buying from time to time other
pieces of jewelry from our affiliates or us.
If this meets with your approval, please return a signed copy of this
letter.
Sincerely,
PRIME INVESTMENTS SA
By: /s/ Amit B. Bhansali
---------------------------------
Name: Amit B. Bhansali
Title
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Henry Birks & Sons, Inc.
August 15, 2002
Page 5
We agree to the terms hereof. Signed and accepted on August 15, 2002.
HENRY BIRKS & SONS INC.
By: /s/ Thomas A. Andruskevich
-------------------------------------------------
Name: Thomas A. Andruskevich
Title: President and Chief Executive Officer
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ATTACHMENT B
BIRKS DIAMOND STANDARDS -- FOR ROUND BRILLIANT CUT
All round brilliant-cut diamonds must indeed be round, and not
out-of-round. Diamonds meeting the criteria listed below will meet Birks
Excellent-cut standards.
COLOR: D-I
CLARITY: IF-SI1
PROPORTIONS:
Table size: <=63% for diamonds less than 0.18 ct. (melee)
53-60% for diamonds greater than or equal to 0.18 ct.
crown height: between 13.8 and 16.0%
crown angles: between 33.5 and 35.4 degrees
girdle: thin to slightly thick.
pavilion depth: between 42.5 and 44.0%
total depth: between 59.5 and 62.5%
culet: none to medium
polish: good to excellent
symmetry: good to excellent
fluorescence: none to medium
|
OTHER PARAMETERS: Diamonds will NOT meet Birks' standards if they have:
-- distinct and easily-louped polishing lines
-- any fracture filling
-- any laser drilling
-- any open marks (cavities, pits, open feathers) on the
surface of the diamond
-- chipped culets, pits, cavities
-- facets which are not symmetrical and do not align and point
properly
-- very small facets and naturals will be accepted only on
diamonds less than 0.18ct.
-- been processed using the GE treatment (High Temperature/High
Pressure)
Unless otherwise notified, all diamonds 0.18 ct. or larger will be
submitted individually, with a Sarin label containing all the information listed
above attached to the stonepaper. The label should also contain the cutter/
supplier's name and the memo number.
Exhibit 10.20
CONDITIONAL SALE AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 15th day of August 2002.
BY AND BETWEEN: ROSY BLUE N.V., a corporation
having an office in Antwerp, Belgium
(hereinafter the "Seller")
AND: HENRY BIRKS & SONS INC., a corporation
governed under the laws of Canada, having
its Head Office at 1240 Phillips Square,
Montreal, Quebec, H3B 3H4 (hereinafter the
"Buyer" or "Birks")
|
WHEREAS the Seller has agreed to sell from time to time the goods
described in Appendix A attached hereto (the "Goods"), to the Buyer, the whole
upon the terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. The Buyer agrees to buy the Goods selected by the Buyer shipped
from time to time by the Seller.
2. The title to, property and ownership in any Goods now or hereafter
in the possession of the Buyer are and shall remain with the Seller and subject
at all times to the direction and control of the Seller and free from any and
all claims, demands, charges and liens whatsoever, until the entire purchase
price thereof, or any outstanding balance thereon, have been fully paid to the
Seller in accordance with the provisions of this Agreement. To secure the full
payment of the entire purchase price of the Goods, or of any outstanding balance
thereon, the Buyer hereby grants and conveys, to the Seller, a security interest
in all the Goods purchased hereunder as well as a security interest in the
proceeds of sale of the Goods. Notwithstanding the foregoing, for the purposes
of the laws of the province of Quebec, this agreement constitutes an instalment
sale agreement pursuant to articles 1745 to 1749 of the Civil Code of Quebec and
until full payment of the entire purchase price or of any outstanding balance
thereof or of any other sums payable under this agreement, the title to and
ownership of the Goods, replacement and proceeds of sale thereof, shall remain
in the Seller, but at Buyer's risk. Furthermore, for the purposes of the laws of
the province of Quebec, in order to secure all its obligations under this
Agreement, the Buyer hereby hypothecates to and in favor of the Seller, the
proceeds of any sale or other disposition of the Goods and any debts resulting
from such sale or other disposition as well as any insurance or expropriation
indemnity payable in respect of the foregoing, to the extent of the sum of CDN$
1,600,000 with interest thereon at the rate of twenty-five percent (25%) per
annum.
3. The Goods and any proceeds of sale thereof, from the date of
shipment of the Goods to the Buyer until such time as the unsold Goods are
returned by the Buyer to the Seller or
until the Seller has been paid in full the price of all such Goods sold in
accordance with this Agreement, shall be at the absolute risk of the Buyer.
4. The Buyer acknowledges that the Goods are personal property and
shall be collateral for all purposes under applicable conditional sale and
personal property legislation. The Seller shall be entitled to file this
agreement as a security agreement, conditional sales contract, instalment sale
agreement, or otherwise and/or to file a financing statement, RD Form, or other
document to evidence the security interest granted to the Seller hereunder and
the reservation of title with the Seller. The Buyer hereby appoints the Seller
as its agent and attorney-in-fact to execute any financing statement, RD Form,
or other document which may be required to perfect Seller's security interest
hereunder. The Buyer hereby waives the right to receive a copy of any fixtures
notice and any financing statement filed by the Seller relating to this
agreement, or any verification statement issued by any personal property
registry (including the Saskatchewan Personal Property Registry) that relates to
any such financing statement. The parties hereto agree that The Land Contracts
(Actions) Act (Saskatchewan) shall have no application to any action as defined
in such Act with respect to this Agreement and that The Limitation of Civil
Rights Act (Saskatchewan) shall have no application to this Agreement.
5. The Buyer hereby agrees:
5.1 to maintain the Goods in its premises set out in Appendix A
attached hereto (the "Stores");
5.1 to identify and hold the Goods separately, and to hold
separately in a segregated account the proceeds arising from
the sale of the Goods, in both cases as a gratuitous deposit
for and on behalf of the Seller, until the purchase price
for the Goods has been paid in full;
5.2 to indemnify, defend and hold the Seller harmless from and
against all damage, depreciation or loss (hereinafter
referred to as a "Loss") of or to the Goods, including,
without limiting the generality of the foregoing, Loss due
to pilferage, fire, theft, disappearance, destruction,
flooding, deterioration or otherwise, and to maintain in
force, an insurance policy or policies, at its own expense,
for the duration of this Agreement, providing coverage
against such Loss with reputable insurers for the full
replacement value thereof. The Seller shall be added as loss
payee with regard to the Goods in said insurance policy or
policies and evidence thereof shall be provided to the
Seller upon request;
5.3 to keep the Goods and the proceeds therefrom free and clear
from any lien, charge, hypothec, security interest or
encumbrance whatsoever;
5.4 to pay all business and other taxes imposed on the Goods or
the location thereof, by reason of this Agreement;
5.5 to collect and remit to the appropriate authorities all
taxes, rates, fees, levies or other amounts due by virtue of
its sale of the Goods to any third party and to indemnify,
defend and save the Seller harmless from and against any
liability which may be incurred by the Seller in respect of
such taxes, rates, fees, levies or other amounts;
5.6 to maintain a separate set of books and records showing the
separate transactions made by the Buyer in respect of the
Goods, which shall be up-to-date and accurate, and to make
available on the Buyer's premises such books and records for
inspection by the Seller from time to time during business
hours, which inspection shall be made by the Seller without
unduly disturbing the Buyer's business;
5.7 to use its best efforts to sell the Goods to its customers
in the ordinary course of business.
6. Upon sale by the Buyer of any of the Goods, the Buyer shall
forthwith, and in any event within thirty (30) days from the date on which the
sales report (reporting the sale of such Goods) would be due, remit complete and
full payment to the Seller of the agreed upon purchase price for the Goods, the
Buyer hereby expressly acknowledging the Seller's rights of ownership to said
proceeds arising from the sale thereof until full payment of the purchase price
for the Goods to the Seller. Any item from among the Goods which is returned to
the Buyer for credit within such thirty (30) day period will be treated as if
the sale had not occurred. The purchase price for the Goods are as stated in
Appendix A.
7. The Buyer agrees to furnish to the Seller on a monthly basis (on or
before the 15th day of each month) a separate sales report indicating all sales
of the Goods in its possession for the prior month.
8. During the annual physical inventory conducted by Buyer, Buyer
shall prepare and submit to Seller, within sixty (60) days after the completion
of such inventory, a report reconciling Seller's outstanding Goods to physical
inventory on hand (the "Reconciliation Report"). The shrinkage evidenced by the
Reconciliation Report shall be deemed to reflect sales of Goods to be paid for
in accordance with the payment terms of this Agreement. The Reconciliation
Report shall be signed by the Seller and Buyer to certify their agreement to the
contents thereof.
9. The Seller shall have the right for the duration of this Agreement,
to send an employee or representative to any of the Stores at any time during
normal business hours, to examine and count the Goods, and the Buyer will extend
all reasonable assistance in connection therewith. The Seller undertakes to
exercise such right in a reasonable way.
10. In the event of a discrepancy in inventories between the inventory
provided by the Buyer and a physical count of the Goods, the latter shall
prevail, and the Seller shall immediately issue an invoice or a credit note to
the Buyer, as the case may be, to make the necessary adjustments. All invoices
and credit notes issued pursuant to this clause shall be payable upon receipt
thereof by the Buyer, and the Goods referred to therein shall be invoiced or
credited, as the case may be, at the stipulated price.
11. The Buyer represents to and warrants and covenants and agrees
with the Seller as follows:
11.1 it is a corporation legally incorporated and validly
existing, in good standing, under the laws of the Canada,
with full corporate power to enter into this Agreement;
11.2 the entering into of this Agreement and the performance of
the Buyer's obligations hereunder have been duly authorized
by all necessary corporate action on its part;
11.3 the making and performance of this Agreement will not
result in the breach of, constitute a default under,
contravene any provision of, or result in the creation of
any lien, charge, encumbrance or security interest upon any
of its property or assets pursuant to any of its stocks,
bonds, notes or debentures outstanding, or any agreement,
indenture or other instrument to which it is a party or by
which it or its property may be bound or affected;
11.4 on the date hereof, the Buyer's only right, title and
interest in and to the Goods is hereunder and the Buyer
owns no Goods or other products of the Seller;
11.5 except in the case of the Stores located at 87 King Street,
Saint John, New-Brunswick, Canada, in respect of which it
is the owner of such premises, it is the tenant under each
of the leases for the premises where the Stores are
located, that all rent due by it under such leases is
current and not in arrears and that it is not in default of
any terms of any leases as of the date of execution hereof.
12. The term of this Agreement shall commence on the date hereof and
shall continue for an indefinite term, provided that (i) the Seller shall be
entitled to terminate this Agreement immediately upon ten (10) days notice to
the Buyer for any reason determined to be appropriate by the Seller; and (ii)
the Buyer shall be entitled to terminate this Agreement upon ten (10) days
notice to the Seller for any reason determined to be appropriate by the Buyer.
13. Upon termination of this Agreement:
13.1 the Buyer agrees, at its sole expense, to return to the
Seller or to deliver forthwith to the address and in a
manner designated by the Seller, all unsold Goods;
13.2 the Seller shall have, in addition to any other rights and
remedies provided by law, the absolute right to take
possession of and remove its Goods without process of law
and for that purpose may enter at any time any premises
where the Goods are situated.
14. No waiver by the Seller of any default shall operate as a waiver
of any other default and the terms of this Agreement shall be binding upon the
successors and assigns of the parties hereto. In particular, but without
restriction, the acceptance by the Seller of payments on dates other than those
when such payments are required to be made pursuant to this Agreement shall not
constitute a waiver of any rights of the Seller pursuant to this Agreement nor
any implicit or explicit amendment to the terms of this Agreement.
15. The Seller may, at any time, irrespective of default or
termination of this Agreement, remove or cause to be removed any or all of its
Goods from the possession of the Buyer. The Buyer agrees not to remove the
Seller's unsold Goods from the Stores, other than by sale in the ordinary course
of the Buyer's business, without the prior written consent of the Seller.
16. Notwithstanding any termination of this Agreement, each party
shall continue to be liable for all of its unfulfilled obligations to the other
incurred prior to or upon such termination.
17. The Buyer agrees to immediately advise and inform the Seller, in
writing, in the event of seizure before or after judgment of the Goods in any of
the Stores, or in the event Buyer becomes insolvent or bankrupt or goes into
liquidation or receivership, either voluntarily or under an order of a court of
competent jurisdiction, or makes a general assignment for the benefit of its
creditors or otherwise acknowledges itself insolvent. The Buyer agrees to assist
the Seller in retaking immediate possession of its unsold Goods not yet returned
to the Seller and any and all proceeds of sale.
18. The Parties agree that all values and amounts contemplated in this
Agreement and related documents are in United States currency unless indicated
otherwise.
19. This Agreement is personal in character and shall not be assigned
by the Buyer. This Agreement does not constitute the Buyer an agent of the
Seller. Nothing in this Agreement shall be deemed to constitute either of the
Parties the partner of the other and it is understood and agreed that the
relationship between the Parties is that of independent contractor. The terms
and conditions of this Agreement are set out in full herein and there is no
agreement, warranty or condition whereby the terms and conditions hereof can be
modified in any manner whatsoever otherwise than by a written amendment executed
by the authorized representatives of the Parties.
20. Any notice or other written communication permitted or required to
be given hereunder shall be in writing and shall be given by delivery or sent by
telecopier or similar telecommunications device and addressed:
20.1 to the Seller at:
ROSY BLUE N.V.
Hoveniersstraat 53, Box 127
2018 Antwerp
Belgium
20.2 to the Buyer at:
HENRY BIRKS & SONS INC.
Attn: Vice President Merchandising
Copy to Vice president General Counsel
1240, Phillips Square
Montreal, Quebec
H3B 3H4
or such other address as may be designated from time to time in accordance with
this section, and shall be deemed to have been received if sent by telecopier or
similar telecommunications device on the next business day following such
transmission or, if delivered, to have been given and received on the date of
such delivery.
21. The remedies of the Seller hereunder, at law and in equity, are
cumulative and are not exclusive of one another. The exercise of one or more
remedies shall not prevent the Seller
from exercising any or all other rights it may have. The acceptance by the
Seller of any payment after default by the Buyer hereunder shall not operate to
extend the time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any of the other rights of the Seller and any extension,
latitude, benefit or indulgence granted by the Seller shall not in any way
prevent the Seller from requiring the Buyer, thereafter, to make strict and
punctual payments and performance of the terms and conditions of this Agreement.
22. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and may be modified only by an
instrument in writing signed by both parties.
23. The introductory paragraph hereto and Appendix A annexed to this
Agreement are an integral part of this Agreement.
24. Words importing the singular number only shall include the plural,
and vice versa, and words importing the masculine shall include the feminine
gender, and words importing general persons shall include entities and
corporations and vice versa.
25. The Buyer agrees to sign any document that may be necessary in the
opinion of the Seller in order to give effect to and implement the foregoing.
26. This Agreement shall be governed by the applicable conditional
sale and personal property legislation in the Province or Territory where the
Goods are located as such place of location is indicated on Appendix A. The
parties agree that all claims and disputes arising out of or in connection with
this Agreement shall be adjudicated exclusively in the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A. Buyer consents to the jurisdiction of the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A.
27. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
28. The parties have requested that this Agreement and its related
documents be drawn up in English. Les parties ont exige que la present
convention et les document s`y rattachant soient rediges en anglais.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first written above.
SELLER BUYER
ROSY BLUE N.V. HENRY BIRKS & SONS INC.
Per: /s/ Amit B. Bhansali Per: /s/ Thomas A. Andruskevich
-------------------------- ----------------------------
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APPENDIX A
TO THE CONDITIONAL SALE AGREEMENT DATED AUGUST 15TH, 2002,
BETWEEN ROSY BLUE N.V. AND HENRY BIRKS & SONS INC.
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DESCRIPTION OF GOODS | PRICE PER ITEMS | LOCATION OF GOODS
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ROSY BLUE, INC. HENRY BIRKS & SONS INC.
Per: Per:
------------------------------- ----------------------------
Dated: Dated:
------------------------------- ----------------------------
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Exhibit 10.21
CONDITIONAL SALE AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 15th day of August 2002.
BY AND BETWEEN: ROSY BLUE, INC., a corporation having an office
in New-York, USA (hereinafter the "Seller")
AND: HENRY BIRKS & SONS INC., a corporation governed
under the laws of Canada, having its Head Office
at 1240 Phillips Square, Montreal, Quebec, H3B 3H4
(hereinafter the "Buyer" or "Birks")
|
WHEREAS the Seller has agreed to sell from time to time the goods
described in Appendix A attached hereto (the "Goods"), to the Buyer, the whole
upon the terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. The Buyer agrees to buy the Goods selected by the Buyer shipped
from time to time by the Seller.
2. The title to, property and ownership in any Goods now or hereafter
in the possession of the Buyer are and shall remain with the Seller and subject
at all times to the direction and control of the Seller and free from any and
all claims, demands, charges and liens whatsoever, until the entire purchase
price thereof, or any outstanding balance thereon, have been fully paid to the
Seller in accordance with the provisions of this Agreement. To secure the full
payment of the entire purchase price of the Goods, or of any outstanding balance
thereon, the Buyer hereby grants and conveys, to the Seller, a security interest
in all the Goods purchased hereunder as well as a security interest in the
proceeds of sale of the Goods. Notwithstanding the foregoing, for the purposes
of the laws of the province of Quebec, this agreement constitutes an instalment
sale agreement pursuant to articles 1745 to 1749 of the Civil Code of Quebec and
until full payment of the entire purchase price or of any outstanding balance
thereof or of any other sums payable under this agreement, the title to and
ownership of the Goods, replacement and proceeds of sale thereof, shall remain
in the Seller, but at Buyer's risk. Furthermore, for the purposes of the laws of
the province of Quebec, in order to secure all its obligations under this
Agreement, the Buyer hereby hypothecates to and in favor of the Seller, the
proceeds of any sale or other disposition of the Goods and any debts resulting
from such sale or other disposition as well as any insurance or expropriation
indemnity payable in respect of the foregoing, to the extent of the sum of CDN$
1,600,000 with interest thereon at the rate of twenty-five percent (25%) per
annum.
3. The Goods and any proceeds of sale thereof, from the date of
shipment of the Goods to the Buyer until such time as the unsold Goods are
returned by the Buyer to the Seller or until the Seller has been paid in full
the price of all such Goods sold in accordance with this Agreement, shall be at
the absolute risk of the Buyer.
4. The Buyer acknowledges that the Goods are personal property and
shall be collateral for all purposes under applicable conditional sale and
personal property legislation. The Seller shall be entitled to file this
agreement as a security agreement, conditional sales contract, instalment sale
agreement, or otherwise and/or to file a financing statement, RD Form, or other
document to evidence the security interest granted to the Seller hereunder and
the reservation of title with the Seller. The Buyer hereby appoints the Seller
as its agent and attorney-in-fact to execute any financing statement, RD Form,
or other document which may be required to perfect Seller's security interest
hereunder. The Buyer hereby waives the right to receive a copy of any fixtures
notice and any financing statement filed by the Seller relating to this
agreement, or any verification statement issued by any personal property
registry (including the Saskatchewan Personal Property Registry) that relates to
any such financing statement. The parties hereto agree that The Land Contracts
(Actions) Act (Saskatchewan) shall have no application to any action as defined
in such Act with respect to this Agreement and that The Limitation of Civil
Rights Act (Saskatchewan) shall have no application to this Agreement.
5. The Buyer hereby agrees:
5.1 to maintain the Goods in its premises set out in Appendix A
attached hereto (the "Stores");
5.1 to identify and hold the Goods separately, and to hold
separately in a segregated account the proceeds arising from
the sale of the Goods, in both cases as a gratuitous deposit
for and on behalf of the Seller, until the purchase price for
the Goods has been paid in full;
5.2 to indemnify, defend and hold the Seller harmless from and
against all damage, depreciation or loss (hereinafter referred
to as a "Loss") of or to the Goods, including, without
limiting the generality of the foregoing, Loss due to
pilferage, fire, theft, disappearance, destruction, flooding,
deterioration or otherwise, and to maintain in force, an
insurance policy or policies, at its own expense, for the
duration of this Agreement, providing coverage against such
Loss with reputable insurers for the full replacement value
thereof. The Seller shall be added as loss payee with regard
to the Goods in said insurance policy or policies and evidence
thereof shall be provided to the Seller upon request;
5.3 to keep the Goods and the proceeds therefrom free and clear
from any lien, charge, hypothec, security interest or
encumbrance whatsoever;
5.4 to pay all business and other taxes imposed on the Goods or
the location thereof, by reason of this Agreement;
5.5 to collect and remit to the appropriate authorities all taxes,
rates, fees, levies or other amounts due by virtue of its sale
of the Goods to any third party and to indemnify, defend and
save the Seller harmless from and against any liability which
may be incurred by the Seller in respect of such taxes, rates,
fees, levies or other amounts;
5.6 to maintain a separate set of books and records showing the
separate transactions made by the Buyer in respect of the
Goods, which shall be up-to-date and accurate, and to make
available on the Buyer's premises such books and records for
inspection by the Seller from time to time during business
hours, which inspection shall be made by the Seller without
unduly disturbing the Buyer's business;
5.7 to use its best efforts to sell the Goods to its customers in
the ordinary course of business.
6. Upon sale by the Buyer of any of the Goods, the Buyer shall
forthwith, and in any event within thirty (30) days from the date on which the
sales report (reporting the sale of such Goods) would be due, remit complete and
full payment to the Seller of the agreed upon purchase price for the Goods, the
Buyer hereby expressly acknowledging the Seller's rights of ownership to said
proceeds arising from the sale thereof until full payment of the purchase price
for the Goods to the Seller. Any item from among the Goods which is returned to
the Buyer for credit within such thirty (30) day period will be treated as if
the sale had not occurred. The purchase price for the Goods are as stated in
Appendix A.
7. The Buyer agrees to furnish to the Seller on a monthly basis (on or
before the 15th day of each month) a separate sales report indicating all sales
of the Goods in its possession for the prior month.
8. During the annual physical inventory conducted by Buyer, Buyer
shall prepare and submit to Seller, within sixty (60) days after the completion
of such inventory, a report reconciling Seller's outstanding Goods to physical
inventory on hand (the "Reconciliation Report"). The shrinkage evidenced by the
Reconciliation Report shall be deemed to reflect sales of Goods to be paid for
in accordance with the payment terms of this Agreement. The Reconciliation
Report shall be signed by the Seller and Buyer to certify their agreement to the
contents thereof.
9. The Seller shall have the right for the duration of this Agreement,
to send an employee or representative to any of the Stores at any time during
normal business hours, to examine and count the Goods, and the Buyer will extend
all reasonable assistance in connection therewith. The Seller undertakes to
exercise such right in a reasonable way.
10. In the event of a discrepancy in inventories between the inventory
provided by the Buyer and a physical count of the Goods, the latter shall
prevail, and the Seller shall immediately issue an invoice or a credit note to
the Buyer, as the case may be, to make the necessary adjustments. All invoices
and credit notes issued pursuant to this clause shall be payable upon receipt
thereof by the Buyer, and the Goods referred to therein shall be invoiced or
credited, as the case may be, at the stipulated price.
11. The Buyer represents to and warrants and covenants and agrees with
the Seller as follows:
11.1 it is a corporation legally incorporated and validly
existing, in good standing, under the laws of the Canada,
with full corporate power to enter into this Agreement;
11.2 the entering into of this Agreement and the performance of
the Buyer's obligations hereunder have been duly authorized
by all necessary corporate action on its part;
11.3 the making and performance of this Agreement will not result
in the breach of, constitute a default under, contravene any
provision of, or result in the creation of any lien, charge,
encumbrance or security interest upon any of its property or
assets pursuant to any of its stocks, bonds, notes or
debentures outstanding, or any agreement, indenture or other
instrument to which it is a party or by which it or its
property may be bound or affected;
11.4 on the date hereof, the Buyer's only right, title and
interest in and to the Goods is hereunder and the Buyer owns
no Goods or other products of the Seller;
11.5 except in the case of the Stores located at 87 King Street,
Saint John, New-Brunswick, Canada, in respect of which it is
the owner of such premises, it is the tenant under each of
the leases for the premises where the Stores are located,
that all rent due by it under such leases is current and not
in arrears and that it is not in default of any terms of any
leases as of the date of execution hereof.
12. The term of this Agreement shall commence on the date hereof and
shall continue for an indefinite term, provided that (i) the Seller shall be
entitled to terminate this Agreement immediately upon ten (10) days notice to
the Buyer for any reason determined to be appropriate by the Seller; and (ii)
the Buyer shall be entitled to terminate this Agreement upon ten (10) days
notice to the Seller for any reason determined to be appropriate by the Buyer.
13. Upon termination of this Agreement:
13.1 the Buyer agrees, at its sole expense, to return to the
Seller or to deliver forthwith to the address and in a
manner designated by the Seller, all unsold Goods;
13.2 the Seller shall have, in addition to any other rights and
remedies provided by law, the absolute right to take
possession of and remove its Goods without process of law
and for that purpose may enter at any time any premises
where the Goods are situated.
14. No waiver by the Seller of any default shall operate as a waiver
of any other default and the terms of this Agreement shall be binding upon the
successors and assigns of the parties hereto. In particular, but without
restriction, the acceptance by the Seller of payments on dates other than those
when such payments are required to be made pursuant to this Agreement shall not
constitute a waiver of any rights of the Seller pursuant to this Agreement nor
any implicit or explicit amendment to the terms of this Agreement.
15. The Seller may, at any time, irrespective of default or
termination of this Agreement, remove or cause to be removed any or all of its
Goods from the possession of the Buyer. The Buyer agrees not to remove the
Seller's unsold Goods from the Stores, other than by sale in the ordinary course
of the Buyer's business, without the prior written consent of the Seller.
16. Notwithstanding any termination of this Agreement, each party
shall continue to be liable for all of its unfulfilled obligations to the other
incurred prior to or upon such termination.
17. The Buyer agrees to immediately advise and inform the Seller, in
writing, in the event of seizure before or after judgment of the Goods in any of
the Stores, or in the event Buyer becomes insolvent or bankrupt or goes into
liquidation or receivership, either voluntarily or under an order of a court of
competent jurisdiction, or makes a general assignment for the benefit of its
creditors or otherwise acknowledges itself insolvent. The Buyer agrees to assist
the Seller in retaking immediate possession of its unsold Goods not yet returned
to the Seller and any and all proceeds of sale.
18. The Parties agree that all values and amounts contemplated in this
Agreement and related documents are in United States currency unless indicated
otherwise.
19. This Agreement is personal in character and shall not be assigned
by the Buyer. This Agreement does not constitute the Buyer an agent of the
Seller. Nothing in this Agreement shall be deemed to constitute either of the
Parties the partner of the other and it is understood and agreed that the
relationship between the Parties is that of independent contractor. The terms
and conditions of this Agreement are set out in full herein and there is no
agreement, warranty or condition whereby the terms and conditions hereof can be
modified in any manner whatsoever otherwise than by a written amendment executed
by the authorized representatives of the Parties.
20. Any notice or other written communication permitted or required to
be given hereunder shall be in writing and shall be given by delivery or sent by
telecopier or similar telecommunications device and addressed:
20.1 to the Seller at:
ROSY BLUE, INC.
529 Fifth Avenue, 15th Floor,
106 Archibald Street
New-York, NY 10017 USA
20.2 to the Buyer at:
HENRY BIRKS & SONS INC.
Attn: Vice President Merchandising
Copy to Vice president General Counsel
1240, Phillips Square
Montreal, Quebec
H3B 3H4
or such other address as may be designated from time to time in accordance with
this section, and shall be deemed to have been received if sent by telecopier or
similar telecommunications device on the next business day following such
transmission or, if delivered, to have been given and received on the date of
such delivery.
21. The remedies of the Seller hereunder, at law and in equity, are
cumulative and are not exclusive of one another. The exercise of one or more
remedies shall not prevent the Seller
from exercising any or all other rights it may have. The acceptance by the
Seller of any payment after default by the Buyer hereunder shall not operate to
extend the time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any of the other rights of the Seller and any extension,
latitude, benefit or indulgence granted by the Seller shall not in any way
prevent the Seller from requiring the Buyer, thereafter, to make strict and
punctual payments and performance of the terms and conditions of this Agreement.
22. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and may be modified only by an
instrument in writing signed by both parties.
23. The introductory paragraph hereto and Appendix A annexed to this
Agreement are an integral part of this Agreement.
24. Words importing the singular number only shall include the plural,
and vice versa, and words importing the masculine shall include the feminine
gender, and words importing general persons shall include entities and
corporations and vice versa.
25. The Buyer agrees to sign any document that may be necessary in the
opinion of the Seller in order to give effect to and implement the foregoing.
26. This Agreement shall be governed by the applicable conditional
sale and personal property legislation in the Province or Territory where the
Goods are located as such place of location is indicated on Appendix A. The
parties agree that all claims and disputes arising out of or in connection with
this Agreement shall be adjudicated exclusively in the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A. Buyer consents to the jurisdiction of the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A.
27. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
28. The parties have requested that this Agreement and its related
documents be drawn up in English. Les parties ont exige que la present
convention et les document s`y rattachant soient rediges en anglais.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first written above.
SELLER BUYER
ROSY BLUE, INC. HENRY BIRKS & SONS INC.
Per: /s/ Birain Parikh Per: /s/ Thomas A. Andruskevich
------------------------- ---------------------------
|
APPENDIX A
TO THE CONDITIONAL SALE AGREEMENT DATED AUGUST 15TH, 2002,
BETWEEN ROSY BLUE, INC. AND HENRY BIRKS & SONS INC.
--------------------------|-----------------------------|-----------------------
DESCRIPTION OF GOODS | PRICE PER ITEMS | LOCATION OF GOODS
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
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--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
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--------------------------|-----------------------------|-----------------------
ROSY BLUE N.V. HENRY BIRKS & SONS INC.
Per: Per:
------------------------------- ----------------------------
Dated: Dated:
------------------------------- ----------------------------
|
Exhibit 10.22
CONDITIONAL SALE AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 15th day of August 2002.
BY AND BETWEEN: ROSY BLUE SALES LTD., a corporation
having an office in Ramat Gan, Israel
(hereinafter the "Seller"
AND: HENRY BIRKS & SONS INC., a corporation
governed under the laws of Canada,
having its Head Office at 1240 Phillips
Square, Montreal, Quebec, H3B 3H4
(hereinafter the "Buyer" or "Birks")
WHEREAS the Seller has agreed to sell from time to time the goods
|
described in Appendix A attached hereto (the "Goods"), to the Buyer, the whole
upon the terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. The Buyer agrees to buy the Goods selected by the Buyer shipped from
time to time by the Seller.
2. The title to, property and ownership in any Goods now or hereafter
in the possession of the Buyer are and shall remain with the Seller and subject
at all times to the direction and control of the Seller and free from any and
all claims, demands, charges and liens whatsoever, until the entire purchase
price thereof, or any outstanding balance thereon, have been fully paid to the
Seller in accordance with the provisions of this Agreement. To secure the full
payment of the entire purchase price of the Goods, or of any outstanding balance
thereon, the Buyer hereby grants and conveys, to the Seller, a security interest
in all the Goods purchased hereunder as well as a security interest in the
proceeds of sale of the Goods. Notwithstanding the foregoing, for the purposes
of the laws of the province of Quebec, this agreement constitutes an instalment
sale agreement pursuant to articles 1745 to 1749 of the Civil Code of Quebec and
until full payment of the entire purchase price or of any outstanding balance
thereof or of any other sums payable under this agreement, the title to and
ownership of the Goods, replacement and proceeds of sale thereof, shall remain
in the Seller, but at Buyer's risk. Furthermore, for the purposes of the laws of
the province of Quebec, in order to secure all its obligations under this
Agreement, the Buyer hereby hypothecates to and in favor of the Seller, the
proceeds of any sale or other disposition of the Goods and any debts resulting
from such sale or other disposition as well as any insurance or expropriation
indemnity payable in respect of the foregoing, to the extent of the sum of
CDN $1,000 with interest thereon at the rate of twenty-five percent (25%) per
annum.
3. The Goods and any proceeds of sale thereof, from the date of
shipment of the Goods to the Buyer until such time as the unsold Goods are
returned by the Buyer to the Seller or
until the Seller has been paid in full the price of all such Goods sold in
accordance with this Agreement, shall be at the absolute risk of the Buyer.
4. The Buyer acknowledges that the Goods are personal property and
shall be collateral for all purposes under applicable conditional sale and
personal property legislation. The Seller shall be entitled to file this
agreement as a security agreement, conditional sales contract, instalment sale
agreement, or otherwise and/or to file a financing statement, RD Form, or other
document to evidence the security interest granted to the Seller hereunder and
the reservation of title with the Seller. The Buyer hereby appoints the Seller
as its agent and attorney-in-fact to execute any financing statement, RD Form,
or other document which may be required to perfect Seller's security interest
hereunder. The Buyer hereby waives the right to receive a copy of any fixtures
notice and any financing statement filed by the Seller relating to this
agreement, or any verification statement issued by any personal property
registry (including the Saskatchewan Personal Property Registry) that relates to
any such financing statement. The parties hereto agree that The Land Contracts
(Actions) Act (Saskatchewan) shall have no application to any action as defined
in such Act with respect to this Agreement and that The Limitation of Civil
Rights Act (Saskatchewan) shall have no application to this Agreement.
5. The Buyer hereby agrees:
5.1 to maintain the Goods in its premises set out in Appendix A
attached hereto (the "Stores");
5.1 to identify and hold the Goods separately, and to hold
separately in a segregated account the proceeds arising from
the sale of the Goods, in both cases as a gratuitous deposit
for and on behalf of the Seller, until the purchase price for
the Goods has been paid in full;
5.2 to indemnify, defend and hold the Seller harmless from and
against all damage, depreciation or loss (hereinafter referred
to as a "Loss") of or to the Goods, including, without
limiting the generality of the foregoing, Loss due to
pilferage, fire, theft, disappearance, destruction, flooding,
deterioration or otherwise, and to maintain in force, an
insurance policy or policies, at its own expense, for the
duration of this Agreement, providing coverage against such
Loss with reputable insurers for the full replacement value
thereof. The Seller shall be added as loss payee with regard
to the Goods in said insurance policy or policies and evidence
thereof shall be provided to the Seller upon request;
5.3 to keep the Goods and the proceeds therefrom free and clear
from any lien, charge, hypothec, security interest or
encumbrance whatsoever;
5.4 to pay all business and other taxes imposed on the Goods or
the location thereof, by reason of this Agreement;
5.5 to collect and remit to the appropriate authorities all taxes,
rates, fees, levies or other amounts due by virtue of its sale
of the Goods to any third party and to indemnify, defend and
save the Seller harmless from and against any liability which
may be incurred by the Seller in respect of such taxes, rates,
fees, levies or other amounts;
5.6 to maintain a separate set of books and records showing the
separate transactions made by the Buyer in respect of the
Goods, which shall be up-to-date and accurate, and to make
available on the Buyer's premises such books and records for
inspection by the Seller from time to time during business
hours, which inspection shall be made by the Seller without
unduly disturbing the Buyer's business;
5.7 to use its best efforts to sell the Goods to its customers in
the ordinary course of business.
6. Upon sale by the Buyer of any of the Goods, the Buyer shall
forthwith, and in any event within thirty (30) days from the date on which the
sales report (reporting the sale of such Goods) would be due, remit complete and
full payment to the Seller of the agreed upon purchase price for the Goods, the
Buyer hereby expressly acknowledging the Seller's rights of ownership to said
proceeds arising from the sale thereof until full payment of the purchase price
for the Goods to the Seller. Any item from among the Goods which is returned to
the Buyer for credit within such thirty (30) day period will be treated as if
the sale had not occurred. The purchase price for the Goods are as stated in
Appendix A.
7. The Buyer agrees to furnish to the Seller on a monthly basis (on or
before the 15th day of each month) a separate sales report indicating all sales
of the Goods in its possession for the prior month.
8. During the annual physical inventory conducted by Buyer, Buyer shall
prepare and submit to Seller, within sixty (60) days after the completion of
such inventory, a report reconciling Seller's outstanding Goods to physical
inventory on hand (the "Reconciliation Report"). The shrinkage evidenced by the
Reconciliation Report shall be deemed to reflect sales of Goods to be paid for
in accordance with the payment terms of this Agreement. The Reconciliation
Report shall be signed by the Seller and Buyer to certify their agreement to the
contents thereof.
9. The Seller shall have the right for the duration of this Agreement,
to send an employee or representative to any of the Stores at any time during
normal business hours, to examine and count the Goods, and the Buyer will extend
all reasonable assistance in connection therewith. The Seller undertakes to
exercise such right in a reasonable way.
10. In the event of a discrepancy in inventories between the inventory
provided by the Buyer and a physical count of the Goods, the latter shall
prevail, and the Seller shall immediately issue an invoice or a credit note to
the Buyer, as the case may be, to make the necessary adjustments. All invoices
and credit notes issued pursuant to this clause shall be payable upon receipt
thereof by the Buyer, and the Goods referred to therein shall be invoiced or
credited, as the case may be, at the stipulated price.
11. The Buyer represents to and warrants and covenants and agrees with
the Seller as follows:
11.1 it is a corporation legally incorporated and validly existing,
in good standing, under the laws of the Canada, with full
corporate power to enter into this Agreement;
11.2 the entering into of this Agreement and the performance of the
Buyer's obligations hereunder have been duly authorized by all
necessary corporate action on its part;
11.3 the making and performance of this Agreement will not result
in the breach of, constitute a default under, contravene any
provision of, or result in the creation of any lien, charge,
encumbrance or security interest upon any of its property or
assets pursuant to any of its stocks, bonds, notes or
debentures outstanding, or any agreement, indenture or other
instrument to which it is a party or by which it or its
property may be bound or affected;
11.4 on the date hereof, the Buyer's only right, title and interest
in and to the Goods is hereunder and the Buyer owns no Goods
or other products of the Seller;
11.5 except in the case of the Stores located at 87 King Street,
Saint John, New-Brunswick, Canada, in respect of which it is
the owner of such premises, it is the tenant under each of the
leases for the premises where the Stores are located, that all
rent due by it under such leases is current and not in arrears
and that it is not in default of any terms of any leases as of
the date of execution hereof.
12. The term of this Agreement shall commence on the date hereof and
shall continue for an indefinite term, provided that (i) the Seller shall be
entitled to terminate this Agreement immediately upon ten (10) days notice to
the Buyer for any reason determined to be appropriate by the Seller; and (ii)
the Buyer shall be entitled to terminate this Agreement upon ten (10) days
notice to the Seller for any reason determined to be appropriate by the Buyer.
13. Upon termination of this Agreement:
13.1 the Buyer agrees, at its sole expense, to return to the Seller
or to deliver forthwith to the address and in a manner
designated by the Seller, all unsold Goods;
13.2 the Seller shall have, in addition to any other rights and
remedies provided by law, the absolute right to take
possession of and remove its Goods without process of law and
for that purpose may enter at any time any premises where the
Goods are situated.
14. No waiver by the Seller of any default shall operate as a waiver of
any other default and the terms of this Agreement shall be binding upon the
successors and assigns of the parties hereto. In particular, but without
restriction, the acceptance by the Seller of payments on dates other than those
when such payments are required to be made pursuant to this Agreement shall not
constitute a waiver of any rights of the Seller pursuant to this Agreement nor
any implicit or explicit amendment to the terms of this Agreement.
15. The Seller may, at any time, irrespective of default or termination
of this Agreement, remove or cause to be removed any or all of its Goods from
the possession of the Buyer. The Buyer agrees not to remove the Seller's unsold
Goods from the Stores, other than by sale in the ordinary course of the Buyer's
business, without the prior written consent of the Seller.
16. Notwithstanding any termination of this Agreement, each party shall
continue to be liable for all of its unfulfilled obligations to the other
incurred prior to or upon such termination.
17. The Buyer agrees to immediately advise and inform the Seller, in
writing, in the event of seizure before or after judgment of the Goods in any of
the Stores, or in the event Buyer becomes insolvent or bankrupt or goes into
liquidation or receivership, either voluntarily or under an order of a court of
competent jurisdiction, or makes a general assignment for the benefit of its
creditors or otherwise acknowledges itself insolvent. The Buyer agrees to assist
the Seller in retaking immediate possession of its unsold Goods not yet returned
to the Seller and any and all proceeds of sale.
18. The Parties agree that all values and amounts contemplated in this
Agreement and related documents are in United States currency unless indicated
otherwise.
19. This Agreement is personal in character and shall not be assigned by
the Buyer. This Agreement does not constitute the Buyer an agent of the Seller.
Nothing in this Agreement shall be deemed to constitute either of the Parties
the partner of the other and it is understood and agreed that the relationship
between the Parties is that of independent contractor. The terms and conditions
of this Agreement are set out in full herein and there is no agreement, warranty
or condition whereby the terms and conditions hereof can be modified in any
manner whatsoever otherwise than by a written amendment executed by the
authorized representatives of the Parties.
20. Any notice or other written communication permitted or required to
be given hereunder shall be in writing and shall be given by delivery or sent by
telecopier or similar telecommunications device and addressed:
20.1 to the Seller at:
ROSY BLUE SALES LTD.
Diamond Exchange Noam Building 907
52 Bezalel Street
Ramat Gan 52521, Israel
20.2 to the Buyer at:
HENRY BIRKS & SONS INC.
Attn: Vice President Merchandising
Copy to Vice president General Counsel
1240, Phillips Square
Montreal, Quebec
H3B 3H4
or such other address as may be designated from time to time in accordance with
this section, and shall be deemed to have been received if sent by telecopier or
similar telecommunications device on the next business day following such
transmission or, if delivered, to have been given and received on the date of
such delivery.
21. The remedies of the Seller hereunder, at law and in equity, are
cumulative and are not exclusive of one another. The exercise of one or more
remedies shall not prevent the Seller
from exercising any or all other rights it may have. The acceptance by the
Seller of any payment after default by the Buyer hereunder shall not operate to
extend the time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any of the other rights of the Seller and any extension,
latitude, benefit or indulgence granted by the Seller shall not in any way
prevent the Seller from requiring the Buyer, thereafter, to make strict and
punctual payments and performance of the terms and conditions of this Agreement.
22. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and may be modified only by an
instrument in writing signed by both parties.
23. The introductory paragraph hereto and Appendix A annexed to this
Agreement are an integral part of this Agreement.
24. Words importing the singular number only shall include the plural,
and vice versa, and words importing the masculine shall include the feminine
gender, and words importing general persons shall include entities and
corporations and vice versa.
25. The Buyer agrees to sign any document that may be necessary in the
opinion of the Seller in order to give effect to and implement the foregoing.
26. This Agreement shall be governed by the applicable conditional sale
and personal property legislation in the Province or Territory where the Goods
are located as such place of location is indicated on Appendix A. The parties
agree that all claims and disputes arising out of or in connection with this
Agreement shall be adjudicated exclusively in the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A. Buyer consents to the jurisdiction of the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A.
27. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
28. The parties have requested that this Agreement and its related
documents be drawn up in English. Les parties ont exige que la present
convention et les document s`y rattachant soient rediges en anglais.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first written above.
SELLER BUYER
ROSY BLUE SALES LTD. HENRY BIRKS & SONS INC.
Per: Per:
----------------------------- -------------------------------
|
APPENDIX A
TO THE CONDITIONAL SALE AGREEMENT DATED AUGUST 15TH, 2002,
BETWEEN ROSY BLUE SALES LTD. AND HENRY BIRKS & SONS INC.
--------------------------|-----------------------------|-----------------------
DESCRIPTION OF GOODS | PRICE PER ITEMS | LOCATION OF GOODS
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
| |
--------------------------|-----------------------------|-----------------------
ROSY BLUE SALES LTD. HENRY BIRKS & SONS INC.
Per: Per:
------------------------------- ---------------------------------
Dated: Dated:
----------------------------- -------------------------------
|
Exhibit 10.23
CONDITIONAL SALE AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 15th day of August 2002.
BY AND BETWEEN: ROSY BLUE HONGKONG LTD., a corporation
having an office in Hongkong
(hereinafter the "Seller")
AND: HENRY BIRKS & SONS INC., a corporation
governed under the laws of Canada,
having its Head Office at 1240 Phillips
Square, Montreal, Quebec, H3B 3H4
(hereinafter the "Buyer" or "Birks")
WHEREAS the Seller has agreed to sell from time to time the goods
|
described in Appendix A attached hereto (the "Goods"), to the Buyer, the whole
upon the terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. The Buyer agrees to buy the Goods selected by the Buyer shipped from
time to time by the Seller.
2. The title to, property and ownership in any Goods now or hereafter
in the possession of the Buyer are and shall remain with the Seller and subject
at all times to the direction and control of the Seller and free from any and
all claims, demands, charges and liens whatsoever, until the entire purchase
price thereof, or any outstanding balance thereon, have been fully paid to the
Seller in accordance with the provisions of this Agreement. To secure the full
payment of the entire purchase price of the Goods, or of any outstanding balance
thereon, the Buyer hereby grants and conveys, to the Seller, a security interest
in all the Goods purchased hereunder as well as a security interest in the
proceeds of sale of the Goods. Notwithstanding the foregoing, for the purposes
of the laws of the province of Quebec, this agreement constitutes an instalment
sale agreement pursuant to articles 1745 to 1749 of the Civil Code of Quebec and
until full payment of the entire purchase price or of any outstanding balance
thereof or of any other sums payable under this agreement, the title to and
ownership of the Goods, replacement and proceeds of sale thereof, shall remain
in the Seller, but at Buyer's risk. Furthermore, for the purposes of the laws of
the province of Quebec, in order to secure all its obligations under this
Agreement, the Buyer hereby hypothecates to and in favor of the Seller, the
proceeds of any sale or other disposition of the Goods and any debts resulting
from such sale or other disposition as well as any insurance or expropriation
indemnity payable in respect of the foregoing, to the extent of the sum of CDN$
1,000 with interest thereon at the rate of twenty-five percent (25%) per annum.
3. The Goods and any proceeds of sale thereof, from the date of
shipment of the Goods to the Buyer until such time as the unsold Goods are
returned by the Buyer to the Seller or
until the Seller has been paid in full the price of all such Goods sold in
accordance with this Agreement, shall be at the absolute risk of the Buyer.
4. The Buyer acknowledges that the Goods are personal property and
shall be collateral for all purposes under applicable conditional sale and
personal property legislation. The Seller shall be entitled to file this
agreement as a security agreement, conditional sales contract, instalment sale
agreement, or otherwise and/or to file a financing statement, RD Form, or other
document to evidence the security interest granted to the Seller hereunder and
the reservation of title with the Seller. The Buyer hereby appoints the Seller
as its agent and attorney-in-fact to execute any financing statement, RD Form,
or other document which may be required to perfect Seller's security interest
hereunder. The Buyer hereby waives the right to receive a copy of any fixtures
notice and any financing statement filed by the Seller relating to this
agreement, or any verification statement issued by any personal property
registry (including the Saskatchewan Personal Property Registry) that relates to
any such financing statement. The parties hereto agree that The Land Contracts
(Actions) Act (Saskatchewan) shall have no application to any action as defined
in such Act with respect to this Agreement and that The Limitation of Civil
Rights Act (Saskatchewan) shall have no application to this Agreement.
5. The Buyer hereby agrees:
5.1 to maintain the Goods in its premises set out in Appendix A
attached hereto (the "Stores");
5.1 to identify and hold the Goods separately, and to hold
separately in a segregated account the proceeds arising from
the sale of the Goods, in both cases as a gratuitous deposit
for and on behalf of the Seller, until the purchase price for
the Goods has been paid in full;
5.2 to indemnify, defend and hold the Seller harmless from and
against all damage, depreciation or loss (hereinafter referred
to as a "Loss") of or to the Goods, including, without
limiting the generality of the foregoing, Loss due to
pilferage, fire, theft, disappearance, destruction, flooding,
deterioration or otherwise, and to maintain in force, an
insurance policy or policies, at its own expense, for the
duration of this Agreement, providing coverage against such
Loss with reputable insurers for the full replacement value
thereof. The Seller shall be added as loss payee with regard
to the Goods in said insurance policy or policies and evidence
thereof shall be provided to the Seller upon request;
5.3 to keep the Goods and the proceeds therefrom free and clear
from any lien, charge, hypothec, security interest or
encumbrance whatsoever;
5.4 to pay all business and other taxes imposed on the Goods or
the location thereof, by reason of this Agreement;
5.5 to collect and remit to the appropriate authorities all taxes,
rates, fees, levies or other amounts due by virtue of its sale
of the Goods to any third party and to indemnify, defend and
save the Seller harmless from and against any liability which
may be incurred by the Seller in respect of such taxes, rates,
fees, levies or other amounts;
5.6 to maintain a separate set of books and records showing the
separate transactions made by the Buyer in respect of the
Goods, which shall be up-to-date and accurate, and to make
available on the Buyer's premises such books and records for
inspection by the Seller from time to time during business
hours, which inspection shall be made by the Seller without
unduly disturbing the Buyer's business;
5.7 to use its best efforts to sell the Goods to its customers in
the ordinary course of business.
6. Upon sale by the Buyer of any of the Goods, the Buyer shall
forthwith, and in any event within thirty (30) days from the date on which the
sales report (reporting the sale of such Goods) would be due, remit complete and
full payment to the Seller of the agreed upon purchase price for the Goods, the
Buyer hereby expressly acknowledging the Seller's rights of ownership to said
proceeds arising from the sale thereof until full payment of the purchase price
for the Goods to the Seller. Any item from among the Goods which is returned to
the Buyer for credit within such thirty (30) day period will be treated as if
the sale had not occurred. The purchase price for the Goods are as stated in
Appendix A.
7. The Buyer agrees to furnish to the Seller on a monthly basis (on or
before the 15th day of each month) a separate sales report indicating all sales
of the Goods in its possession for the prior month.
8. During the annual physical inventory conducted by Buyer, Buyer shall
prepare and submit to Seller, within sixty (60) days after the completion of
such inventory, a report reconciling Seller's outstanding Goods to physical
inventory on hand (the "Reconciliation Report"). The shrinkage evidenced by the
Reconciliation Report shall be deemed to reflect sales of Goods to be paid for
in accordance with the payment terms of this Agreement. The Reconciliation
Report shall be signed by the Seller and Buyer to certify their agreement to the
contents thereof.
9. The Seller shall have the right for the duration of this Agreement,
to send an employee or representative to any of the Stores at any time during
normal business hours, to examine and count the Goods, and the Buyer will extend
all reasonable assistance in connection therewith. The Seller undertakes to
exercise such right in a reasonable way.
10. In the event of a discrepancy in inventories between the inventory
provided by the Buyer and a physical count of the Goods, the latter shall
prevail, and the Seller shall immediately issue an invoice or a credit note to
the Buyer, as the case may be, to make the necessary adjustments. All invoices
and credit notes issued pursuant to this clause shall be payable upon receipt
thereof by the Buyer, and the Goods referred to therein shall be invoiced or
credited, as the case may be, at the stipulated price.
11. The Buyer represents to and warrants and covenants and agrees with
the Seller as follows:
11.1 it is a corporation legally incorporated and validly existing,
in good standing, under the laws of the Canada, with full
corporate power to enter into this Agreement;
11.2 the entering into of this Agreement and the performance of the
Buyer's obligations hereunder have been duly authorized by all
necessary corporate action on its part;
11.3 the making and performance of this Agreement will not result
in the breach of, constitute a default under, contravene any
provision of, or result in the creation of any lien, charge,
encumbrance or security interest upon any of its property or
assets pursuant to any of its stocks, bonds, notes or
debentures outstanding, or any agreement, indenture or other
instrument to which it is a party or by which it or its
property may be bound or affected;
11.4 on the date hereof, the Buyer's only right, title and interest
in and to the Goods is hereunder and the Buyer owns no Goods
or other products of the Seller;
11.5 except in the case of the Stores located at 87 King Street,
Saint John, New-Brunswick, Canada, in respect of which it is
the owner of such premises, it is the tenant under each of the
leases for the premises where the Stores are located, that all
rent due by it under such leases is current and not in arrears
and that it is not in default of any terms of any leases as of
the date of execution hereof.
12. The term of this Agreement shall commence on the date hereof and
shall continue for an indefinite term, provided that (i) the Seller shall be
entitled to terminate this Agreement immediately upon ten (10) days notice to
the Buyer for any reason determined to be appropriate by the Seller; and (ii)
the Buyer shall be entitled to terminate this Agreement upon ten (10) days
notice to the Seller for any reason determined to be appropriate by the Buyer.
13. Upon termination of this Agreement:
13.1 the Buyer agrees, at its sole expense, to return to the Seller
or to deliver forthwith to the address and in a manner
designated by the Seller, all unsold Goods;
13.2 the Seller shall have, in addition to any other rights and
remedies provided by law, the absolute right to take
possession of and remove its Goods without process of law and
for that purpose may enter at any time any premises where the
Goods are situated.
14. No waiver by the Seller of any default shall operate as a waiver of
any other default and the terms of this Agreement shall be binding upon the
successors and assigns of the parties hereto. In particular, but without
restriction, the acceptance by the Seller of payments on dates other than those
when such payments are required to be made pursuant to this Agreement shall not
constitute a waiver of any rights of the Seller pursuant to this Agreement nor
any implicit or explicit amendment to the terms of this Agreement.
15. The Seller may, at any time, irrespective of default or termination
of this Agreement, remove or cause to be removed any or all of its Goods from
the possession of the Buyer. The Buyer agrees not to remove the Seller's unsold
Goods from the Stores, other than by sale in the ordinary course of the Buyer's
business, without the prior written consent of the Seller.
16. Notwithstanding any termination of this Agreement, each party shall
continue to be liable for all of its unfulfilled obligations to the other
incurred prior to or upon such termination.
17. The Buyer agrees to immediately advise and inform the Seller, in
writing, in the event of seizure before or after judgment of the Goods in any of
the Stores, or in the event Buyer becomes insolvent or bankrupt or goes into
liquidation or receivership, either voluntarily or under an order of a court of
competent jurisdiction, or makes a general assignment for the benefit of its
creditors or otherwise acknowledges itself insolvent. The Buyer agrees to assist
the Seller in retaking immediate possession of its unsold Goods not yet returned
to the Seller and any and all proceeds of sale.
18. The Parties agree that all values and amounts contemplated in this
Agreement and related documents are in United States currency unless indicated
otherwise.
19. This Agreement is personal in character and shall not be assigned by
the Buyer. This Agreement does not constitute the Buyer an agent of the Seller.
Nothing in this Agreement shall be deemed to constitute either of the Parties
the partner of the other and it is understood and agreed that the relationship
between the Parties is that of independent contractor. The terms and conditions
of this Agreement are set out in full herein and there is no agreement, warranty
or condition whereby the terms and conditions hereof can be modified in any
manner whatsoever otherwise than by a written amendment executed by the
authorized representatives of the Parties.
20. Any notice or other written communication permitted or required to
be given hereunder shall be in writing and shall be given by delivery or sent by
telecopier or similar telecommunications device and addressed:
20.1 to the Seller at:
ROSY BLUE HONGKONG LTD.
Room 2102-4-Lane Crawford House
64-70A Queen's Road Central
Hongkong
20.2 to the Buyer at:
HENRY BIRKS & SONS INC.
Attn: Vice President Merchandising
Copy to Vice president General Counsel
1240, Phillips Square
Montreal, Quebec
H3B 3H4
or such other address as may be designated from time to time in accordance with
this section, and shall be deemed to have been received if sent by telecopier or
similar telecommunications device on the next business day following such
transmission or, if delivered, to have been given and received on the date of
such delivery.
21. The remedies of the Seller hereunder, at law and in equity, are
cumulative and are not exclusive of one another. The exercise of one or more
remedies shall not prevent the Seller
from exercising any or all other rights it may have. The acceptance by the
Seller of any payment after default by the Buyer hereunder shall not operate to
extend the time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any of the other rights of the Seller and any extension,
latitude, benefit or indulgence granted by the Seller shall not in any way
prevent the Seller from requiring the Buyer, thereafter, to make strict and
punctual payments and performance of the terms and conditions of this Agreement.
22. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and may be modified only by an
instrument in writing signed by both parties.
23. The introductory paragraph hereto and Appendix A annexed to this
Agreement are an integral part of this Agreement.
24. Words importing the singular number only shall include the plural,
and vice versa, and words importing the masculine shall include the feminine
gender, and words importing general persons shall include entities and
corporations and vice versa.
25. The Buyer agrees to sign any document that may be necessary in the
opinion of the Seller in order to give effect to and implement the foregoing.
26. This Agreement shall be governed by the applicable conditional sale
and personal property legislation in the Province or Territory where the Goods
are located as such place of location is indicated on Appendix A. The parties
agree that all claims and disputes arising out of or in connection with this
Agreement shall be adjudicated exclusively in the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A. Buyer consents to the jurisdiction of the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A.
27. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
28. The parties have requested that this Agreement and its related
documents be drawn up in English. Les parties ont exige que la present
convention et les document s`y rattachant soient rediges en anglais.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first written above.
SELLER BUYER
ROSY BLUE HONGKONG LTD. HENRY BIRKS & SONS INC.
Per: Per:
------------------------------- --------------------------------
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APPENDIX A
TO THE CONDITIONAL SALE AGREEMENT DATED AUGUST 15TH, 2002,
BETWEEN ROSY BLUE HONGKONG LTD. AND HENRY BIRKS & SONS INC.
--------------------------|---------------------------|-------------------------
DESCRIPTION OF GOODS | PRICE PER ITEMS | LOCATION OF GOODS
--------------------------|---------------------------|-------------------------
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--------------------------|---------------------------|-------------------------
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--------------------------|---------------------------|-------------------------
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--------------------------|---------------------------|-------------------------
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ROSY BLUE HONGKONG LTD. HENRY BIRKS & SONS INC.
Per: Per:
------------------------------- --------------------------------
Dated: Dated:
----------------------------- -------------------------------
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Exhibit 10.24
CONDITIONAL SALE AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 15th day of August 2002.
BY AND BETWEEN: ROSY BLUE FINANCE S.A. (SWISS BRANCH), a
corporation having an office in Geneva,
Switzerland (hereinafter the "Seller")
AND: HENRY BIRKS & SONS INC., a corporation
governed under the laws of Canada,
having its Head Office at 1240 Phillips
Square, Montreal, Quebec, H3B 3H4
(hereinafter the "Buyer" or "Birks")
WHEREAS the Seller has agreed to sell from time to time the goods
|
described in Appendix A attached hereto (the "Goods"), to the Buyer, the whole
upon the terms and conditions hereinafter set forth in this Agreement;
NOW, THEREFORE, THIS AGREEMENT WITNESSES THAT IN CONSIDERATION of the
mutual covenants hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. The Buyer agrees to buy the Goods selected by the Buyer shipped from
time to time by the Seller.
2. The title to, property and ownership in any Goods now or hereafter
in the possession of the Buyer are and shall remain with the Seller and subject
at all times to the direction and control of the Seller and free from any and
all claims, demands, charges and liens whatsoever, until the entire purchase
price thereof, or any outstanding balance thereon, have been fully paid to the
Seller in accordance with the provisions of this Agreement. To secure the full
payment of the entire purchase price of the Goods, or of any outstanding balance
thereon, the Buyer hereby grants and conveys, to the Seller, a security interest
in all the Goods purchased hereunder as well as a security interest in the
proceeds of sale of the Goods. Notwithstanding the foregoing, for the purposes
of the laws of the province of Quebec, this agreement constitutes an instalment
sale agreement pursuant to articles 1745 to 1749 of the Civil Code of Quebec and
until full payment of the entire purchase price or of any outstanding balance
thereof or of any other sums payable under this agreement, the title to and
ownership of the Goods, replacement and proceeds of sale thereof, shall remain
in the Seller, but at Buyer's risk. Furthermore, for the purposes of the laws of
the province of Quebec, in order to secure all its obligations under this
Agreement, the Buyer hereby hypothecates to and in favor of the Seller, the
proceeds of any sale or other disposition of the Goods and any debts resulting
from such sale or other disposition as well as any insurance or expropriation
indemnity payable in respect of the foregoing, to the extent of the sum of CDN$
1,000 with interest thereon at the rate of twenty-five percent (25%) per annum.
3. The Goods and any proceeds of sale thereof, from the date of
shipment of the Goods to the Buyer until such time as the unsold Goods are
returned by the Buyer to the Seller or until the Seller has been paid in full
the price of all such Goods sold in accordance with this Agreement, shall be at
the absolute risk of the Buyer.
4. The Buyer acknowledges that the Goods are personal property and
shall be collateral for all purposes under applicable conditional sale and
personal property legislation. The Seller shall be entitled to file this
agreement as a security agreement, conditional sales contract, instalment sale
agreement, or otherwise and/or to file a financing statement, RD Form, or other
document to evidence the security interest granted to the Seller hereunder and
the reservation of title with the Seller. The Buyer hereby appoints the Seller
as its agent and attorney-in-fact to execute any financing statement, RD Form,
or other document which may be required to perfect Seller's security interest
hereunder. The Buyer hereby waives the right to receive a copy of any fixtures
notice and any financing statement filed by the Seller relating to this
agreement, or any verification statement issued by any personal property
registry (including the Saskatchewan Personal Property Registry) that relates to
any such financing statement. The parties hereto agree that The Land Contracts
(Actions) Act (Saskatchewan) shall have no application to any action as defined
in such Act with respect to this Agreement and that The Limitation of Civil
Rights Act (Saskatchewan) shall have no application to this Agreement.
5. The Buyer hereby agrees:
5.1 to maintain the Goods in its premises set out in Appendix A
attached hereto (the "Stores");
5.1 to identify and hold the Goods separately, and to hold
separately in a segregated account the proceeds arising from
the sale of the Goods, in both cases as a gratuitous deposit
for and on behalf of the Seller, until the purchase price for
the Goods has been paid in full;
5.2 to indemnify, defend and hold the Seller harmless from and
against all damage, depreciation or loss (hereinafter referred
to as a "Loss") of or to the Goods, including, without
limiting the generality of the foregoing, Loss due to
pilferage, fire, theft, disappearance, destruction, flooding,
deterioration or otherwise, and to maintain in force, an
insurance policy or policies, at its own expense, for the
duration of this Agreement, providing coverage against such
Loss with reputable insurers for the full replacement value
thereof. The Seller shall be added as loss payee with regard
to the Goods in said insurance policy or policies and evidence
thereof shall be provided to the Seller upon request;
5.3 to keep the Goods and the proceeds therefrom free and clear
from any lien, charge, hypothec, security interest or
encumbrance whatsoever;
5.4 to pay all business and other taxes imposed on the Goods or
the location thereof, by reason of this Agreement;
5.5 to collect and remit to the appropriate authorities all taxes,
rates, fees, levies or other amounts due by virtue of its sale
of the Goods to any third party and to indemnify, defend and
save the Seller harmless from and against any liability which
may be incurred by the Seller in respect of such taxes, rates,
fees, levies or other amounts;
5.6 to maintain a separate set of books and records showing the
separate transactions made by the Buyer in respect of the
Goods, which shall be up-to-date and accurate, and to make
available on the Buyer's premises such books and records for
inspection by the Seller from time to time during business
hours, which inspection shall be made by the Seller without
unduly disturbing the Buyer's business;
5.7 to use its best efforts to sell the Goods to its customers in
the ordinary course of business.
6. Upon sale by the Buyer of any of the Goods, the Buyer shall
forthwith, and in any event within thirty (30) days from the date on which the
sales report (reporting the sale of such Goods) would be due, remit complete and
full payment to the Seller of the agreed upon purchase price for the Goods, the
Buyer hereby expressly acknowledging the Seller's rights of ownership to said
proceeds arising from the sale thereof until full payment of the purchase price
for the Goods to the Seller. Any item from among the Goods which is returned to
the Buyer for credit within such thirty (30) day period will be treated as if
the sale had not occurred. The purchase price for the Goods are as stated in
Appendix A.
7. The Buyer agrees to furnish to the Seller on a monthly basis (on or
before the 15th day of each month) a separate sales report indicating all sales
of the Goods in its possession for the prior month.
8. During the annual physical inventory conducted by Buyer, Buyer shall
prepare and submit to Seller, within sixty (60) days after the completion of
such inventory, a report reconciling Seller's outstanding Goods to physical
inventory on hand (the "Reconciliation Report"). The shrinkage evidenced by the
Reconciliation Report shall be deemed to reflect sales of Goods to be paid for
in accordance with the payment terms of this Agreement. The Reconciliation
Report shall be signed by the Seller and Buyer to certify their agreement to the
contents thereof.
9. The Seller shall have the right for the duration of this Agreement,
to send an employee or representative to any of the Stores at any time during
normal business hours, to examine and count the Goods, and the Buyer will extend
all reasonable assistance in connection therewith. The Seller undertakes to
exercise such right in a reasonable way.
10. In the event of a discrepancy in inventories between the inventory
provided by the Buyer and a physical count of the Goods, the latter shall
prevail, and the Seller shall immediately issue an invoice or a credit note to
the Buyer, as the case may be, to make the necessary adjustments. All invoices
and credit notes issued pursuant to this clause shall be payable upon receipt
thereof by the Buyer, and the Goods referred to therein shall be invoiced or
credited, as the case may be, at the stipulated price.
11. The Buyer represents to and warrants and covenants and agrees with
the Seller as follows:
11.1 it is a corporation legally incorporated and validly existing,
in good standing, under the laws of the Canada, with full
corporate power to enter into this Agreement;
11.2 the entering into of this Agreement and the performance of the
Buyer's obligations hereunder have been duly authorized by all
necessary corporate action on its part;
11.3 the making and performance of this Agreement will not result
in the breach of, constitute a default under, contravene any
provision of, or result in the creation of any lien, charge,
encumbrance or security interest upon any of its property or
assets pursuant to any of its stocks, bonds, notes or
debentures outstanding, or any agreement, indenture or other
instrument to which it is a party or by which it or its
property may be bound or affected;
11.4 on the date hereof, the Buyer's only right, title and interest
in and to the Goods is hereunder and the Buyer owns no Goods
or other products of the Seller;
11.5 except in the case of the Stores located at 87 King Street,
Saint John, New-Brunswick, Canada, in respect of which it is
the owner of such premises, it is the tenant under each of the
leases for the premises where the Stores are located, that all
rent due by it under such leases is current and not in arrears
and that it is not in default of any terms of any leases as of
the date of execution hereof.
12. The term of this Agreement shall commence on the date hereof and
shall continue for an indefinite term, provided that (i) the Seller shall be
entitled to terminate this Agreement immediately upon ten (10) days notice to
the Buyer for any reason determined to be appropriate by the Seller; and (ii)
the Buyer shall be entitled to terminate this Agreement upon ten (10) days
notice to the Seller for any reason determined to be appropriate by the Buyer.
13. Upon termination of this Agreement:
13.1 the Buyer agrees, at its sole expense, to return to the Seller
or to deliver forthwith to the address and in a manner
designated by the Seller, all unsold Goods;
13.2 the Seller shall have, in addition to any other rights and
remedies provided by law, the absolute right to take
possession of and remove its Goods without process of law and
for that purpose may enter at any time any premises where the
Goods are situated.
14. No waiver by the Seller of any default shall operate as a waiver of
any other default and the terms of this Agreement shall be binding upon the
successors and assigns of the parties hereto. In particular, but without
restriction, the acceptance by the Seller of payments on dates other than those
when such payments are required to be made pursuant to this Agreement shall not
constitute a waiver of any rights of the Seller pursuant to this Agreement nor
any implicit or explicit amendment to the terms of this Agreement.
15. The Seller may, at any time, irrespective of default or termination
of this Agreement, remove or cause to be removed any or all of its Goods from
the possession of the Buyer. The Buyer agrees not to remove the Seller's unsold
Goods from the Stores, other than by sale in the ordinary course of the Buyer's
business, without the prior written consent of the Seller.
16. Notwithstanding any termination of this Agreement, each party shall
continue to be liable for all of its unfulfilled obligations to the other
incurred prior to or upon such termination.
17. The Buyer agrees to immediately advise and inform the Seller, in
writing, in the event of seizure before or after judgment of the Goods in any of
the Stores, or in the event Buyer becomes insolvent or bankrupt or goes into
liquidation or receivership, either voluntarily or under an order of a court of
competent jurisdiction, or makes a general assignment for the benefit of its
creditors or otherwise acknowledges itself insolvent. The Buyer agrees to assist
the Seller in retaking immediate possession of its unsold Goods not yet returned
to the Seller and any and all proceeds of sale.
18. The Parties agree that all values and amounts contemplated in this
Agreement and related documents are in United States currency unless indicated
otherwise.
19. This Agreement is personal in character and shall not be assigned by
the Buyer. This Agreement does not constitute the Buyer an agent of the Seller.
Nothing in this Agreement shall be deemed to constitute either of the Parties
the partner of the other and it is understood and agreed that the relationship
between the Parties is that of independent contractor. The terms and conditions
of this Agreement are set out in full herein and there is no agreement, warranty
or condition whereby the terms and conditions hereof can be modified in any
manner whatsoever otherwise than by a written amendment executed by the
authorized representatives of the Parties.
20. Any notice or other written communication permitted or required to
be given hereunder shall be in writing and shall be given by delivery or sent by
telecopier or similar telecommunications device and addressed:
20.1 to the Seller at:
ROSY BLUE FINANCE S.A. (SWISS BRANCH)
4. Route Du Grand Lancy
Casa Postale 1625
1211 Geneva 26 Switzerland
20.2 to the Buyer at:
HENRY BIRKS & SONS INC.
Attn: Vice President Merchandising
Copy to Vice president General Counsel
1240, Phillips Square
Montreal, Quebec
H3B 3H4
or such other address as may be designated from time to time in accordance with
this section, and shall be deemed to have been received if sent by telecopier or
similar telecommunications device on the next business day following such
transmission or, if delivered, to have been given and received on the date of
such delivery.
21. The remedies of the Seller hereunder, at law and in equity, are
cumulative and are not exclusive of one another. The exercise of one or more
remedies shall not prevent the Seller from exercising any or all other rights it
may have. The acceptance by the Seller of any payment after default by the Buyer
hereunder shall not operate to extend the time of payment of any amount then
remaining unpaid hereunder or constitute a waiver of any of the other rights of
the Seller and any extension, latitude, benefit or indulgence granted by the
Seller shall not in any way prevent the Seller from requiring the Buyer,
thereafter, to make strict and punctual payments and performance of the terms
and conditions of this Agreement.
22. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and may be modified only by an
instrument in writing signed by both parties.
23. The introductory paragraph hereto and Appendix A annexed to this
Agreement are an integral part of this Agreement.
24. Words importing the singular number only shall include the plural,
and vice versa, and words importing the masculine shall include the feminine
gender, and words importing general persons shall include entities and
corporations and vice versa.
25. The Buyer agrees to sign any document that may be necessary in the
opinion of the Seller in order to give effect to and implement the foregoing.
26. This Agreement shall be governed by the applicable conditional sale
and personal property legislation in the Province or Territory where the Goods
are located as such place of location is indicated on Appendix A. The parties
agree that all claims and disputes arising out of or in connection with this
Agreement shall be adjudicated exclusively in the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A. Buyer consents to the jurisdiction of the Courts of the Province or
Territory where the Goods are located as such place of Goods is indicated on
Appendix A.
27. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
28. The parties have requested that this Agreement and its related
documents be drawn up in English. Les parties ont exige que la present
convention et les document s`y rattachant soient rediges en anglais.
IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first written above.
SELLER BUYER
ROSY BLUE FINANCE S.A. (SWISS BRANCH) HENRY BIRKS & SONS INC.
Per: Per:
-------------------------------- ------------------------------
|
APPENDIX A
TO THE CONDITIONAL SALE AGREEMENT DATED AUGUST 15TH, 2002,
BETWEEN ROSY BLUE FINANCE S.A. (SWISS BRANCH) AND
HENRY BIRKS & SONS INC.
-------------------------|--------------------------|---------------------------
DESCRIPTION OF GOODS | PRICE PER ITEMS | LOCATION OF GOODS
-------------------------|--------------------------|---------------------------
| |
-------------------------|--------------------------|---------------------------
| |
-------------------------|--------------------------|---------------------------
| |
-------------------------|--------------------------|---------------------------
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-------------------------|--------------------------|---------------------------
ROSY BLUE FINANCE S.A. (SWISS BRANCH) HENRY BIRKS & SONS INC.
Per: Per:
-------------------------------- ----------------------------
Dated: Dated:
------------------------------- ---------------------------
|
EXHIBIT 10.25
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of February 4, 2005 (this
"Agreement"), by and between Henry Birks & Sons Inc., a Canadian corporation
(the "Company"), and Prime Investments SA, a Luxembourg corporation (the
"Holder").
WHEREAS the Holder holds 1,012,228 Series A Preferred Shares Series
A (the "Preferred Shares") of the Company and a US$2,500,000 Secured Convertible
Note, dated as of September 30, 2002, as amended (the "Note" and, together with
the Preferred Shares, the "Convertible Securities"), of the Company.
WHEREAS the Convertible Securities are convertible into, or may be
exchanged for, Class A Voting Shares, without par value (the "Class A Shares"),
of the Company.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, it is agreed as follows:
1. Definitions. (a) Unless otherwise defined herein, the terms
below shall have the following meanings (such meanings being equally applicable
to both the singular and plural form of the terms defined):
"Affiliate" shall mean, with respect to any specified Person, any
other Person that directly, or indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such specified
Person.
"Agreement" shall mean this Registration Rights Agreement, including
all amendments, modifications and supplements and any exhibits or schedules to
any of the foregoing.
"Business Day" shall mean any day that is not a Saturday, a Sunday
or a day on which commercial banks are required or permitted by law to be closed
in the City of New York in the State of New York or in the City of Montreal in
the Province of Quebec.
"Control" (including the terms "Controlled by" and "under common
Control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, as trustee or executor, by
contract or otherwise, including, without limitation, the ownership, directly or
indirectly, of securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
"Holder" shall mean the Holder, and any transferee of the Holder to
whom Registrable Securities are permitted to be transferred in accordance with
the terms of this Agreement, and, in each case, who continues to be entitled to
the rights of the Holder hereunder.
"NASD" shall mean the National Association of Securities Dealers,
Inc., or any successor entity thereof.
"Person" shall mean any individual, corporation, partnership, joint
venture, firm, trust, unincorporated organization, government or any agency or
political subdivision thereof or other entity.
"Registrable Securities" shall mean (a) any Class A Shares (i)
issued by the Company to the Holder upon conversion or exchange of the
Convertible Securities and (ii) held by the Holder and (b) any Securities
issuable or issued or distributed in respect of any of the Class A Shares
identified in clause (a) by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, reorganization,
merger, consolidation or otherwise. For purposes of this Agreement, (i)
Registrable Securities shall cease to be Registrable Securities when a
Registration Statement covering such Registrable Securities has been declared
effective under the Securities Act by the SEC and such Registrable Securities
have been disposed of pursuant to such effective Registration Statement and (ii)
the Registrable Securities of the Holder shall not be deemed to be Registrable
Securities at any time when the entire amount of such Registrable Securities
then held by the Holder, in the opinion of counsel reasonably satisfactory to
the Company and the Holder, may be resold to the public pursuant to Rule 144 (or
any successor provision then in effect) under the Securities Act in any three
month period.
"Registration Statement" shall mean the Piggy-Back Registration
Statement.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
(b) The following terms have the meanings set forth in the Section
set forth opposite such term:
TERM SECTION
---- -------
Blackout Period 6
Class A Shares Recitals
Indemnified Party 7(d)
Indemnifying Party 7(d)
Maximum Number of Securities 2(c)
Piggy-Back Registration 2(a)
Piggy-Back Registration Statement 2(a)
|
2. Piggy-Back Registration.
2
(a) If the Company proposes to file on its behalf and/or on behalf
of any holder of its securities a registration statement under the Securities
Act on any form (other than a registration statement on Form S-4, F-4 or S-8 or
any successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act or to employees of the Company
pursuant to any employee benefit plan, respectively) for the registration of
Class A Shares (a "Piggy-Back Registration"), it will give written notice to the
Holder at least twenty (20) days before the initial filing with the SEC of such
piggy-back registration statement (a "Piggy-Back Registration Statement"), which
notice shall set forth the intended method of disposition of the securities
proposed to be registered by the Company. The notice shall offer to include in
such filing the aggregate number of shares of Registrable Securities as the
Holder may request.
(b) If the Holder desires to have Registrable Securities
registered under this Section 2 the Holder shall advise the Company in writing
within ten (10) days after the date of receipt of such offer from the Company,
setting forth the amount of such Registrable Securities for which registration
is requested. The Company shall thereupon include in such filing the number or
amount of Registrable Securities for which registration is so requested, subject
to paragraph (c) below, and shall use its reasonable efforts to effect
registration of such Registrable Securities under the Securities Act.
(c) If the Piggy-Back Registration relates to an underwritten
public offering and the managing underwriter of such proposed public offering
advises that, in its opinion, the amount of Registrable Securities requested to
be included in the Piggy-Back Registration in addition to the securities being
registered by the Company would be greater than the total number of securities
which can be sold in the offering without having a material adverse effect on
the distribution of such securities or otherwise having a material adverse
effect on the marketability thereof (the "Maximum Number of Securities"), then:
(i) in the event Company initiated the Piggy-Back Registration,
the Company shall include in such Piggy-Back Registration first, the
securities the Company proposes to register and second, the securities of
all other selling security holders, including the Holder, to be included
in such Piggy-Back Registration in an amount which together with the
securities the Company proposes to register, shall not exceed the Maximum
Number of Securities, such amount to be allocated among such selling
security holders on a pro rata basis (based on the number of securities of
the Company held by each such selling security holder including the
Holder);
(ii) in the event any holder of Securities of the Company initiated
the Piggy-Back Registration, the Company shall include in such Piggy-Back
Registration first, the securities such initiating security holder
proposes to register, second, the securities of any other
selling security holders (including the Holder), in an amount which
together with the securities the initiating security holder proposes to
register, shall not exceed the Maximum Number of Securities, such amount
to be allocated among such other selling security holders on a pro rata
basis (based on the number of securities of the Company held by each such
selling security holder including the Holder) and third, any securities
the Company proposes to register, in an amount which together with
the securities the
3
initiating security holder and the other selling security holders propose
to register, shall not exceed the Maximum Number of Securities;
(d) The Company will not hereafter enter into any agreement, which
is inconsistent with the rights of priority provided in paragraph (c) above.
3. Blackout Periods. The Company shall have the right to delay
the filing or effectiveness of a Registration Statement required pursuant to
Section 2 hereof during no more than two (2) periods aggregating to not more
than 90 days in any twelve-month period (a "Blackout Period") in the event that
(i) the Company would, in accordance with the advice of its counsel, be required
to disclose in the prospectus information not otherwise then required by law to
be publicly disclosed and (ii) in the judgment of the Company's Board of
Directors, there is a reasonable likelihood that such disclosure, or any other
action to be taken in connection with the prospectus, would materially and
adversely affect or interfere with any financing, acquisition, merger,
disposition of assets (not in the ordinary course of business), corporate
reorganization or other similar transaction in which the Company is engaged or
in respect of which the Company proposes to engage in discussions or
negotiations with respect to, or has proposed or taken a substantial step to
commence, or there is an event or state of facts relating to the Company which
is material to the Company the disclosure of which would, in the reasonable
judgment of the Company be adverse to its interests; provided, however, that the
Company shall delay during such Blackout Period the filing or effectiveness of
any Registration Statement required pursuant to the registration rights of the
holders of any Securities of the Company. The Company shall promptly give the
Holder written notice of such Blackout Period containing an approximation of the
anticipated delay.
4. Registration Procedures. If the Company is required by the
provisions of Section 2 to use its reasonable efforts to effect the registration
of any of its securities under the Securities Act, the Company will, as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such securities and use its reasonable efforts to cause such
Registration Statement promptly to become and remain effective for a
period of time required for the disposition of such Securities by the
holders thereof but not to exceed 30 days (or 90 days in the case of a
Registration Statement filed pursuant to Rule 415 of the Securities Act);
provided, however, that before filing such registration statement or any
amendments thereto (for purposes of this subsection, amendments shall not
be deemed to include any filing that the Company is required to make
pursuant to the Exchange Act), the Company shall furnish the
representatives of the Holder referred to in Section 5(m) copies of all
documents proposed to be filed;
(b) prepare and file with the SEC such amendments and supplements
to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of all securities covered by such
Registration Statement until the earlier of such time as all of such
securities have been disposed of in a public offering or the expiration of
30 days;
4
(c) furnish to the Holder such number of conformed copies of the
applicable Registration Statement and each such amendment and supplement
thereto (including in each case all exhibits), and of a summary prospectus
or other prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents, as
the Holder may reasonably request;
(d) use its reasonable efforts to register or qualify the
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions within the United States
as the Holder shall reasonably request, to keep such registration or
qualification in effect for so long as such Registration Statement remains
in effect, and to take any other action which may be reasonably necessary
to enable the Holder to consummate the disposition in such jurisdictions
of the securities owned by the Holder (provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business, subject itself to taxation in or to file a general
consent to service of process in any jurisdiction wherein it would not but
for the requirements of this paragraph (d) be obligated to do so; and
provided, further, that the Company shall not be required to qualify such
Registrable Securities in any jurisdiction in which the securities
regulatory authority requires that the Holder submit any shares of its
Registrable Securities to the terms, provisions and restrictions of any
escrow, lockup or similar agreement(s) for consent to sell Registrable
Securities in such jurisdiction unless the Holder agrees to do so), and do
such other reasonable acts and things as may be required of it to enable
the Holder to consummate the disposition in such jurisdiction of the
securities covered by such Registration Statement;
(e) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable
Securities;
(f) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC;
(g) use its reasonable efforts to cause all such Registrable
Securities to be listed on each securities exchange or quotation system on
which similar securities issued by the Company are listed or traded;
(h) give written notice to the Holder:
(i) when such Registration Statement or any amendment
thereto has been filed with the SEC and when such Registration
Statement or any post-effective amendment thereto has become
effective;
(ii) of the issuance by the SEC of any stop order suspending
the effectiveness of such Registration Statement or the initiation
of any proceedings for that purpose;
(iii) of the receipt by the Company or its legal counsel of
any notification with respect to the suspension of the qualification
of the Class A
5
Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(iv) of the happening of any event that requires the Company
to make changes in such Registration Statement or the prospectus in
order to make the statements therein not misleading (which notice
shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made);
(i) use its reasonable efforts to prevent the issuance or obtain
the withdrawal of any order suspending the effectiveness of such
Registration Statement at the earliest possible time;
(j) furnish to the Holder, without charge, at least one copy of
such Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits (including those, if any, incorporated
by reference);
(k) upon the occurrence of any event contemplated by Section
4(h)(iv) above, promptly prepare a post-effective amendment to such
Registration Statement or a supplement to the related prospectus or file
any other required document so that, as thereafter delivered to the
Holder, the prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If the Company notifies the Holder in accordance with Section
4(h)(iv) above to suspend the use of the prospectus until the requisite
changes to the prospectus have been made, then the Holder shall suspend
use of such prospectus and use its reasonable efforts to return to the
Company all copies of such prospectus other than permanent file copies
then in the Holder's possession, and the period of effectiveness of such
Registration Statement provided for above shall be extended by the number
of days from and including the date of the giving of such notice to the
date the Holder shall have received such amended or supplemented
prospectus pursuant to this Section 4(k);
(l) make reasonably available for inspection by the Holder, any
underwriter participating in any disposition pursuant to such Registration
Statement and any attorney, accountant or other agent retained by the
Holder or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all relevant
information reasonably requested by such representative or any such
underwriter, attorney, accountant or agent in connection with the
registration; and
(m) use reasonable efforts to procure the cooperation of the
Company's transfer agent in settling any offering or sale of Registrable
Securities, including with respect to the transfer of physical stock
certificates into book-entry form in accordance with any procedures
reasonably requested by the Holder or the underwriters.
6
It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Agreement in respect of the Securities which
are to be registered at the request of the Holder that the Holder shall furnish
to the Company such information regarding the Securities held by the Holder and
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
5. Expenses. All expenses incurred in connection with each
registration pursuant to Section 2 of this Agreement, excluding underwriters'
discounts and commissions and broker fees and commissions, but including without
limitation all registration, filing and qualification fees, word processing,
duplicating, printers' and accounting fees (including the expenses of any
special audits or "comfort" letters required by or incident to such performance
and compliance), fees of the NASD or listing fees, messenger and delivery
expenses, all fees and expenses of complying with state securities or blue sky
laws, fees and disbursements of counsel for the Company, shall be paid by the
Company, except that:
(a) all such expenses in connection with any amendment or
supplement to a Registration Statement or prospectus filed more than 30
days after the effective date of such Registration Statement because the
Holder has not effected the disposition of the Securities requested to be
registered shall be paid by the Holder;
(b) The Holder shall bear and pay the (i) underwriting commissions
and discounts and broker fees and commissions applicable to securities
offered for their account in connection with any registrations, filings
and qualifications made pursuant to this Agreement and (ii) any fees and
expenses incurred in respect of counsel or other advisors to the Holder.
6. Rule 144 Information. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, the Company agrees to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act; and
(ii) use its reasonable efforts to file with the Commission in a
timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act.
7. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless the Holder, the
Holder's directors and officers, each person who participates in the offering of
such Registrable Securities, including underwriters (as defined in the
Securities Act), and each person, if any, who controls the Holder or
participating person within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which they may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or proceedings
7
in respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement on the
effective date thereof (including any prospectus filed under Rule 424 under the
Securities Act or any amendments or supplements thereto) or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each the Holder, the Holder's directors and
officers, such participating person or controlling person for any legal or other
expenses reasonably incurred by them (but not in excess of expenses incurred in
respect of one counsel for all of them unless there is an actual conflict of
interest between any indemnified parties) in connection with defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 8 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company; provided, further,
that the Company shall not be liable to the Holder, the Holder's directors and
officers, participating person or controlling person in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in connection with such registration statement,
preliminary prospectus, final prospectus or amendments or supplements thereto,
in reliance upon and in conformity with information furnished expressly for use
in connection with such registration by the Holder, the Holder's directors and
officers, participating person or controlling person.
(b) If the Holder joins in a Registration Statement, the Holder
shall indemnify and hold harmless the Company, each of its directors and
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, and each agent and any underwriter for the Company (within
the meaning of the Securities Act) against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director,
officer, controlling person, agent or underwriter may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in such registration statement on the effective date thereof (including any
prospectus filed under Rule 424 under the Securities Act or any amendments or
supplements thereto) or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with information furnished by or on
behalf of the Holder expressly for use in connection with such Registration
Statement; and the Holder shall reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person, agent
or underwriter (but not in excess of expenses incurred in respect of one counsel
for all of them unless there is an actual conflict of interest between any
indemnified parties) in connection with defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 7(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, and provided, further, that the liability of the
Holder hereunder shall be limited to the aggregate proceeds received by the
Holder in connection with
8
the sale of Registrable Securities pursuant to a Piggy-Back Registration
Statement under the Securities Act.
(c) If the indemnification provided to any Person for in this
Section 7 (the "Indemnified Party") from the indemnifying party (the
"Indemnifying Party") is unavailable to an Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. If the allocation provided in this paragraph (c) is
not permitted by applicable law, the parties shall contribute based upon the
relevant benefits received by the Company from the initial issuance of the
Registrable Securities to the Holder on the one hand and the proceeds received
by the Holder from the sale of the Registrable Securities pursuant to a
Piggy-Back Registration Statement on the other.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(d) Any Indemnified Party agrees to give prompt written notice to
the Indemnifying Party after the receipt by the Indemnified Party of any written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which the Indemnified Party intends to claim
indemnification or contribution pursuant to this Agreement; provided, that the
failure so to notify the Indemnified Party shall not relieve the Indemnifying
Party of any liability that it may have to the Indemnifying Party hereunder
unless such failure is materially prejudicial to the Indemnifying Party. If
notice of commencement of any such action is given to the Indemnifying Party as
above provided, the Indemnifying Party shall be entitled to participate in and,
to the extent it may wish, to assume the defense of such action at its own
expense, with counsel chosen by it and reasonably satisfactory to such
Indemnified Party. The Indemnified Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be paid by the Indemnified Party unless (i)
the Indemnifying Party agrees to pay the same, (ii) the Indemnifying Party fails
to assume the defense of such action, or (iii) the named parties to any such
action (including any impleaded parties) have been advised by such counsel that
either
9
(A) representation of such Indemnified Party and the Indemnifying Party by the
same counsel would be inappropriate under applicable standards of professional
conduct or (B) there are one or more legal defenses available to it which are
substantially different from or additional to those available to the
Indemnifying Party. No Indemnifying Party shall be liable for any settlement
entered into without its written consent.
(e) The agreements contained in this Section 7 shall survive the
transfer of the Registered Securities by the Holder and sale of all the
Registrable Securities pursuant to any registration statement and shall remain
in full force and effect, regardless of any investigation made by or on behalf
of the Holder or such director, officer or participating or controlling Person.
8. Certain Additional Limitations on Registration Rights.
Notwithstanding the other provisions of this Agreement, the Company shall not be
obligated to register the Registrable Securities of the Holder (i) if the Holder
or any underwriter of such Registrable Securities shall fail to furnish to the
Company necessary information in respect of the distribution of such Registrable
Securities, or (ii) if such registration involves an underwritten offering, such
Registrable Securities are not included in such underwritten offering on the
same terms and conditions as shall be applicable to the other Securities being
sold through underwriters in the registration or the Holder fails to enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for such underwritten offering. In addition, the Holder agrees not to
effect any public sale or distribution of any Registrable Securities or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Securities Act and
to enter into a customary lock-up agreement with the managing underwriter for an
offering, during the 180-day period beginning on the effective date of any
Piggy-Back Registration Statement or other underwritten offering (initiated by
the Company) (except as part of such registration), and the Company agrees to
use its reasonable efforts to cause its executive officers to enter into a
lock-up agreement of the same term, in each case if and to the extent requested
by the managing underwriter for such offering and if the Company and its
directors, executive officers and other significant stockholders enter into
similar agreements.
9. No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities, which is inconsistent
in any material respects with the rights granted to the Holder in this
Agreement.
10. Miscellaneous.
(a) Specific Performance. 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 hereto
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or in equity.
(b) Amendments and Waivers; Assignment. (i) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by the Company and the
Holder or, in the case of a waiver, by the party or parties against whom the
waiver is to be effective.
10
(ii) No failure or delay by any party in exercising any right,
power or privilege hereunder (other than a failure or delay beyond a period of
time specified herein) shall operate as a waiver thereof and no single or
partial exercise thereof shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(c) Notice Generally. All notices, request, 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
courier service, by fax or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified by notice given in
accordance with this Section 10(c):
(i) If to the Holder, at:
46A, avenue J.F. Kennedy
1855 Luxembourg
Luxembourg
attention: Manacor / Marco Dijkerman
Facsimile: 011-352-421961
(ii) If to the Company, at
1240 Phillips Square
Montreal Quebec
H3B 3H4
Attention: General Counsel
Facsimile: (514) 397-2577
or at such other address as may be substituted by notice given as herein
provided.
(d) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto as hereinafter provided. Except as
provided in Section 7, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of this
Agreement.
(e) Headings. The headings and subheadings in this Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof.
(f) Governing Law; Jurisdiction. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York.
(i) Any claim, action, suit or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby may be heard and
determined in any New York state or federal court sitting in The City of
New York, County of Manhattan, and each of the
11
parties hereto hereby consents to the non-exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom in any such
claim, action, suit or proceeding) and irrevocably waives, to the fullest
extent permitted by law, any objection that it may now or hereafter have
to the laying of venue of any such claim, action, suit or proceeding in
any such court or that any such claim, action, suit or proceeding that is
brought in any such court has been brought in an inconvenient forum.
(ii) Subject to applicable law, process in any such claim, action,
suit or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court. Without
limiting the foregoing and subject to applicable law, each party agrees
that service of process on such party as provided in Section 10(c) shall
be deemed effective service of process on such party. Nothing herein shall
affect the right of any party to serve legal process in any other manner
permitted by law or at equity. WITH RESPECT TO ANY SUCH CLAIM, ACTION,
SUIT OR PROCEEDING IN ANY SUCH COURT, EACH OF THE PARTIES IRREVOCABLY
WAIVES AND RELEASES TO THE OTHER ITS RIGHT TO A TRIAL BY JURY, AND AGREES
THAT IT WILL NOT SEEK A TRIAL BY JURY IN ANY SUCH PROCEEDING.
(g) Severability. If any term or other provision of this Agreement
is held to be 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 is not affected in any manner materially
adverse to any party. Upon a determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.
(h) Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understandings pertaining thereto.
(i) Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive its right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.
(j) Construction. Each party hereto acknowledges and agrees it has
had the opportunity to draft, review and edit the language of this Agreement and
that no presumption for or against any party arising out of drafting all or any
part of this Agreement will be applied in any Dispute relating to, in connection
with or involving this Agreement. Accordingly, the parties hereto hereby waive
the benefit of any rule of law or any legal decision that would require, in
cases of uncertainty, that the language of a contract should be interpreted most
strongly against the party who drafted such language.
[SIGNATURE APPEARS ON NEXT PAGE]
12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
HENRY BIRKS & SONS INC.
By: /s/ Thomas A. Andruskevich
--------------------------------------------
Name: Thomas A. Andruskevich
Title: President and Chief Executive Officer
|
PRIME INVESTMENTS SA
By: /s/ Marco Dijkerman
--------------------------------------
Name: Marco Dijkerman
Title:
|
13
Exhibit 10.26
SECURED CONVERTIBLE NOTE
OF
HENRY BIRKS & SONS INC.
A CANADIAN CORPORATION
September 30, 2002
FOR VALUE RECEIVED, the undersigned HENRY BIRKS & SONS INC., a Canadian
corporation (the "CORPORATION") promises to pay to the order of PRIME
INVESTMENTS SA (hereafter with any subsequent holder(s), the "HOLDER") at 1240
Phillips Square, Montreal, Quebec H3B 3H4, or at such other place or to such
other party as the Holder may from time to time designate in writing, the
principal sum of TWO MILLION FIVE HUNDRED THOUSAND UNITED STATES DOLLARS
(2,500,000), together with interest on the principal balance outstanding as
provided below. All payments hereunder shall be in lawful currency of the United
States and immediately available Funds.
1. SECURITIES PURCHASE AGREEMENT AND HIPOTHEC
This Secured Convertible Note (the "NOTE") is being issued pursuant to the
terms of the Securities Purchase Agreement dated as of August 15, 2002 between
the Corporation and the Investors named therein including the initial Holder
hereof (as such agreement may be, amended, restated, modified or waived in
accordance with its terms (the "SECURITIES PURCHASE AGREEMENT"), and is secured
by the collateral, including the Mayor's Present Shares and the Mayor's Future
Shares, and such terms are defined in and as such security is granted in and
governed by that certain Deed of Hypotec dated as of August 15, 2002 between the
Corporation in favor of National Bank Trust Inc. (the "TRUSTEE"), that certain
General Security Agreement dated as of August 15, 2002 between the Company and
the Trustee and that certain Deed of Mortgage dated as of August 15, 2002
between the Company and the Trustee in the forms attached as Exhibits C, D and E
to the Securities Purchase Agreements.
2. INTEREST
A. GENERAL. Unpaid Principal of this Note shall not bear interest from
September 30, 2002 until September 29, 2007 unless under the applicable tax laws
of Canada, interest is imputed to the Holder, in which case, the unpaid
principal of this Note shall bear interest at the lowest applicable imputed rate
permitted by law, payable on each anniversary of the date this Note was first
issued. Commencing on September 30, 2007 and ending on the date the unpaid
principal Note is paid in full, the unpaid amount of this Note shall bear
interest at the rate of six percent (6.0%) per annum, which amount shall be
payable on each Payment Date (as defined).
B. INTEREST AFTER DEFAULT
i. Overdue principal and (to the extend permitted by applicable law)
interest, if any, on this Note and all other overdue amounts payable hereunder
shall bear interest compounded monthly and payable on demand at a rate per annum
equal to three percent (3.0%) above the rate set forth in Section 2(a) hereof
until such amounts shall be paid in full (after, as well as before judgment, in
any).
ii. During the continuance of an Event of Default (as defined), the
unpaid principal of this Note not overdue shall, until such Event of Default has
been cured or remedied or such Event of Default has been waived bear interest at
a rate per annum equal to three percent (3.0%) above the rate set forth in
Section 2(a) hereof.
3. PRINCIPAL REPAYMENT
a. GENERAL. If this Note has not been prepaid or converted, in whole or in
part as permitted hereby, on or before 5:00 p.m. Montreal, Canada time on
September 29, 2007, the unpaid principal balance outstanding on such date, shall
be repaid in three equal installments on September 30, 2007, 2008 and 2009,
respectively, in each case with any accrued and unpaid interest. (Each of such
dates shall be referred to as a "Payment Date".)
b. OPTIONAL PREPAYMENT AT THE ELECTION OF THE CORPORATION.
i. At the Corporation's election at any time on or before September
29, 2004, the Corporation may elect to prepay all or any part of this Note for
an amount (the "PREPAYMENT AMOUNT") equal to the sum of (A) the principal amount
which the Corporation has elected to prepay, together with all accrued and
unpaid interest thereon through the Optional Repayment Date and (B) a premium
equal to (I) ten percent (10%) of the principal to be prepaid, if such
prepayment is made on or before September 30, 2003 or (II) a premium equal to
twenty percent (20%) of the principal to be prepaid, if such prepayment is made
after September 30, 2003 and before September 29, 2004.
ii. Not less than twenty (20) days prior to the date (the "OPTIONAL
PREPAYMENT DATE"), the Corporation prepays the Note as permitted by this Section
2(b) the Corporation shall mail to the Holder written notice (the "OPTIONAL
PREPAYMENT NOTICE") setting forth the following information: (A) the principal
amount of the Note which the Corporation has elected to prepay, (B) the amount
of any accrued, but unpaid interest on the principal amount of the Note to be
prepaid through the Optional Prepayment Date and (C) the Optional Prepayment
Date. Subject to Section 4 hereof, on the Optional Prepayment Date, the
Corporation shall pay the Optional Prepayment Amount to the Holder in cash
together with all accrued but unpaid interest on the principal amount so prepaid
and the Holder shall make a notation on the reverse side of this Note indicating
the amount of the principal and interest so prepaid.
iii. Notwithstanding the Holder's receipt of an Optional Prepayment
Notice, the Holder of this Note may exercise its conversion rights, in whole or
in part, in accordance with Section 4 hereof on any date prior to the Optional
Prepayment Date.
c. MANDATORY OFFER TO PREPAY THE NOTES.
i. The Corporation shall be required to offer to the Holder of this
Note the right to have the Note prepaid in whole or in part, at the Holder's
election, in the event of:
(A) a merger, amalgamation, consolidation, combination, share
purchase or share exchange of voting securities of the Corporation by any person
or entity, other than
a merger, amalgamation, consolidation, combination, share
purchase or share exchange that would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to be held by the
same persons or entities in substantially the same proportions and continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) (aa) more than fifty percent (50%) of the
combined voting power of the Corporation or such surviving entity outstanding
immediately after such merger, amalgamation, consolidation, combination, share
purchase or share exchange if the Common Shares of the Corporation or such
surviving entity outstanding immediately after such merger, amalgamation,
consolidation, combination, share purchase or share exchange are not publicly
traded and listed on a U.S. stock exchange (or a Canadian stock exchange) or
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), National Market System ("NMS") or Small Cap (the "NASDAQ-NMS
OR SMALL CAP") or (bb) not less than twenty-five percent (25%) of the combined
voting power of the Corporation or such surviving entry outstanding immediately
after such merger, amalgamation, consolidation, combination, share purchase or
share exchange of the Common Shares of the Corporation or such surviving entity
outstanding immediately after such merger, amalgamation, consolidation,
combination, share purchase or share exchange are publicly traded and listed on
a U.S. stock exchange (or a Canadian stock exchange) or quoted on the NASDAQ-NMS
or Small Cap; or
a merger, amalgamation, consolidation, combination, share
purchase or share exchange effected to implement a recapitalization of the
Corporation (or similar transaction) in which a person who was the beneficial
owner of more than fifty percent (50%) of the Corporation's voting securities
prior to the merger, amalgamation, consolidation, combination, share purchase or
share exchange retains or acquires, as the case may be, beneficial ownership of
(aa) more than fifty percent (50%) of the combined voting power of the
Corporation's outstanding securities after the merger, amalgamation,
consolidation, combination, share purchase or share exchange, if immediately
after such merger, amalgamation, consolidation, combination, share purchase or
share exchange, the Corporation's Common Shares are not publicly traded and
listed on a U.S. stock exchange (or a Canadian stock exchange) or quoted on the
NASDAQ-NMS or Small Cap or (bb) twenty-five percent (25%) or more of the
combined voting power of the Corporation's outstanding securities after such
merger or combination, if immediately after such merger or combination, the
Corporation's Common Shares are publicly traded and listed on a U.S. securities
exchange (or a Canadian stock exchange) or quoted on the NASDAQ-NMS or Small
Cap; or
B) the sale of other disposition (unless captured in (A) above) by
the Corporation of all or substantially all of the Corporation's assets.
ii. The Corporation shall give the Holder written notice (an "OFFER TO
PREPAY") of any impending transaction of the type described in Section 3(c)(i)
not later than twenty (20) days prior to the shareholders' meeting called to
approve such transaction, or twenty (20) days prior to the closing of such
transaction, whichever is earlier, and shall also notify the Holder of the final
approval of such transaction. The Offer to Prepay shall describe the material
terms and conditions of the impending transaction and the provisions of this
Section 3(c) and the Corporation shall thereafter give the Holder prompt notice
of any material changes thereto. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the Offer to Prepay
or sooner than ten (10) days after the Corporation has given notice of any
material changes provided herein; provided, however, that such periods may be
shortened upon the written consent of the Holder.
iii. In the event the requirements of this Section 3(c) are not
complied this Corporation shall forthwith either:
(A) cause the closing of the applicable transaction to be postponed
until such time as the requirements of this Section 3(c) have been complied
with; or
(B) cancel such transaction, in which event the rights of the
Holder and the terms of this Note shall revert to and be the same as existed
immediately prior to the first notice provided under Section 3(c) hereof.
iv. At any time after its receipt of an Offer to Prepay, the Holder
may accept such offer by notifying the Corporation in writing (the "ACCEPTANCE")
setting forth the principal amount of the Note to be prepaid and the settlement
date thereof, which shall be no sooner than the closing date of the transaction
described in the Offer to Prepay. At the settlement, the Corporation shall
prepay in cash in U.S. Dollars, the principal amount of the Holder's Note as set
forth in the Acceptance, together with all accrued and unpaid interest through
the settlement date.
D. SUCCESSOR COMPANIES.
The Corporation shall not enter into any of the transactions
contemplated in Section 3(c)(i)(A) hereof unless:
(A) the surviving entity shall execute, prior to or contempor-aneously
with the consummation of such transaction, such instruments as in the opinion of
the counsel to the Corporation and the Holder, acting reasonably, are necessary
or advisable to evidence the assumption by the surviving entity of all of the
obligations of the Corporation, as the case may be, including the assumption by
the surviving entity of the liability for the due and punctual payment of the
Note and the interest thereon and all other moneys payable under the Note;
(B) such transaction shall be upon such terms as to preserve and not
to impair any of the rights and powers of the Holder thereunder; and
(C) no condition or event shall exist as to the Corporation or the
surviving entity either at the time of or immediately after such transaction and
after giving full effect thereto or immediately after the surviving entity
complying with the provisions of Section 3(d)(i)(A) above with constitutes or
would constitute an Event of Default hereunder.
4. CONVERSION. The Holder of this Note shall have the right (the "Conversion
Right") to convert the principal amount of this Note into the Corporation's
Common Shares (the "Common Shares") as set forth in this Section 4.
a. Right to Convert. At the option of the Holder thereof, at any time after
the date of issuance of this Note, at the office of the Corporation or any
transfer agent for such shares, the Holder may convert the unpaid principal
amount of this Note, or any portion thereof, into such number of fully paid and
non-assessable Common Shares of the Corporation, without par value (the "COMMON
SHARES") as is determined by dividing the principal amount of this Note which
such Holder has elected to convert by the conversion price ("CONVERSION PRICE")
determined as hereafter provided, in effect on the date the Note is surrendered
for conversion. The initial Conversion Price shall be US$4.9396 provided,
however, that the Conversion Price for the Series A Preferred Stock shall be
subject to adjustment as set forth in Section 4(d).
b. Automatic Conversion. The unpaid principal balance of this Note shall
automatically be converted into Common Shares at the Conversion Price at the
time in effect for this Note immediately upon the Corporation's sale of its
Common Shares in a bona fide firm commitment underwritten public offering
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the United States Securities Act of
1933, as amended (the "US SECURITIES ACT") or under a prospectus filed with, and
receipted by, the applicable securities commissions or similar regulatory
authorities in Canada (the "CANADIAN PROSPECTUS"), raising aggregate net
proceeds to the Company of at least US $55,000,000 at a minimum share price of
US $4.94 per Common Share (adjusted to reflect subsequent stock dividends, stock
splits or recapitalization) and in which the Common Shares are listed on a US
stock exchange or a Canadian stock exchange or quoted on the NASDAQ-NMS or Small
Cap.
c. Mechanics of Conversion. Before any Holder shall be entitled to convert
the Note, or any portion thereof, into Common Shares, such Holder shall
surrender this Note, together with a Notice of Conversion in substantially the
form annexed hereto, at the office of the Corporation, and shall give written
notice to the Corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for Common Shares are to be issued. The Corporation
shall, as soon as practicable thereafter, but in no event more than three (3)
business days after the receipt of this Note and the Notice of Conversion issue
and deliver at such office to such Holder, or to the nominee or nominees of such
Holder, a certificate or certificates for the number of Common Shares to which
such Holder shall be entitled as aforesaid and a new Note, evidencing the unpaid
principal balance of the Note. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
Note to be converted, and the person or persons entitled to receive the Common
Shares issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Shares as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the US Securities Act of 1933, as amended or made
pursuant to a Canadian Prospectus, the conversion may, at the option of the
Holder tendering this Note, in whole or in part, for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the persons entitled to receive the Common Shares
upon conversion of this Note shall not be deemed to have converted this Note
until immediately prior to the closing of such sale of securities.
d. Conversion Price Adjustments of Preferred Shares for Certain Dilutive
Issuances and Combinations. The Conversion Price of this Note shall be subject
to adjustment from time to time as follows:
i. Stock Splits or Subdivisions. In the event the Corporation should at
any time or from time to time after August 20, 2002 (the "CLOSING DATE") fix a
record date for the effectuation of a split or subdivision of the outstanding
Common Shares or the determination of holders of Common Shares entitled to
receive a dividend or other distribution payable in additional Common Shares or
other securities or right convertible into, or entitling the holder thereof to
receive directly or indirectly, additional Common Shares (hereinafter referred
to as "COMMON SHARE EQUIVALENTS") without payment of any consideration by such
holder for the additional Common Shares or the Common Share Equivalents
(including the additional Common Shares issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of this Note shall be appropriately decreased so that the number of Common
Shares issuable on conversion of the principal amount of this Note shall be
increased in proportion to such increase of the aggregate of Common Shares
outstanding and those issuable with respect to such Common Share Equivalents.
ii. Combinations. If the number of Common Shares outstanding at any time
after the Closing Date is decreased by a combination of the outstanding
Common Shares, then, following the record date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of Common Shares issuable on conversion of the unpaid principal amount of
this Note shall be decreased in proportion to such decrease in outstanding
shares.
iii. Other Distributions. In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in Section 4(d)(i), then, in each such case,
upon the conversion of this Note, the Holder of this Note shall be entitled to a
proportionate share of any such distribution as though such Holder were the
holder of the number of Common Shares of the Corporation into which such
Holder's Note is convertible as of the record date fixed for the determination
of the holders of Common Shares of the Corporation entitled to receive such
distribution.
iv. Recapitalizations. If at any time or from time to time there shall
be recapitalization of the Common Shares (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in Section 2(c),
provision shall be made so that the Holder of this Note shall thereafter be
entitled to receive upon conversion of this Note the number of shares or other
securities or property of the Corporation or otherwise, to which a holder of
Common Shares deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4(d)(iv) with respect to the
rights of the holders of this Note after the recapitalization to the end that
the provisions of this Section 4(d) (including adjustment of the Conversion
Price then in effect and the number of shares purchasable upon conversion of
this Note) shall be applicable after that event as nearly equivalent as may be
practicable.
v. No Impairment. The Corporation will not, by amendment of its Article
or By-laws or through any reorganization, recapitalization, transfer of assets,
consolidation merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder of this Note
against impairment.
vi. No Fractional Shares and Certificate as to Adjustments.
(A) No fractional shares shall be issued upon the conversion of this
Note, and the number of Common Shares to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the principal amount of this Note
which the Holder is at the time converting into Common Shares and the number of
Common Shares issuable upon such aggregate conversion.
(B) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of this Note pursuant to this Section 4(d), the Corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to the Holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of the Holder, furnish or cause to
be furnished to such holder a like certificate setting forth (I) such adjustment
and readjustment, (II) the Conversion Price for this Note at the time in effect,
and (III) the number of Common Shares and the amount, if any, of other property
which at the time would be received upon the conversion of the unpaid principal
balance of this Note.
vii. Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of any class or any
other securities or property, or to receive any other right, the Corporation
shall mail to the Holder, at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
viii. Reservation of Common Shares Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued Common Shares, solely for the purpose of effecting the conversion
of this Note, such number of Common Shares as shall from time to time be
sufficient to effect the conversion of the entire unpaid principal balance of
this Note; and if at any time the number of authorized but unissued Common
Shares shall not be sufficient to effect the conversion of all then outstanding
unpaid principal balance of this Note, in addition to such other remedies as
shall be available to the Holder of this Note, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued Common Shares to such number of shares as shall be
sufficient for such purposes, including, without limitation, engaging in best
efforts to obtain the requisite shareholder approval of any necessary amendment
to the Corporation's Articles.
5. DEFAULT AND ENFORCEMENT
a. Each of the following events shall constitute an event of default (an
"EVENT OF DEFAULT"):
i. if the Corporation does not pay as and when due principal and/or
interest of this Note when it becomes due, or on a prepayment date, or on a
settlement date as the case may be, unless this Note has been converted in
accordance with Section 4;
ii. if an order is issued or a resolution is adopted for the purpose of
winding-up the Corporation, (ii) if the Corporation files a proposal or makes an
assignment of its property for the benefit of its creditors, (iii) if a petition
in bankruptcy is filed against the Corporation or any of its subsidiaries and
such petition is not dismissed within thirty days of the filing thereof, if a
trustee is appointed for the Corporation pursuant to the Bankruptcy and
Insolvency Act (Canada) or pursuant to any other legislation relating to
insolvent persons, or if an application is filed pursuant to the Companies'
Creditors Arrangement Act (Canada), or (iv) if a seizure is made (unless the
seizure is validly contested by the Corporation) or a judgment is executed
against all or a substantial part of the Corporation's property;
iii. if the Corporation is no longer legally in existence or if it
ceases to operate within the ordinary course of business;
iv. if the Corporation fails to carry out or comply with any other
undertaking or any other condition set forth herein (including, but not limited
to, if the Corporation fails to offer to the Holder of this Note, the right to
have the Note prepaid in whole or in part, at the Holder's election as provided
in Section 3(c)(i) hereof), or breaches in any material respect the
Corporation's Articles insofar as they relate to the Series A Preferred Shares
referred to therein or the Security Agreements, (as such terms are defined in
the Securities Purchase Agreement) and such failure or breach continues for a
period of thirty (30) days after the Corporation has received a notice to that
effect from the Holder;
v. if the Corporation fails to pay when due an amount equal to $500,000
under the Diamond Conditional Sale Agreement or the Diamond Supply Agreement and
such failure shall continue for a period of thirty (30) days after the
Corporation has received written notice to that effect from the Holder; or
vi. subject to subclause (v) above, if the New York Diamond Dealers Club
(or any successor thereto) determines that there has been a material breach by
the Corporation under the Diamond Supply Agreement.
b. If an Event of Default occurs or continues, the Holder shall have the
option, in addition to all its other rights and recourses, to require the
immediate payment by the Corporation of the principal of and any accrued
interest on this Note, and the Corporation shall forthwith pay such amounts to
the Holder and, when such payment shall have been made, it shall be deemed to
release the Corporation from its obligations pursuant hereto.
c. The exercise by the Holder of any right or recourse pursuant to an
Event of Default or to the failure to perform an undertaking or obligation set
forth herein shall not imply a waiver of any right or recourse which is then
available to the Holder nor shall it affect or exclude such right or recourse.
6. NOTE REGISTER
a. The Corporation shall keep at its principal executive office a register
(herein sometimes refer to as the "NOTE REGISTER"), in which, subject to such
reasonable regulations as it may prescribe, but at its expense (other than
transfer taxes, if any) the Corporation shall provide for the registration and
transfer of this Note.
b. Whenever this Note shall be surrendered at the principal executive
office of the Corporation for exchange, accompanied by a written instrument of
transfer inform reasonably satisfactory to the Corporation duly executed by the
Holder hereof or his or its attorney duly authorized in writing, the Corporation
shall execute and deliver in exchange therefore a new Note as may be requested
by such Holder, in the same aggregate unpaid principal amount and payable on the
same date as the principal amount of the Note so surrendered; each such new Note
shall be dated as of the date to which interest has been paid on the unpaid
principal amount of the Note so surrendered and shall be in such principal
amount and registered in such name or names as such Holder may designate in
writing.
c. Upon receipt by the Corporation of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Note and of indemnity
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Note and of indemnity reasonably satisfactory to it, and upon reimbursement
to the Corporation of all reasonable expenses incidental thereto, and upon
surrender and cancellation of this Note (in case of mutilation) the Company will
make and deliver in lieu of this Note a new Note of like tenor and unpaid
principal amount and dated as of the date to which interest has been paid on the
unpaid principal amount of this Note in lieu of which such new Note is made and
delivered.
7. NOTICES
Every notice or other communication required pursuant hereto shall be given
in writing and sent by telecopier (provided that a copy is subsequently sent by
messenger and that its receipt is confirmed) or delivered by hand:
i. to the Holder:
Attention:
Telecopier:
ii. To the Corporation:
HENRY BIRKS & SONS INC.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Attention: President
Telecopier number: (514) 337-2509
with a copy to:
HENRY BIRKS & SONS INC.
1240 Phillips Square
Montreal, Quebec
H3B 3H4
Attention: Vice President, General Counsel and Corporate Secretary
Telecopier number: (514) 337-2509; and
or, as regards each party, to any other address or telecopier number which the
party may indicate by means of a written notice sent to the other party.
iii. Every notice or communication contemplated in Section 6 shall be
deemed to have been received on the business day after it was sent.
8. GOVERNING LAW. This Note shall be governed and interpreted in accordance with
the laws of Quebec and the laws of Canada applicable hereto.
9. SUCCESSORS AND ASSIGN. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Corporation and Holder of
this Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.
10. WAIVER AND AMENDMENT. Any provision of this Note may be amended, waived or
modified upon the written consent of the Company and the Holder.
11. TRANSFER OF THIS NOTE. The Holder may transfer this Note; (i) to a person
that directly or indirectly controls, is controlled by or is under common
control with such Holder; or (ii) in the Event of Default pursuant to Section 5.
In all other circumstances, the Company's consent shall be required to transfer
this Note, which consent shall not be unreasonably withheld.
12. UNCONDITIONAL OBLIGATION: FEES, WAIVERS OTHER.
a. The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupement or adjustment whatsoever.
b. No forbearance, indulgence, delay or failure to exercise any right or
remedy with respect to this Note shall operate as a waiver, nor as any
acquiescence in any default, nor shall any single or partial exercise of any
right or remedy preclude any other or further exercise thereof or the exercise
of any right or remedy.
c. The Corporation hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
binging of suit, and diligence in taking any action to collect amounts called
for hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder or in connection with any right at any and all times which Holder
had or is existing hereunder.
13. PAYMENT. Payment shall be made in lawful tender of the United States.
14. EXPENSES, WAIVERS. If action is instituted to collect this Note, the
Corporation promises to pay all costs and expenses, including, without
limitation, reasonably attorney's fees and costs, incurred in connection with
such action. The Corporation hereby waives notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this instrument.
15. APPLICATION OF PAYMENTS. All payments on account of the indebtedness
evidenced by this Note made prior to demand or acceleration shall be applied
first, to any and all costs, expenses, or charges then owed the Holder by the
Corporation, second, to accrued and unpaid interest, and third, to the unpaid
principal balance thereof. All payments so received after demand or acceleration
shall be applied in such manner as the Holder may determine in its sole and
absolute discretion.
16. SEVERABILITY. In the event any one or more of the provisions contained in
this Note shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Note and this Note shall be construed as if
such invalid, illegal, or unenforceable provision has never been contained
herein.
17. DUE AUTHORITY AND ENFORCEABILITY. The representative of the Corporation
executing this Note below represents that he has full power, authority and legal
right to execute and deliver this Note and that the debt hereunder constitutes a
valid and binding obligation of Corporation.
18. HEADINGS. The headings of this Note are for convenience of reference only
and shall not define or limit any terms or provisions hereof.
19. RATABLE TREATMENT. So long as any Notes issued under the Securities Purchase
Agreement remain outstanding, the Corporation shall deal ratably with the
holders thereof in any and all matters other than the conversion thereof at the
election of the Holder.
IN WITNESS WHEREOF, the Corporation has duly executed this Note as of the
day and year above written.
CORPORATION
HENRY BIRKS & SONS INC.
By: /s/ Thomas A. Andruskevich
--------------------------------------------
Name: Thomas A. Andruskevich
Title: President and
Chief Executive Officer
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AMENDMENT TO A SECURED CONVERTIBLE NOTE ISSUED BY
HENRY BIRKS & SONS INC. - HENRY BIRKS ET FILS INC. ON SEPTEMBER 30, 2002
THIS AMENDMENT TO A SECURED CONVERTIBLE NOTE (this "Agreement") is entered into
on between HENRY BIRKS & SONS INC. - HENRY BIRKS ET FILS INC. (the
"Corporation") and PRIME INVESTMENTS SA (the "Holder").
WHEREAS, on September 30, 2002, the Corporation issued to the Holder a Secured
Convertible Note (the "Note") convertible into common shares of the
Corporation's share capital;
WHEREAS the Corporation has amended its share capital to provide, inter alia,
for (a) the creation of Class A Voting Shares, (b) the conversion of each of the
issued and outstanding common shares of its share capital into 1.01166 Class A
Voting Share (rounded to the nearest whole share) and (c) the cancellation of
the authorized but unissued common shares of its share capital;
WHEREAS the Corporation and the Holder want to amend the Note to reflect such
amendments to the Corporation's share capital;
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. The Note is amended as follows:
(a) all references to Common Shares of the Corporation are replaced by
references to Class A Voting Shares of the Corporation; and
(b) the Conversion Price shall, effective as of the date of this Amendment,
be US$4.88267, subject to adjustment pursuant to Section 4(d) of the Note.
2. All other terms and conditions of the Note shall remain unchanged.
IN WITNESS WHEREOF, the Corporation and the Holder have duly executed this
amendment to the Note as of the day and year first above written.
Corporation
HENRY BIRKS & SONS INC.
HENRY BIRKS ET FILS INC.
By : /s/ Thomas A. Andruskevich
---------------------------------------
Thomas A. Andruskevich
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PRIME INVESTMENTS SA
By :
Name:
Title:
Exhibit 10.27
2001-04-09 OFFER OF LOAN GUARANTEE Page 1 of 9
(TRANSLATION)
BY: GARANTIE QUEBEC, a company legally constituted under the Act respecting
Investissement-Quebec and Garantie-Quebec (R.S.Q. , c. I-16.1), having its
head office at 1200 Route de l'Eglise, Suite 500, Sainte-Foy, Quebec, G1V
5A3, and having a place of business at 393 Rue Saint-Jacques, Suite 500,
Montreal, Quebec, H2Y 1N9, hereinafter called G.Q.
TO: HENRY BIRKS & SONS HOLDING INC. and HENRY BIRKS & SONS INC., duly
constituted legal persons having their principal place of business at 1240
Phillips Square, Montreal (Quebec) H3B 3H4, hereinafter collectively
referred as the Company.
1. LOAN GUARANTEE
1.1 G.Q. offers the Company a guarantee, hereinafter referred to as the
Guarantee, in the form of a suretyship of sixty-five percent (65%) of
the net loss on a loan, hereinafter referred to as the Loan, for the
maximum amount of three million dollars ($3,000,000), granted by GMAC
COMMERCIAL CREDIT CORPORATION -- CANADA, pursuant to a Loan Agreement
entered into between the Lender and the Company on October 15, 1996
and amended thereafter by letters dated July 23, 1998, June 8, 1999,
September 23, 1999, May 2, 2000 and January 30, 2001, hereinafter
collectively referred to as the Loan Agreement.
1.2 For the purposes of the Guarantee, the net loss is defined as the sum
of the interest and the principal of the Loan authorized for
disbursement by G.Q., due and unpaid on the Loan recall date, plus the
accrued interest for a maximum period of three (3) months effective
from the Loan recall date, after deducting the net proceeds of
realization of the security granted to secure repayment of the Loan,
it being understood, however, that the interest accrued on and since
the Loan recall date shall at no time exceed, in the calculation of
the net loss, ten percent (10%) of the balance of the principal of the
Loan at the time of its recall.
1.3 The Loan shall serve exclusively to finance the renovation and new
store opening project, which along with its financing, is established
as follows:
Project
- New Victoria store location $ 622,100
Government Street (British Columbia)
- Southgate store renovation (Alberta) $ 473,500
- Chinook store renovation (Alberta) $ 532,600
- Hillside store renovation (British Columbia) $ 254,300
- New "Canada 1" store outside Quebec $ 495,000
- New "Canada 2" store outside Quebec $ 495,000
- Renovation or new location of a store outside Quebec
(London, Halifax or others) $ 458,000
-------------
Total $3,330,500.00
-------------
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2001-04-09 OFFER OF LOAN GUARANTEE Page 2 of 9
(TRANSLATION)
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Financing
---------
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- Term loan (65% guaranteed) $3,000,000.00
- Working capital $ 330,500.00
-------------
Total $3,330,500.00
-------------
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Project start date: 2000-06-01 Project end date: 2001-11-30
------------------- -----------------
2. TERM OF THE GUARANTEE
---------------------
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The Guarantee is granted for a period of five (5) years from the date of
the first advance on the Loan.
3. COMMITMENTS TO FULFILL BEFORE THE GUARANTEE COMES INTO FORCE
3.1 Before the Guarantee comes into force, the Company shall have
fulfilled the following conditions to G.Q.'s satisfaction, namely:
3.1.1 The minimum security detailed in subsection 7.1 hereof shall
have been validly granted by the Company and a written
confirmation to this effect received from GMAC (GMAC
Commercial Credit Corporation -- Canada);
3.1.2 The Company undertakes to fulfill the commitments included in
the Lender's letter of offer accepted by the Company on
January 30, 2001;
3.1.3 Commitment to maintain the current level of employment for the
term of the guarantee, namely more than 300 jobs in Quebec.
4. FEES
----
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4.1 COMMITMENT FEE
4.1.1 This offer is subject to the payment of management fees,
hereinafter referred to as the Commitment Fee, of one percent
(1%) of the amount of the Loan, namely thirty thousand dollars
($30,000).
4.1.2 The Commitment Fee, the balance of which shall be paid to G.Q.
upon acceptance of this offer, shall not be refundable, in
whole or in part, under any circumstances.
4.1.3 The mere cashing of the Commitment Fee shall not create any
right in favour of the Company and shall in no way oblige G.Q.
to bring the Guarantee into force in any way; these rights and
obligations shall only be generated provided that the terms
and conditions mentioned in this offer are fulfilled.
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2001-04-09 OFFER OF LOAN GUARANTEE Page 3 of 9
(TRANSLATION)
--------------------------------------------------------------------------------
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4.2 STANDBY FEES
4.2.1 Upon each advance on the Loan, a standby fee of two percent
(2%), calculated on the amount of the advance, shall be
payable to G.Q. upon receipt by the Company of an invoice to
that effect. The fees thus payable shall be adjusted in
proportion to the number of days remaining between the Loan
disbursement date and March 31 of the following year, out of
365.
4.2.2 Moreover, in consideration of the Guarantee, the Company
undertakes to pay G.Q. annually, on the last business day of
April of each year, standby fees of two percent (2%),
calculated on the balance of the Loan as at March 31 preceding
each payment.
4.2.3 Such standby fees shall always be payable in advance for the
upcoming guarantee period and shall not be refundable, in
whole or in part, under any circumstances.
4.2.4 Notwithstanding the foregoing, G.Q., at its discretion, may
reduce the percentage of standby fees claimed from the Company
if there is a decrease in the percentage net loss it
guarantees.
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4.3 The Commitment Fee and the standby fees owed by the Company to G.Q.
under the terms hereof shall be payable without notice or formal
demand within the foregoing time limit, at G.Q.'s offices or at any
other place which G.Q. may indicate to the Company in writing. G.Q.
may claim from the Company, on any amount due, effective from
maturity, interest calculated monthly, equal to the weekly variable
rate prevailing at G.Q.
5. ELECTRONIC DEBITS
5.1 The Company hereby authorizes G.Q. to make, by manual or electronic
debit from its bank account, any payment the Company must make to G.Q.
in respect of the standby fees payable under the terms hereof and in
respect of any amount G.Q. would have paid to the Lender in accordance
with the Guarantee. To this effect, the Company hereby authorizes the
bank or financial institution with which it deals to honour the debits
made by G.Q.
5.2 G.Q. shall send the Company a debit note in advance, containing all
the information relating to the payments to be made by the Company.
5.3 The Company undertakes to renew the authorization appearing above if
it changes banks or financial institutions, as long as the Guarantee
is in force, or as long as the Company may be indebted to G.Q. in
respect of any payment made by G.Q. pursuant to the Guarantee and to
inform G.Q. of this change by providing it with a cheque specimen from
its new bank or financial institution marked "NIL" and containing all
the necessary information.
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2001-04-09 OFFER OF LOAN GUARANTEE Page 4 of 9
(TRANSLATION)
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5.4 The Company accepts that payment of the standby fees owed hereunder
shall be made by cheque if G.Q. deems this mode of payment preferable
under the circumstances.
6. REPAYMENT
6.1 The Company undertakes to repay G.Q., on demand, for any amount which
the latter will be called upon to pay to the Lender pursuant to the
Guarantee, both in principal and in interest, and to hold it harmless
of any other loss, damage or expense which may result from G.Q.'s
commitment to the Lender under the terms of the Guarantee.
7. SECURITY
7.1 The Company undertakes, for the duration of the Guarantee, to grant
the Lender, to secure repayment of the Loan, the security prescribed
in the Loan Agreement, which shall confer on the Lender in respect of
the Loan the hypothecary rights resulting from:
o a movable hypothec on the universality of the movable property,
corporeal and incorporeal, tangible and intangible, present and
future, of Henry Birks & Sons Inc., in the amount of three
million dollars ($3,000,000) ranking after the hypothecary rights
already existing in favour of the lender in respect of the
following credits granted pursuant to the Loan Agreement:
-- GMAC credit LINE (maximum $50,000,000);
-- GMAC term loan of seven hundred and fifty thousand dollars
($750,000) (maximum balance of $262,500);
-- GMAC term loan of four hundred thousand dollars (maximum
balance of $387,000);
-- GMAC term loan of three million dollars ($3,000,000);
-- GMAC terms loan of five million dollars ($5,000,000), G.Q.
file number D052950.
8. OBLIGATIONS OF THE COMPANY
8.1 Effective from the date of acceptance of this offer, for the entire
term of the Guarantee and until payment in full of any amount that may
be owed to G.Q. by the Company hereunder or under the suretyship
agreement, the Company undertakes to:
8.1.1 furnish its audited annual financial statements, its audited
consolidated financial statements (where the Company must
prepare those according to the generally accepted accounting
practices of the Canadian Institute of Chartered Accountants)
within ninety (90) days of the end of any fiscal year and its
financial statements within ninety (90) days of the end of
each; also furnish, upon request, its semiannual financial
statements, the financial statements of its subsidiaries and,
if applicable, its consolidated financial statements or any
other financial statements required by G.Q. within the time
limit prescribed by G.Q.;
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2001-04-09 OFFER OF LOAN GUARANTEE Page 5 of 9
(TRANSLATION)
--------------------------------------------------------------------------------
8.1.2 furnish annual financial projections with the working
assumptions at the beginning of each fiscal year;
8.1.3 furnish G.Q. annually with a copy of the renewal of its line
of credit;
8.1.4 furnish G.Q., upon the latter's written request and within the
time limit provided in such request, with any and all
information and documents it will deem useful and relevant to
the application of the Guarantee and the Programme d'aide au
financement des enterprises (Business financing assistance
program);
8.1.5 not amend its authorized and issued share capital at the date
hereof without G.Q.'s prior written agreement, except in
connection to stock options or deferred stock options granted
to the employees, directors or Executive officers of the
Company's affiliates;
8.1.6 not liquidate, wind up or dissolve itself without G.Q.'s prior
written agreement;
8.1.7 not grant loans or advances to its shareholders, directors or
officers, except in the normal course of the Company's
business, or act as guarantor for its shareholders, directors
or officers;
8.1.8 deal on a business basis at arm's length in its business
dealings with any person;
8.1.9 obtain G.Q.'s prior written agreement before declaring or
paying any dividend to a class or classes of shareholders,
except as provided under 8.1.19 hereof;
8.1.10 not grant loans, advances or any other form of financial
assistance to affiliated companies or subsidiaires, nor make
investments therein, nor grant them security, nor engage in
transactions with them outside the normal course of its
operations;
8.1.11 ensure that there is no change in the control of the Company
or in the ultimate control of the Company, except with G.Q.'s
prior consent;
control means the holding of Shares carrying a sufficient
number of voting rights to allow the election of the majority
of the directors of the Company. Ultimate control means the
holding of the said Shares by a natural person or persons
giving control of the Company through a legal person or legal
persons holding shares in each other or in the Company. In the
event of the death of the shareholder who has ultimate control
of the Company, the transmission of the Shares of the deceased
shareholder to his heirs shall not be deemed to constitute a
change in ultimate control of the Company, on condition that
said control remains in the hands of the deceased
shareholder's legal heirs;
8.1.12 not divest more than ten percent (10%) of its assets (as per
the last audited financial statements), except with G.Q.'s
prior consent;
8.1.13 allow G.Q's. representatives or any external auditor
designated by G.Q., upon prior notice to the Company, to enter
the Company's premises during normal business hours and, at
G.Q.'s expense, examine the Company's books, physical
-------------------- --------------------------- -------------------------
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2001-04-09 OFFER OF LOAN GUARANTEE Page 6 of 9
(TRANSLATION)
--------------------------------------------------------------------------------
facilities and inventory, in the manner they deem appropriate,
and obtain a copy of any document;
8.1.14 allow G.Q. or its responsible Minister to disclose publicly,
if they deem it appropriate, the highlights of the financial
intervention granted to the Company, including, inter alia and
without limitation, the Company's name, its type of operation,
its location, the nature and the amount of the financial
intervention stipulated herein and the number of employees in
the Company's service;
8.1.15 give G.Q. fifteen (15) day prior notice, if the Company wishes
to announce its project officially or proceed with an official
inauguration, so as to enable G.Q. or its responsible Minister
to participate;
8.1.16 settle all expenses pertaining to the preparation, execution
or registration, if applicable, of the documents necessary to
give effect to this offer or to any amendment thereto;
8.1.17 maintain a minimum working capital ratio of one point fifteen
(1.15) and a long-term debt / net equity ratio of one point
five (1.5), net equity also including shareholders' advances
and deferred subsidies; G.Q. recognizes the seasonal nature of
the Company and accepts that this ratio may not be provided
from time to time within a given fiscal year;
8.1.18 maintain the ratios indicated in the preceding paragraph
regarding the guarantee previously granted by G.Q. to the
Company under number D052950 of its files;
8.1.19 not pay dividends except in the following cases:
-- the Company generates net earnings after income taxes at
the end of the fiscal year; however, the amount of the
dividend shall not exceed one third of the net earnings
generated, and the working capital ratio and the term
debt / equity ratio, pro forma upon payment of
dividends, shall be maintained. In the event that the
Company realizes net earnings and has to pay a dividend
greater than the one heretofore determined, it
undertakes to repay the loan in an equivalent amount,
provided that the said ratios are maintained. Finally,
if in the course of a given fiscal year, the Company
does not exercise the privilege of paying dividends,
this amount shall serve as a reserve to increase the
redistribution in subsequent years;
-- the Company is subject to a takeover bid; in which case,
the working capital ratio and the term debt / equity
ratios, pro forma upon payment of the dividend, shall be
maintained.
8.1.20 not redeem share capital of Henry Birks & Sons Holding Inc.
(this company holds 98% of the share capital of Henry Birks &
Sons Inc., the balance being held by management and the
employees (share capital and stock options));
8.1.21 not grant loans or advances to its shareholders, except for
the shareholder employees, for the purchase of share capital
of the Company, the cumulative
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2001-04-09 OFFER OF LOAN GUARANTEE Page 7 of 9
(TRANSLATION)
--------------------------------------------------------------------------------
amount of loans or advances to its shareholders being limited
to $500,000 per fiscal year;
8.1.22 maintain the number of permanent jobs in Quebec at the current
minimum level of three hundred (300).
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9. EVENT OF DEFAULT
9.1 Notwithstanding any other provision in this offer and even if the
conditions are fulfilled, G.Q. reserves the right to cancel any
portion not in force of the Guarantee or to defer its coming into
force, at its discretion, and the Company undertakes to repay the loan
on demand with interest, fees and incidentals, in the following cases
which constitute cases of default:
9.1.1 if the Company, without G.Q.'s prior written consent, moves
out of Quebec a substantial portion of the assets it holds in
Quebec, except in the normal course of the Company's business;
9.1.2 if the Company assigns its property, is under a receivership
order pursuant to the Bankruptcy and Insolvency Act (R.S.C.
(1985) c. B-3), makes a proposal to its creditors or commits
an act of bankruptcy under the said Act, or if it is under a
winding-up order under the Winding-up Act (R.S.Q., c. L-4) or
any other Act to the same effect, or if it is insolvent or on
the verge of insolvency, or if its financial position
deteriorates so as to imperil its survival;
9.1.3 if the Company avails itself of the provisions of the
Corporate Creditors' Arrangements Act (R.S.C. (1985) c. C-36);
9.1.4 if the Company suspends or threatens to suspend the normal
operation of a substantial part of its business;
9.1.5 if, in the opinion of G.Q. and without its consent, a material
change occurs in the nature of the Company's operations or in
the Company's level of financial or economic risk;
9.1.6 if, at any time, the Company is part to a dispute or
proceedings before a court of law or a tribunal, or a
government commission or agency, without having disclosed it
to G.Q., and the said dispute has a material impact on the
Company's operations;
9.1.7 in the event of fraud, misstatement or falsification of
documents submitted to G.Q. or the Lender by the Company or
its representatives;
9.1.8 if the Company is in default of repayment to G.Q. of any sum
which may become due under the terms hereof;
9.1.9 if the Company does not allocate the proceeds of the Loan to
the project submitted in the application for financing;
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(TRANSLATION)
--------------------------------------------------------------------------------
9.1.10 if the Company fails to perform any of the clauses and
conditions of this offer, the loan contract to be entered into
between the Lender and the Company, any other document
incidental to the Loan and any amendment thereto, as
applicable, and in general, any agreement in respect of its
borrowing.
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10. NON-TRANSFERABILITY
10.1 The Company may not assign or transfer the rights conferred upon it
under the terms of this offer.
11. REPRESENTATION
11.1 By its acceptance of this offer, the Company represents that all the
information provided to G.Q. during the period of the negotiations
which led to this offer is true and accurate.
12. INTERPRETATION
12.1 This Guarantee is subject to the application of the terms and
conditions set out in the Act respecting Investissement-Quebec and
Garantie-Quebec and its regulations.
12.2 Only the French version hereof shall be considered official and, in
any event, it shall prevail over any translation which might accompany
it.
GARANTIE QUEBEC
Per: _____________________________________ Date: 2001/04/09
Signature ----------
Biagio Carangelo, Portfolio Manager
-----------------------------------
Name of authorized representative
Per: _____________________________________ Date: 2001/04/09
Signature ----------
Jean-Charles Vincent, Regional Manager
--------------------------------------
Name of authorized representative
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ACCEPTANCE BY THE COMPANY
Having read the terms and conditions set out in this offer, we accept this offer
of loan guarantee and attach a cheque for thirty thousand dollars ($30,000) in
payment of the Commitment Fee amounting to thirty thousand dollars ($30,000).
This cheque contains all the necessary information to allow G.Q., if applicable,
to repay any amount due under the Guarantee, by electronic debit.
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(TRANSLATION)
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HENRY BIRKS & SONS HOLDING INC.
Per: ____________________________________ Date: April 12, 2001
Signature --------------
Marco Pasteris John Ball
Name of authorized representative
HENRY BIRKS & SONS INC.
Per: ____________________________________ Date: April 12, 2001
Signature --------------
Marco Pasteris John Ball
Name of authorized representative
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Exhibit 10.28
EMPLOYMENT AGREEMENT
This Agreement shall be effective as of August 1, 2005 (The "Effective
date") by and between Michael Rabinovitch (the "Executive") and Mayor's
Jewelers, Inc., a Delaware corporation (the "Company").
WHEREAS, the Executive declares not being prevented from working as such
in the United States and Canada;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements, the parties agree as follows:
POSITION, RESPONSIBILITIES AND TERM OF AGREEMENT
1.1 Employment and Duties. Subject to the terms and conditions of this
Agreement, the Company employs the Executive to serve on the Senior Management
Team as the Senior Vice President and Chief Financial Officer reporting to the
President & Chief Executive Officer and the Executive accepts such employment
and agrees to perform in a diligent, careful and proper manner such reasonable
responsibilities and duties commensurate with such position as may be assigned
to the Executive. The title and responsibilities and duties may be changed from
time to time so long as the Executive continues to be a member of the Senior
Management team and are consistent with his skills and experience. Executive
agrees to devote substantially all business time and efforts to and give
undivided loyalty to the Company.
1.2 Place of work: The Executive shall be based in South Florida, provide
his services to the Company primarily in Florida and with the need to travel to
Montreal twice per month (one full week and one partial week) and any other
traveling needs required by the position.
1.3 Effective Date. Subject to the provisions of this Agreement, this
Agreement shall start on August 1st, 2005 ("Effective Date") and shall continue
(the "Term") unless otherwise terminated as provided for in this Agreement.
2. COMPENSATION
2.1 Base Salary. During the Term of this Agreement, the Company shall pay
the Executive an annual gross base salary of $300,000 less all applicable
deductions, taxes, and withholdings, payable in the manner dictated by the
Company's standard payroll policies. The Executive may be eligible to receive
annual base salary increases as determined at the Company's discretion based
upon the Executive's performance and the Company's performance. In no event
shall Executive's gross base salary be less than $300,000.
2.2 Incentive Compensation
"Fiscal Year" in this Agreement shall mean such period of approximately 12
months defined as such from time to time by the Company's Board of Directors.
The first Fiscal Year is from March 27, 2005, to March 25, 2006. In the event of
any change in the definition "Fiscal Year" it should not adversely affect any
bonus payment or other compensation based or calculated on the Fiscal Year.
a) Annual Cash Bonus. For each Fiscal Year of the Company through
which the Executive remains an active employee of the Company, the Executive
will have the opportunity to earn a bonus based on achievement of a targeted
level of performance, as reflected in the annual bonus letter and based on
performance criteria set by the Company. For the Fiscal Year ending March 25,
2006, and each Fiscal Year thereafter, the target bonus is 50 % of the Base
Salary. For Fiscal Year ending March 25, 2006, the target bonus amount will be
prorated for that portion of the fiscal year worked. For Fiscal Year ending
March 25, 2006 only, the Executive shall receive an annual cash bonus equal to
the greater of: (i) a guaranteed payment of $75,000; or (ii) the target bonus
prorated for the portion of the Fiscal Year worked. The Executive will need to
be an active employee continuously from the Effective Date through June 30, 2006
in order to receive the payment. In addition, the Executive will receive a one
time signing bonus of $35,000 to be paid on September 1, 2005 and the Executive
must be an active employee continuously from the effective date through
September 1, 2005 to receive this payment. On an ongoing basis, the minimum
bonus pay out for any Fiscal Year is $0 and the maximum bonus pay out for any
Fiscal Year is the maximum allowed under the then current Management Bonus Plan.
b) Long-term Incentive Awards. For each Fiscal Year of the Company
through which the Executive remains an active employee of the Company, the
Executive may be considered for a long-term incentive award of Mayor's units
subject to the approval of the Board of Directors and subject to any specific
conditions as may be stated by the Board of Directors and-or the Long-Term
Incentive Plan. This award, if granted, will vest over a multi-year period as
may be approved by the Board of Directors or stated in the Long-Term Incentive
Plan. For the Fiscal Year ending March 25, 2006 the Executive will be granted
the equivalent of 250,000 Mayors units or the equivalent number of Birks units
which approximate 21,739 units (whether stock options, SAR's, phantom stock,
etc,) with a 3 year vesting period. The grant and pricing of these units will be
subject to the earlier of the following two events: approval by the Board of
Directors or as soon as possible once the financial reorganization of Birks and
Mayors is completed and the Company is authorized to grant Long Term Equity
Incentives.
2.3 Participation in Benefit Plans and Associate Discount Policy. If
acceptable by the Company's group insurers, the Company will provide the
Executive with the group insurance coverages (as of September 1, 2005),
currently including life, dental and medical insurance benefits, the cost of
which shall be borne by the Company according to the prevailing policies
applicable to other Senior Management members. The Executive will also be
provided an additional annual benefit payment in the amount of $15,000, paid on
a quarterly basis. In addition, the Executive will be entitled to
participate in the Company's Associate Discount Policy. The Company may, at its
discretion, modify said policies from time to time. Nothing paid to the
Executive under any plan, policies or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of other compensation to
the Executive hereunder as described in this Section 3.
2.4 Vacation Days. The Executive shall be entitled to twenty days of
vacation for each Fiscal Year consistent with the Company's vacation policy for
Senior Management officers. The vacation days are earned for a given Fiscal Year
during that same Fiscal Year; as a result, for any portion of a Fiscal Year
worked, the vacation shall be prorated on the basis of the number of days worked
during the Fiscal Year. Unused vacation days may not be carried over from year
to year.
2.5 Expenses. During the term of employment hereunder, the Executive shall
be entitled, without duplication, to receive reimbursement for all reasonable
and approved business expenses incurred by the Executive in accordance with the
policies and procedures established by the Company. In addition but without
duplication, the Executive shall receive the following gross all-inclusive
allowances:
a) Car Allowance: The Executive shall be entitled to a car allowance
all-inclusive lump sum amount equal to $800 per month in accordance with the car
allowance policy applicable to other members of Senior Management as may be
amended from time to time. Any other automobile costs or expenses including,
without limitation, maintenance, insurance, repairs, lease or financing costs,
and mileage, are the sole responsibility of the Executive.
b) One Time Reimbursement of Benefits: The Executive shall be
entitled to a one-time reimbursement of a maximum of $1,000 after submission of
receipts for the coverage of benefits during the waiting period.
c) One Time Legal Allowance: The Executive will be provided a one
time allowance of up to $1,000 for the legal costs related to the review of this
employment agreement.
It is understood that to the extent these provisions generate taxable benefit
for income tax purposes, these taxes will be the sole responsibility of the
Executive.
3. TERMINATION
3.1 Certain Definitions. For purposes of this Agreement, the following
terms have the meanings indicated:
a) "Cause" shall mean: (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties for the Company (other
than any such failure resulting from the Executive's incapacity due to physical
or mental illness, or any such actual or anticipated failure after the Executive
announces his intention to resign for Good Reason), (ii) the willful engaging by
the Executive in misconduct which is financially injurious to the Company, or
(iii) the Executive's conviction or a pleading of guilty or nolo contendre with
respect to the commission of a
felony or a crime involving bad faith or dishonesty; (iv) the Executive's
insubordination; (v) any breach by the Executive of any material term of this
Agreement or any other written agreement between the Executive and the Company;
or (vi) the Executive's material violation of any of the Company's policies. No
act, or failure to act, on the Executive's part shall be considered "willful"
unless done, or omitted to be done, by the Executive not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Company.
b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
c) "Disability" shall mean the Executive's inability to perform the
Executive's duties by reason of mental or physical disability for at least
ninety (90) days in any three-hundred sixty-five (365) day period. In the event
of a dispute as to whether the Executive is disabled within the meaning hereof,
either party may from time to time request a medical examination of the
Executive by a doctor appointed by the Chief of Staff of a hospital selected by
mutual agreement of the parties, or as the parties may otherwise agree, and the
written medical opinion of such doctor shall be conclusive and binding upon the
parties as to whether the Executive has become disabled and the date when such
disability arose. The cost of any such medical examination shall be borne by the
Company.
d) "Good Reason" shall mean (i) the Executive ceases to be a member
of the Senior Management of the Company, or (ii) the Company materially breaches
any material provision of this Agreement including, but not limited to the
Company requiring the relocation of the Executive outside South Florida. In the
event of a resignation for Good Reason, Executive must provide the Company with
a written "Notice of Resignation for Good Reason." The "Notice of Resignation
for Good Reason" shall include the specific section of this Agreement which was
relied upon and the reason that the Company's act or failure to act has given
rise to the Executive's resignation for Good Reason.
3.2 Termination Without Cause, Resignation with Good Reason or a Required
Relocation outside South Florida.
a) Executive may terminate this Agreement by giving the Company
written notice of such termination in accordance with Section 6.2 at least 90
days prior to the termination date, unless a shorter period is agreed upon
between the parties.
b) In the event at any time of (i) the termination of the employment
of the Executive without Cause (for any reason other than by Death or
Disability) or (ii) the resignation of the Executive for an event constituting
Good Reason, or (iii) the required relocation of the Executive outside South
Florida, the Company shall pay or provide to the Executive only the following:
(i) Any earned and accrued but unpaid installment of base
salary through the date of the Executive's resignation or termination at the
rate in effect immediately prior to such resignation or termination (or the rate
in effect immediately prior to the occurrence of an event that constitutes Good
Reason, whichever is greater) and all other unpaid amounts to which the
Executive is entitled as of such date under any compensation plan or program of
the Company (including payment for any vacation time not taken during the year
in which termination occurs and any reimbursements not yet paid but due for
business expenses previously incurred), such payments to be made in a lump sum
within 15 days following the date of resignation or termination; and
(ii) The amount the Executive would have been entitled to
pursuant to Section 2.2(a), had Executive remained employed through the end of
the Fiscal Year in which termination occurs, multiplied by a fraction, the
numerator of which is the number of days from the beginning of such Fiscal Year
to the date of termination, and the denominator of which is 365, such amount to
be paid no later than the time annual bonuses are paid to other executives of
the Company; and
(iii) In lieu of any further salary payments to the Executive
for periods subsequent to his date of resignation or termination, the Executive
will receive six (6) months of salary continuation at the same rate of base
salary in effect immediately prior to the Executive's resignation or termination
(or the base salary in effect immediately prior to the occurrence of an event
that constitutes Good Reason, whichever is greater). The Company will make the
salary continuation payments, less applicable taxes and other withholding, on
the Company's regular payroll dates. In the event the Company terminates the
Executive without cause, the Company may at its sole discretion, require the
Executive to continue providing services for a three (3) month working notice
period while said salary continuation payments are being made and such
continuation of services by the Executive shall not serve to extend the
six-month salary continuation period; and
(iv) The Company shall maintain in full force and effect for
the period described in Section 3.2(b)(iii), following the date of the
Executive's resignation or termination, health and dental programs (not life or
disability programs) in which the Executive was entitled to participate either
immediately prior to the Executive's resignation or termination or immediately
prior to the occurrence of an event that constitutes Good Reason, provided that
the Executive's continued participation is possible under the general terms and
provisions of such plans and programs. If applicable, to the extent Cobra is
available, the Company's obligations are satisfied by paying the Executive's
monthly premiums for the period described in Section 3.2(b)(iii) under Cobra,
and then the Executive may continue the Cobra coverage at the Executive's
expense;
(v) As a condition to his entitlement to receive termination
payments under subsections (ii) - (iv) of this Section, the Executive shall have
executed and delivered to the Company a release substantially in the form
attached hereto as Exhibit A.
c) Notwithstanding the foregoing, in the event the aggregate amount
of all payments that the Executive would receive pursuant to Section 3.2(b) plus
payment to be made to the Executive outside this Agreement would result in an
excess "parachute payment" (as defined in Section 280G(b)(2) of the Code) but
for this Section 3.2(b), as determined in good faith by the Company, the
aggregate amount of the payments required to be paid to the Executive pursuant
to this Section 3.2(b) shall be reduced to the largest amount that would result
in no portion of any payment to the Executive being subject to the excise tax
imposed by Section 4999 of the Code.
For greater clarity, except as set forth above, no other payment whatsoever
shall be due by the Company to the Executive.
3.3 Termination for Cause, Disability, Death or Resignation without Good
Reason. In the event of the Executive's termination of employment for Cause,
Death or Disability or his resignation without Good Reason, only the amounts set
forth in clause (i) of Section 3.2(b) shall be payable to the Executive,
provided that in the event of Death and Disability, the amount set forth in
clause (ii) of Section 3.2(b) shall be payable as well.
3.4 Withholding. The Company shall have the right to deduct from any
amounts payable under this Agreement an amount necessary to satisfy its
obligation, under applicable laws, to withhold income or other taxes of the
Executive attributable to payments made hereunder.
4. NON-COMPETITION/CONFIDENTIALITY
4.1 The Executive agrees that during the Executive's employment with the
Company, and for a six-month period thereafter, the Executive will not, directly
or indirectly, do or suffer any of the following:
a) Own, manage, control or participate in the ownership, management
or control of, or be employed or engaged by or otherwise affiliated or
associated (collectively, "Employed") as a consultant, independent contractor or
otherwise with, any other corporation, partnership, proprietorship, firm,
association, or other business entity, or otherwise engage in any business,
which is engaged in any manner in, or otherwise competes with, the business of
the Company or any of its affiliates (as conducted on the date the Executive
ceases to be employed by the Company in any capacity, including as a consultant)
(a "Prohibited Business") in the United States of America or any of the foreign
countries in which the Company or any of its affiliates is doing business (a
"Competing Business") for so long as this Section 4.1(a) shall remain in effect,
nor solicit any person or business that was at the time of the Executive's
termination of employment, or within one year prior thereto, a customer or
supplier of the Company or any of its affiliates; provided, however, that,
notwithstanding the foregoing, the Executive shall not be deemed to be Employed
by a Competing Business if the Board or a committee of the Board determines that
the Executive has established by clear and
convincing evidence all of the following: (A) such entity (including its
affiliates in aggregate) does not derive Material Revenues (as defined below)
from the aggregate of all Prohibited Businesses, (B) such entity (including its
affiliates in aggregate) is not a Competitor (as defined below) of the Company
and its affiliates and (C) Executive has no direct responsibility for or
otherwise with respect to any Prohibited Business; for purposes of this clause
(a), "Material Revenues" shall mean that 5% or more of the revenues of the
entity (including its affiliates in aggregate) are derived from the aggregate of
all Prohibited Businesses; an entity shall be deemed a "Competitor" of the
Company and its affiliates if the combined gross receipts of the entity
(including its affiliates in aggregate) from any Prohibited Business is more
than 25% of the gross receipts of the Company and its affiliates in such
Prohibited Business; and an "affiliate" of an entity is any entity controlled
by, controlling or under common control with the entity;
b) Employ, assist in employing, or otherwise engage in business with
any present executive, officer, employee or agent of the Company or its
affiliates;
c) Induce any person who is an executive, officer, employee or agent
of the Company, or any member of the Company or its affiliates, to terminate
their relationship with the Company or any of its affiliates; and
d) Disclose, divulge, discuss, copy or otherwise use or suffer to be
used in any manner, in competition with, or contrary to the interests of, the
Company, or any member of the Company or its affiliates, the customer lists,
manufacturing and marketing methods, product research or engineering data,
vendors, contractors, financial information, business plans and methods or other
confidential business information or trade secrets of the Company, or any member
of the Company or its affiliates, it being acknowledged by the Executive that
all such information regarding the business of the Company or its affiliates
compiled or obtained by, or furnished to, the Executive while the Executive
shall have been employed by or associated with the Company is confidential
information and the Company's exclusive property (it being understood, however,
that the information publicly disclosed by the Company shall not be subject to
this Section 4.1(d), provided that such information may not be used in
connection with any of the activities prohibited under clauses (a), (b) and (c)
of this Section 4.1 for so long as such clauses remain in effect).
4.2 Upon the termination of the Executive's employment with the Company,
or at any time upon the request of the Company, the Executive (or the
Executive's heirs or personal representatives) shall deliver to the Company (a)
all documents and materials (including, without limitation, computer files)
containing confidential information relating to the business and affairs of the
Company and its direct and indirect subsidiaries, and (b) all documents,
materials and other property (including, without limitation, computer files)
belonging to the Company or its direct or indirect subsidiaries, which in either
case are in the possession or under the control of the Executive (or Executive's
heirs or personal representatives).
4.3 The Executive expressly agrees and understands that the remedy at law
for any breach by the Executive of any of the provisions of this Section 4 will
be inadequate
and that damages flowing from such breach are not readily susceptible to being
measured in monetary terms. Accordingly, it is acknowledged that upon adequate
proof of the Executive's violation of any legally enforceable provision of this
Section 4, the Company shall be entitled to immediate injunctive relief and may
obtain a temporary order restraining any threatened or further breach. Nothing
in this Section 4 shall be deemed to limit the Company's remedies at law or in
equity for any breach by the Executive of any of the provisions of this Section
4, which may be pursued or availed of by the Company.
4.4 In the event the Executive shall violate any legally enforceable
provision of this Section 4 as to which there is a specific time period during
which he/she is prohibited form taking certain actions or from engaging in
certain activities, as set forth in such provision, then, such violation shall
toll the running of such time period from the date of such violation until such
violation shall cease; provided, however, the Company shall seek appropriate
remedies in a reasonably prompt manner after discovery of a violation by the
Executive.
4.5 The Executive has carefully considered the nature and extent of the
restrictions upon him/her and the rights and remedies conferred upon the Company
under this Section 4, and hereby acknowledges and agrees that the same are
reasonable in time and territory, are designed to eliminate competition which
otherwise would be unfair to the Company, are designed to not stifle the
inherent skill and experience of the Executive, would not operate as a bar to
the Executive's sole means of support, are fully required to protect the
legitimate interests of the Company and do not confer a benefit upon the Company
disproportionate to the detriment to the Executive.
4.6 If any court or arbitrators determine that any of the covenants
contained in this Section 4 (the "Restrictive Covenants"), or any part thereof,
is unenforceable because of the duration or geographical scope of such
provision, the duration or scope of such provision, as the case may be, shall be
reduced so that such provision becomes enforceable and, in its reduced form,
such provision shall then be enforceable and shall be enforced.
4.7 The Company and the Executive intend to and hereby confer jurisdiction
to enforce the Restrictive Covenants upon the courts of South Florida. If the
courts of any one or more or such jurisdictions hold the Restrictive Covenants
wholly unenforceable by reason of breach of scope or otherwise, it is the
intention of the Company and the Executive that such determination not bar or in
any way affect the Company's right to the relief provided above in the courts of
any other jurisdiction within the geographical scope of such Restrictive
Covenants as to breaches of such Restrictive Covenants in such other respective
jurisdiction, such Restrictive Covenants as they relate to each jurisdiction
being, of this purpose, severable, diverse and independent covenants, subject,
where appropriate, to the doctrine of res judicata.
The term "affiliates" in this Section 4 when used in referencing
affiliates of the Company includes, but is not limited to, Henry Birks & Sons,
Inc.
5. ASSIGNMENT. The rights and obligations of the parties under this Agreement
shall not be assignable by either the Company or the Executive, provided that
this Agreement is assignable by the Company to any affiliate of the Company, to
any successor in interest to the business of any of the Company, or to a
purchaser of all or substantially all of the assets of any of the Company
including without limitation by way of merger or stock purchase.
6. MISCELLANEOUS.
6.1 Governing Law. This Agreement shall be construed in accordance with
and governed for all purposes by the laws of the State of Florida.
6.2 Notices. Any notice, request, or instruction to be given hereunder
shall be in writing and shall be deemed given when personally delivered or three
days after being sent by United States certified mail, postage prepaid, with
return receipt requested to, the parties at their respective addresses set forth
below:
a) To the Company:
Mayor's Jewelers, Inc.
14051 Northwest, 14th Street
Sunrise, Florida 33323
Attention: Senior Vice President & CAO
b) To the Executive:
6.3 Severability. If any paragraph, subparagraph or provision hereof is
found for any reason whatsoever to be invalid or inoperative, that paragraph,
subparagraph or provision shall be deemed severable and shall not affect the
force and validity of any other provision of this Agreement. If any covenant
herein is determined by a court to be overly broad thereby making the covenant
unenforceable, the parties agree and it is their desire that such court shall
substitute a reasonable judicially enforceable limitation in place of the
offensive part of the covenant and that as so modified the covenant shall be as
fully enforceable as if set forth herein by the parties themselves in the
modified form. The covenants of the Executive in this Agreement shall each be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of the Executive against the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by the Company of the covenants in this Agreement.
6.4 Entire Agreement, Amendment and Waiver. This Agreement constitutes the
entire agreement and supersedes all prior agreements of the parties hereto
relating to the subject matter hereof, and there are no oral terms or
representations made by either
party other than those herein. This Agreement may not be amended, supplemented
or waived except by a writing signed by the party against which such amendment
or waiver is to be enforced. The waiver by any party of a breach of any
provision of this Agreement shall not operate to, or be construed as a waiver
of, any other breach of that provision nor as a waiver of any breach of another
provision.
6.5 Arbitration of disputes. Any controversy or claim arising out of or
relating to this Agreement, or breach thereof (other than those arising under
Section 4, to the extent necessary for the Company to avail itself of the rights
and remedies provided under Section 4), or any controversy or claim arising out
of the Executive's employment with the Company, shall be submitted to
arbitration in Broward County, Florida in accordance with the Rules of the
American Arbitration Association, and judgment upon the award may be entered in
any court having jurisdiction thereof, provided, however, that the parties agree
that (i) the panel of arbitrators shall be prohibited from disregarding, adding
to or modifying the terms of this Agreement; (ii) the panel of arbitrators shall
be required to follow established principles of substantive law and the law
governing burdens of proof; (iii) only legally protected rights may be enforced
in arbitration; (iv) the chairperson of the arbitration panel shall be an
attorney licensed to practice law in Florida who has experience in similar
matters; and (v) any demand for arbitration made by either party must be filed
and served, if at all, within 365 days of the occurrence of the act or omission
complained of, except where the applicable statute of limitations exceeds this
time period in which case the period provided under the statute of limitations
will apply. The award rendered in any arbitration proceeding held under this
Section shall be final and binding, and judgment upon the award may be entered
in any court having jurisdiction thereof, provided that the judgment conforms to
established principles of law and is supported by substantial record evidence.
6.6 Enforcement.
a) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to the Executive
hereunder, all such amounts shall be paid in accordance with the terms of this
Agreement to the Executive's estate or beneficiary
b) If either party is required to institute litigation or
arbitration to enforce their rights under this Agreement, then the prevailing
party, as determined by either a court of competent juridiction or arbitration,
shall be entitled to recover reasonable attorney's fees and costs.
6.7 Survival of Rights and Obligations. The provisions of sections 3.2,
3.3 and 4 (but subject to the time limitations in Section 4.1) shall survive the
termination or expiration of this Agreement. Section 4.1(a) shall not survive
the termination or expiration of this Agreement if the Company terminates the
Executive without Cause, or if the Executive resigns with Good Reasons.
However, nothing in this subsection prohibits the Company from seeking relief
under Section 4 of this Agreement, including circumstances where the Executive
purports to
resign with good reason.
6.8 Counterparts. This Agreement may be executed in two counterparts, each
of which is an original but which shall together constitute one and the same
instrument.
6.9 Written Resignation. In the event this Agreement is terminated for any
reason (except by death), the Executive agrees that if at the time Executive is
a director or officer of the Company or any of its direct or indirect
subsidiaries, Executive will immediately deliver a written resignation as such
director or officer, such resignation to become effective immediately.
6.10 Executive's Representations. The Executive represents and warrants to
the Company that (i) the Executive is able to perform fully the Executive's
duties and responsibilities contemplated by this Agreement and (ii) there are no
restrictions, covenants, agreements or limitations of any kind on his right or
ability to enter into and fully perform the terms of this Agreement.
6.11 For the avoidance of doubt, any references to monies or dollars set
forth in this Agreement shall be in United States Dollars.
EXECUTION
Upon execution below by both parties, this Agreement will enter into full force
and effect as of August 1, 2005.
MAYOR'S JEWELERS, INC.
By: /s/ Thomas A. Andruskevich
--------------------------------
Chairman, President and Chief
Executive Officer
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EXECUTIVE
By: /s/ Michael Rabinovitch
--------------------------------
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Exhibit 21.1
LIST OF SUBSIDIARIES OF HENRY BIRKS & SONS INC.
Name Jurisdiction of Incorporation
---- -----------------------------
Henry Birks & Sons U.S., Inc. Delaware
Henry Birks & Sons Holdings Inc. Canada
Birks Merger Corporation Delaware
Mayor's Jewelers, Inc. Delaware
Mayor's Jewelers of Florida, Inc. Florida
JBM Retail Company, Inc. Delaware
JBM Venture Company, Inc. Delaware
Mayor's Jewelers Intellectual Property
Holding Company Delaware
Jan Bell Marketing/Puerto Rico, Inc. Puerto Rico
Exclusive Diamonds International Ltd. Israel
Regal Diamonds International (T.A.) Ltd. Israel
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EXHIBIT 23.1
KPMG LLP
Chartered Accountants
2000 McGill College Avenue Telephone (514) 840-2100
Suite 1900 Telefax (514) 840-2187
Montreal (Quebec) H3A 3H8 www.kpmg.ca
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Henry Birks & Sons Inc.
We consent to the use of our report dated July 4, 2005, with respect to the
consolidated balance sheets of Henry Birks & Sons Inc. and subsidiaries
("Birks") as of March 26, 2005 and March 27, 2004 and the related consolidated
statements of operations, stockholders' equity and comprehensive income and cash
flows for each of the years in the three-year period ended March 26, 2005,
included herein and to the reference to our firm under the heading "Experts" in
Birks' registration statement on Form F-4 and the proxy statement/prospectus
included therein.
/s/ KPMG LLP
Montreal, Canada
July 27, 2005
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EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Mayor's Jewelers, Inc.
We consent to the inclusion in the registration statement on Form F-4 of Henry
Birks & Sons, Inc. of our report dated June 24, 2005, with respect to the
consolidated balance sheets of Mayor's Jewelers, Inc. and subsidiaries as of
March 26, 2005 and March 27, 2004, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended March 26,
2005 and March 27, 2004, and the related financial statement schedule, included
herein and to the reference to our firm under the headings "Experts" and
"Selected Historical Financial Data of Mayor's" in the registration statement.
/s/ KPMG LLP
Miami, Florida
July 27, 2005
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EXHIBIT 23.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in this Registration Statement of Henry Birks & Sons
Inc. on Form F-4 of our report dated June 6, 2003 (June 22, 2005 as to the
effects of Note B), relating to the financial statements and financial statement
schedule of Mayor's Jewelers, Inc. for the year ended March 29, 2003. We also
consent to the reference to us under the heading "Experts" in the Prospectus,
which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Miami, FL
July 27, 2005
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Exhibit 23.6
CONSENT OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL
ADVISORS, INC.
July 26, 2005
Henry Birks & Sons Inc.
c/o CT Corporation System
111 Eighth Avenue, 13th Floor
New York, NY 10011
RE: REGISTRATION STATEMENT ON FORM F-4 OF HENRY BIRKS & SONS INC.
Dear Sirs:
Reference is made to our opinion letter ("opinion"), dated April 18,
2005.
Our opinion was provided for the information and assistance of the
Special Committee and Board of Directors of Mayor's Jewelers, Inc. in connection
with their consideration of the transaction described therein and is not to be
used, circulated, quoted or otherwise referred to for any purpose, nor is it to
be filed with, included in or referred to, in whole or in part, in any
registration statement, proxy statement or any other document, except in
accordance with our prior written consent. We understand that Henry Birks & Sons
Inc. desires to include our opinion in the above-referenced Registration
Statement.
In that regard, we hereby consent to the reference to our opinion in
the above-referenced Registration Statement on Form F-4 under the captions
"Questions and Answers About the Merger," "Risk Factors -- Risks Related to the
Merger," "Summary -- Opinion of the Financial Advisor to the Special Committee,"
"The Merger -- Background of the Merger," "The Merger -- Mayor's Reasons for the
Merger and Negative Factors Considered," and "The Merger -- Opinion of the
Financial Advisor to the Special Committee," and to the inclusion of our opinion
in the Proxy Statement/Prospectus included in the Registration Statement,
appearing as Appendix B to such Proxy Statement/Prospectus. Notwithstanding the
foregoing, it is understood that our consent is being delivered solely in
connection with the filing of the above-mentioned Registration Statement and
that our opinion is not to be used, circulated, quoted or otherwise referred to
for any other purpose, nor is it to be filed with, included in or referred to in
whole or in part in any other registration statement (including any subsequent
amendments to the above-mentioned Registration Statement), proxy statement or
any other document, except in accordance with our prior written consent.
We further advise you that Houlihan Lokey Howard & Zukin Financial
Advisors, Inc. is an investment banking and financial advisory firm and is not a
law firm. Accordingly, in making the statement in the preceding paragraph,
please be advised that we are not in a position to have a viewpoint as to any
tax or other legal conclusions or information that may have been derived from
our opinion, including those set forth in the Proxy Statement/Prospectus.
1
In giving this consent, we do not hereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "expert" as used in, or that we come within the category of persons whose
consent is required under, the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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2
EXHIBIT 99.1
MAYOR'S JEWELERS, INC.
SPECIAL AND ANNUAL MEETING OF STOCKHOLDERS, [___________], 2005
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas A. Andruskevich and Marc Weinstein,
or either of them, each with power of substitution and revocation, as the proxy
or proxies of the undersigned to represent the undersigned and vote all shares
of the Common Stock of Mayor's Jewelers, Inc. (the "Company"), that the
undersigned would be entitled to vote if personally present at the Special and
Annual Meeting of Stockholders of the Company, to be held at the Renaissance
Hotel, 1230 South Pine Island, Plantation, Florida 33324, on [_________],
[________], 2005, at 10:00 a.m., Eastern Standard Time, and at any adjournments
thereof, upon the matters set forth on the reverse side and more fully described
in the Notice and Proxy Statement for said Special and Annual Meeting AND IN
THEIR DISCRETION UPON ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE SAID
SPECIAL AND ANNUAL MEETING.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
2005 SPECIAL AND ANNUAL MEETING OF THE COMPANY'S STOCKHOLDERS.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE NOMINEE FOR DIRECTOR, FOR RATIFICATION OF THE APPOINTMENT OF
KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING MARCH
25, 2006 AND FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION, DATED AS OF APRIL 18, 2005, AS AMENDED, AMONG HENRY BIRKS & SONS
INC., THE COMPANY AND BIRKS MERGER CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF
HENRY BIRKS & SONS INC.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.
Keep this portion for your records.
Detach and return this portion only.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
TO VOTE, MARK BLOCKS IN BLUE OR BLACK INK AS FOLLOWS: [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF ALL ITEMS.
(l) ELECTION OF DIRECTOR: (Nominee is [_______________])*
o FOR o WITHHOLD AUTHORITY
* To vote your shares for the director nominee, mark the "For" box. To
withhold voting for the nominee, mark the "Withhold Authority" box.
(2) RATIFY THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING MARCH 25, 2006.
o FOR o AGAINST o ABSTAIN
(3) APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER AND REORGANIZATION,
DATED AS OF APRIL 18, 2005, AS AMENDED, AMONG HENRY BIRKS & SONS INC.,
THE COMPANY AND BIRKS MERGER CORPORATION, A WHOLLY-OWNED SUBSIDIARY OF
HENRY BIRKS & SONS INC.
o FOR o AGAINST o ABSTAIN
Dated: , 2005
_______________________________________________
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Signature
Signature if held jointly
(Please sign exactly as name appears hereon. If
the stock is registered in the names of two or
more persons, each should sign. Executors,
administrators, trustees, guardians, attorneys
and corporate officers should include their
titles.)
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
