UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 25, 2006

Commission file number: 001-32635

BIRKS & MAYORS INC.

(Exact name of Registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)

Canada

(Jurisdiction of incorporation or organization)

1240 Phillips Square

Montreal Québec

Canada

H3B 3H4

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Class A Voting Shares, without nominal or par value

  American Stock Exchange

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

None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None.

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report was:

 

3,489,753    Class A Voting Shares, without nominal or par value
7,717,970    Class B Multiple Voting Shares, without nominal or par value
0    Series A Preferred Shares, without nominal or par value, issuable in series

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes     x No            

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

¨ Yes     x No            

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes     ¨ No            

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer x

Indicate by check mark which financial statement item the registrant has elected to follow.

¨ Item 17     x Item 18    

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨ Yes     x No            


INTRODUCTION

References

Unless the context otherwise requires, the terms “Birks & Mayors,” “the Company,” “we,” “us,” and “our” are used in this annual report to refer to Birks & Mayors Inc., a Canadian corporation, and its subsidiaries on a consolidated basis. In addition, the term “Mayors” refers to Mayor’s Jewelers, Inc., a Delaware Corporation, and “the merger” refers to the merger of Mayors with a wholly-owned subsidiary of the Company, as approved by the stockholders on November 14, 2005. The term “Birks” refers to Henry Birks & Sons Inc., the legal name of Birks & Mayors prior to the merger.

Presentation of Financial and Other Information

The consolidated financial statements of Birks & Mayors contained in this annual report 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 annual report, we refer to our fiscal years ended March 27, 2004, March 26, 2005 and March 25, 2006 as fiscal years 2003, 2004 and 2005, respectively. Our 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 2003, 2004 and 2005 included 52 weeks.

Forward-Looking Information

This annual report and other written reports and releases and oral statements made from time to time by the Company contain forward-looking statements which can be identified by their use of words like “plans,” “expects,” “believes,” “will,” “anticipates,” “intends,” “projects,” “estimates,” “could,” “would,” “may,” “planned,” “goal,” and other words of similar meaning. All statements that address expectations, possibilities or projections about the future, including without limitation, statements about our strategies for growth, expansion plans, sources or adequacy of capital, expenditures and financial results are forward-looking statements.

One must carefully consider such statements and understand that many factors could cause actual results to differ from the forward-looking statements, such as inaccurate assumptions and other risks and uncertainties, some known and some unknown. No forward-looking statement is guaranteed and actual results may vary materially. Such statements are made as of the date provided, and we assume no obligation to update any forward-looking statements to reflect future developments or circumstances.

One should carefully evaluate such statements by referring to the factors described in our filings with the Securities and Exchange Commission (“SEC”), especially on Forms 20-F and 6-K. Particular review is to be made of Items 3, 4 and 5 of this Form 20-F where we discuss in more detail various important risks and uncertainties that could cause actual results to differ from expected or historical results. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Since it is not possible to predict or identify all such factors, the identified items are not a complete statement of all risks or uncertainties.

 

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PART I

 

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable

Not applicable.

 

Item 3. Key Information

Selected Financial Data

The following financial data as of March 25, 2006 and March 26, 2005 and for each of the three years ended March 25, 2006, March 26, 2005 and March 27, 2004 have been derived from our audited consolidated financial statements, which are included elsewhere in this annual report. The following financial data as of March 27, 2004, March 29, 2003 and March 30, 2002 and for each of the two years ended March 29, 2003 and March 30, 2002 have been derived from our audited consolidated financial statements not included in this annual report. The historical results included below and elsewhere in this annual report are not necessarily indicative of our future performance.

We acquired approximately 72% of the voting control in Mayors on August 20, 2002. Since that date, the results of Mayors have been consolidated in our financial statements. Specifically, our results of operations for the periods after the acquisition of Mayors include Mayors revenues and expenses, while Mayors net losses have been allocated between us and the minority stockholders of Mayors prior to the merger based on their residual equity interests in Mayors. As a result, our results in prior periods are not directly comparable.

The data presented below are only a summary and should be read in conjunction with our audited financial statements, including the notes thereto, included elsewhere in this annual report. You should also read the following summary data in conjunction with Item 5, “Operating and Financial Review and Prospects” included elsewhere in this annual report.

 

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Income Statement Data:

 

    Fiscal Year Ended  
   

As of

March 25, 2006

   

As of

March 26, 2005

   

As of

March 27, 2004

   

As of

March 29, 2003

   

As of

March 30, 2002

 
    (amounts shown in thousands of U.S. dollars except per share data)  

Net sales

  $ 274,323     $ 239,301     $ 216,256     $ 151,312     $ 75,848  

Cost of sales

    144,809       130,037       118,861       83,698       36,810  
                                       

Gross profit

    129,514       109,264       97,395       67,614       39,038  

Selling, general and administrative expenses

    109,748       95,864       94,148       63,813       34,787  

Depreciation and amortization

    5,621       4,749       4,312       3,256       2,894  

Other Items

    (537 )     (1,181 )     338       (210 )     —    
                                       

Total Operating Expenses

    114,832       99,432       98,798       66,859       37,681  
                                       

Operating income (loss)

    14,682       9,832       (1,403 )     755       1,357  

Interest and other financial costs

    8,930       8,665       7,986       5,934       3,782  

Income (loss) from continuing operations before income tax, minority interest, discontinued operations and extraordinary item

    5,752       1,167       (9,389 )     (5,179 )     (2,425 )

Income tax expense (benefit)

    40       —         —         (991 )     —    
                                       

Income (loss) from continuing operations before minority interest, discontinued operations and extraordinary item

    5,712       1,167       (9,389 )     (4,188 )     (2,425 )

Minority interest in loss of subsidiary (1)

    —         —         7,175       8,071       —    
                                       

Income (loss) from continuing operations before discontinued operations and extraordinary item

    5,712       1,167       (2,214 )     3,883       (2,425 )

Loss from discontinued operations, net of income tax of nil (2)

    —         —         —         (828 )     —    
                                       

Income (loss) before extraordinary item

    5,712       1,167       (2,214 )     3,055       (2,425 )

Extraordinary gain, net of income tax of nil (3)

    —         —         —         9,042       —    
                                       

Net income (loss) attributable to common shareholders

  $ 5,712     $ 1,167     $ (2,214 )   $ 12,097     $ (2,425 )
                                       

Net income (loss) per common share

  $ 0.66     $ 0.18     $ (0.35 )   $ 2.05     $ (0.38 )

Net income (loss) from continuing operations per common share

  $ 0.66     $ 0.18     $ (0.35 )   $ 1.92     $ (0.38 )

Net income (loss) per common share – diluted

  $ 0.57     $ 0.17     $ (0.35 )   $ 1.28     $ (0.38 )

Weighted average common shares outstanding

    8,701,000       6,316,000       6,313,000       6,313,000       6,313,000  

Weighted average common shares outstanding – diluted

    10,295,000       9,656,000       6,313,000       9,503,000       6,313,000  

Dividends per share

    —         —         —         —         —    

 

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Balance Sheet Data:

 

     Fiscal Year Ended  
    

As of

March 25, 2006

  

As of

March 26, 2005

  

As of

March 27, 2004

  

As of

March 29, 2003

  

As of

March 30, 2002

 
     (Amounts shown in thousands of U.S. dollars except share data)  

Working capital

   $ 23,722    $ 35,056    $ 34,730    $ 37,717    $ (1,114 )

Total assets

   $ 229,489    $ 199,721    $ 193,380    $ 171,146    $ 67,826  

Bank indebtedness

   $ 88,107    $ 75,516    $ 70,262    $ 58,086    $ 28,002  

Shareholders’ equity

   $ 67,367    $ 40,198    $ 32,187    $ 29,327    $ 7,554  

Common Stock:

              

Value

   $ 60,446    $ 36,364    $ 31,405    $ 31,405    $ 31,405  

Shares

     11,207,723      7,298,544      6,313,308      6,313,308      6,313,308  

Preferred Stock:

              

Value

   $ —      $ 5,050    $ 10,050    $ 10,050    $ 10,050  

Shares

     —        1,022,350      2,034,578      2,034,578      2,034,578  

(1) Minority interest in loss of subsidiary relates to the allocation of Mayors loss from continuing operations to the minority stockholders of Mayors 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 Mayors. Specifically, on August 20, 2002, Birks made an investment of $15.05 million in Mayors. The investment consisted of 15,050 shares of Mayors 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 an approximately 72% equity interest in the common stock of Mayors. The excess of the fair value assigned to the preferred shares over 72% of the net book value of Mayors, 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.

Dividends and Dividend Policy

We have not paid dividends since 1998 and do not currently intend to pay dividends on our Class A voting shares or Class B multiple voting shares in the foreseeable future. Our ability to pay dividends on our Class A voting shares and Class B multiple voting shares are restricted by our credit agreements. See Item 5, “Operating and Financial Review and Prospects—Liquidity and Capital Resources.” If dividends were declared by our Board of Directors, shareholders would receive a dividend equal to the per share dividend we would pay to holders of our Class A voting shares or holders of Class B multiple voting shares. Dividends we would pay to U.S. holders would generally be subject to withholding tax. See Item 10, “Additional Information—Taxation.”

 

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RISK FACTORS

Risks Related to the Company

We are controlled by a single shareholder whose interests may be different from yours.

Dr. Lorenzo Rossi di Montelera beneficially owns or controls 68.9% of all classes of our outstanding voting shares. Under our amended charter, Dr. Rossi, as holder of Class B multiple voting shares, has the ability to control most actions requiring shareholder approval, including electing the members of our 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 & Mayors is controlled by one shareholder may have the effect of delaying or preventing a change in the management or voting control of Birks & Mayors.

If we are unable to implement our business strategy, our net sales and profitability may be adversely affected.

Our future financial performance and success are dependent on our ability to implement our business strategy successfully. Our present business strategy is to leverage our merchandising, marketing and sales expertise to increase net sales and profits, design, make and introduce innovative new products, utilize our manufacturing capabilities to improve gross margins, raise additional capital and make selective acquisitions to grow our revenue base. We may not successfully implement our business strategy. Furthermore, implementing our business strategy may not sustain or improve our results of operations.

Our business could be adversely affected if our relationships with any primary vendors are terminated or if the delivery of their products are delayed or interrupted.

We compete with other jewelry retailers for access to vendors that will provide us with the quality and quantity of merchandise necessary to operate our business, and our merchandising strategy depends upon our ability to maintain good relations with significant vendors. Certain brand name watch manufacturers, including Rolex, have distribution agreements with our subsidiary Mayors 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 25, 2006, merchandise supplied by Rolex and sold through our stores operating under the Mayors brand accounted for approximately 22% of our total net sales. Our relationships with primary suppliers, like Rolex, are generally not pursuant to long-term agreements.

We obtain materials and manufactured items from third-party suppliers. Any delay in our suppliers’ abilities to provide us with necessary materials and components may affect our manufacturing capabilities or may require us to seek alternative supply sources. Any delay in receiving supplies could impair our ability to supply products to our stores and, accordingly, could have a material adverse effect on our business, results of operations and financial condition. The abrupt loss of any of our third-party suppliers, especially Rolex, or a decline in the quality or quantity of materials supplied by any third-party suppliers could cause significant disruption in our business.

We are exposed to currency exchange risk that could have a material adverse effect on our results of operations and financial condition.

While we report financial results in U.S. dollars, a substantial portion of our sales are recorded in Canadian dollars. For our operations located in Canada, non-Canadian currency transactions and assets and liabilities subject us to foreign currency risk. Conversely, for the operations located in the United States, non-U.S. currency transactions and assets and liabilities subject us to foreign currency risk. For purposes of financial reporting, our 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

 

5


comprehensive income. As a result, for purposes of 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. We expect to continue to report our financial results in U.S. dollars in accordance with U.S. GAAP. Consequently, our reported earnings could fluctuate materially as a result of foreign exchange translation gains or losses. To mitigate the impact of foreign exchange volatility on our earnings, from time to time we may enter into agreements to fix the exchange rate of U.S. dollars to Canadian dollars. For example, we may enter into agreements to fix the exchange rate to protect the principal and interest payments on our Canadian dollar denominated debt and other liabilities. If we do so, we 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 contracts outstanding at the end of fiscal 2005.

Fluctuations in the availability and prices of our merchandise may adversely affect our results of operations.

We offer a large selection of distinctive high quality merchandise, including diamond, gemstone and precious metal jewelry, rings, wedding bands, earrings, bracelets, necklaces, charms, timepieces and gifts. Accordingly, significant changes in availability or prices of diamonds, gemstones, and precious metals we require for our products could adversely affect our earnings. Further, both the supply and price of diamonds are significantly influenced by a single entity, the Diamond Trading Corporation. We do 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 our net sales and gross margins.

A significant disruption at our jewelry manufacturing facilities could have a material adverse effect on our results.

Our manufacturing facilities could be damaged or disrupted by, among other things, a natural disaster, war, terrorism, fire, or mechanical failure. Although we have 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 our manufacturing facilities as a result of unanticipated failures or scheduled maintenance may lead to production curtailments and leave us in short supply of certain products. In addition, our manufacturing processes are dependent on critical skilled workers. A loss of such workers without adequate replacements could result in material curtailment of production. Such shutdowns or curtailments may materially reduce production and impair our ability to supply our stores, which could adversely affect our productivity and results of operations.

Hurricanes and other severe weather conditions could cause a disruption in our operations, which could have an adverse impact on our results of operations.

Our U.S. operations are located in Georgia and Florida, regions which are susceptible to hurricanes. In the past, hurricanes have forced the closure of some stores, resulting in a reduction in net sales during such periods. Future hurricanes could significantly disrupt our U.S. operations and could have a material adverse effect on our overall results of operations. In addition, severe weather such as ice storms, snow storms and blizzards in Canada can cause conditions whereby peak holiday shopping could be materially affected.

We may not be able to adequately protect our intellectual property and may be required to engage in costly litigation as a protective measure.

To establish and protect our intellectual property rights, we rely upon a combination of trademark and trade secret laws, together with licenses, exclusivity agreements and other contractual covenants. In particular, the “Birks” and “Mayors” trademarks are of significant value to our retail operations. The measures we take to protect our intellectual property rights may prove inadequate to prevent misappropriation of our intellectual property. Monitoring the unauthorized use of our intellectual property is difficult. Litigation may be necessary to enforce our 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 us and could significantly harm our results of operations.

 

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We may not successfully manage our inventory, which could have an adverse effect on our net sales, profitability and liquidity.

As a retail business, our results of operations are dependent on our ability to manage our inventory. To properly manage our inventory, we must be able to accurately estimate customer demand and supply requirements and purchase new inventory accordingly. If we fail to sell the inventory we manufacture or purchase, we may be required to write-down our inventory, which would have an adverse impact on earnings. Additionally, a substantial portion of the merchandise we sell is carried on a consignment basis prior to sale or is otherwise financed by vendors, which reduces our required capital investment in inventory. Any significant change in these consignment relationships could have a material adverse effect on our net sales and cash flows.

The retail jewelry industry is highly competitive and we may not be able to grow or maintain our market share.

The retail jewelry business is mature and highly competitive in the United States and Canada. We compete 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. We believe that competition in our 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 us and have greater financial resources than we do. We may not be able to compete successfully with such competitors. Competition could cause us to lose customers, increase expenditures or reduce pricing, any of which could have a material adverse effect on our earnings and stock price.

As a luxury retail jeweler, our business is particularly susceptible to adverse economic conditions.

Jewelry purchases are discretionary for consumers and may be particularly and disproportionately affected by adverse trends in the general economy and the equity markets. The success of our 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 we operate, 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, our stores operating under the Mayors brand are more dependent upon tourism, and many of our 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 our customers use credit, either from our 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 may use credit. A downturn in the general economy could also adversely affect our ability to collect outstanding accounts receivable, and an increase in interest rates could result in reduced consumer spending, which could have a material adverse affect on our financial condition.

We have significant indebtedness, which could adversely affect our operations and financial condition.

We currently have a significant amount of indebtedness and significant debt service obligations. Our debt levels fluctuate from time to time based on seasonal working capital needs. The following table sets forth our estimated total indebtedness, total shareholders’ equity, total capitalization and ratio of total indebtedness to total capitalization as of March 25, 2006.

 

Total indebtedness

   $ 106,394,000  

Total shareholders’ equity

     67,367,000  
        

Total capitalization

   $ 173,761,000  
        

Ratio of total indebtedness to total capitalization

     61.2 %

 

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This high degree of leverage could adversely affect our results of operations and financial condition. For example, it could:

 

    make it more difficult for us to satisfy our obligations with respect to our indebtedness;

 

    increase our vulnerability to adverse economic and industry conditions;

 

    require us 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;

 

    limit our ability to obtain financing for working capital, capital expenditures, general corporate purposes or acquisitions;

 

    place us at a disadvantage compared to competitors that have a lower degree of leverage; and

 

    negatively affect the price of our stock.

Our credit business may be adversely affected by changes in applicable laws and regulations.

The operation of our credit business subjects us to substantial regulation relating to disclosure and other requirements upon origination, servicing, debt collection and particularly upon the amount of finance charges we can impose. Any adverse change in the regulation of consumer credit could adversely affect our earnings. For example, new laws or regulations could limit the amount of interest or fees we could charge on consumer loan accounts, or restrict our ability to collect on account balances, which could have a material adverse effect on our earnings. Compliance with existing and future laws or regulations could require material expenditures or otherwise adversely affect our 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 our results of operations.

We may not be able to retain key personnel or replace them if they leave.

Our success is largely dependent on the personal efforts of Thomas A. Andruskevich, our President and Chief Executive Officer, and other key members of the senior management team. Although we have 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 our business to suffer. Our success is also dependent upon our ability to continue to hire and retain qualified financial, operations, development and other personnel. Competition for qualified personnel in the retail industry is intense, and we may not be able to hire or retain the personnel necessary for our planned operations.

Our business could be adversely affected if we are unable to successfully negotiate favorable lease terms.

As of March 25, 2006, we had 67 leased stores, which includes the capital lease of our 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. We have generally been successful in negotiating leases for new stores and lease renewals as our current leases near expiration. However, our business, financial condition, and operating results could be adversely affected if we are unable to continue to negotiate profitable lease and renewal terms.

Terrorist acts or other catastrophic events could have a material adverse effect on Birks & Mayors.

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 our 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 our markets, which had an adverse impact on net sales. Similarly, the SARS epidemic in Toronto, Ontario in the spring of 2003 had an adverse impact on net sales in our stores in that region. Similar future events could have a material adverse impact on our business and results of operations.

 

8


Risks Related to Class A Voting Shares

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

Future issuances or sales of a substantial number of our Class A voting shares by Birks & Mayors, Dr. Lorenzo Rossi di Montelera, or another significant shareholder in the public market could adversely affect the price of our Class A voting shares, which may impair Birks & Mayors’ ability to raise capital through future issuances of equity securities. We have approximately 3,489,753 Class A voting shares issued and outstanding. Sales of restricted securities in the public market, or the availability of these Class A voting shares for sale, could adversely affect the market price of Class A voting shares.

As a retail jeweler with a limited public float, the price of the Class A voting shares may fluctuate substantially, which could negatively affect the value of the Class A voting shares and could result in securities class action claims against us.

The price of the 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 the Class A voting shares could also fluctuate substantially if we fail to meet or exceed expectations for our 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 the Class A voting shares is relatively small, the market price of the Class A voting shares is likely to be volatile. There is limited trading volume in the Class A voting shares, rendering them subject to significant price volatility. 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 our control, could also cause the market price of the Class A voting shares to fluctuate substantially. 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 the Class A voting shares were similarly volatile and similar litigation were pursued against us, it could result in substantial costs and a diversion of our management’s attention and resources.

Birks & Mayors 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.

Birks & Mayors is governed by the laws of Canada. A substantial portion of our assets are located outside the United States, and some of our directors and officers 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 & Mayors or its directors and officers, or to realize in the United States upon judgments of courts of the United States predicated upon civil liability of Birks & Mayors and such directors or officers 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.

We expect to maintain our status as a “foreign private issuer” under the rules and regulations of the SEC and, thus, are exempt from a number of rules under the Exchange Act and are permitted to file less information with the SEC than a company incorporated in the U.S.

As a “foreign private issuer” we are 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, our officers, directors and principal shareholders are 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 our Class A voting shares. Moreover, we are not required to file periodic reports and

 

9


financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act; nor are we required to comply with Regulation FD, which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning Birks & Mayors than there is for U.S. public companies.

If we were treated as a passive foreign investment company, or a PFIC, some holders of the Class A voting shares would be subject to additional taxation, which could cause the price of the Class A voting shares to decline.

We believe that the Class A voting shares should not be treated as stock of a PFIC for U.S. federal income tax purposes, and we expect to continue operations in such a manner that we will not be a PFIC. If, however, we are or become a PFIC, some holders of the Class A voting shares could be subject to additional U.S. federal income taxes on gains recognized with respect to the Class A voting shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules.

 

Item 4. Information on the Company

THE COMPANY

Corporate History and Overview

Birks & Mayors is a leading North American luxury jewelry brand which designs, develops, makes and retails fine jewelry, time pieces, sterling silver and gifts. As of June 30, 2006, Birks & Mayors operated 67 luxury jewelry stores, 39 stores under the Birks brand, located in all major cities across Canada, and 28 stores under the Mayors brand, located in Florida and Georgia. As a luxury jeweler, most of our jewelry products are constructed of 18 karat gold, platinum or sterling silver, with or without precious gemstones, with significant emphasis on quality craftsmanship and distinctive design. For the fiscal year ended March 25, 2006, we had net sales of $274.3 million.

Birks’ predecessor company 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, we are also highly regarded in Canada as a designer and maker of jewelry and a provider of recognition programs, service awards and business gifts. We believe that operating our stores, under the Birks and Mayors brands, distinguishes us from many competitors because we offer distinctively designed, exclusive products, a larger selection of distinctive higher quality merchandise at many different price points, and place substantial emphasis on the professionalism and training of our sales force.

From 1950 through 1990, Birks expanded significantly and by the early 1990s had approximately 220 stores in Canada and the United States. Birks undertook a period of rapid expansion in the 1980s, 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 company of Regaluxe Investment S.á.r.l., which is referred to in this annual report as “Regaluxe.” Effective March 28, 2006, Regaluxe was acquired by merger by Iniziativa S.A., which is referred to in this annual report as “Iniziativa S.A.” 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 Mayors, which was experiencing an unsuccessful expansion beyond its core markets and significant losses.

Between August 2002 and November 2005 it became apparent to both Mayors and Birks management that it was in the best interest of the shareholders to combine the two companies. Management believed that such combination would create a stronger capital base, improve operating efficiencies, reduce the impact of regional

 

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issues, simplify the corporate ownership of Mayors, eliminate management and Board of Directors inefficiencies with managing intercompany issues, and possibly increase shareholder liquidity. Upon the consummation of the merger on November 14, 2005, each outstanding share of the Mayors common stock not currently owned by Birks was converted into 0.08695 Class A voting shares of Birks. As a result of the merger, Mayors common stock ceased trading on the American Stock Exchange (“AMEX”) and Birks & Mayors began trading on the AMEX under the trading symbol “BMJ.” Since the merger, Birks & Mayors has worked very diligently to fully integrate the Birks business with Mayors and believes the integration process is substantially complete. As a result of the merger, we believe the combined company has a stronger capital base, improved operational efficiencies and diversity and depth of its products and distribution capabilities.

We signed a lease to open a new Mayors store in Bonita Springs, Florida which is expected to open prior to the fiscal 2006 holiday season. We also signed a lease for a second new Mayors store location in Weston, Florida which we plan to open in the spring of 2007.

Since the beginning of fiscal 2003, we invested approximately $16.5 million of capital expenditures in our business. This was comprised of capital expenditures in our stores of $4.8 million (primarily associated with leasehold improvements and fixturing) and approximately $11.7 million in our corporate operations (primarily associated with our information technology infrastructure, head offices and the addition of our Rhode Island manufacturing facility). We expect to invest an additional $10 million to $11 million of capital expenditures in the fiscal year ending March 31, 2007 of which approximately half will be in the U.S. and half will be in Canada. We expect to finance these expenditures mainly from operating cash flow.

Our sales are divided into two principal product categories; jewelry and timepieces. Jewelry also includes sales of other product offerings we sell such as giftware, as well as repair and custom design services.

The following table compares our sales of each product category for the last three fiscal years (dollars in thousands):

 

     Fiscal Year-Ended  
     March 25, 2006     March 26, 2005     March 27, 2004  

Jewelry

   $ 173,091    63.1 %   $ 151,275    63.2 %   $ 140,693    65.1 %

Timepieces

     101,232    36.9 %     88,026    36.8 %     75,563    34.9 %
                                       

Total

   $ 274,323    100.0 %   $ 239,301    100.0 %   $ 216,256    100.0 %
                                       

The following table sets forth our operations in geographic markets in which we operate:

 

     Fiscal Year Ended  
     March 25, 2006    March 26, 2005    March 27, 2004  

Net Sales

        

Canada

   $ 115,112    $ 96,601    $ 90,825  

U.S.

     159,211      142,700      125,431  
                      

Total Revenues

   $ 274,323    $ 239,301    $ 216,256  
                      

Income (Loss) from continuing operations before income taxes

        

Canada

   $ 2,992    $ 479    $ (1,565 )

U.S.

     2,760      688      (7,824 )
                      

Total Income (loss) from continuing operations before income taxes

   $ 5,752    $ 1,167    $ (9,389 )
                      

Long-lived assets

        

Canada

   $ 26,260    $ 24,142    $ 25,169  

U.S.

     36,562      21,700      19,520  
                      

Total long-lived assets

   $ 62,822    $ 45,842    $ 44,689  
                      

 

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Birks & Mayors is a Canadian corporation. Our corporate headquarters are located at 1240 Phillips Square, Montreal, Quebec, Canada H3B 3H4. Our telephone number is (514) 397-2511. Our website is www.birksandmayors.com .

Products

We offer 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 our strategy is to increase our exclusive offering of internally designed and/or produced goods to our customers, primarily through bridal, diamond and other fine jewelry as well as gold and sterling silver jewelry and timepieces to leverage the Birks and Mayors brands’ loyalty in their respective markets and to differentiate our products with unique and exclusive designs. In addition, we sell many of the finest brand name Swiss timepieces that are often not available from other jewelers in our markets.

Our Canadian stores, operating under the Birks brand, carry a large selection of brand name timepieces, including our own proprietary watch line as well as timepieces made by Cartier, Baume & Mercier, Omega, Tag Heuer, Breitling, Jaeger Le Coultre, Gucci, Concorde, Rado, Longines, Mont Blanc and Tissot. We also carry an exclusive collection of high quality jewelry and timepieces that we manufacture. We emphasize our own jewelry offerings and particularly our signature designers, Toni Cavelti, Michele della Valle and Esty but also include designer jewelry made by Roberto Coin, Kwiat, Ladyheart, which are exclusive to our stores in Canada. We also offer a variety of high quality giftware, including writing instruments and giftware made by Mont Blanc and Cartier.

Our U.S. stores, operating under the Mayors brand, carry a large selection of brand name timepieces, including timepieces made by Rolex, Cartier, Patek Philippe, Baume & Mercier, Omega, Charriol, Tag Heuer, Breitling, Corum, Rado, Chopard, Jaeger Le Coultre and Raymond Weil. Designer jewelry offerings in our 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 Cartier, Correia and Mont Blanc. In addition, stores operating under the Mayors brand carry Birks brand timepieces and jewelry products on an exclusive basis in the United States.

We have two primary channels of distribution: the retail division, which accounts for approximately 96% of sales, and the corporate sales division, which accounts for approximately 4% of sales.

Product Design, Development and Sourcing

We established a product development process that supports our strategic mission to further develop and enhance our product offering in support of brand development. The centerpiece of this process is the Design Review Committee, which ultimately approves all new product designs and introductions. Products which are not designed and internally manufactured are sourced from suppliers worldwide, enabling us to sell fine quality merchandise often not available from other jewelers in our markets. Our staff of buyers procure distinctive high quality merchandise directly from manufacturers, diamond cutters, and other suppliers worldwide. Our gemstone acquisition team, product sourcing team and category managers specialize in sourcing merchandise in categories such as diamonds, precious gemstones, pearls, timepieces, gold jewelry, and giftware. Retail and merchandising personnel frequently visit our stores and those of competitors to compare value, selection, and service, as well as to observe client reaction to merchandise selection and determine future needs and trends.

Diamond, Gemstone, Pearl and Precious Metal Jewelry

In fiscal 2005, revenues from sales of diamond and precious gemstone and metal jewelry represented approximately 47% of our total net sales. We purchase and consign loose diamonds, gemstones and precious

 

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jewelry directly from cutters and dealers in international markets, such as Antwerp, Bangkok, Tel Aviv, and New York, gold jewelry from Italy and pearls from suppliers in Japan and Canada. The loose diamonds and other gemstones are frequently furnished to our in-house jewelry studios for setting, polishing and finishing in order to deliver a distinctive high quality finished product at the best possible value.

Manufacturing

We have manufacturing facilities in Montreal, Vancouver, Rhode Island and Florida that enable us to offer unique, exclusive and high-quality products through an efficient supply chain. Our manufacturing capabilities provide quality control; image enhancement by enabling us to promote our 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 our 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, diamonds and gemstones, are made from a relatively limited number of sources, we believe that there are numerous alternative sources for all raw materials used in the manufacture of our finished jewelry, and that the failure of any principal supplier would not have a material adverse effect on our 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 we purchase.

In fiscal 2005, we purchased jewelry, timepieces and giftware for sale in our stores from over 200 suppliers. Many of these suppliers have long-standing relationships with us. We compete with other jewelry retailers for access to vendors that will provide us with the quality and quantity of merchandise necessary to operate our business. Our relationships with primary suppliers, like Rolex, are generally not pursuant to long-term agreements. Although we believe that alternative sources of supply are available, the abrupt loss of any of our vendors, especially Rolex, or a decline in the quality or quantity of merchandise supplied by our vendors could cause significant disruption in our business. In fiscal 2005, merchandise supplied by Rolex and sold through our stores operating under the Mayors brand accounted for approximately 22% of our total net sales. If Rolex terminated its distribution agreement, such termination would have a material adverse effect on our business, financial condition and operating results. We believe that currently our relationships with our vendors are good.

Seasonality

Our 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. Sales by quarter in fiscal 2005 were 21%, 19%, 40% and 20%, respectively.

Retail Operations, Merchandising and Marketing

General

We believe we are distinguished from most of our competitors because we offer distinctively designed, exclusive products and a selection of distinctive high quality merchandise at a wide range of price points. We keep the majority of our inventory on display in our stores rather than at our distribution facility. Although each store stocks a representative selection of jewelry, timepieces, giftware and other accessories, certain inventory is tailored to meet local tastes and historical merchandise sales patterns of specific stores.

 

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We believe that our stores’ elegant surroundings and distinctive merchandise displays play an important role in providing an atmosphere that encourages sales. We pay careful attention to detail in the design and layout of each store, particularly lighting, colors, choice of materials and placement of display cases. We also use window displays as a means of attracting walk-in traffic and reinforcing our distinctive image. Our Visual Display department designs and creates window and store merchandise case displays for all of our stores. Window displays are frequently changed to provide variety and to reflect seasonal events such as Christmas, Valentine’s Day and Mother’s Day.

Personnel and Training

We place substantial emphasis on the professionalism of our sales force to maintain our position as a leading luxury jeweler. We strive 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 sales and service techniques and our commitment to client service. Management believes that attentive personal service and knowledgeable sales professionals are key components to our success.

As part of our commitment to continuous, on-the-job training, we have established “Birks University” and “Mayors 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, we conduct in-house training seminars on a periodic basis and administer 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. We also provide 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.

Advertising and Promotion

One of our key marketing goals is to build on our reputation in our core markets as a leading luxury jewelry brand offering high quality merchandise in an elegant, sophisticated environment. For example, we frequently run advertisements that associate the “Birks” and “Mayors” brands with internationally recognized brand names such as Cartier, Patek Philippe and Rolex. Advertising and promotions for all stores are developed by our personnel in conjunction with outside creative professionals.

Our advertising reinforces our role as a world class luxury brand that aims to deliver a total shopping experience that is as memorable as our merchandise. Our marketing efforts, which consist of advertising, billboards, direct mailings, special events, media relations, public relations, 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 we operate.

Credit Operations

We have two private label credit cards, one for each of our 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 Mayors private label credit card which we administer.

Our credit programs are intended to complement our 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 20% recourse to us, accounted for approximately 9% of our net sales during fiscal 2005. Sales under Mayors proprietary credit card and Mayors private label credit card, which are made without recourse to us, together accounted for approximately 17% of our net sales during fiscal 2005.

 

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Distribution

Our retail locations receive the majority of their merchandise directly from our distribution warehouses located in Tamarac, Florida and Montreal, Québec. Merchandise is shipped from the distribution warehouse utilizing various air and ground carriers. We also transfer merchandise between retail locations to balance inventory levels and to fulfill client requests, and a very small portion of merchandise is delivered directly to the retail locations from suppliers.

Competition

The North American retail jewelry industry is a $59.4 billion industry and 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 and Mayors are luxury jewelry brands, we compete with companies within and outside of this segment. Our competitors include national and international jewelry chains as well as independent regional and local jewelry retailers. We also compete with other types of retailers such as specialty 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 we do. We believe that competition in our markets is based primarily on the total brand experience including 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, we believe that competition with other general and specialty retailers and discounters will continue to increase. Our 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 our merchandising and marketing programs, store locations and our ability to properly staff and manage our stores.

Regulation

Our 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 our proprietary private label credit cards, credit to our clients is primarily available through credit cards such as American Express ® , Visa ® , MasterCard ® and Discover ® , without recourse to us in the case of a client’s failure to pay. Any change in the regulation of credit that would materially limit the availability of credit to our traditional customer base could adversely affect our results of operations and financial condition.

We generally utilize the services of independent customs agents to comply with U.S. and Canadian customs laws in connection with our 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 our principal trademarks and are essential to our ability to maintain our competitive position in the luxury jewelry segment. We maintain a program to protect our 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 our trademarks. We are also the owner of the original jewelry designs created by our in-house designers and have entered into agreements with several outside designers pursuant to which these designers have assigned to us the rights to use copyrights of designs and products created for us.

Properties

Our head office is in Montreal, Québec. On December 12, 2000, we sold our head office building for Cdn$14,250,000 to Anglo Canadian Investments, L.P. As a condition of the transaction, we agreed that we would lease, on a net basis, the entire property from the purchaser, acting as landlord. We entered into a lease agreement

 

15


pursuant to which we lease the office building including the Montreal flagship store for a term of 20 years ending December 11, 2020. The current net annual rental rate is Cdn$1,512,500 (approximately $1.3 million U.S. dollars) for the period terminating on December 11, 2006, and increases on a compounded basis by 10% on each third annual anniversary date thereafter (except for the last two years when no increase will take place). The lease is an absolute triple net lease to the landlord, and we are responsible for any and all additional expenses, including, without limitation, taxes and structural expenses. Subject to specific terms and conditions, we have 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, we also have 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. Our U.S. operations are managed though a local headquarters located in Tamarac, Florida. We entered into a lease agreement for this location for a term of 15 years terminating on November 30, 2020. The current net annual rental rate is $478,510 for the period ending November 30, 2006. We have two options to renew for 5 years each.

We lease all of our store locations. We believe that all of our facilities are well maintained and in good condition and are adequate for our current needs. We are actively negotiating all leases that expire in the next 12 months. Following is a listing of all our properties as of June 30, 2006:

 

    

Size

(Square Feet)

  

Expiration of Lease

  

Location

Operating Stores

        

Canada:

        

Bayshore Centre

   2,519    September 2008    Nepean, ON

Bloor

   15,620    September 2014    Toronto, ON

Carrefour Laval

   3,425    August 2012    Laval, QC

Chinook Shopping Centre

   2,342    March 2015    Calgary, AB

Cornwall Centre

   2,349    April 2010    Regina, SK

Fairview Mall

   2,115    August 2008    North York, ON

Fairview Pointe-Claire

   4,210    January 2007    Pointe-Claire, QC

First Canadian Place

   2,243    May 2008    Toronto, ON

Guildford Town Centre

   3,755    August 2007    Surrey, B.C.

Halifax

   3,316    January 2009    Halifax, N.S.

Hillside Shopping Centre

   2,639    March 2010    Victoria, B.C.

Lime Ridge Mall

   2,450    September 2011    Hamilton, ON

London Galleria

   5,179    December 2009    London, ON

Manulife Place

   4,093    November 2009    Edmonton, AB

Montreal Flagship Store

   19,785    December 2020 (1)    Montreal, QC

Oakridge Shopping Centre

   2,176    May 2008    Vancouver, B.C.

Oakville Place

   2,729    March 2010    Oakville, ON

Park Royal

   3,537    September 2007    West Vancouver, B.C.

Pen Centre

   3,588    April 2007    St. Catherines, ON

Place Ste-Foy

   4,048    November 2005(2)    Ste-Foy, QC

Polo Park Centre

   3,135    January 2007    Winnipeg, MB

Promenades St-Bruno

   2,346    February 2008    St-Bruno, QC

Rideau Centre

   7,233    April 2009    Ottawa, ON

Richmond Centre

   1,563    April 2007    Richmond, B.C.

Rockland Centre

   3,019    August 2008    Mont Royal, QC

Saskatoon

   4,280    October 2008    Saskatoon, SK

Scarborough Town Centre

   3,709    May 2008    Scarborough, ON

Sherway Gardens

   4,611    February 2010    Etobicoke, ON

Southcentre Shopping Centre

   2,986    August 2009    Calgary, AB

 

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Size

(Square Feet)

  

Expiration of Lease

  

Location

Southgate Shopping Centre

   2,905    September 2008    Edmonton, AB

Square One

   3,360    April 2012    Mississauga, ON

St-John

   2,038    August 2015    St-John, N.B.

Toronto Dominion Square

   7,895    October 2011    Calgary, AB

Toronto Eaton Centre

   4,552    April 2012    Toronto, ON

Vancouver

   20,221    January 2010    Vancouver, B.C.

Victoria

   2,460    December 2010    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

Operating Stores

        

United States:

        

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 2015    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

Coconut Point

   3,550    10 years from opening date(3)    Bonita Springs, 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

   5,954    July 2016    Ft. Lauderdale, FL

International Plaza

   5,583    January 2012    Tampa, FL

Lenox Square Mall

   4,587    December 2006    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 2016(3)    Miami, FL

North Point Mall

   4,752    January 2012    Alpharetta, GA

Perimeter Mall

   5,157    January 2009    Atlanta, GA

PGA Commons

   5,197    April 2014    Palm Beach Gardens, FL

Seminole Towne Center

   3,461    January 2016(3)    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

   2,607    10 years from opening date(4)    Jensen Beach, FL

Village of Merrick Park

   4,894    January 2013    Coral Gables, FL

Weston Commons

   4,000    10 years from opening date(5)    Weston, FL

Other Properties

        

Rhode Island(6)

   19,200    December 2024    Woonsocket, R.I.

Cavelti Factory

   828    January 2011    Vancouver, B.C.

Overdale Avenue(7)

   15,000    February 2007    Montreal, QC

(1) This represents the retail square footage. The total area of our 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.
(2) Lease renewal being discussed with landlord.
(3) Based on terms and conditions of negotiated leases that have not yet been fully executed.
(4) This will be a new location relocated within the mall. Expected opening is November 2006.
(5) Lease executed, but store not yet under construction. Expected opening is March/April 2007.

 

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(6) In March 2005, we acquired the manufacturing facility in Rhode Island. The facility was acquired from Scojen Limited Partnership with a $1.3 million loan from the Rhode Island Industrial Facilities Corporation, the RIIFC, and a loan guaranty from the Rhode Island Industrial-Recreational Building Authority, the IRBA. The IRBA and RIIFC are quasi-public corporations created by the State of Rhode Island to promote economic development in Rhode Island. The loan was effected through a structure consisting of capital lease financing and mortgage insurance. The term of the lease is 20 years at an interest cost of 5% per annum plus a 1% guarantee fee per annum. At the end of the 20 year lease we will have the option to purchase the property for $1,000. For tax purposes, we are considered the current owner of the property.
(7) Distribution center.

Total annual base rent for these locations for the year ended March 25, 2006 was approximately $13.0 million.

 

Item 4A. Unresolved Staff Comments

Not applicable.

 

Item 5. Operating and Financial Review and Prospects

The following discussion should be read in conjunction with, and is qualified by, our consolidated financial statements and the notes thereto included elsewhere in this annual report. The following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our 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 Item 3., “Key Information” under the heading “Risk Factors” and the discussion under the heading “Forward-Looking Information” at the beginning of this annual report.

Throughout this annual report, we refer to our fiscal years ended March 25, 2006, March 26, 2005 and March 27, 2004 as fiscal 2005, fiscal 2004 and fiscal 2003, respectively. Our fiscal year consists of 52 weeks (reported in four 13-week periods) or 53 weeks (reported in three 13-week periods and one 14-week period), and ends on the last Saturday in March of each year. Fiscal 2005, 2004 and 2003 included 52 weeks.

We acquired approximately 72% of the voting control in Mayors on August 20, 2002. Since that date, the results of Mayors have been consolidated in our financial statements, subject to the deduction of the minority interest prior to the merger. As a result, our results in prior periods are not directly comparable.

Between August 2002 and November 2005 it became apparent to both Mayors and Birks management that it was in the best interests of the shareholders to combine the two companies. Management believed that such combination would create a stronger capital base, improve operating efficiencies, reduce the impact of regional issues, simplify the corporate ownership of Mayors, eliminate management and Board of Directors’ inefficiencies with managing intercompany issues, and possibly increase shareholder liquidity. Upon the consummation of the merger on November 14, 2005, each outstanding share of the Mayors common stock not currently owned by Birks was converted into 0.08695 Class A voting shares of Birks. As a result of the merger, Mayors common stock ceased trading on the American Stock Exchange (“AMEX”) and Birks & Mayors began trading on the AMEX under the trading symbol “BMJ.” Since the merger, Birks & Mayors has worked very diligently to fully integrate the Birks business with Mayors and believes the integration process is substantially complete.

Overview

Birks & Mayors is a leading designer, maker and purveyor of luxury jewelry, timepieces and giftware in the United States and Canada. As of March 25, 2006, we operated 39 stores under the Birks brand in most major metropolitan markets of Canada and 28 stores under the Mayors brand in Florida and Georgia. Our operations increased significantly as a result of our acquisition of approximately 72% of the voting power in Mayors in August 2002. Prior to the merger, we controlled Mayors through our ownership of Mayors preferred stock and common stock. Mayors was a majority-owned subsidiary of Birks and its results were consolidated in our results,

 

18


subject to the deduction of the minority interest. Specifically, our results of operations for the periods after the acquisition of Mayors in August 2002 include 100% of Mayors revenues and expenses, with Mayors net loss allocated between Birks and the minority stockholders of Mayors based on their respective common stock ownership.

Because the acquisition of Mayors took place in August 2002, our results of operations include the results of U.S. operations for the entire period in fiscal 2005 and fiscal 2004 and fiscal 2003.

We operate our business in two geographic areas, Canada and the Southeast United States. We have two reportable segments, retail and other. Retail is comprised of all our retail operations in the U.S. and Canada. In Canada, we operate stores under the Birks brand. In the Southeast United States, we operate stores under the Mayors brand. Other consists primarily of our corporate sales division which services the business customer by providing them unique items for recognition programs, service awards and business gifts and also includes manufacturing which manufactures unique products for the retail segment of our business.

Our net sales are comprised of revenues (including retail, 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 sales customers) to make purchases.

Our operating costs and expenses are primarily comprised of cost of sales and selling, general and administrative expenses. Cost of sales includes cost of merchandise, direct inbound freight, direct labor related to repair services, design and creative, the jewelry studio, manufacturing costs, inventory shrink, inventory thefts, jewelry, watch and giftware boxes as well as depreciation and amortization of production facilities and production tools, dies and molds and, in addition, 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, marketing (net of amounts received from vendors for cooperative advertising), credit card fees, information systems, professional services, consulting fees, repairs and maintenance, travel and entertainment, insurance, legal and public relations expenses. Depreciation includes depreciation and amortization of our 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 such as credit card fees and certain elements of payroll, such as commissions. Additionally, SG&A includes indirect costs such as freight, including inter-store transfers, receiving costs, distribution costs, warehousing costs and quality control costs. The amounts of these indirect costs in selling, general and administrative expenses are approximately $2.7 million, $2.7 million and $2.6 million for fiscal years 2005, 2004 and 2003 respectively.

We believe that the key drivers of our performance are our ability to:

 

    execute our 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 our internal capability to design, develop, manufacture or source products;

 

    execute our marketing strategy to enhance customer awareness and appreciation of our two retail brands, Birks and Mayors as well as the Birks product brand, 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, media and public relations, partnerships with key suppliers, such as Mayors relationship with Rolex, and associations with prestige institutions;

 

    provide a superior client experience through consistent outstanding customer service that will ensure customer satisfaction and promote the frequency and value of customer spending; and

 

    expand distribution by selective new store openings in existing and new markets.

 

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Foreign Currency

Because we have operations in the United States and Canada, our 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 our 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 our net sales and expenses from Canadian operations.

Comparable Store Sales

We use comparable store sales as a key performance measure for our business. We classify stores as new or comparable stores and do not include our non-retail store sales in 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.

The percentage increase in comparable stores sales for the periods presented below is as follows:

 

     Fiscal Year Ended  
     March 25,
2006
    March 26,
2005
    March 27,
2004
 

Canada

   7 %   0 %   2 %

U.S.

   13 %   12 %   16 %
                  

Total

   11 %   7 %   10 %
                  

We believe the increase in overall comparable store sales for fiscal 2003 through fiscal 2005 is primarily the result of three factors: improvements in the U.S. and Canadian economies, successful execution of retail merchandising strategies which include increasing the level of exclusive merchandise and enhanced brand awareness as a result of implementation of targeted use of catalogs, television, outdoor and print advertising as well as other marketing programs. In particular, the comparable store sales increase in the U.S. of 13% and 12% for fiscal 2005 and 2004, respectively, 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. The comparable store sales increase of 16% in the U.S. during fiscal 2003 was primarily a result of the stabilization and effective management of the retail businesses after the investment in Mayors by Birks. The comparable store sales in Canada of 7% during fiscal 2005 were the result of the strong Canadian economy and also the result of effective marketing programs and retail store initiatives. By comparison, the comparable store sales were unchanged in Canada in fiscal 2004 since sales increases achieved by effective marketing and merchandising programs were offset by lower January sales in 2005 compared with 2004.

Results of Operations

The following is a discussion of certain factors affecting our results of operations for fiscal 2005 and fiscal 2004. This discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this annual report.

 

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Results of Operations

The following is a discussion of certain factors affecting our results of operations for fiscal 2005 and fiscal 2004. This discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this annual report.

Fiscal 2005 Compared to Fiscal 2004

The following table sets forth, for fiscal 2005 and for fiscal 2004, the amounts for certain items in our consolidated statements of operations.

 

     Fiscal Year Ended  
       March 25, 2006     March 26, 2005  
     (Amounts in thousands)  

Net sales

   $ 274,323     $ 239,301  

Cost of sales

     144,809       130,037  
                

Gross profit

     129,514       109,264  
                

Selling, general and administrative expenses

     109,748       95,864  

Depreciation and amortization

     5,621       4,749  

Other items

     (537 )     (1,181 )
                

Total operating expenses

     114,832       99,432  
                

Operating income

     14,682       9,832  

Interest and other financial costs

     8,930       8,665  
                

Income before Income taxes

     5,752       1,167  

Income taxes

     40       —    
                

Net income

   $ 5,712     $ 1,167  
                

Net Sales

 

     Fiscal Year Ended
     March 25, 2006    March 26, 2005
     (Amounts in thousands)

Net sales – Retail

   $ 261,750    $ 228,350

Net sales – Other

     12,573      10,951
             

Total Net Sales

   $ 274,323    $ 239,301
             

Net sales were $274.3 million for fiscal 2005 compared to $239.3 million for fiscal 2004. The increase in net sales was primarily driven by higher comparable store sales growth of 11%. The increase in comparable store sales growth was primarily driven by an increase in the average sales amount per transaction. The sales growth of $35.0 million was also impacted by $7.6 million related to translating the sales of the Canadian operations to U.S. dollars with a relatively stronger Canadian dollar.

Cost of Sales

 

     Fiscal Year Ended
       March 25, 2006    March 26, 2005
     (Amounts in thousands)

Cost of sales – Retail

   $ 134,830    $ 119,639

Cost of sales – Other

     9,979      10,398
             

Total Cost of Sales

   $ 144,809    $ 130,037
             

 

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Costs of sales were $144.8 million for fiscal 2005 compared to $130.0 million for fiscal 2004. This increase was primarily the result of the increased volume of sales. Of the $14.8 million increase, $3.8 million was the result of the impact of translating the cost of sales of the Canadian operations to U.S. dollars with a relatively stronger Canadian dollar. Included in cost of sales for fiscal 2005 and 2004 was approximately $0.6 million and $0.4 million, respectively of depreciation expense associated with manufacturing operations.

Gross Profit . Gross profit was $129.5 million for fiscal 2005 compared to $109.3 million for fiscal 2004. Gross margin was 47.2% for fiscal 2005 compared to 45.7% for fiscal 2004. Of the $20.2 million increase in gross profit, $3.8 million was the result of the impact of translating the net sales and cost of sales of the Canadian operations to U.S. dollars with a relatively stronger Canadian dollar. The balance of the increase in gross profit and the gross margin percentage improvement was primarily due to the continued successful execution of retail and merchandising strategies aimed at increasing the sales of higher margin merchandise we design and make or source as well as improved inventory management.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $109.7 million, or 40.0% of net sales, for fiscal 2005 compared to $95.9 million, or 40.1% of net sales, for fiscal 2004. The increase in selling, general and administrative expenses for fiscal 2005 includes an increase of $3.6 million resulting from the impact of translating Canadian dollar expenses to U.S. dollars. The remaining increase in selling, general and administrative expense was primarily a result of higher variable costs associated with the higher level of sales and expanded marketing efforts. Included in SG&A for fiscal 2005 is $0.6 million of non-cash compensation income compared to $1.0 million of non-cash compensation expense in fiscal 2004. Also included in SG&A for fiscal 2005 are approximately $1.2 million of expenses incurred related to our decision to merge with Mayors that, in accordance with U.S. GAAP, were not capitalized as well as certain other legal expenses.

Depreciation and Amortization. Depreciation and amortization expense was $5.6 million for fiscal 2005 compared to $4.7 million for fiscal 2004. This $0.9 million increase was primarily due to an additional investment in fixed assets of $7.8 million.

Other items. Other items of approximately $0.5 million of income for fiscal 2005 were primarily related to adjustment of sales tax contingency estimates. The $1.2 million in other items in fiscal 2004 consists primarily 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 estimate.

Interest and Other Financial Costs. Interest and other financial costs were $8.9 million for fiscal 2005 compared to $8.7 million for fiscal 2004. This increase was primarily due to the impact of the increase in value of the Canadian dollar compared to the U.S. dollar.

 

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Fiscal 2004 Compared to Fiscal 2003

The following table sets forth, for fiscal 2004 and for fiscal 2003, the amounts for certain items in our consolidated statements of operations.

 

     Fiscal Year Ended  
     March 26, 2005     March 27, 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

     95,864       94,148  

Depreciation and amortization

     4,749       4,312  

Other items

     (1,181 )     338  
                

Total operating expenses

     99,432       98,798  
                

Operating income (loss)

     9,832       (1,403 )

Interest and other financial costs

     8,665       7,986  
                

Income (loss) before minority interest

     1,167       (9,389 )

Minority interest

     —         7,175  
                

Net income (loss)

   $ 1,167     $ (2,214 )
                

Net Sales

 

     Fiscal Year Ended
     March 26, 2005    March 27, 2004
     (Amounts in thousands)

Net sales – Retail

   $ 228,350    $ 206,351

Net sales – Other

     10,951      9,905
             

Total Net Sales

   $ 239,301    $ 216,256
             

Net sales were $239.3 million for fiscal 2004 compared to $216.3 million for fiscal 2003. The increase in net sales was primarily driven by a 7% increase in comparable store sales. Of the $23.0 million of net sales increase, $5.3 million was the result of the impact of translating the sales of the Canadian operations to U.S. dollars with a relatively stronger Canadian dollar. The balance of the increase in overall net sales for fiscal 2004 was driven by internal growth, primarily the result of an effective mix of successful retail merchandising strategies, increased focus on core inventory, effective new product development, enhanced marketing initiatives and customer events, and the continued increase in consumer confidence and spending compared to fiscal 2003.

Cost of Sales

 

     Fiscal Year Ended
       March 26, 2005    March 27, 2004
     (Amounts in thousands)

Cost of sales – Retail

   $ 119,639    $ 108,187

Cost of sales – Other

     10,398      10,674
             

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. Of the $11.1 million increase, $2.7 million was the

 

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result of the impact of translating the cost of sales of the Canadian operations to U.S. dollars with a relatively stronger Canadian dollar. Included in cost of sales for fiscal 2004 and fiscal 2003 was approximately $0.4 million and $0.3 million, respectively of depreciation expense associated with manufacturing operations.

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. Of the $11.9 million increase in gross profit, $2.7 million was the result of the impact of translating the net sales and cost of sales of the Canadian operations to U.S. dollars with a relatively stronger Canadian dollar. The balance of 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 us as well as the reduction of product markdowns in our stores.

Selling, general and administrative expenses. Selling, general and administrative expenses were $95.9 million, or 40.1% of net sales, for fiscal 2004 compared to $94.2 million, or 43.5% of net sales, for fiscal 2003. The increase in selling, general and administrative expenses for fiscal 2004 was primarily a result of an increase of $2.4 million resulting from the impact of translating Canadian dollar expenses to U.S. dollars, and an increase in expenses related to the increase in sales. Also impacting the increase were additional expenses related to our expanded marketing efforts. Selling, general and administrative expenses in fiscal 2004 also included $0.7 million of expenses incurred related to the restatement of certain reports previously filed by Mayors with the Securities and Exchange Commission and approximately $0.8 million of merger related expenses incurred by Mayors offset by $0.6 million related to the reduction of actuarial based health care accruals as a result of lower than expected health care claims and a net reduction of all other selling, general and administrative expenses of $0.8 million as well as by a decrease in non-cash compensation expense of $1.1 million due to a decrease in Mayors stock price. 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 income for fiscal 2004 consists primarily 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 estimate.

Interest and Other Financial Costs. Interest and other financial costs were $8.7 million for fiscal 2004 compared to $8.0 million for fiscal 2003. This increase was primarily due to higher average interest bearing 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 offset partially by lower interest rates on that debt.

Minority Interest in Loss of Subsidiary. Minority interest in loss of subsidiary includes amounts attributed to the minority interest in Mayors and results from Birks consolidating the results of operations of Mayors, with losses from Mayors operations being allocated on a pro rata basis between Birks and Mayors minority stockholders based on their relative ownership of Mayors common stock, which represents Mayors residual equity. The minority interest in loss of Birks’ subsidiary was $7.2 million in fiscal 2003. Due to the significant losses by Mayors 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

 

24


losses by minority stockholders. In fiscal 2004, even though Mayors 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.

Liquidity and Capital Resources

We have a $135 million revolving working capital credit facility from Bank of America N.A. and GMAC Commercial Finance LLC, which matures on January 19, 2009.

We also have a $11.7 million junior secured term loan with Back Bay Capital. The junior secured term loan has a maturity date of August 18, 2007 and can be prepaid without penalty effective August 18, 2006, subject to the achievement of certain excess borrowing capacity thresholds on our revolving working capital facility. The junior secured term loan bears an effective interest rate of 12.75%.

Our working capital credit facility bears interest at a floating rate of prime or prime plus .25% depending on the excess borrowing capacity, or, at our election, at a LIBOR based rate plus 1.25%, or LIBOR based rate plus 1.50%, or, LIBOR based rate plus 2.00% depending on the excess borrowing capacity and fixed coverage ratio. On March 25, 2006 the borrowing was at Prime and at LIBOR plus 1.50%. Borrowing availability under our facility is determined based on the valuation of certain inventory, accounts receivable and, more specifically, by applying a certain advance rate to the net orderly liquidation value (NOLV) of such assets. The advance rates applied to the NOLV of the inventory will be adjusted higher concurrently with the prepayment of the junior secured term loan, if prepaid.

If after the prepayment of the junior secured term loan, we will need to use advance rates over 85% of the NOLV of inventory, the interest rate for the portion of the working capital credit facility supported by the advance rate over 85% will bear interest at LIBOR plus 4.50% or at prime plus 2.75%.

Our working capital credit facility is secured by a first priority lien over substantially all of our assets, including our subsidiaries assets. Under our facility, we must test two financial covenants at the end of each quarter if and when the average excess borrowing capacity for the last month of the quarter is lower than $8.75 million or the excess borrowing capacity is lower than $6.25 million at any time. The two financial covenants are:

 

  i) Minimum Fixed Charge Coverage Ratio of 1 to 1.

 

  ii) Minimum EBITDA at least equal to 80% of the planned EBITDA.

As of March 25, 2006, our excess borrowing capacity was $24.1 million.

Our working capital credit facility also contains limitations on our ability to pay dividends, more specifically, among others, we can pay dividends only at certain excess borrowing capacity thresholds and the aggregate dividend payment for the twelve month period ended as of any fiscal quarter cannot exceed 33% of the consolidated net income for such twelve month period.

We are currently in compliance with all the covenants contained in our credit facilities. We rely on borrowings under our working capital credit facility to fund our day-to-day operations.

 

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Borrowings under our working capital credit facility for the periods indicated in the table below were as follows:

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005  
     (Amounts in thousands)  

Working capital credit facility availability

   $ 100,498     $ 91,587  

Borrowing at period end

     76,381       74,254  
                

Excess borrowing capacity at period end

   $ 24,117     $ 17,333  
                

Average outstanding balance during the period

   $ 81,298     $ 75,098  

Weighted average interest rate for period

     5.67 %     5.02 %

In addition to the working capital credit facility and the junior secured term loan, we have several other outstanding loans as of March 25, 2006: (1) a $2.2 million term loan from La Financière du Québec that bears interest at a rate of prime plus 1.5% per annum, which equated to 7.0% at March 25, 2006, and repayable in monthly installments through maturity in June 2010, (2) a $ 0.2 million loan payable to the Small Business Loan Fund Corporation, bearing interest at 6% per annum repayable in monthly installments maturing in April 2010, (3) a $0.1 million term loan with Sovereign Bank which bears interest at a rate of 6.75% and matures in February 2009 and (4) a $0.1 million non-revolving demand loan from Bank of Montreal bearing interest at an annual rate of prime plus 1% maturing in May 2009.

We had net cash flows from continuing operations of $14.0 million in fiscal 2005 and $6.4 million in fiscal 2004. In fiscal 2003, we used $3.0 million in cash flow from continuing operations to fund operations. The increase in cash flows from operations in fiscal 2005 was primarily the result of an increase in net earnings after adjustment for non-cash items, and higher level of accounts payable. The improvement in cash flow activity in fiscal 2004 was primarily result of increased earnings and decreased inventory compared to fiscal 2003.

Net cash used in investing activities was $6.8 million in fiscal 2005 and primarily related to capital expenditures for store renovations, one new store, and information technology and lease hold improvements for the new corporate office in Florida. Net cash used in investing activities was $4.9 million in fiscal 2004, primarily related to capital expenditures for information technology, the purchase of the Rhode Island manufacturing facility and store remodeling. Net cash used by investing activities was $3.6 million in fiscal 2003, primarily related to capital expenditures for leasehold improvements for our head office, one new store and information systems.

Net cash used in financing activities was $7.1 million for fiscal 2005, primarily related to payment of term loans and other debt instruments Net cash used in financing activities was $1.4 million in fiscal 2004, primarily related to the payment of bank indebtedness and term loans. Net cash provided by financing activities was approximately $7.3 million in fiscal 2003, primarily related to net borrowings under credit facilities less payment of other debt.

The following table discloses capital expenditures in fiscal 2005, 2004 and 2003.

 

     Fiscal Year Ended
     March 25, 2006    March 26, 2005    March 27, 2004
     (Amounts in thousands)

New stores and remodeling of old stores

   $ 2,582    $ 686    $ 1,571

Purchase of new property

     —        1,517      —  

Other leasehold improvements

     866      220      384

Electronic equipment and computer hardware

     1,817      1,126      1,538

Furniture and fixtures

     1,202      238      309

Manufacturing equipment

     403      448      53

Other

     958      327      206
                    

Total capital expenditures(1)

   $ 7,828    $ 4,562    $ 4,061
                    

(1) Includes capital expenditures financed by capital leases of $1.5 million in fiscal 2005, $1.6 million in fiscal 2004 and $0.4 million in fiscal 2003.

 

26


Capital expenditures for the fiscal year ending March 31, 2007 are projected to be approximately $10 million to $11 million.

Management believes that barring a significant external event that materially adversely affects our current business or the current industry trends as a whole, borrowing capacity under the working capital credit facility, projected cash flows from operations and other short term borrowings will be sufficient to support our 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 our contractual cash obligations as of March 25, 2006 and the periods in which payments are due:

 

     Payment Due by Period
     Total    Less Than
1 Year
   1-3 Years    3-5 Years    More than
5 Years
     (Amounts shown in thousands of U.S. dollars)

Debt maturities

   $ 90,575    $ 12,302    $ 77,662    $ 611    $ —  

Capital lease obligations

     33,945      2,196      4,217      3,321      24,211

Employment agreements(1)

     4,658      2,230      2,428      —        —  

Operating lease obligations(2)

     63,502      12,858      22,094      13,561      14,989

Fixed rate interest expenses(3)

     18,762      2,160      2,977      2,836      10,789
                                  

Total

   $ 211,442    $ 31,746    $ 109,378    $ 20,329    $ 49,989
                                  

(1) Employment agreements do not include any open-ended employment contracts.
(2) The operating lease obligations do not include insurance, taxes and common area maintenance (CAM) charges to which we are obligated. CAM charges were $2,926 in fiscal 2005, $2,751 in fiscal 2004 and $2,448 in fiscal 2003.
(3) The fixed rate interest expenses do not include floating rate interest payable on $78.6 million of floating rate debt, which as of March 25, 2006 bore interest at an average annual rate of 5.9%.

From time-to-time, the Company guarantees a portion of its private label credit card sales to its credit card vendor. As at March 25, 2006, the amount guaranteed under such arrangements is approximately $2,000,000. 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.

Off-Balance Sheet Arrangements

As of March 25, 2006, our only off-balance sheet arrangement was a letter of credit, in the amount of $0.3 million, issued under our credit facility to Wells Fargo. We do not believe that this letter of credit has or is reasonably likely to have a current or future material effect on our financial condition, results of operation or liquidity.

Leases

We lease all of our retail locations under operating leases with the exception of our Montreal store which is under a capital lease. Additionally, we have operating leases for certain equipment. The costs of no single lease are significant to us.

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 we believe

 

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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. Our lease of our Montreal headquarters’ land and building is accounted for as a capital lease. We 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 us 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.

We have identified certain critical accounting policies as noted below.

Revenue recognition

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. Prior to recognition as a sale, gift certificates are recorded as accrued liabilities on the balance sheet. Certificates outstanding for more than 24 months and not subject to unclaimed property laws are recorded as income. Certificates outstanding for more than 24 months and subject to unclaimed property laws are maintained as accrued liabilities until remitted in accordance with local ordinance. 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 we are the primary obligor of the transaction, have general latitude on setting the price, have discretion as to the suppliers, are involved in the selection of the product and have inventory loss risk. Sales are reported net of returns. We generally give our customers the right to return merchandise purchased by them within 10 to 30 days and record 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.

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 our factories and distribution centers. Such estimates are based on experience and the shrink results from the last physical inventory. The shrink rate from the most recent physical inventory, in combination with historical experience, is the basis for providing a shrink allowance.

We write down 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

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our 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 us 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 October 2005, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP” No FAS 13-1), Accounting for Rental Costs Incurred during a Construction Period, which requires that rental costs associated with ground or building operating leases incurred during a construction period be recognized as rental expense and included in income from continuing operations. FSP No FAS 13.1 is effective for the Company as of its fiscal year beginning March 26, 2006. The adoption of FSP No FAS 13-1 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. 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 us as of our fiscal year beginning March 26, 2006. We believe the adoption of SFAS No. 123(R) will not have a material impact on our 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 our 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 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 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 our financial position or results of operations.

 

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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 for fiscal 2005 and did not have a material impact on our financial position or 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 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. We have not yet determined the impact, if any, the adoption of SFAS No. 154 will have on our financial position or results of operations.

Inflation

The impact of inflation on our operations has not been significant to date.

 

Item 6. Directors, Senior Management and Employees

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth information about our executive officers and directors, and their respective ages and positions as of June 30, 2006:

 

Name

   Age   

Position

Dr. Lorenzo Rossi di Montelera

   65    Chairman of the Board & Director

Thomas A. Andruskevich

   55    President, Chief Executive Officer & Director

Alain Benedetti

   57    Director

Emily Berlin

   59    Director

Shirley A. Dawe

   60    Director

Elizabeth Eveillard

   59    Director

Massimo Ferragamo

   48    Director

Ann Spector Lieff

   54    Director

Margherita Oberti

   61    Director

Peter R. O’Brien

   60    Director

Filippo Recami

   55    Director

Joseph A. Keifer III

   54    Executive Vice President & Chief Operating Officer

Daisy Chin-Lor

   52    Executive Vice President & Chief Marketing Officer

Michael Rabinovitch

   36    Senior Vice President & Chief Financial Officer

Marc Weinstein

   52    Senior Vice President & Chief Administrative Officer

Aida Alvarez

   43    Senior Vice President, Merchandising

Randolph Dirth

   51    Senior Vice President, Merchandising

John C. Orrico

   49    Senior Vice President, Supply Chain Officer

Miranda Melfi

   42    Group Vice President, Legal Affairs & Corporate Secretary

Directors

Dr. Lorenzo Rossi di Montelera , age 65, has served as Chairman of our Board of Directors since 1993, and prior to the merger, Dr. Rossi served on the board of directors of Mayors. Dr. Rossi’s term as a director of

 

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Birks & Mayors expires in 2006. He is also on the Board of Directors of Iniziativa S.A. (formerly 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 our Group Vice President, Strategy & Business Development.

Thomas A. Andruskevich , age 55, has been our President and Chief Executive Officer since June 1996 and joined the Board of Directors of Birks in 1999. Mr. Andruskevich’s term as director expires in 2006. Since August 2002, he has been the President, Chief Executive Officer, and Chairman of the board of directors of Mayors. 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.

Alain Benedetti , age 57, has been a member of our Board of Directors since November 2005. Mr. Benedetti’s term as a director of Birks & Mayors expires in 2006. He is also a Corporate Director and Vice-Chairman of the Board of the Canadian Institute of Chartered Accountants and incoming Chair thereof in September 2006. Prior to July 1, 2004, Mr. Benedetti was with Ernst and Young, LLP for 34 years. From 1998 to 2004 he was Vice-Chairman and Canadian Area Managing Partner of Ernst and Young, LLP. He also currently serves on the board of directors of the following publicly-held corporations: Russel Metals Inc. and Dorel Industries Inc. and as Governor of Dynamic Mutual Funds. In addition to his board seat at Russel Metals Inc. and Dorel Industries Inc., he is the Chair of their respective audit committees and he is the Chair of the governance committee of Dynamic Mutual Funds.

Emily Berlin , age 59, has been a member of our Board of Directors since November 2005. Ms. Berlin’s term as a director of Birks & Mayors expires in 2006. She was a member of the board of directors of Mayors from October 2002 until November 14, 2005 and Senior Managing Director of Helm Holdings International since 2001. Based in Miami, Florida, the Helm Group of companies is a diversified privately owned group of 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.

Shirley A. Dawe , age 60, has been a member of our Board of Directors since 1999. Ms. Dawe’s term as a director of Birks & Mayors expires in 2006. 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 numerous public and private companies in Canada and the United States. She currently serves on the boards of directors of National Bank of Canada and The Bon-Ton Stores, Inc.

Elizabeth M. Eveillard , age 59, has been a member of our Board of Directors since November 2005. Ms. Eveillard’s term as a director of Birks & Mayors expires in 2006. She was a member of the board of directors of Mayors from August 2002 until November 14, 2005 and 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 seats at the aforementioned companies, she is also a member of their respective compensation committees.

Massimo Ferragamo , age 48, has been a member of our Board of Directors since November 2005. Mr. Ferragamo’s term as a director of Birks & Mayors expires in 2006. He was a member of the board of

 

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directors of Mayors from October 2002 until November 14, 2005 and has been the Chairman of the Board 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.

Ann Spector Lieff , age 54, has been a member of our Board of Directors since November 2005. Ms. Lieff’s term as a director of Birks & Mayors expires in 2006. She was a member of the board of directors of Mayors from October 2002 until November 14, 2005 and 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. Ms. Lieff has a Bachelor of Arts degree in Sociology from the University of Denver, 1974.

Margherita Oberti , age 61, has been a member of our Board of Directors since 1993. Ms. Oberti’s term as a director of Birks & Mayors expires in 2006. 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 60, has been a director of Birks & Mayors since 1993. Mr. O’Brien’s term as a director of Birks & Mayors expires in 2006. He resides in Montreal, Canada and until December 31, 2005, was a senior 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 55, has been a director of Birks & Mayors since November 1, 1999 and a Managing Director of Iniziativa S.A. (Luxembourg) since the beginning of 1999. Mr. Recami’s term as a director of Birks & Mayors expires in 2006. He has also been the Chief Executive Officer and Managing Director of Regaluxe Investment S.a.r.l since March 1999. After the merger on March 31, 2006 between Iniziativa and Regaluxe, Mr. Recami was appointed Chief Executive Officer of the company resulting from the merger, namely Iniziativa. He was also on the Mayors board of directors from October 2002 until November 14, 2005. 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

Joseph A. Keifer, III , age 54, is our Executive Vice President & Chief Operating Officer having previously held such position at Mayors. Prior to joining Mayors, 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

 

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during which he held various positions, including Senior Vice President of Company Operations and President of the Bailey Banks & Biddle division.

Daisy Chin-Lor , age 52, is our Executive Vice President & Chief Marketing Officer for Birks & Mayors having held a similar position at Mayors 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 2005, 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.

Michael Rabinovitch , age 36, became our Senior Vice President & Chief Financial Officer effective August 1, 2005. Prior to joining Birks & Mayors, 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 is a licensed CPA and is a member of the American Institute of Certified Public Accountants and the Florida Institute of Certified Public Accountants.

Marc Weinstein , age 52, has been our Chief Administrative Officer & Senior Vice President since November 14, 2005. He has also been an Executive Officer of Mayors since 1996. Prior to joining Mayors, 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.

Aida Alvarez, age 43, is our Senior Vice President Merchandising and held the position of Vice President Merchandising at Mayors since February 2001. From August 1989 to February 2001, Ms. Alvarez served as General Merchandise Manager, Divisional Merchandise Manager and Head Watch Buyer for Mayors. Prior to joining Mayors in August 1989, Ms. Alvarez worked for Zale Corporation as a Group Store Manager from 1987 to 1989.

Randolph Dirth , age 51, is our Senior Vice President, Merchandising and has been with Birks & Mayors since July 2004, prior to which time he did merchandising consulting for Birks & Mayors for 7 months. Before joining Birks & Mayors, Mr. Dirth managed, as the founder, Gourmet Giftmail, a web-based food gift business, from 1997 to 1999. From 1999 to 2001, he was CEO of Greater Good. Prior to such position, he held various executive positions in specialty retailing companies including Brookstone, Williams-Sonoma and Macy’s.

John C. Orrico , age 49, is our Senior Vice President and Supply Chain Officer and has been with Birks & Mayors 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 & Mayors and Mayors, 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.

Miranda Melfi , age, 42, has been our Group Vice President, Legal Affairs and Corporate Secretary since April 3, 2006. Prior to joining us, Ms. Melfi was with Cascades Inc., a publicly-traded pulp and paper company for eight years and held the position of Vice President, Legal Affairs, Boxboard Group. From 1994 to 1998, Ms. Melfi was Vice President, Legal Affairs and Corporate Secretary at Stella-Jones Inc., a publicly-traded wood products company, and from 1991 to 1994, practiced corporate, commercial and securities law with Fasken Martineau DuMoulin LLP.

 

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COMPENSATION OF DIRECTORS AND OFFICERS

Director Compensation

Each director who is not an employee of the Company or any of its affiliates is entitled to receive an annual fee of $20,000 for serving on our Board of Directors. Directors who are not employees of the Company or any of its affiliates receive grants of 1,000 stock appreciation rights on April 1 of each year, and the audit committee chairperson is entitled to receive an additional annual fee of $10,000. In addition, in the event we form a special independent committee of directors, the chairperson of such committee shall be entitled to receive $10,000 for his or her service and the other members of the committee would each be entitled to receive $5,000 for their service on such committee. All directors are reimbursed for travel expenses incurred in connection with the performance of their duties as directors.

Since the consummation of the merger on November 14, 2005 until June 30, 2006, the Board of Directors held a total of 16 board of directors and committee meetings. During such period all directors attended all of the meetings of the Board of Directors and committees of which they were members.

Executive Compensation

We are a foreign private issuer and not a reporting issuer under Canadian securities laws and are therefore not required to publicly disclose detailed information about executive compensation in our home jurisdiction. Under the Canada Business Corporations Act, being the statute under which we were incorporated, we are only required to provide certain information on aggregate executive compensation. The aggregate compensation paid by us to our eight executive officers (including those executive officers of Mayors prior to the merger) in fiscal 2005 was approximately $4,613,770 (annual salary and bonus earned).

The summary compensation table and the option/SAR grants and exercise of options tables in the Management Proxy Circular which the Registrant will file of Form 6-K with the Securities and Exchange Commission in connection with the Registrant’s Annual Meeting of Shareholders to be held on September 8,2006, are incorporated herein by reference.

Birks & Mayors Equity Incentive Plans

Long-Term Incentive Plan

In 2006, Birks & Mayors 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 Birks & Mayors business. As of June 30, 2006, there were 9,000 cash-based stock appreciation rights that were granted under the Long-Term Incentive Plan. The stock appreciation rights outstanding under the Long-Term Incentive Plan have a weighted average exercise price of $6.12.

In general, the Long-Term Incentive Plan will be administered by Birks & Mayors Board of Directors or a committee designated by the Board of Directors. 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. 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, restricted stock units and performance unit or share awards, as such terms are defined in the Long-Term Incentive Plan.

The Long-Term Incentive Plan authorizes the issuance of 900,000 Class A voting shares, which will consist of authorized but unissued Class A voting shares. 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 Class A voting shares, adjustments will be made to the Long-Term Incentive Plan.

 

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We cannot issue Class A voting shares or awards under the Long-Term Incentive Plan if such issuance, when combined with the Class A voting shares issuable under any of our other equity incentive award plans and all other Class A voting shares issuable under the Long-Term Incentive Plan would exceed 1,304,025 Class A voting shares, unless the issuance of such shares or awards in excess of this limit is approved by the shareholders of the Company. This limit shall not restrict however, the Company to issue awards under the Long-Term Incentive Plan that are payable other than in shares, including cash-settled stock appreciation rights.

In the event of a change in control of Birks & Mayors, the administrator, at its sole discretion, may determine that all outstanding awards will become fully and immediately exercisable and vested. In the event of dissolution or liquidation of Birks & Mayors, 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:

 

    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;

 

    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

 

    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.

Employee Stock Purchase Plan

In 2006, Birks & Mayors adopted an Employee Stock Purchase Plan (“ESPP”), which was approved in February 2006. The ESPP permits eligible employees, which do not include executives of Birks & Mayors Inc., to purchase our Class A voting shares from Birks & Mayors at 85% of its fair market value through regular payroll deductions. A total of 100,000 shares of our Class A voting shares are reserved for issuance under the ESPP. As of June 30, 2006, no shares have been issued under the ESPP.

Birks’ Employee Stock Option Plan

Effective May 1, 1997, Birks adopted an Employee Stock Option Plan (the “Birks 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 our business. The Birks ESOP was amended as of June 20, 2000. Effective as of November 15, 2005, no awards will be granted under the Birks ESOP. However, the Birks ESOP will remain in effect until the outstanding awards thereunder terminate or expire by their terms. As of June 30, 2006 there were 162,637 Class A voting shares underlying options granted under the Birks ESOP. The options outstanding under the Birks ESOP have a weighted average exercise price of $6.66.

Mayor’s Long-Term Incentive Plan

Mayors Equity-Incentive Plans

Long-Term Incentive Plan

In fiscal 2004, Mayor’s adopted a Long-Term Incentive Plan (the “Mayor’s LTIP”) to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees

 

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and consultants and to promote the success of Mayor’s business. Effective as of November 15, 2005, no further awards will be granted under the Mayor’s LTIP. However, the Mayor’s LTIP will remain effective until the outstanding awards thereunder terminate or expire by their terms. As of June 30, 2006, there were 113,034 Class A voting shares underlying awards granted under the Mayor’s LTIP. The awards outstanding under the Mayor’s LTIP have a weighted average exercise price of $6.21.

1991 Stock Option Plan

Mayor’s also adopted a stock option plan in 1991 in order to make option awards to key employees and directors. Effective as of November 15, 2005, no further awards will be granted under this plan. However, this plan will remain effective until the outstanding awards thereunder terminate or expire by their terms. As of June 30, 2006 there were 356,210 Class A voting shares underlying options granted under the plan. The options outstanding under this plan have a weighted average exercise price of $13.82.

BOARD PRACTICES

Our bylaws state that the Board of Directors will meet immediately following the election of directors at any annual or special meeting of the shareholders and as the directors may from time to time determine. See “Item 10. Additional Information—Articles of Incorporation and Bylaws.”

Under our Articles of Incorporation, directors serve one-year terms although they continue in office until successors are appointed. None of the members of our board has service agreements providing for benefits upon termination of employment, except for Mr. Andruskevich. See “Item 10 Additional Information—Material Agreements—Employment Agreements.”

Since the merger, our Board of Directors held a total of 16 Board of Directors and committee meetings. During such period, all directors attended all of the meetings of our Board of Directors and committees of which they were members.

Our Board of Directors is supported by committees, which are working groups that analyze issues and provide recommendations to the Board of Directors regarding their respective areas of focus. The executive officers interact periodically with the committees to address management issues. The following are the six committees of the Board of Directors:

1. Audit Committee . We have a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The audit committee operates under a written charter adopted by the Board of Directors. The audit committee reviews the scope and results of the annual audit of our consolidated financial statements conducted by our independent auditors, the scope of other services provided by our independent auditors, proposed changes in our financial accounting standards and principles, and our policies and procedures with respect to its internal accounting, auditing and financial controls. The audit committee also examines and considers other matters relating to our financial affairs and accounting methods, including selection and retention of our independent auditors. Since the merger, the audit committee held two meetings. Alain Benedetti (Chair), Emily Berlin and Ann Spector Lieff, each of whom is financially literate and an independent, non-employee director of Birks & Mayors, currently constitute the audit committee. We have determined that Alain Benedetti qualifies as an “audit committee financial expert” as defined in the rules of the American Stock Exchange.

2. Compensation Committee . We have 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 awards for the Chief Executive Officer and other executive officers of Birks & Mayors. Since the merger, the compensation committee held 2 meetings. Elizabeth Eveillard (Chair), Alain Benedetti, and Massimo Ferragamo, each of whom is an independent, non-employee director of Birks & Mayors, currently constitute the compensation committee.

 

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3. Nominating Committee . We have a standing nominating committee in accordance with the SEC rules and American Stock Exchange listing standards on nominating committees. The nominating committee is governed by a written charter. The nominating committee is responsible for nominating potential nominees to the Board of Directors. Since the merger, the nominating committee held one meeting. Emily Berlin (Chair), Ann Spector Lieff, and Massimo Ferragamo, currently constitute the nominating committee. All members of the nominating committee are independent as defined by the American Stock Exchange listing standards. Our policy with regard to the consideration of any director candidates recommended by a shareholder is that we will consider such candidates and evaluate such candidates by the same process as candidates identified by the nominating committee.

4. Corporate Governance Committee . We have a standing corporate governance committee. The corporate governance committee is responsible for overseeing all aspects of our corporate governance policies. The corporate governance committee is also responsible for the oversight and review of all related party transactions. Since the merger, the corporate governance committee held two meetings. Our corporate governance committee is comprised of three directors and operates under a written charter adopted by the Board of Directors. Shirley A. Dawe (Chair), Ann Spector Lieff, and Emily Berlin, each of whom is an independent, non-employee director of Birks & Mayors, currently constitute the corporate governance committee.

5. Executive Committee . We have 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 our efficient operation with guidance and direction from the Board of Directors. The goal is to provide a mechanism that can assist in our operations, 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: Thomas A. Andruskevich (Chair), Lorenzo Rossi di Montelera, Filippo Recami, Peter O’Brien and Shirley A. Dawe. Since the merger, the executive committee held four meetings.

6. Strategy Committee . We have a standing strategy committee. The Strategy Committee’s mandate is to assist the board with respect to the development, continuing assessment and execution of the Company’s strategic plan. The Strategy Committee is comprised of at least three members of the Board of Directors. The current members of the strategy committee are Filippo Recami (Chair), Thomas A. Andruskevich, Lorenzo Rossi di Montelera and Margherita Oberti. Since the merger, the strategy committee held two meetings.

EMPLOYEES

As of March 25, 2006, we employed 1,063 persons. None of our employees are governed by a collective bargaining agreement with a labor union. We believe our relations with our employees are good and we intend to continue to place an emphasis on recruiting, retraining, training and developing the best people in our industry.

 

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Retail employees include only those employees within our retail selling locations, while administration includes all other activities including corporate office, merchandising, supply chain operations and corporate sales. The table below sets forth headcount by category and geographic location for the periods indicated:

 

     Canada    U.S.    Total

As of March 25, 2006:

        

Administration

   387    166    553

Retail

   246    264    510
              

Total

   633    430    1,063
              

As of March 26, 2005:

        

Administration

   361    150    511

Retail

   338    248    586
              

Total

   699    398    1,097
              

As of March 27, 2004:

        

Administration

   365    129    494

Retail

   359    259    618
              

Total

   724    388    1,112
              

SHARE OWNERSHIP

The following table sets forth information regarding the beneficial ownership of our Class A voting shares as of June 30, 2006 by each executive officer and each director:

 

Name of Beneficial Owner

  

Number of Shares

Beneficially Owned

   Percentage of
Beneficially Owned
 

Dr. Lorenzo Rossi di Montelera(1)

   7,727,316    68.9 %

Thomas A. Andruskevich(2)

   844,425    19.7 %

Shirley A. Dawe(3)

   870    *  

Margherita Oberti(4)

   5,000    *  

Peter R. O’Brien(5)

   7,529    *  

Filippo Recami(6)

   262,227    7.0 %

Alain Benedetti(7)

   2,000    *  

Massimo Ferragamo(8)

   4,346    *  

Emily Berlin(9)

   47,821    1.4 %

Elizabeth Eveillard(10)

   91,296    2.6 %

Ann Spector Lieff(11)

   14,466    *  

Joseph A. Keifer, III(12)

   133,501    3.7 %

Michael Rabinovitch(13)

   7,245    *  

Randolph Dirth(14)

   26,737    *  

Daisy Chin-Lor(15)

   1,449    *  

* Less than 1%.
(1) Includes (a) options to purchase 9,346 Class A voting shares which are currently exercisable or exercisable within 60 days, (b) 6,118,384 Class A voting shares to which Iniziativa (formerly Regaluxe) would be entitled upon conversion of the Class B multiple voting shares held by Iniziativa (formerly Regaluxe) and (c) 1,599,586 Class A voting shares to which Montrolux S.A. would be entitled upon conversion of the Class B multiple voting shares held by Montrolux. Dr. Rossi exercises voting and investment control over the securities held of record by Montrolux and Iniziativa (formerly Regaluxe and its affiliates).
(2) Includes (a) options and stock appreciation rights to purchase 672,750 Class A voting shares which are currently exercisable or exercisable within 60 days (including the option which gives him the right to purchase 260,804 Class A voting shares representing 2% of the total issued and outstanding shares of the Company (on a fully diluted basis) if such option were exercised as of June 30, 2006), (b) warrants to purchase 131,209 Class A voting shares, and (c) 40,466 Class A voting shares.

 

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(3) Includes 870 Class A voting shares.
(4) Includes options to purchase 5,000 Class A voting shares.
(5) Includes options to purchase 5,000 Class A voting shares and 2,529 Class A voting shares.
(6) Includes options to purchase 131,018 Class A voting shares and warrants to purchase 131,209 Class A voting shares.
(7) Includes options to purchase 2,000 Class A voting shares.
(8) Includes options to purchase 4,346 Class A voting shares.
(9) Includes options to purchase 4,346 Class A voting shares and 43,475 Class A voting shares.
(10) Includes options to purchase 4,346 Class A voting shares and 86,950 Class A voting shares owned by her husband.
(11) Includes options to purchase 4,346 Class A voting shares, 4,347 Class A voting shares and 5,773 Class A voting shares held by trusts of which she is a 25% beneficiary and has shared voting and investment power as trustee.
(12) Includes options to purchase 74,666 Class A voting shares which are currently exercisable or exercisable within 60 days, warrants to purchase 48,110 Class A voting shares and 10,117 Class A voting shares held directly and 608 Class A voting shares held indirectly.
(13) Includes stock appreciation rights to purchase 7,245 Class A voting shares which are currently exercisable or exercisable within 60 days.
(14) Includes options to purchase 5,000 Class A voting shares which are currently exercisable or exercisable within 60 days and 21,737 Class A voting shares.
(15) Includes stock appreciation rights to purchase 1,449 Class A voting shares which are currently exercisable or exercisable within 60 days.

For arrangements involving the issuance or grant of options or shares of the Company to such named executive officers, see above under heading “Executive Compensation” and Item 10. “Additional Information—Material Agreements—Employment Agreements.”

 

Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

The following table sets forth information regarding the beneficial ownership of our Class A voting shares as of June 30, 2006 by each person or entity who beneficially owns 5% or more of outstanding voting securities, including the Class A voting shares and Class B multiple voting shares. Unless otherwise indicated in the table, each of the individuals named below has sole voting and investment power with respect to the voting shares beneficially owned by them. The calculation of the percentage of outstanding shares is based on 3,489,753 Class A voting shares and 7,717,970 Class B multiple voting shares outstanding on June 30, 2006, adjusted where appropriate, for shares of stock beneficially owned but not yet issued.

Beneficial ownership is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any of the 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 annual report of such voting shares, however, does not constitute an admission that the named individual is a direct or indirect beneficial owner of such voting shares. The voting shares that a person has the right to acquire within 60 days of June 30, 2006 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.

 

Name of Beneficial Owner (1)

   Number of Shares Beneficially
Owned
   Percentage of Beneficially Owned  

Dr. Lorenzo Rossi di Montelera(2)

   7,727,316    68.9 %

Thomas A. Andruskevich(3)

   844,425    19.7 %

Iniziativa S.A.(4)

   6,118,384    63.7 %

Prime Investments SA(5)

   1,536,047    44.0 %

Filippo Recami(6)

   262,227    7.0 %

Montrolux S.A. (7)

   1,599,586    31.4 %

 

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(1) Unless otherwise noted, each person has sole voting and investment power over the shares listed opposite his or her name.
(2) Includes (a) options to purchase 9,346 Class A voting shares which are currently exercisable or exercisable within 60 days, (b) 6,118,384 Class A voting shares to which Iniziativa S.A. (formerly Regaluxe and its affiliates) would be entitled upon conversion of the Class B multiple voting shares held by Iniziativa S.A. (formerly Regaluxe and its affiliates), and (c) 1,599,586 Class A voting shares of which Montrolux S.A. would be entitled upon conversion of the Class B multiple voting shares held by Montrolux. Dr. Rossi exercises joint voting and investment control over the securities held of record by Montrolux and Initziativa (formerly Regaluxe and its affiliates).
(3) Includes (a) options and SARs to purchase 672,750 Class A voting shares which are currently exercisable or exercisable within 60 days (including the option which gives him the right to purchase 260,804 Class A voting shares representing 2% of the total issued and outstanding shares of the Company (on a fully diluted basis) if such option were exercised as of June 30, 2006), (b) warrants to purchase 131,209 Class A voting shares, and (c) 40,466 Class A voting shares.
(4) Comprised of 6,118,384 Class A voting shares to which Iniziativa (formerly Regulaxe and its affiliates) would be entitled upon conversion of the Class B multiple voting shares held by it.
(5) The Company has been advised that Deutsche Bank International Trust Co. Limited, as Trustee of Pine Trust and The Beech Settlement, exercises voting and investment control over the securities held of record by Prime Investments SA.
(6) Includes options to purchase 131,018 Class A voting shares which are currently exercisable or exercisable within 60 days and warrants to purchase 131,209 Class A voting shares which are currently exercisable or exercisable within 60 days.
(7) Includes 1,599,586 Birks Class A voting shares to which Montrolux would be entitled upon conversion of the Class B multiple voting shares held by Montrolux. Dr. Rossi exercises joint voting and investment control over the securities held of record by Montrolux.

RELATED PARTY TRANSACTIONS

Gemstone and Diamond Supply Agreements

On February 10, 2006, the Board of Directors of the Company authorized the Company to purchase gemstones from Brazilian Emeralds, Inc. (“Brazilian Emeralds”) from time to time. Thomas A. Andruskevich, the Company’s President and Chief Executive Officer is a non-controlling shareholder and director of Brazilian Emeralds. An internal committee of the Company, which will report to the Corporate Governance Committee twice per year, will approve purchases and monitor the competitiveness of Brazilian Emeralds’ prices. Thus, the Board of Directors approved a waiver of the Company’s Code of Conduct and Code of Ethics for Senior Financial Officers when it approved these purchases from Brazilian Emeralds. The Company has not purchased any products from this supplier to date.

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 2005, Birks purchased approximately $4.9 million of diamonds from Prime Investments SA and related parties. In addition, Birks purchased approximately $0.3 million of finished goods in fiscal 2005. Prime Investments SA beneficially owns 44.0% of the outstanding shares of Birks & Mayors.

Management Consulting Services Agreement

On February 10, 2006, our Board of Directors, approved the Company entering into a Management Consulting Services Agreement with Iniziativa S.A. Under the agreement, Iniziativa S.A. is to provide advisory, management and corporate services to the Company for approximately US$235,500 per quarter through the period ending March 31, 2007, plus out of pocket expenses. The initial term of the Agreement begins on April 1, 2006 and ends on March 31, 2007. The Agreement may be renewed for additional one year terms by the Company. Two of the Company’s directors, Filippo Recami and Dr. Lorenzo Rossi di Montelera, are affiliated with Iniziativa S.A. Iniziativa S.A. is the controlling shareholder of the Company. Mr. Recami is the Chief Executive Officer of Iniziativa S.A. and Dr. Rossi is Chairman of the Board of Iniziativa S.A. and shares joint voting control over the majority of the shares of Iniziativa S.A. Fees paid by is to Regaluxe and Initziativa under the current and prior year agreements were approximately $923,000, $916,000 and $842,000 in fiscal 2005, 2004 and 2003, respectively. Our Board of Directors waived our Code of Conduct relating to related party transactions when the Board of Directors approved our entering into the agreement with Iniziativa S.A.

 

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Also, on February 10, 2006, our Board of Directors approved the Company entering into a consulting arrangement with Mariangela Federighi. Ms. Federighi will provide a maximum of 500 hours of consulting services, at a rate of CAD$30 per hour, over a one-year term. We will reimburse Ms. Federighi for reasonable expenses incurred in the fulfillment of her consulting services. Ms. Federighi is the daughter-in-law of Dr. Rossi, who is our Chairman of the Board and controlling shareholder. Our Board of Directors, on February 10, 2006, approved a waiver of our Code of Conduct in allowing Ms. Federighi to provide us her consulting services.

Arrangements with Directors

On April 23, 2004, four of our directors, Lorenzo Rossi di Montelera, Peter R. O’Brien, Shirley A. Dawe and Margherita Oberti, and one former director, Rosamond Ivey, were each awarded 5,000 options to purchase Birks & Mayors stock 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.

We retain 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 our new stores since 1993, as well as in the renovation of our executive offices. The principal of Pheidias Project Management and Oberti Architectural is the spouse of Margherita Oberti, one of our directors. For fiscal 2005, Pheidias Project Management and Oberti Architectural & Urban Design as project managers and architects charged us approximately $532,000 for services rendered.

On a continuing basis, we receive Canadian legal services from the law firm Stikeman Elliott LLP, of which Peter R. O’Brien is a former senior partner since December 2005. Peter R. O’Brien is also one of our directors. For fiscal 2005, Stikeman Elliott LLP charged us approximately $373,000 for legal services rendered and expenses.

Separation Agreement

On January 18, 2005, Birks & Mayors and John D. Ball, our former Senior Vice President and Chief Financial Officer, entered into a separation Agreement. Under the terms of the agreement, John D. Ball benefited from a six-and-a-half month working notice period during which he continued to be a Birks employee and continued to receive his salary and benefits. In addition, we repurchased 8,093 Class A voting shares that Mr. Ball beneficially owns, at Cdn$10.00 a share. 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 Mayors repurchase Mr. Ball’s 501,348 warrants to purchase Mayors common stock for a price of 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 agreement. On May 26, 2005, Mayors entered into a Warrant Redemption Agreement with Mr. Ball. Under the terms and conditions of the agreement, Mayors agreed to repurchase all of Mr. Ball’s warrants to purchase common stock of Mayors for US$150,000. Additionally, Mr. Ball agreed to release Mayors from any and all claims arising from or related to the warrants. In connection with the purchase of the warrants, Mayors received a waiver from its lenders under the Mayors credit facility then in place.

Convertible Notes

On August 20, 2002, Henry Birks & Sons Holdings Inc. issued a convertible note of $2.5 million to Iniziativa S.A. secured by our investment in Mayors 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 we issued a new convertible note to Iniziativa S.A. The new convertible note had the same terms and conditions as the cancelled convertible note except that the new convertible note issued to Iniziativa S.A. bears 0.25% interest per annum from the date of issuance until September 29, 2007 and is convertible into 504,876 Class B multiple voting shares. Pursuant to the merger, the convertible note was converted into Class B multiple voting shares.

 

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On September 30, 2002, Birks issued a convertible note of $2.5 million to Prime Investments SA secured by our investment in Mayors 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 issued to Prime Investments SA was, pursuant to an amendment made on March 14, 2005, convertible into 512,015 Class A voting shares, at the option of the holder. Pursuant to the merger, this convertible note to Prime Investments was converted into Class A voting shares.

Loans from Iniziativa S.A.

Iniziativa S.A. issued us 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 was secured by an interest in our moveable property. It was subordinated and bore net interest, after withholding taxes, of 12.0% per annum until September 2005, and increased to 14.0% per annum thereafter. The loan was pre-payable by us without penalty, but principal and interest was repayable only if authorized by GMAC. The loan was completely repaid by us on January 19, 2006.

On March 1, 2002, Regaluxe also issued Birks a loan for Cdn$823,695, to be repaid in four annual installment of Cdn$205,924, and bearing interest, payable semi-annually, at a rate of 3.55% per annum. The loan was completely repaid on March 1, 2006.

Letter of Credit from Iniziativa S.A.

On May 19, 2005, Iniziativa S.A. issued a $370,279 (Cdn$450,000) letter of credit to Investissement Québec (formerly Financière du Québec) on our behalf. The letter of credit is a required security for our term loan from Investissement Québec (formerly 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 our assets (in addition to the letter of credit). The letter of credit expires on May 19, 2007 and requires renewal on an annual basis during the term of the loan.

 

Item 8. Financial Information

Consolidated Financial Statements

See Item 18. “Financial Statements.”

Dividend Policy

For a discussion of our dividend policy, see Item 3. “Key Information—Dividends and Dividend Policy.”

Legal Proceedings

We are from time to time involved in litigation incident to the conduct of our business. Although such litigation is routine and incidental, and such litigation can result in large monetary awards for compensatory or punitive damages, we believe that no litigation that is currently pending or threatened will have a material adverse effect on our financial condition. On December 1, 2004, Mayors, then a public company, was notified that the SEC was conducting an informal inquiry regarding Mayors. The SEC has requested documents primarily relating to the warrants that Mayors issued to Birks in connection with Birks’ equity investment in Mayors in August 2002. The SEC has not made any further requests of the Company since September of 2005. Birks has fully cooperated with the SEC investigation.

Significant Changes

No significant changes have occurred since the date of the annual financial statements included in this annual report.

 

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Item 9. The Offer and Listing

TRADING MARKET

Effective November 15, 2005, our Class A voting shares were listed and began to trade on the American Stock Exchange (“AMEX”) under the symbol “BMJ.” The following table sets forth, for the periods indicated, the reported high and low sale prices for the Class A voting shares:

 

Birks & Mayors Inc. Highest/Lowest Stock Price for the

Most Recent Six Months

   Birks & Mayors Inc. Highest/Lowest Stock Price for each Quarter

Month

       Highest            Lowest        Quarter        Highest            Lowest    

December 2005

   $6.30    $5.90    Quarter ended December 2005    $7.00    $5.90

January 2006

   $6.85    $5.95    Quarter ended March 2006    $6.85    $5.95

February 2006

   $6.50    $6.07         

March 2006

   $6.22    $6.10         

April 2006

   $6.20    $6.07         

May 2006

   $6.20    $6.05         

 

Item 10. Additional Information

ARTICLES OF INCORPORATION AND BY-LAWS

Our Articles of Incorporation do not restrict the type of business that we may carry on. A copy of our Articles of Incorporation and our By-laws are contained in exhibits to the F-4 registration statement (File No. 333-126936) that we filed with the Commission on September 29, 2005, and which we incorporate by reference herein (“F-4”). Additionally, certain rights of our shareholders pursuant to our Articles of Incorporation, our By-laws and the Canada Business Corporations Act were set out in the F-4 and we refer you to the headings therein entitled “Description of Birks Capital Stock” and “Comparison of Stockholder Rights”.

MATERIAL CONTRACTS

We have not entered into any material contract other than in the ordinary course of business and other than those described below or in Items 4, 5, 7 “Related Party Transactions” and 19 of this Annual Report on Form 20-F.

Employment Agreements

Thomas A. Andruskevich

Thomas A. Andruskevich is employed by Birks & Mayors, as well as by its subsidiary Mayors. Accordingly, we have two employment agreements with Mr. Andruskevich, one of which is through Mayors.

Effective April 1, 2005, we entered into an employment agreement with Mr. Andruskevich under which Mr. Andruskevich serves as President and Chief Executive Officer of Birks & Mayors 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 & Mayors in the preceding year. The goals are set forth in our annual profit plan and strategic plan and are approved annually by

 

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the Board of Directors. Mr. Andruskevich’s base salary is currently $545,090 and can increase up to $614,000 based on our 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 our 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 agreement, Mr. Andruskevich is also entitled to certain benefits such as life insurance, health and dental insurance, moving expenses and other reasonable expenses. 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 our Class A voting shares which, immediately following their issue, would represent 2% of our issued and outstanding shares of capital stock (on a fully diluted basis). The number of shares will be adjusted to represent 2% of the issued and outstanding 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 following the consummation of the merger, for a compensatory purpose to employees, officers, directors or consultants shall be disregarded for purposes of calculating 2% of our issued and outstanding shares of our capital stock (on a fully diluted basis). 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 our issued and outstanding shares of capital stock 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 our issued and outstanding shares of capital stock 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.

We may terminate Mr. Andruskevich’s employment agreement with just and sufficient cause for such termination. If we desire not to renew the agreement, we 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 our non-renewal of the agreement, we 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 we terminate Mr. Andruskevich’s employment without just and sufficient cause, Mr. Andruskevich will be entitled to compensation and benefits provided under the remainder of the term of the agreement. The agreement prohibits Mr. Andruskevich from competing with us in our business for or on behalf of any entity whose operations are located primarily in Canada for a period of up 12 months following the termination of the agreement by Mr. Andruskevich prior to the expiry of the term or a period terminating on December 31, 2008 following the non-renewal of the agreement by either Mr. Andruskevich or us upon expiry of the term.

Mayors 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 Mayors, and as President and Chief

 

44


Executive Officer of Mayors 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 & Mayors. Under this agreement, Mr. Andruskevich receives an annual base salary from Mayors 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. Under the amendment Mr. Andruskevich’s base salary was increased to $600,000 on April 1, 2006. The amendment further provides that his target bonus opportunity will increase annually beginning in Mayors fiscal 2005 and that he will receive an additional long-term incentive compensation award. Pursuant to the amendment, Mayors also granted Mr. Andruskevich 1,000,000 stock appreciation rights with an exercise price of $0.54 on August 9, 2005. The amendment allows Mayors 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 Mayors 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.

EXCHANGE CONTROLS

There are currently no laws, decrees, regulations or other legislation in Canada that restricts the export or import of capital or that affects the remittance of dividends, interest or other payments to non-resident holders of our securities other than withholding tax requirements. There is no limitation imposed by Canadian law or by our Articles of Incorporation or our other organizational documents on the right of a non-resident of Canada to hold or vote our Class A voting shares, other than as provided in the North American Free Trade Agreement Implementation Act (Canada) and in the Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act.

The Investment Canada Act requires notification and, in certain cases, advance review and approval by the Government of Canada of the acquisition by a “non-Canadian” of “control of a Canadian business”, all as defined in the Investment Canada Act. Generally, the threshold for review will be higher in monetary terms, and in certain cases an exemption will apply, for an investor ultimately controlled by persons who are nationals of a WTO Member or have the right of permanent residence in relation thereto.

TAXATION

Dividends and Distributions

Subject to the passive foreign investment company (PFIC) rules discussed below, the gross amount of dividends paid to U.S. Holders of our 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

 

45


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 our 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 our 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 our 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 our 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 our Class A voting shares (thereby increasing the amount of gain, or 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 our 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, 2011 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 we believe 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 our 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 our 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 our 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

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 our Class A voting shares in an amount equal to the difference between the amount realized for our 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.

Passive Foreign Investment Company

We believe that our Class A voting shares should not be treated as stock of a PFIC for U.S. federal income tax purposes, and we expect to continue our 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 our assets for each quarter during the taxable year. If we own at least 25% by value of another company’s stock, we will be treated, for purposes of the PFIC rules, as owning our proportionate share of the assets and receiving our proportionate share of income. Based on the nature of our income, assets and activities, and the manner in which we plan to operate our business in future years, we do not expect that we will be classified as a PFIC for any taxable year.

If, however, we are or become a PFIC, U.S. Holders could be subject to additional U.S. federal income taxes on gain recognized with respect to our 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.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends in respect of our Class A voting shares or the proceeds received on the sale, exchange, or redemption of our 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.

 

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MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR CLASS A VOTING SHARES

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 ownership of our Class A voting shares, generally applicable to holders of our Class A voting shares who, for purposes of the Canadian Tax Act and at all relevant times are resident or deemed residents of the United States and are not and are not deemed to be resident in Canada, hold our Class A voting shares as capital property, deal at arm’s length with Birks and Mayors and who do not use or hold and are not deemed to use Class A voting shares in connection with carrying on business in Canada and for who our Class A voting shares are not “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 our Class A voting shares. Accordingly, holders of our Class A voting shares should consult their own tax advisors with respect to their particular circumstances.

Dividends on Our Class A Voting Shares

Dividends paid or credited (or deemed to have been paid or credited) on our 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 as the Convention), the rate of this withholding tax is (i) 5% if the Non-resident Holder is a company which owns at least 10% of our voting shares and (ii) 15% in all other cases. 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 & Mayors would not be required to withhold tax from dividends paid or credited to the organization.

Disposition of Our Class A Voting Shares

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 Class A voting share, unless the 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 the Convention. Provided that, at the time of disposition, the Class A voting shares are listed on a prescribed stock exchange (which includes the American Stock Exchange), the 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 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 our capital stock. A Non-resident Holder who disposes of our Class A voting shares that are taxable Canadian property will be required to fulfill the requirements of Section 116 of the Canadian Tax Act unless such shares are listed on a prescribed stock exchange (which includes the American Stock Exchange) at the time of the disposition.

Even if our 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 Class A voting share unless the value of the Class A voting shares at the time of disposition is derived principally from real property situated in Canada.

 

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DOCUMENTS ON DISPLAY

We will file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at its public reference rooms in Washington, D.C., at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Filings we make electronically with the SEC are also available to the public on the Internet at the SEC’s website at http://www.sec.gov .

 

Item 11. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks. Market risk is the potential loss arising from adverse changes in market prices and rates. We do not enter into derivative or other financial instruments for trading or speculative purposes.

Interest rate risk

Our primary market risk exposure is interest rate risk. Borrowing under the working capital credit facility, the term loan from La Financiere du Quebec and the non-revolving demand loan from Bank of Montreal, bear interest at floating rates. As of March 26, 2005, we had approximately $78.6 million of floating-rate debt. Accordingly, our net income will be affected by changes in interest rates. Assuming a 1% increase in the interest rate under our floating rate debt, our interest expense for the 52 weeks ended March 25, 2006 would have increased by approximately $0.8 million.

Currency Risk

While we report our financial results in U.S. dollars, a substantial portion of our sales are earned in Canadian dollars. For our operations located in Canada, non-Canadian currency transactions and assets and liabilities subject us to foreign currency risk. Conversely, for the operations located in the United States, non-U.S. currency transactions and assets and liabilities subject us to foreign currency risk. For purposes of our financial reporting, our 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 our 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. We expect to continue to report our financial results in U.S. dollars in accordance with U.S. GAAP. Consequently, our 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 we may enter into agreements to fix the exchange rate of U.S. dollars to Canadian dollars. For example, we 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 we do so, we will not benefit from any increase in the value of the Canadian dollar compared to the U.S. dollar when these payments become due.

Commodity Risk

The nature of our operations results in exposure to fluctuations in commodity prices, specifically gold. We monitor and, when appropriate, utilize derivative financial instruments and physical delivery contracts to hedge our exposure to risks related to the change in gold price. We are 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 our various hedging agreements, we would lose the value of a decline in the price of gold. At March 25, 2006, March 26, 2005 and March 27, 2004 our hedging had resulted in an unrealized gain of approximately $0, $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 our 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.

 

Item 12. Description of Securities Other than Equity Securities

Not applicable.

 

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PART II

 

Item 13. Defaults, Dividend Arrearages and Delinquencies

Not applicable.

 

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.

 

Item 15. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Securities and Exchange Commission (“SEC”) Rule 13a-15(e) as of the end of the period covered by this report. Management has concluded that the Company’s disclosure controls and procedures are effective to ensure that information the Company is required to disclose in reports that it files or submits under the Securities Exchange Act is communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes to the Company’s Internal Control Over Financial Reporting

There have been no changes to the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 16A. Audit Committee Financial Expert

Our Board of Directors has designated Alain Benedetti, an independent director as determined under the American Stock Exchange listing standards, as an “audit committee financial expert” within the meaning of this Item 16A. See “Item 6. Directors, Senior Management and Employees—Board Practices.”

 

Item 16B. Code of Ethics

We have adopted a code of ethics, within the meaning of this Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions as well as to our directors and other officers and employees. Our code of ethics is available on our website at www.birksandmayors.com . If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address. On February 10, 2006, the Board of Directors approved a waiver of our Code of Conduct and Code of Ethics for Senior Financial Officers when it approved purchases from Brazilian Emeralds. See Item 7 “Related Party Transactions”.

 

Item 16C. Principal Accountant Fees and Services

During fiscal 2005 and fiscal 2004, Mayors retained its independent auditors, KPMG LLP to provide services in the following categories and amounts:

Audit Fees

The aggregate fees and expenses billed by KPMG LLP for professional services rendered for the audit of our annual financial statements was approximately $373,000 in fiscal 2005 and $502,000 in fiscal 2004.

 

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Audit Related Fees

During fiscal 2004, KPMG provided audit-related services for a total amount of approximately $661,000.

Tax Fees

During fiscal 2005 and fiscal 2004, KPMG provided tax services for approximately $147,000 and $41,000, respectively.

Pre Approval Policies and Procedures

The audit committee has 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 Birks & Mayors 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).

 

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

 

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our equity securities during the fiscal year ended March 25, 2006.

 

51


PART III

 

Item 17. Financial Statements

Not applicable.

 

Item 18. Financial Statements

The audited consolidated financial statements referred to below are included herein and found immediately following the text of this Annual Report. The report of the Independent Registered Public Accounting Firm on such consolidated financial statements is included herein immediately preceding such audited consolidated financial statements.

INDEX

 

     Page

Report of Independent Registered Public Accounting Firm – KPMG LLP

   F-2

Consolidated Balance Sheets at March 25, 2006 and March 26, 2005

   F-3

Consolidated Statements of Operations for the Fiscal Years Ended March 25, 2006, March 26, 2005 and March 27, 2004

   F-4

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended March 25, 2006, March 26, 2005 and March 27, 2004

   F-5

Consolidated Statements of Cash Flows for the Fiscal Years Ended March 25, 2006, March 26, 2005 and March 27, 2004

   F-6

Notes to Consolidated Financial Statements

   F-7

 

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Item 19. Exhibits

The following exhibits are part of this Annual Report on Form 20-F.

 

Exhibit Number   

Description of Document

1.1    Articles of Amalgamation, as amended, of Birks & Mayors Inc., effective as of November 14, 2005. Incorporated by reference from Exhibit 3.2 of the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
1.2    By-laws of Birks & Mayors Inc., as amended, effective as of November 14, 2005. Incorporated by reference from Exhibit 3.4 of the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
2.1    Form of Birks Class A voting share certificate. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.1    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, Inc. and Birks Merger Corporation, a wholly-owned subsidiary of Henry Birks & Sons Inc. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.2    Option Agreement between Birks, Henry Birks & Sons Holdings Inc. and GMAC Commercial Finance Corporation, dated as of March 15, 2005. Incorporated by Reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.3    Loan Agreement between Birks and Investissement Québec (formerly Financière du Québec), dated as of November 27, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.4    Form of Directors and Officers Indemnity Agreement. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.5    Henry Birks & Sons Inc. Employee Stock Option Agreement, dated as of May 1, 1997, amended as of June 20, 2000. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.6    Lease Agreement between Birks and Anglo Canadian Investments SA, dated as of December 12, 2000. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.7 *    Lease Agreement between Mayors and Westpoint Business Park, Ltd dated September 13, 2004.
4.8    Diamond Supply Agreement between Prime Investments SA and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.

 

53


Exhibit Number   

Description of Document

4.9    Conditional Sale Agreement between Rosy Blue N.V. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.10    Conditional Sale Agreement between Rosy Blue Inc. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.11    Conditional Sale Agreement between Rosy Blue Sales Ltd. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.12    Conditional Sale Agreement between Rosy Blue Hong Kong Ltd. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.13    Conditional Sale Agreement between Rosy Blue Finance S.A. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.14    Registration Rights Agreement between Birks and Prime Investments SA, dated as of February 4, 2005. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.15    Employment Agreement between Thomas A. Andruskevich and Birks, dated as of September 27, 2004. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.16    Amended Employment Agreement between Thomas A. Andruskevich and Mayors, dated as of June 24, 2004. Incorporated by reference from Mayors Form 10-K filed on June 25, 2004.
4.17 *    Amended Employment Agreement between Henry Birks & Sons Inc. (n/k/a Birks & Mayors Inc.) and Thomas A. Andruskevich, dated as of November 14, 2005.
4.18    Employment Agreement between Michael Rabinovitch and Mayors, dated as of August 1, 2005. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.19 *    Amended Employment Agreement between Randy Dirth and Birks, dated as of July 1, 2004.
4.20    Amended Employment Agreement between Aida Alvarez and Mayors, dated as of July 19, 2002. Incorporated by reference from Mayors Form 10-Q filed December 17, 2002.
4.21    Employment Agreement between Marc Weinstein and Mayors, dated as of October 26, 2001. Incorporated by reference from Mayors Form 10-Q filed on December 18, 2001.
4.22    Amended Employment Agreement between Marc Weinstein and Mayors, dated as of July 19, 2002. Incorporated by reference from Mayors Form 10-Q filed December 17, 2002.
4.23    Second Amendment to Employment Agreement between Marc Weinstein and Mayors, dated March 31, 2003. Incorporated by reference from Mayors Form 10-K filed on June 19, 2003.
4.24    Employment Agreement between Joseph Keifer III and Mayors, dated October 1, 2002. Incorporated by reference from Mayors Form 10-Q filed on December 17, 2002.

 

54


Exhibit Number   

Description of Document

4.25 *    Employment Agreement dated September 11, 2003 between John Orrico and Mayors.
4.26    Employment Agreement dated April 1, 2005, between Daisy Chin Lor and Mayors. Incorporated by reference from Mayors Form 10-K filed on June 24, 2005.
4.27 *    Employment Agreement between Miranda Melfi and Birks & Mayors dated February 24, 2006.
4.28    Revolving Credit, Tranche B Loan and Security Agreement by and between Birks & Mayors Inc., the Canadian borrower, Mayor’s, Inc., as the United States borrower, Bank of America, N.A., GMAC Commercial Finance LLC and Back Bay Capital Funding LLC, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.29    Tranche B Note by and between Mayor’s, Inc. and Back Bay Capital Funding LLC, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.30    U.S. Revolving Credit Note by and between Mayor’s, Inc. and Bank of America, N.A., dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.31    U.S. Revolving Credit Note by and between Mayor’s, Inc. and GMAC Business Credit, LLC, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.32    U.S. Revolving Credit Note by and between Mayor’s Jewelers, Inc. and Lasalle Retail Finance, a Division of Lasalle Business Credit, LLC, as agent For Lasalle Bank Midwest National Association, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.33    Canadian Revolving Credit Note by and between Birks & Mayors Inc. and Bank of America, N.A. (acting through its Canadian branch), dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.34    Canadian Revolving Credit Note by and between Birks & Mayors Inc. and GMAC Commercial Finance Corporation - Canada, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.35    Canadian Revolving Credit Note by and between Birks & Mayors Inc. and Lasalle Business Credit, a Division of ABN AMRO Bank N.V., Canada Branch, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.36    Stock Pledge Agreement by and between Birks & Mayors Inc., Mayor’s Jewelers, Inc., Bank of America, N.A. and Bank of America, N.A. (acting through its Canadian branch), dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.37    Trademark Collateral Security And Pledge Agreement by and between Birks & Mayors Inc., and its various subsidiaries, including Mayor’s Jewelers, Inc., Bank of America, N.A. and Bank of America, N.A. (acting through its Canadian branch), dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.38    Intercompany Indemnity, Subrogation and Contribution Agreement by and between Birks & Mayors Inc. and Mayor’s Jewelers, Inc., dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.39    Guaranty by and between certain subsidiaries of Birks & Mayors Inc., dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.

 

55


Exhibit Number   

Description of Document

4.40    Management Consulting Services Agreement between Birks & Mayors Inc. and Iniziativa S.A. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on February 15, 2006.
4.41    Mayor’s Jewelers, Inc., (f/k/a Jan Bell Marketing, Inc.) 1991 Stock Option Plan. Incorporated by reference from Birks & Mayors Inc.’s Registration Statement on Form S-8 filed on April 26, 2006.
4.42    Mayor’s Jewelers, Inc., 2004 Long-Term Incentive Plan. Incorporated by reference from Birks & Mayors Inc.’s Registration Statement on Form S-8 filed on April 26, 2006.
4.43 *    Birks & Mayors Inc. 2006 Employee Stock Purchase Plan.
4.44 *    Birks & Mayors Inc. Long-Term Incentive Plan.
4.45 *    Stock Option Agreement dated on or about November 2, 1999 between Birks & Mayors Inc. and Filippo Recami.
4.46 *    Stock Option Agreement dated on or about November 2, 1999 between Birks & Mayors Inc. and Gerald Berclaz.
4.47 *    Stock Option Agreement dated on or about April 23, 2004 between Birks & Mayors Inc. and Peter O’Brien.
4.48 *    Stock Option Agreement dated on or about April 23, 2004 between Birks & Mayors Inc. and Margherita Oberti.
4.49 *    Stock Option Agreement dated on or about April 23, 2004 between Birks & Mayors Inc. and Lorenzo Rossi di Montelera.
4.50 *    Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Carlo Coda-Nunziante.
4.51 *    Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Joseph A. Keifer.
4.52 *    Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Marco Pasteris.
4.53 *    Amended and Restated Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Henry Birks & Sons Inc.
4.54 *    Amended and Restated Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Henry Birks & Sons Inc.
4.55 *    Amended and Restated Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Henry Birks & Sons Inc.
4.56 *    Employment Agreement between Randolph Dirth and Mayors, dated as of July 1, 2004.
8.1*    Subsidiaries of Birks & Mayors Inc.
12.1*    Certification of President and Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
12.2*    Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
13.1*    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2*    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

 

56


SIGNATURES

The registrant hereby certifies that this meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

   

BIRKS & MAYORS INC.

Date: July 19, 2006

   

By:

  / S /    T HOMAS A. A NDRUSKEVICH        
     

Thomas A. Andruskevich,

President and Chief Executive Officer

 

57


INDEX TO FINANCIAL STATEMENTS

 

     Page

Report of Independent Registered Public Accounting Firm – KPMG LLP

   F-2

Consolidated Balance Sheets at March 25, 2006 and March 26, 2005

   F-3

Consolidated Statements of Operations for the Fiscal Years Ended March 25, 2006, March 26, 2005 and March 27, 2004

   F-4

Consolidated Statements of Shareholders’ Equity for the Fiscal Years Ended March 25, 2006, March 26, 2005 and March 27, 2004

   F-5

Consolidated Statements of Cash Flows for the Fiscal Years Ended March 25, 2006, March 26, 2005 and March 27, 2004

   F-6

Notes to Consolidated Financial Statements

   F-7

 

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Birks & Mayors Inc.

We have audited the accompanying consolidated balance sheets of Birks & Mayors Inc. and subsidiaries as of March 25, 2006 and March 26, 2005 and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for the years ended March 25, 2006, March 26, 2005 and March 27, 2004. 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 Birks & Mayors Inc. and subsidiaries as of March 25, 2006 and March 26, 2005 and the results of their operations and their cash flows for the years ended March 25, 2006, March 26, 2005 and March 27, 2004 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Chartered Accountants

Montréal, Canada

June 30, 2006

 

F-2


BIRKS & MAYORS INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005  
     (amounts in thousands)  

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 1,838     $ 1,762  

Accounts receivable

     12,395       9,742  

Inventories

     147,039       136,999  

Other current assets

     3,531       3,014  
                

Total current assets

     164,803       151,517  

Property and equipment

     32,653       30,117  

Goodwill and other intangible assets

     30,169       15,725  

Other assets

     1,864       2,362  
                

Total non-current assets

     64,686       48,204  
                

Total assets

   $ 229,489     $ 199,721  
                

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Bank indebtedness

   $ 88,107     $ 75,516  

Accounts payable

     39,109       25,700  

Accrued liabilities

     12,549       12,169  

Current portion of long-term debt

     1,316       3,076  
                

Total current liabilities

     141,081       116,461  

Long-term debt

     16,971       28,555  

Convertible notes

     —         5,000  

Other long-term liabilities

     4,070       4,457  
                

Total long-term liabilities

     21,041       38,012  

Convertible preferred stock

     —         5,050  

Commitments and contingencies

    

Stockholders’ equity:

    

Class A common stock – no par value, unlimited shares authorized, issued and outstanding 3,489,753 and 85,450, respectively

     21,833       336  

Class B common stock – no par value, unlimited shares authorized, issued and outstanding 7,717,970 and 7,213,094, respectively

     38,613       36,028  

Class C common stock – no par value, 100,000 authorized, none issued

     —         —    

Preferred stock – no par value, 2,034,578 authorized, none issued

     —         —    

Non-voting common shares – no par value, unlimited shares authorized, none issued

     —         —    

Additional paid-in capital

     16,053       16,867  

Accumulated deficit

     (8,048 )     (13,760 )

Accumulated other comprehensive (loss) income

     (1,084 )     727  
                

Total stockholders’ equity

     67,367       40,198  
                

Total liabilities and stockholders’ equity

   $ 229,489     $ 199,721  
                

See accompanying notes to consolidated financial statements

On behalf of the Board of Directors

 

/s/ Thomas A. Andruskevich    /s/Alain Benedetti
ThomasA. Andruskevich, Director    Alain Benedetti, Director

 

F-3


BIRKS & MAYORS INC. AND SUBSIDIARIES

Consolidated Statements of Operations

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005     March 27, 2004  
     (amounts in thousands)  

Net sales

   $ 274,323     $ 239,301     $ 216,256  

Cost of sales

     144,809       130,037       118,861  
                        

Gross profit

     129,514       109,264       97,395  

Selling, general and administrative expenses

     109,748       95,864       94,148  

Depreciation and amortization

     5,621       4,749       4,312  

Other Items

     (537 )     (1,181 )     338  
                        

Total operating expenses

     114,832       99,432       98,798  

Operating income (loss)

     14,682       9,832       (1,403 )

Interest and other financial costs

     8,930       8,665       7,986  
                        

Income (loss) before income tax and minority interest

     5,752       1,167       (9,389 )

Income taxes

     40       —         —    
                        

Income (loss) before minority interest

     5,712       1,167       (9,389 )

Minority interest in loss of subsidiary

     —         —         7,175  
                        

Net income (loss) attributable to common stockholders

   $ 5,712     $ 1,167     $ (2,214 )
                        

Weighted average common shares outstanding

      

Basic

     8,701,000       6,316,000       6,313,000  

Diluted

     10,295,000       9,656,000       6,313,000  

Income (loss) per share

      

Basic

   $ 0.66     $ 0.18     $ (0.35 )

Diluted

   $ 0.57     $ 0.17     $ (0.35 )

 

See accompanying notes to consolidated financial statements.

 

F-4


BIRKS & MAYORS INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

 

     Voting common
stock
outstanding
    Voting
common
stock
    Additional
paid-in capital
    Deficit    

Accumulated
other
comprehensive
income

(loss)

    Total  

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 Mayors warrants, purchase accounting

   —         —         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

   995,526       5,000       —         —         —         5,000  
                                              

Balance at March 26, 2005

   7,298,544       36,364       16,867       (13,760 )     727       40,198  

Net Income

   —         —         —         5,712       —         5,712  

Cumulative translation adjustment

   —         —         —         —         (1,811 )     (1,811 )
                  

Total comprehensive income

   —         —         —         —         —         3,901  

Repurchase of shares

   (8,093 )     (41 )     —         —         —         (41 )

Conversion of preferred shares

   1,034,272       6,608       —         —         —         6,608  

Conversion of convertible notes to common stock

   1,016,891       5,168       —         —         —         5,168  

Stock options granted to lenders

   —         —         89       —         —         89  

Compensation income resulting from options and warrants granted to management and employees

   —         —         (1,250 )     —         —         (1,250 )

Compensation resulting from conversion of Mayors employee stock-based awards

   —         —         693       —         —         693  

Acquisition of Mayors’ minority shares and equity awards

   1,866,109       12,347       (346 )     —         —         12,001  
                                              

Balance at March 25, 2006

   11,207,723     $ 60,446     $ 16,053     $ (8,048 )   $ (1,084 )   $ 67,367  
                                              

See accompanying notes to consolidated financial statements.

 

F-5


BIRKS & MAYORS INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

 

    Fiscal Year Ended  
    March 25,
2006
    March 26,
2005
    March 27,
2004
 
    (amounts in thousands)  

Cash flows from operating activities:

     

Net income (loss)

  $ 5,712     $ 1,167     $ (2,214 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

     

Minority interest in loss of subsidiary

    —         —         (7,175 )

Depreciation and amortization

    6,206       5,189       4,619  

Amortization of debt costs

    709       688       484  

Unrealized foreign exchange gain on convertible notes

    —         (401 )     (552 )

Loss on disposal of warrants

    —         332       334  

Non-cash compensation (income) expense

    (557 )     957       1,745  

Other operating activities, net

    108       (154 )     238  

(Increase) decrease in:

     

Accounts receivable

    (2,524 )     (1,338 )     464  

Inventories

    (7,699 )     1,994       (3,065 )

Other current assets

    (426 )     374       1,935  

Increase (decrease) in:

     

Accrued liabilities and other long-term liabilities

    (222 )     (54 )     1,881  

Accounts payable

    12,726       (2,399 )     (1,717 )
                       

Net cash provided by (used in) continuing operations

    14,033       6,355       (3,023 )

Net cash provided by (used in) discontinued operations

    —         —         (527 )
                       

Net cash provided by (used in) operations

    14,033       6,355       (3,550 )
                       

Cash flows from investing activities:

     

Additions to property and equipment

    (6,290 )     (3,679 )     (3,749 )

Additions to intangible assets

    (243 )     (58 )     (14 )

Additions to other assets

    (51 )     (304 )     (364 )

Costs of acquisition of subsidiary

    (228 )     (1,421 )     —    

Net proceeds from sale of property and equipment

    —         190       74  

Net proceeds from disposal of Mayors’ shares

    —         349       484  
                       

Net cash used in investing activities

    (6,812 )     (4,923 )     (3,569 )
                       

Cash flows from financing activities:

     

Increase in bank indebtedness

    509       1,233       8,269  

Repayment of loans for leasehold improvements and term loans

    (1,227 )     (1,604 )     (1,701 )

Repayment of obligations under capital leases

    (627 )     (241 )     (305 )

Payment of loan origination fees

    (1,475 )     —         —    

Stock issuance cost

    (623 )     —         —    

Repayment of long-term debt

    (2,794 )     (672 )     (4,026 )

Other financing activities

    (170 )     (226 )     (152 )

Proceeds from long-term debt

    245       99       5,175  

Repayment of junior secured term loan

    (1,000 )     —         —    
                       

Net cash (used in) provided by financing activities

    (7,162 )     (1,411 )     7,260  

Effect of exchange rate on cash

    17       85       33  
                       

Net increase in cash and cash equivalents

    76       106       174  

Cash and cash equivalents, beginning of year

    1,762       1,656       1,482  
                       

Cash and cash equivalents, end of year

  $ 1,838     $ 1,762     $ 1,656  
                       

Supplemental disclosure of cash flow information:

     

Interest paid

  $ 7,768     $ 7,563     $ 8,187  
                       

Non-cash transactions from investing activities:

     

Property and equipment additions acquired through capital leases

  $ 1,538     $ 1,600     $ 372  
                       

Property and equipment additions included in accounts payable and accrued liabilities

  $ 996     $ 9     $ 664  
                       

See accompanying notes to consolidated financial statements.

 

F-6


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

Birks & Mayors Inc. (“Birks & Mayors”) (formerly Henry Birks & Sons Inc. (“Birks”)) or (the “Company”) is incorporated under the Canada Business Corporations Act. The principal business activities of the Company and its subsidiaries are the manufacture and retail sale of luxury jewelry, timepieces and giftware. The Company’s consolidated financial statements are prepared using a fiscal year which consists of 52 or 53 weeks and ends on the last Saturday in March of each year. The fiscal years ended March 25, 2006, March 26, 2005 and March 27, 2004 include fifty-two weeks.

 

1. Basis of presentation:

These consolidated financial statements include the accounts of the Canadian parent company (Birks & Mayors) and its wholly-owned subsidiaries, Henry Birks & Sons U.S. Inc., and Mayor’s Jewelers, Inc. (“Mayors”), are prepared in U.S. dollars and in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. The most significant estimates include valuation of inventories and accounts receivable, provisions for income taxes, and the recoverability of long-lived assets. Actual results could differ from these estimates. Periodically, the Company reviews all significant estimates and assumptions affecting the financial statements relative to current conditions and records the effect of any necessary adjustments. All significant intercompany accounts and transactions have been eliminated in the consolidation. The consolidated financial statements include certain reclassifications of prior period amounts in order to conform with current year presentation.

 

2. Acquisition of subsidiary:

In August 2002, the Company invested $15.1 million to acquire approximately 72% of the voting control in Mayors and received 15,050 of Series A convertible preferred stock and 37,273,787 of warrants to purchase common stock of Mayors. 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 Mayors 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.

In February 2004, the Company negotiated the early payment of the cumulative dividends on the Series A preferred stock of Mayors 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 Mayors, 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 $511,000 for the year ended March 26, 2005 and $874,000 for the year ended March 27, 2004. As a concession for the early dividend payment, the Company 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 Mayors to a newly created Series A-1 convertible preferred stock (Series A-1 preferred) of Mayors 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.

 

F-7


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

On March 22, 2004, the Company sold 1,000,000 shares of Mayors common stock at $0.50 per share in a private placement sale to the spouse of one of Mayors 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 loss of $176,000 which is included in selling, general and administrative expenses and decreased the Company’s voting control of Mayors by 1.2%.

On June 15, 2004, Birks sold 500,000 and 250,000 shares of Mayors 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 Mayors 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 gain of $232,000 which is included in selling, general and administrative expenses and decreased the Company’s voting control of Mayors by 0.8%.

At March 26, 2005, the Series A-1 preferred of Mayors were convertible into 51,499,525 shares of common stock of Mayors which amount included adjustments for the anti-dilution provision of the Series A-1 preferred. If the preferred stock of Mayors would have been converted to common stock on March 26, 2005, Birks & Mayors would have owned approximately 75.8% of the outstanding common stock of Mayors.

On November 14, 2005, the Company acquired the remaining minority shares of Mayors, representing approximately 24.2% of Mayors outstanding shares through the issuance of 1,866,000 of the Company’s Class A common stock with an allocated fair value of $12.3 million and $1.7 million of acquisition costs. The Company also recorded an additional $132,000 of purchased value related to the acquisition associated with the Company’s exchange of outstanding stock options, warrants and stock appreciation rights (SARs) both vested and unvested with the same type of equity based awards of the Company. In accordance with SFAS No. 141, “Business Combinations,” the Company applied the purchase method of accounting to record this transaction. As a result of cumulative losses which eliminated the value of minority interests associated with Mayors, $727,000 of the purchase price was allocated to trade name with the remaining $13.4 million of purchase price being allocated to goodwill.

 

3. Significant accounting policies:

 

(a) Revenue recognition:

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. Prior to recognition as a sale, gift certificates are recorded as accrued liabilities on the balance sheet. Certificates outstanding for more than 24 months and not subject to unclaimed property laws are recorded as income. Certificates outstanding for more than 24 months and subject to unclaimed property laws are maintained as accrued liabilities until remitted in accordance with local ordinances. 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

 

F-8


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

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 delivered to and accepted by the customer.

 

(b) Cost of sales:

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. Included in cost of sales is depreciation related to manufacturing machinery, equipment and facilities of $585,000, $440,000 and $307,000 for the years ended March 25, 2006, March 26, 2005 and March 27, 2004, respectively.

 

(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 included in cash and cash equivalents and are typically converted to cash within 2 to 4 days of the original sales transaction. These amounts totaled $1.6 million at March 25, 2006 and March 26, 2005.

 

(d) Accounts receivable:

Accounts receivable arise primarily from customers’ use of the Mayors credit card and sales to Birks & Mayors corporate customers. Several installment sales plans are offered to the Mayors 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. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.

 

(e) Inventories:

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, labor 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-9


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

(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

Buildings

   20 years

Leasehold improvements

   Lesser of term of the lease or the useful life of assets

Software and electronic equipment

   3 - 10 years

Molds

   5 - 20 years

Furniture and fixtures

   5 - 8 years

Equipment and vehicles

   3 - 8 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. Goodwill was $29.1 million and $15.5 million at March 25, 2006 and March 26, 2005, respectively, all of which was allocated to the Company’s retail segment.

Trademarks and the fair value attributable to Mayors trade name are being amortized using the straight-line method over a period of 15 to 20 years. The Company had $1.1 million and $262,000, respectively, of unamortized intangible assets at March 25, 2006 and March 26, 2005. The Company had $87,000 and $35,000 of accumulated amortization of intangibles at March 25, 2006 and March 26, 2005, respectively.

 

(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.

 

(i) Warranty accrual:

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 for such warranties.

 

(j) 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 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.

 

F-10


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

(k) Foreign exchange:

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 $308,000, $176,000 and $503,000 are recorded in cost of goods sold, and $172,000, $401,000 and $552,000 are recorded in interest and other financial costs for the years ended March 25, 2006, March 26, 2005 and March 27, 2004, respectively.

Birks & Mayors’ Canadian operations’ functional currency is the Canadian dollar while the reporting currency of the Company is the U.S. dollar. The assets and liabilities denominated in Canadian dollars 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) 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, 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:

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005     March 27, 2004  
     (amounts in thousands)  

Net income (loss) as reported

   $ 5,712     $ 1,167     $ (2,214 )

Employee compensation (income) expense considered in the determination of net income (loss)

     (557 )     450       1,235  
                        

Adjusted net income (loss)

     5,155       1,617       (979 )

Stock-based employee compensation expense determined under fair-value based method for all awards, net of tax

     (462 )     (447 )     (1,249 )
                        

Pro forma net income (loss)

   $ 4,693     $ 1,170     $ (2,228 )
                        

Earnings (loss) per basic share:

      

As reported

   $ 0.66     $ 0.18     $ (0.35 )

Pro forma

   $ 0.54     $ 0.19     $ (0.35 )

Earnings (loss) per diluted share:

      

As reported

   $ 0.57     $ 0.17     $ (0.35 )

Pro forma

   $ 0.48     $ 0.17     $ (0.35 )

 

F-11


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

The fair value of options granted under the Birks employee stock option plan were estimated at the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were utilized for valuing options issued under the Birks employee stock option plan for the years ended March 25, 2006 and March 26, 2005: expected volatility of 54% and 59%, respectively, risk-free interest rate of 3.98% and 3.74%, respectively, and expected lives of 6 years and a dividend yield of zero for both years. The weighted average fair values of options granted during the year ended March 25, 2006 and March 26, 2005 from this plan were $3.56 and $3.32, respectively. No options were granted from this program in the year ended March 27, 2004.

The following weighted average assumptions were used to value stock option grants in the years ended March 26, 2005 and March 27, 2004 under the Mayors plan: expected volatility of 94% and 97%, respectively; risk-free interest rate of 3.61% and 2.80%, respectively; expected lives of approximately five years and a dividend yield of zero for both years. The weighted average fair values of awards granted during the years ended March 26, 2005 and March 27, 2004 were $5.17 and $5.87, respectively. The weighted average fair values have been adjusted to reflect the exchange rate of 0.08695 used for Birks & Mayors purchase of the minority shares of Mayors in November 2005. No options were granted from this program during the year ended March 25, 2006.

The fair value of warrants and SARs granted under the Mayors plan were estimated at the grant date using the Black-Scholes pricing model. The weighted average assumptions used to value the warrants and SARs issued during the year ended March 25, 2006 were as follows: expected volatility 54.64%; risk-free interest rate 3.94%; expected lives of 6 years and a dividend yield of zero. The weighted average fair value of the warrants and SARs issued during the year were $4.26 and $3.55, respectively.

 

(m) 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 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.

 

(n) Advertising costs:

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 $3.2 million, $3.3 million and $2.8 million in the years ended March 25, 2006, March 26, 2005 and March 27, 2004, respectively. Advertising expense, net of vendor cooperative advertising allowances, amounted to $10.7 million, $9.1 million and $10.0 million in the years ended March 25, 2006, March 26, 2005 and March 27, 2004, respectively.

 

(o) Pre-opening expenses:

Pre-opening expenses related to the opening of new and relocated stores are expensed as incurred.

 

F-12


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

(p) 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.

 

(q) Operating leases:

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 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.

 

(r) Earnings per common share:

The following table sets forth the computation of basic and diluted earnings per common share for the years ended March 25, 2006, March 26, 2005 and March 27, 2004:

 

     Fiscal Year Ended  
     March 25, 2006    March 26, 2005     March 27, 2004  
     (in thousands, except per share information)  

Basic earnings per common share computation:

       

Numerator:

       

Net income (loss)

   $ 5,712    $ 1,167     $ (2,214 )

Denominator:

       

Weighted-average common shares outstanding

     8,701      6,316       6,313  

Earnings (loss) per common share

   $ 0.66    $ 0.18     $ (0.35 )

Diluted earnings (loss) per common share:

       

Computation:

       

Numerator:

       

Net income (loss)

   $ 5,712    $ 1,167     $ (2,214 )

Interest on convertible notes

     195      380       —    

Less net income of subsidiary

     —        (648 )     —    

Plus diluted earnings of subsidiary attributable to the Company

     —        743       —    
                       
   $ 5,907    $ 1,642     $ (2,214 )

Denominator:

       

Weighted-average common shares outstanding

     8,701      6,316       6,313  

Dilutive effect of stock options and warrants

     312      289       —    

Dilutive effect of preferred stock

     646      2,034       —    

Dilutive effect of convertible debt

     636      1,017       —    
                       

Weighted-average common shares outstanding—diluted

     10,295      9,656       6,313  
                       

Diluted earnings (loss) per common share

   $ 0.57    $ 0.17     $ (0.35 )

The effect from the assumed exercise of 140,000, 5,000 and 780,000 of stock options was not included in the above computation of diluted earnings per common share for the years ended March 25, 2006, March 26, 2005 and March 27, 2004, respectively, because such amounts would have had an

 

F-13


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

antidilutive effect. In addition, for the year ended March 27, 2004, the dilutive impact from the conversion of preferred stock into 1.0 million shares of common stock and the conversion of convertible notes into 1.0 million shares of common stock was not included in the computation of diluted earnings per common shares as such amounts would have had an antidilutive effect.

 

(s) Commodity and currency risk:

The Company has exposure to market risk related to gold, silver, platinum and diamond 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. At March 25, 2006, there were no contracts outstanding.

 

(t) Recent Accounting Pronouncements:

In October 2005, the FASB issued Staff Position (“FSP”) No FAS 13-1, Accounting for Rental Costs Incurred during a Construction Period, which requires that rental costs associated with ground or building operating leases incurred during a construction period be recognized as rental expense and included in income from continuing operations. FSP No FAS 13-1 is effective for the Company as of its fiscal year beginning March 26, 2006. The adoption of FSP No FAS 13-1 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. 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’s adoption of SFAS No. 123(R) should not have a material impact 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

 

F-14


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

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 became effective for the Company for fiscal year ended March 25, 2006. Retrospective application of interim financial information is permitted but is not required. The adoption of FIN 47 did not have a material effect on the Company’s 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 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. The Company has not yet determined the impact, if any, the adoption of SFAS No. 154 will have on its financial position or results of operations.

 

4. Accounts receivable:

Accounts receivable at March 25, 2006 and March 26, 2005 consist of the following:

 

     Fiscal Year Ended
     March 25, 2006    March 26, 2005
     (amounts in thousands)

Trade

   $ 11,728    $ 8,756

Other

     667      986
             
   $ 12,395    $ 9,742
             

 

F-15


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

Continuity of the allowance for doubtful accounts is as follows (in thousands):

 

Balance March 29, 2003

   $ 1,343  

Additional provision recorded

     221  

Write-offs

     (478 )
        

Balance March 27, 2004

     1,086  

Additional provision recorded

     127  

Write-offs

     (198 )
        

Balance March 26, 2005

     1,015  

Additional provision recorded

     400  

Write-offs

     (419 )
        

Balance March 25, 2006

   $ 996  
        

Certain sales plans relating to customers’ use of Mayors credit cards provide for revolving lines of credit and/or installment plans under which the payment terms exceed one year. In accordance with industry practice, these receivables, amounting to approximately $2.6 million and $1.6 million at March 25, 2006 and March 26, 2005, respectively, are included in accounts receivable in the accompanying consolidated balance sheets.

5. Inventories:

Inventories are summarized as follows:

 

     Fiscal Year Ended
     March 25, 2006    March 26, 2005
     (amounts in thousands)

Raw materials

   $ 3,874    $ 4,409

Work in progress

     1,633      1,910

Retail inventories and manufactured finished goods

     141,532      130,680
             
   $ 147,039    $ 136,999
             

Additionally, the Company held consignment inventory with a purchase value of approximately $23.7 million and $28.6 million at March 25, 2006 and March 26, 2005, respectively.

 

F-16


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

6. Property and equipment:

The components of property and equipment are as follows:

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005  
     (amounts in thousands)  

Land

   $ 5,885     $ 5,663  

Buildings

     8,340       7,444  

Leasehold improvements

     32,434       26,109  

Molds

     4,117       3,401  

Furniture and fixtures

     7,755       3,564  

Software and electronic equipment

     13,742       11,739  

Equipment and vehicles

     1,482       1,066  
                
     73,755       58,986  

Accumulated depreciation

     (41,102 )     (28,869 )
                
   $ 32,653     $ 30,117  
                

Property and equipment, having a cost of $12.8 million and a net book value of $10.5 million at March 25, 2006, and a cost of $13.0 million and a net book value of $9.5 million at March 26, 2005, are under capital leasing arrangements.

 

7. Bank indebtedness:

Bank indebtedness consists of the following:

 

     Fiscal Year Ended
     March 25, 2006    March 26, 2005
     (amounts in thousands)

Working capital credit facility

   $ 76,381    $ 74,254

Junior secured term loan

     11,668      —  

Other indebtedness

     58      1,262
             
   $ 88,107    $ 75,516
             

 

(a) On January 19, 2006, the Company entered into a revolving, Tranche B loan and Security Agreement among Birks & Mayors and Mayors as borrowers and Bank of America N.A. and GMAC Commercial Finance LLC as lenders. This facility replaced the credit facilities previously held by Birks & Mayors and Mayors individually.

The $135 million working capital credit facility is collateralized by substantially all of the Company’s assets. The Company also has an $11.7 million junior secured term loan with Back Bay Capital. The working capital credit facility has a maturity date of January 19, 2009 and the junior secured term loan has a maturity date of August 18, 2007, however, the Company has an early pre-payment option without penalty effective August 18, 2006.

 

F-17


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

Availability under the working capital credit facility is determined based upon a percentage formula applied to certain inventory, accounts receivable and other assets and has certain restrictions regarding borrowing availability. This percentage formula relating to inventory will be adjusted concurrently with the repayment of the junior secured term loan in order to facilitate the repayment of such loan.

The working capital credit facility has certain financial covenants, which are tested only at certain net excess borrowing capacity thresholds. As at March 25, 2006, the Company did not need to test the financial covenants. The working capital credit facility also contains limitations on the Company’s ability to pay dividends. Under the terms of the facility, the Company can only pay dividends at certain excess borrowing capacity thresholds and the aggregate dividend payment for the twelve month period ended as of any fiscal quarter cannot exceed 33% of the consolidated net income for such twelve month period.

The interest rate under the working capital facility at March 25, 2006 was 5.9%. The junior secured term loan bears an effective interest rate of 12.75%.

At March 25, 2006 the Company had excess borrowing capacity of $24.1 million.

The information concerning the Company’s working capital credit facility is as follows:

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005  
     (dollars in thousands)  

Maximum borrowing outstanding during the year

   $ 100,106     $ 100,912  

Average outstanding balance during the year

   $ 81,298     $ 75,098  

Weighted average interest rate for the year

     5.67 %     5.02 %

Effective interest rate at year-end

     5.90 %     5.43 %

 

F-18


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

8. Long-term debt:

 

(a) Long-term debt consists of the following:

 

    Fiscal Year Ended
    March 25, 2006   March 26, 2005
    (amounts in thousands)

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 $45.9 (CAN$53.6), secured by the assets of the Company, ranking second to the Company’s bank indebtedness, and by a $385 (CAN$450) Letter of Credit issued by Iniziativa S.A. on behalf of the Company.

  $ 2,154   $ 2,598

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

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.

    1,235     1,300

Obligations under capital leases, at annual interest rates between 6.3% and 15.2%, secured by equipment, maturing at various dates from May 2006 to December 2010.

    1,742     478

Obligation under capital lease on land and buildings, pursuant to a sale-leaseback transaction. 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.

    12,843     12,261

Other long-term loans payable

    313     269

Junior secured term loan

    11,668     12,668
           
    29,955     31,631

Current portion in bank indebtedness

    11,668     —  

Current portion of long-term debt

    1,316     3,076
           
  $ 16,971   $ 28,555
           

 

(b) As security for the bank indebtedness, loans for leasehold improvements and term loans and long-term debt, the Company has provided the lenders the following:

 

  (i) general assignment of all accounts receivable, other receivables and trademarks;

 

  (ii) general security agreements;

 

  (iii) insurance on physical assets in a minimum amount equivalent to the indebtedness, assigned to the lenders;

 

  (iv) a mortgage on moveable property (general) under the Civil Code (Québec) of $214,151,105 (CAN$250,000,000);

 

  (v) lien on machinery, equipment and molds and dies;

 

  (vi) the securitization and subordination of all present and future indebtedness owing by the Company to Regaluxe Investment S.à.r.l.; and

 

  (vii) a pledge of trademark and stock of the Company’s subsidiaries.

 

F-19


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

(c) Future minimum lease payments for capital leases required in the following five years and thereafter are as follows (in thousands):

 

Year ending March:

  

2007

   $ 2,196

2008

     2,261

2009

     1,956

2010

     1,630

2011

     1,691

Thereafter

     24,211
      
     33,945

Less imputed interest

     18,125
      
   $ 15,820
      

 

(d) Principal payments on long-term debt required in the following five years and thereafter, including obligations under capital leases, are as follows (in thousands):

 

Year ending March:

  

2007

   $ 12,984

2008

     1,322

2009

     1,128

2010

     782

2011

     316

Thereafter

     13,423
      
   $ 29,955
      

 

9. Convertible notes:

On November 14, 2005, as part of the merger, the Company converted its convertible note of $2.5 million to a preferred shareholder, into 512,015 Class A voting shares of the Company. Also on that date, the Company converted its convertible note of $2.5 million to Regaluxe Investment S.à.r.l. into 504,876 Class B multiple voting shares of the Company (see Note 2).

 

10. Other Items:

Other items of approximately $0.5 million of income for the year ended March 25, 2006 was primarily related to adjustments of sales tax contingency estimates. Other items of $1.2 million within total operating expenses for the year ended March 26, 2005 consist primarily of 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.

 

F-20


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

11. Benefit plans and stock-based compensation:

 

(a) Stock option plans and arrangements:

 

  (i) In 2006, Birks & Mayors 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 to promote the success of Birks & Mayors. 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 Long-Term Incentive Plan provides for the grant of units and performance unit or share awards. The Long-Term Incentive Plan authorizes the issuance of 900,000 Class A voting shares, which will consist of authorized but unissued Class A voting shares. The Company is restricted from issuing Class A voting shares or equity based awards under this program if such issuance, when combined with the Class A voting shares issuable under this plan or any of the Company’s other equity incentive award plans exceeds 1,304,025 Class A voting shares without the approval of the shareholders of the Company. Cash settled awards however are permitted. No awards have been granted under this program during the year ended March 25, 2006.

The Company has outstanding employee stock options issued under the Birks Employee Stock Option Plan (the “Birks ESOP”). This plan was authorized to issue 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 were at the discretion of the Board of Directors. The life of the options issued under this plan were not to exceed 10 years with options vesting generally pro-rata over four years. Effective November 15, 2005, no awards are permitted to be granted under the Birks ESOP. However, the Birks ESOP will remain in effect until the outstanding awards thereunder terminate or expire by their terms. At March 25, 2006 there were 162,837 Class A voting shares underlying options granted under the Birks ESOP.

 

  (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 CAN$7.00 per share. As a result of antidilution provisions associated with some of the options issued to the Company’s Chief Executive Officer, the number of Class A voting shares of common stock eligible to be purchased under stock options by the Chief Executive Officer increased by approximately 74,096 during the year ended March 25, 2006 with an exercise price of CAN$6.00. At March 26, 2005, all these options are exercisable and expire over a period of ten years from the grant date. The life of the options issued to a director of the Company and a director of the parent company are not permitted to exceed a period of three months after service terminates, except in certain specific situations. The options issued to the Company’s Chief Executive Officer were modified, effective April 1, 2005, to extend the post-termination exercise period from the original three months to two years or 10 years after retirement. Compensation income of $731,000 associated with these awards was recorded in selling, general and administrative expenses for the year ended March 25, 2006 and $495,565 and $2,857 of expense was recorded in selling, general and administrative expenses for the years ended March 26, 2005 and March 27, 2004, respectively.

 

  (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. Compensation income of $31,000 was recorded for the year ended

 

F-21


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

 

March 25, 2006 and compensation expense of $28,000 was recorded in selling, general and administrative expenses for the year ended March 26, 2005.

The following is a summary of the activity of Birks’ stock option plans and arrangements:

 

     Options     Weighted average
exercise price
     (CAN dollars)

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       6.43

Granted

   81,096       6.12

Forfeited/cancelled

   (29,582 )     7.19
        

Outstanding March 25, 2006

   834,804       6.40
        

A summary of the status of Birks’ stock options at March 25, 2006 is presented below:

 

     Options outstanding    Options exercisable

Exercise price

   Number
outstanding
   Weighted
average
remaining
life
(years)
   Weighted
average
exercise
price
   Number
exercisable
   Weighted
average
exercise price
(CAN dollars)                        (CAN dollars)

$ 6.00 – 6.24

   325,666    2.2    $ 6.00    325,666    $ 6.00

$ 6.25 – 6.99

   288,836    3.0      6.25    288,836      6.25

$ 7.00 – 7.72

   165,852    5.5      7.02    165,852      7.02

$ 7.73 – 7.73

   54,450    6.9      7.73    39,450      7.73
                            

$ 6.00– 7.73

   834,804    3.4    $ 6.40    819,804    $ 6.38
                  

 

  (iv) The Company has outstanding employee stock options and SARs issued to employees and members of the Board of Directors of Mayors under the 1991 Stock Option Plan and the Long-Term Incentive Plan approved by the former Board of Directors of Mayors. Under these plans, the option price was required to equal the market price of the stock on the date of the grant or in the case of an individual who owned 10% or more of the common stock of Mayors, the minimum price was to be set at 110% of the market price at the time of issuance. Options granted under these programs generally became exercisable from six months to three years after the date of grant, provided that the individual was continuously employed by Mayor’s, or in the case of directors, remained on the Board of Directors. All options generally expired no more than ten years after the date of grant. Outstanding options under these programs were replaced by options issued by the Company as part of the Company’s acquisition of the minority shares of Mayors in November 2005 at an exchange rate equivalent to those offered to outstanding shareholders. This resulted in a new measurement date for approximately 248,261 stock options and the Company recorded an expense of $693,000. Effective November 15, 2005, no further awards will be granted under these plans. However, these plans will remain effective until the outstanding awards thereunder terminate or expire by their terms. At March 25, 2006, there were 370,000 of Class A voting stock underlying options granted under this plan.

 

F-22


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

During the year ended March 25, 2006, 113,034 of SARs were granted under these plans to the Company’s chief executive officer and other members of senior management. The SARs entitle the grantee the right to receive the value of the appreciation in the market value of the Company’s stock over the market value of the Company’s common stock on the date of grant of the SARs. The grantees’ interests in the SARs generally vest ratably over a 3 year period and expire 10 years after grant. At March 25, 2006, there were 113,034 of SARs outstanding. While these awards were considered variable awards, no expense was recognized related to these awards as the underlying stock of the company was lower than the strike price of the SARs. The following is a summary of the activity of Mayors stock option plans. The number of options and exercise price in the table below have been adjusted to reflect the conversion rate of .08695 related to Birks & Mayors purchase of the minority shares of Mayors on November 14, 2005:

 

     Options     Weighted average
exercise price

Outstanding March 29, 2003

   552,868     $ 26.80

Granted

   14,781       8.06

Forfeited/cancelled

   (43,185 )     63.60
        

Outstanding March 27, 2004

   524,464       23.24

Granted

   6,956       7.14

Forfeited/cancelled

   (123,976 )     48.42
        

Outstanding March 26, 2005

   407,444       16.34

Forfeited/cancelled

   (35,995 )     29.10

Exercised

   (1,449 )     2.65
        

Outstanding March 25, 2006

   370,000       13.96
        

A summary of the status of the option plans at March 25, 2006 is presented below:

 

          Options outstanding    Options exercisable

Range of

exercise prices

   Number
outstanding
   Weighted
average
remaining life
(years)
    Weighted
average
exercise price
   Number
exercisable
   Weighted
average exercise
price

$ 2.65 – 3.98

   226,065    6.5 *   $ 3.18    226,065    $ 3.18

$ 3.99 – 5.99

   3,912    2.2       4.79    3,912      4.79

$ 6.00 – 9.00

   13,904    6.6       8.06    13,904      8.06

$ 9.01 – 13.52

   26,945    3.2       10.49    25,496      10.57

$ 13.53 – 20.30

   11,766    5.0       17.44    11,766      17.44

$ 20.31 – 30.47

   38,039    3.0       27.78    38,039      27.79

$ 30.48 – 45.72

   35,367    4.4       42.74    35,367      42.74

$ 45.73 – 68.60

   8,641    2.5       53.31    8,641      53.31

$ 68.61 – 155.27

   5,361    6.2       149.46    5,361      149.46
                             

$ 2.65 – 155.27

   370,000    5.5     $ 13.96    368,551    $ 13.98
                             
 
  * 130,425 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.

 

F-23


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

(b) The Company has issued warrants to purchase shares of the Company’s stock. During the year ended March 25, 2006, the company issued 10,935 of additional warrants. On May 26, 2005, Mayors purchased 43,595 of these warrants, adjusted to reflect the merger exchange of .08695, from one of the holders for $150,000, the estimated fair value. The right to receive these warrants is contingent upon fulfillment of certain time-based employment vesting requirements. The exercise price of the warrants was $3.45 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 Birks & Mayors common stock. Non-cash compensation expense (credit) included in selling, general and administrative expenses for the year ended March 25, 2006, March 26, 2005 and March 27, 2004 related to these warrants was approximately $(487,454), ($60,200) and, $1,541,700. At March 25, 2006, the number of warrants was 382,722 all of which were vested, and the exercise price was $3.34.

 

(c) In connection with its term loan agreement with La Financière du Québec, the lender is entitled to 99,428 options to purchase Class A voting shares at $3.87 (CAN$4.52) per share .

 

     75,191 options were originally 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). On November 14, 2005, the amount of options were increased to 99,428 with the option price for these options adjusted to $3.87 (CAN$4.52) per share. At March 25, 2006, each option had a fair value of $3.61 (CAN$4.21) for a total value of $359,000 (CAN$419,000). Total expense associated with these options and recorded in interest on long-term debt for the years ended March 25, 2006, March 26, 2005 and March 27, 2004 was $70,328, $70,140 and $39,500, respectively.

 

(d) The 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, included in interest and other financial costs for the year ended March 26, 2005.

 

(e) Employee stock purchase plan:

In February 2006, Birks & Mayors adopted an Employee Stock Purchase Plan (“ESPP”). The ESPP permits eligible employees, which do not include executives of the Company, to purchase the Company’s Class A voting stock at 85% of the company’s fair market value through regular payroll deductions. A total of 100,000 shares of the Company’s Class A voting shares are reserved for issuance under the ESPP. As of March 25, 2006, no shares have been issued under this plan.

Prior to the November purchase by Birks & Mayors of the remaining minority shares of Mayors, Mayors had an Employee Stock Purchase Plan (“ESPP”), which permitted eligible employees, not including executives of Mayors, to purchase common stock from Mayors at 85% of its fair market value through regular payroll deductions. This plan was cancelled as of November 14, 2005. Prior to that time

 

F-24


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

50,956 shares had been issued including 2,941 shares during the year ended March 25, 2006. During the year ended March 26, 2005, 30,285 shares were issued. These amounts have been adjusted to reflect the merger exchange rate of 0.08695. No shares were issued under this plan during the year ended March 27, 2004.

 

(f) Profit sharing plan:

Mayors has a 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. Mayors makes a cash contribution of 25% of the employee’s pretax contribution, up to 4% of Mayors employee’s compensation, in any calendar year. The employer match amounted to $93,829, $88,633 and $74,313 for the years ended March 25, 2006, March 26, 2005 and March 27, 2004, respectively.

 

12. Income taxes:

 

(a) The significant items comprising the Company’s net deferred tax assets at March 25, 2006 and March 26, 2005 are as follows:

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005  
     (amounts in thousands)  

Deferred tax assets:

    

Loss and tax credit carry forwards

   $ 34,040     $ 34,917  

Difference between book and tax basis of property and equipment

     7,984       8,934  

Inventory allowances

     1,006       1,401  

Other reserves not currently deductible

     1,770       1,873  

Deferred gain on sale-leaseback

     4,367       4,143  

Expenses not currently deductible

     1,288       1,239  

Other

     807       941  
                

Net deferred tax asset before valuation allowance

     51,262       53,448  

Valuation allowance

     (51,262 )     (53,448 )
                

Net deferred tax asset

   $ —       $ —    
                

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. The Company’s current federal tax payable at March 25, 2006, was $40,000. No federal income taxes were payable at March 26, 2005.

 

F-25


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

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:

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005     March 27, 2004  

Canadian statutory rate

   33.8 %   33.8 %   35.2 %

Increase valuation allowance

   —       —       (69.6 %)

Tax benefit of losses and other tax attributes

   (32.1 %)   (44.1 %)   —    

Warrants

   (1.9 %)   21.7 %   (2.1 %)

Permanent differences and other

   0.9 %   8.5 %   (7.5 %)

Local and Federal NOL adjustments

   —       (19.9 %)   44.0 %
                  

Total

   0.7 %   0.0 %   0.0 %
                  

 

(b) At March 25, 2006, the Company had federal non-capital losses of $7.7 million and investment tax credits (“ITC’s”) in Canada of $95,000 which expire between 2007 and 2015.

 

(c) Mayors has federal and state net operating losses carry forward in the U.S. of approximately $80.4 million and $78.9 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 annual basis, resulting in a valuation allowance of approximately $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 2025 and the state net operating loss carry forward expires beginning in fiscal 2008 through fiscal 2025. Mayors also has an alternative minimum tax credit carry forward of approximately $0.8 million to offset future federal income taxes.

 

(d) Henry Birks & Sons U.S. Inc. has non-capital losses totaling $635,103 at March 25, 2006 which will expire between 2020 and 2023.

 

13. Capital stock:

 

(a) On November 14, 2005, the Company issued 1,866,109 of Class A voting shares to the minority shareholders of Mayors in exchange for all their outstanding common shares on a 0.08695 for 1 basis. In addition, the Company converted outstanding Series A preferred shares into Class A voting shares on a 1 for 1.01166 basis and issued 512,015 of Class A common stock and 504,876 of Class B common stock to convert a $2.5 million convertible note issued to a preferred shareholder and a $2.5 million of convertible note issued to Regaluxe Investment S.à.r.l, respectively.

 

(b)

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 prior to the beginning of March 30, 2003. The impact of the merger was not significant. In conjunction with this merger, the Company amended its articles of incorporation and created three new classes of common stock; Class A, Class B and Class C. The Class B common stock has substantially the same rights as the Class A common stock except that each share of Class B common stock receives 10 votes per share. The Class C common shares receive 100 votes per share. Upon the creation of these new classes of common stock, the Company converted all common stock outstanding into Class A voting shares

 

F-26


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

 

on a 1 for 1.01166 basis and subsequently, cancelled the common shares. Regaluxe Investments S.à.r.l. and Montrolux S.A. subscribed for Class C shares and transferred their respective Class A shares of Henry Birks and Sons Holdings Inc. to the Company for consideration equal to Class B multiple voting shares. In March 2005, the Company amended its Series A preferred share conversion feature to provide for the conversion of these preferred shares into Class A common stock on a 1 for 1.01166 basis rounded to the nearest whole number. The conversion feature of the convertible notes was also amended to provide for conversion into Class A voting and Class B multiple voting shares instead of common shares. The Company then cancelled all Class A voting shares as well as the Series A preferred shares held by Henry Birks and Sons Holdings Inc. and by a member of management and cancelled the Class C shares held by Regaluxe Investment S.à.r.l. and Montrolux S.A.

 

    Common Stock     Class A common
stock
    Class B common
stock
  Total common stock     Series A preferred
shares
 
   

Number

of Shares

    Amount    

Number

of Shares

    Amount    

Number

of Shares

  Amount  

Number

of Shares

    Amount    

Number

of Shares

    Amount  
    (dollars in thousands)  

Balance at 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 share of Henry Birks and Sons Holding 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  

Repurchase of shares

  —         —       (8,093 )     (41 )   —       (8,093 )     (41 )   —         —    

Conversion of preferred shares to Class A shares

  —         —       1,034,272       6,607     —       —     1,034,272       6,607     (1,022,350 )     (5,050 )

Issuance of Class A and Class B shares from conversion of convertible notes

  —         —       512,015       2,584     504,876     2,585   1,016,891       5,169     —         —    

Issuance of Class A shares to minority shares

  —         —       1,866,109       12,347     —       —     1,866,109       12,347     —         —    
                                                                 

Balance March 25, 2006

  —       $ —       3,489,753     $ 21,833     7,717,970   $ 38,613   11,207,723     $ 60,446     —       $ —    
                                                                 

The Series A preferred shares were convertible into Class A common shares on a 1 to 1.01166 basis

 

F-27


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

14. Commitments:

Operating leases:

The Company leases all of its retail stores under operating leases with the exception of one Birks & Mayors location. The rental costs are based on minimum annual rentals and a percentage of sales. Such percentage of sales varies by location. In addition, most leases are subject to annual adjustment for increases in real estate taxes and common area maintenance costs.

Future minimum lease payments for the next five years and thereafter are as follows (in thousands):

 

Year ending March:

  

2007

   $ 12,858

2008

     12,141

2009

     9,953

2010

     7,724

2011

     5,837

Thereafter

     14,989
      
   $ 63,502
      

Rent expense for the Company was approximately $20.8 million, including $1.1 million of contingent rent for the year ended March 25, 2006, $19.0 million, including $1.0 million of contingent rent for the year ended March 26, 2005 and $17.4 million, including $0.8 million of contingent rent for the year ended March 27, 2004.

 

15. Contingencies:

 

(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 25, 2006 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. At March 25, 2006, the amount guaranteed under such arrangements is approximately $2.0 million. 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 and its subsidiary have employment agreements with the Company’s President and Chief Executive Officer for a term continuing until March 31, 2008, unless terminated in accordance with the agreement. The contractual obligation under these agreements aggregated to between $4.7 million and $7.9 million at March 25, 2006.

 

(d) On December 1, 2004, Mayors was notified that the Securities and Exchange Commission (“SEC”) was conducting an informal inquiry regarding Mayors. The SEC has requested documents primarily relating to the warrants that Mayors issued to the Company in connection with the Company’s equity investment in Mayors in August 2002. The SEC has not made any further requests of Mayors since September of 2005. The Company has fully cooperated with the SEC investigation.

 

F-28


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

16. Segmented information:

The Company has two reportable segments: Retail and Other. Retail operates 39 stores across Canada under the Birks brand, and 28 stores in the Southeast U.S. under the Mayors brand. Other includes Corporate sales and Manufacturing operations. Corporate sales provide companies with corporate gifts for employees. The manufacturing operations manufacture jewelry and other products for the retail segment.

The two segments are managed and evaluated separately based on gross 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.

 

    Retail   Other   Total
    2006   2005   2004   2006   2005   2004   2006   2005   2004
    (amounts in thousands)

Sales to External Customers

  $ 261,750   $ 228,350   $ 206,351   $ 12,573   $ 10,951   $ 9,905   $ 274,323   $ 239,301   $ 216,256

Inter-segment sales

  $ —     $ —     $ —     $ 37,312   $ 28,092   $ 17,508   $ 37,312   $ 28,092   $ 17,508

Gross Profit

  $ 126,920   $ 108,711   $ 98,164   $ 10,483   $ 9,350   $ 8,022   $ 137,403   $ 118,061   $ 106,186

The Company does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented. The following sets forth reconciliations of the segments gross profits to the Companies consolidated gross profits for the years ending March 25, 2006, March 26, 2005 and March 27, 2004:

 

     Fiscal Year Ended  
     March 25, 2006     March 26, 2005     March 27, 2004  
     (amounts in thousands)  

Gross Profit

   $ 137,403     $ 118,061     $ 106,186  

Elimination of intercompany

     (7,889 )     (8,797 )     (8,791 )
                        

Gross profit

   $ 129,514     $ 109,264     $ 97,395  
                        

 

F-29


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

Sales to external customers and long-lived assets by geographical areas were as follows:

 

     Fiscal Year Ended
     March 25, 2006    March 26, 2005    March 27, 2004
     (amounts in thousands)

Geographic Areas

        

Net Sales:

        

Canada

   $ 115,112    $ 96,601    $ 90,825

United States

     159,211      142,700      125,431
                    
   $ 274,323    $ 239,301    $ 216,256
                    

Long-lived assets:

        

Canada

   $ 26,260    $ 24,142    $ 25,169

United States

     36,562      21,700      19,520
                    
   $ 62,822    $ 45,842    $ 44,689
                    

Classes of Similar Products

        

Net sales:

        

Jewelry and other

   $ 173,091    $ 151,275    $ 140,693

Timepieces

     101,232      88,026      75,563
                    
   $ 274,323    $ 239,301    $ 216,256
                    

 

17. Related party transactions:

 

(a) The Company is party to certain related party transactions. Balances related to these related parties are disclosed in the financial statements except the following:

 

     Fiscal Year Ended
     March 25, 2006    March 26, 2005    March 27, 2004
     (amounts in thousands)

Transactions:

        

Purchases of inventory from supplier related to shareholder

   $ 5,179    $ 5,999    $ 1,993

Purchases of inventory from a company under common control

     —        —        85

Management fees to Iniziativa S.A. and Regaluxe Investment S.à.r.l.

     923      916      842

Interest expense on convertible note payable to the parent company and preferred shareholder

     35      50      50

Interest expense on subordinated loan from Regaluxe Investment S.à.r.l.

     213      203      7

Interest expense on loan payable to shareholder

     6      11      22

Balances:

        

Accounts payable

     501      1,104   

Loan payable to Regaluxe Investment S.A.

     —        169   

 

F-30


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

(b) On February 10, 2006, the Company’s Board of Directors approved the Company’s entering into a Management Consulting Services Agreement (the “Agreement”) with Iniziativa S.A. Under the Agreement, Iniziativa S.A. is to provide advisory, management and corporate services for approximately $235,000 per quarter through the period ending March 31, 2007, plus any out of pocket expenses. The initial term of the Agreement begins on April 1, 2006 and ends on March 31, 2007. The Agreement may be renewed for additional one year terms by the Company. Two of the directors, Dr Filippo Recami and Dr. Lorenzo Rossi di Montelera, are affiliated with Iniziativa S.A. Dr Recami is the Chief Executive Officer and managing director of Iniziativa S.A. Dr Rossi is a member of the Board of Directors and shares joint voting control over the shares of Iniziativa. Iniziativa is the Company’s controlling shareholder. The Company’s board of directors waived the Code of Conduct relating to related party transactions when the board of directors approved the entering into the Agreement with Iniziativa S.A.

 

(c) On April 22, 2004, Mayors entered into a Management Consulting Services Agreement (the ”Agreement”) with Regaluxe Investment S.à.r.l. Regaluxe was the controlling shareholder of the Company which in turn is the controlling shareholder of Mayors. The initial term of the Agreement began on May 1, 2004 and ended on March 31, 2005. Effective May 1, 2005, the Agreement was renewed for an additional year. Under the Agreement, Regaluxe provided advisory management and corporate services to Mayors for approximately $125,000 per calendar quarter, plus out-of-pocket expenses.

 

(d) Iniziativa S.A. issued a $385,472 (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, 2007 and requires renewal on an annual basis during the term of the loan.

 

(e) For the years ended March 25, 2006, March 26, 2005 and March 27, 2004, the Company incurred approximately $373,000; $148,000 and $45,000 in legal fees to a Canadian law firm, of which a director of the Company is a retired senior 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 $532,000 for services rendered in the year ended March 25, 2006, $415,000 in the year ended March 26, 2005 and $277,000 in the year ended March 27, 2004.

 

18. Financial instruments:

 

(a) Concentrations:

During the years ended March 25, 2006, March 26, 2005 and March 27, 2004, approximately 22%, 23% and 22%, respectively, of consolidated sales were of merchandise purchased from the Company’s largest supplier.

 

(b) 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

 

F-31


BIRKS & MAYORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

Years ended March 25, 2006, March 26, 2005 and March 27, 2004

 


 

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.

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 bearing interest at variable rates, the fair value is considered to approximate the carrying value.

The fair value of the long-term debt 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.

 

F-32


Exhibit Index

 

Exhibit Number     

Description of Document

1.1      Articles of Amalgamation, as amended, of Birks & Mayors Inc., effective as of November 14, 2005. Incorporated by reference from Exhibit 3.2 of the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
1.2      By-laws of Birks & Mayors Inc., as amended, effective as of November 14, 2005. Incorporated by reference from Exhibit 3.4 of the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
2.1      Form of Birks Class A voting share certificate. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.1      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, Inc. and Birks Merger Corporation, a wholly-owned subsidiary of Henry Birks & Sons Inc. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.2      Option Agreement between Birks, Henry Birks & Sons Holdings Inc. and GMAC Commercial Finance Corporation, dated as of March 15, 2005. Incorporated by Reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.3      Loan Agreement between Birks and Investissement Québec (formerly Financière du Québec), dated as of November 27, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.4      Form of Directors and Officers Indemnity Agreement. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.5      Henry Birks & Sons Inc. Employee Stock Option Agreement, dated as of May 1, 1997, amended as of June 20, 2000. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.6      Lease Agreement between Birks and Anglo Canadian Investments SA, dated as of December 12, 2000. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.7 *    Lease Agreement between Mayors and Westpoint Business Park, Ltd dated September 13, 2004.
4.8      Diamond Supply Agreement between Prime Investments SA and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.


4.9      Conditional Sale Agreement between Rosy Blue N.V. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.10      Conditional Sale Agreement between Rosy Blue Inc. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.11      Conditional Sale Agreement between Rosy Blue Sales Ltd. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.12      Conditional Sale Agreement between Rosy Blue Hong Kong Ltd. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.13      Conditional Sale Agreement between Rosy Blue Finance S.A. and Birks, dated as of August 15, 2002. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.14      Registration Rights Agreement between Birks and Prime Investments SA, dated as of February 4, 2005. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.15      Employment Agreement between Thomas A. Andruskevich and Birks, dated as of September 27, 2004. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.16      Amended Employment Agreement between Thomas A. Andruskevich and Mayors, dated as of June 24, 2004. Incorporated by reference from Mayors Form 10-K filed on June 25, 2004.
4.17 *    Amended Employment Agreement between Henry Birks & Sons Inc. (n/k/a Birks & Mayors Inc.) and Thomas A. Andruskevich, dated as of November 14, 2005.
4.18      Employment Agreement between Michael Rabinovitch and Mayors, dated as of August 1, 2005. Incorporated by reference from the Henry Birks & Sons Inc. Registration Statement on Form F-4 originally filed with the SEC on July 7, 2005 and as subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005.
4.19 *    Amended Employment Agreement between Randy Dirth and Birks, dated as of July 1, 2004.
4.20      Amended Employment Agreement between Aida Alvarez and Mayors, dated as of July 19, 2002. Incorporated by reference from Mayors Form 10-Q filed December 17, 2002.
4.21      Employment Agreement between Marc Weinstein and Mayors, dated as of October 26, 2001. Incorporated by reference from Mayors Form 10-Q filed on December 18, 2001.
4.22      Amended Employment Agreement between Marc Weinstein and Mayors, dated as of July 19, 2002. Incorporated by reference from Mayors Form 10-Q filed December 17, 2002.
4.23      Second Amendment to Employment Agreement between Marc Weinstein and Mayors, dated March 31, 2003. Incorporated by reference from Mayors Form 10-K filed on June 19, 2003.


4.24      Employment Agreement between Joseph Keifer III and Mayors, dated October 1, 2002. Incorporated by reference from Mayors Form 10-Q filed on December 17, 2002.
4.25 *    Employment Agreement dated September 11, 2003 between John Orrico and Mayors.
4.26      Employment Agreement dated April 1, 2005, between Daisy Chin Lor and Mayors. Incorporated by reference from Mayors Form 10-K filed on June 24, 2005.
4.27 *    Employment Agreement between Miranda Melfi and Birks & Mayors dated February 24, 2006.
4.28      Revolving Credit, Tranche B Loan and Security Agreement by and between Birks & Mayors Inc., the Canadian borrower, Mayor’s, Inc., as the United States borrower, Bank of America, N.A., GMAC Commercial Finance LLC and Back Bay Capital Funding LLC, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.29      Tranche B Note by and between Mayor’s, Inc. and Back Bay Capital Funding LLC, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.30      U.S. Revolving Credit Note by and between Mayor’s, Inc. and Bank of America, N.A., dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.31      U.S. Revolving Credit Note by and between Mayor’s, Inc. and GMAC Business Credit, LLC, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.32      U.S. Revolving Credit Note by and between Mayor’s Jewelers, Inc. and Lasalle Retail Finance, a Division of Lasalle Business Credit, LLC, as agent For Lasalle Bank Midwest National Association, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.33      Canadian Revolving Credit Note by and between Birks & Mayors Inc. and Bank of America, N.A. (acting through its Canadian branch), dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.34      Canadian Revolving Credit Note by and between Birks & Mayors Inc. and GMAC Commercial Finance Corporation – Canada, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.35      Canadian Revolving Credit Note by and between Birks & Mayors Inc. and Lasalle Business Credit, a Division of ABN AMRO Bank N.V., Canada Branch, dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.36      Stock Pledge Agreement by and between Birks & Mayors Inc., Mayor’s Jewelers, Inc., Bank of America, N.A. and Bank of America, N.A. (acting through its Canadian branch), dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.37      Trademark Collateral Security And Pledge Agreement by and between Birks & Mayors Inc., and its various subsidiaries, including Mayor’s Jewelers, Inc., Bank of America, N.A. and Bank of America, N.A. (acting through its Canadian branch), dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.38      Intercompany Indemnity, Subrogation and Contribution Agreement by and between Birks & Mayors Inc. and Mayor’s Jewelers, Inc., dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.
4.39      Guaranty by and between certain subsidiaries of Birks & Mayors Inc., dated as of January 19, 2006. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on January 25, 2006.


4.40      Management Consulting Services Agreement between Birks & Mayors Inc. and Iniziativa S.A. Incorporated by reference from Birks & Mayors Inc.’s Form 6-K filed on February 15, 2006.
4.41      Mayor’s Jewelers, Inc., (f/k/a Jan Bell Marketing, Inc.) 1991 Stock Option Plan. Incorporated by reference from Birks & Mayors Inc.’s Registration Statement on Form S-8 filed on April 26, 2006.
4.42      Mayor’s Jewelers, Inc., 2004 Long-Term Incentive Plan. Incorporated by reference from Birks & Mayors Inc.’s Registration Statement on Form S-8 filed on April 26, 2006.
4.43 *    Birks & Mayors Inc. 2006 Employee Stock Purchase Plan.
4.44 *    Birks & Mayors Inc. Long-Term Incentive Plan.
4.45 *    Stock Option Agreement dated on or about November 2, 1999 between Birks & Mayors Inc. and Filippo Recami.
4.46 *    Stock Option Agreement dated on or about November 2, 1999 between Birks & Mayors Inc. and Gerald Berclaz.
4.47 *    Stock Option Agreement dated on or about April 23, 2004 between Birks & Mayors Inc. and Peter O’Brien.
4.48 *    Stock Option Agreement dated on or about April 23, 2004 between Birks & Mayors Inc. and Margherita Oberti.
4.49 *    Stock Option Agreement dated on or about April 23, 2004 between Birks & Mayors Inc. and Lorenzo Rossi di Montelera.
4.50 *    Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Carlo Coda-Nunziante.
4.51 *    Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Joseph A. Keifer.
4.52 *    Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Marco Pasteris.
4.53 *    Amended and Restated Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Henry Birks & Sons Inc.
4.54 *    Amended and Restated Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Henry Birks & Sons Inc.
4.55 *    Amended and Restated Warrant Agreement dated November 14, 2005 between Mayor’s Jewelers, Inc. and Henry Birks & Sons Inc.
4.56 *    Employment Agreement between Randolph Dirth and Mayors, dated as of July 1, 2004.
8.1 *    Subsidiaries of Birks & Mayors Inc.
12.1 *    Certification of President and Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
12.2 *    Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).
13.1 *    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2 *    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

Exhibit 4.7

COMMERCIAL LEASE

THIS LEASE (“Lease”) dated September 13, 2004, is made by and between Westpoint Business Park, LTD, a Florida limited partnership (“Landlord”) and Mayor’s Jewelers of Florida, Inc., a Florida corporation (“Tenant”).

WITNESSETH :

Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, the Premises described below for the term and subject to the terms, covenants and conditions hereinafter set forth:

1. DEFINITIONS . Unless the context otherwise specifies or requires, the following terms shall have the meanings herein specified:

1.1 Base Rent : The base rent is set forth in Exhibit “A-1” attached hereto and made a part hereof (plus all applicable sales tax). Base Rent has been calculated based on the Premises measuring 47,851 square feet of rentable area. In the event, pursuant to the procedures set forth in Section 1.9 below, the rentable area of the Premises is determined to measure less than 47,851 square feet, Base Rent and any other Additional Rent which is based on the rentable area of the Premises shall be ratably decreased; if it is determined that the rentable area of the Premises measures more than 47,851 square feet, Base Rent and any other Additional Rent which is based on the rentable area of the Premises shall nonetheless be based on not more than a rentable area of 47,851 square feet.

1.2 Project : Collectively, the “Premises,” the “Common Areas” and the “Spec Building” on the Land, that will be constructed, as shown on Exhibit “B”.

1.3 Commencement Date : The later of: 1) The Completion Date (as defined in Section 4.3 below); or 2) August 1, 2005.

1.4 Common Areas : All portions of the Land other than the Premises and the Spec Building, including all facilities to be furnished by Landlord and designed for the general use, in common, of occupants of the Project, including Tenant, their respective officers, agents, employees, invitees and customers, as well as all of the following which shall be furnished by Landlord: parking areas, driveways, entrances and exits to the Project from a public roadway and landscape areas. Subject to the terms of this Lease, all such areas shall be subject to the exclusive control, administration and management of Landlord, and Landlord shall make all reasonable rules and regulations pertaining thereto for the proper operation and maintenance of the Common Areas. All such rules and regulations shall be enforced against all tenants in the Project in a non-discriminatory manner, and no such rules and regulations shall be effective against Tenant if, to any extent, they are in conflict with this Lease, impose any financial or undue burden on Tenant, materially deprive Tenant of any of its rights under this Lease or materially relieve Landlord of any of its obligations under this Lease.

1.5 Deposit : The sum of One Hundred Thousand and 00/100 Dollars ($100,000.00) due upon execution of Lease by Tenant.

1.6 Governmental Authority : Any federal, state, county, municipal or other governmental department, entity, authority, commission, board, bureau, court, agency or any instrumentality of any of same.

1.7 Governmental Requirement : Any law, enactment, statute, code, ordinance, rule, regulation, judgment, decree, writ, injunction, franchise, permit, certificate, license, authorization, agreement or requirement of any Governmental Authority now existing or hereafter enacted, adopted, promulgated, entered, or issued applicable to the Project and/or the Premises.

1.8 Land : Landlord’s real property legally described in Exhibit “A” upon which the Project is located.

1.9 Premises : A to be built building located on the Land and within the Project to be occupied by the Tenant, consisting of approximately 47,851 square feet of rentable area, with the address of 5850 Hiatus Road, Tamarac, Florida 33321, as shown in Exhibit “B” . Upon delivery of the Premises to Tenant, Landlord’s architect shall certify to

 

1


Tenant the rentable area of the Premises. For purposes hereof, the rentable area of the Premises shall be calculated in accordance with the methods of measurement rentable area as described in the Standard Method for Measuring Floor Area in Office Building, ANSI Z65.1-1996, as promulgated by the Building Owners and Managers Association (BOMA) International. Within thirty (30) days after receipt of Landlord’s architect’s certification, Tenant shall have the right to have the rentable area of the Premises measured by a licensed architect. In the event that Tenant’s architect determines that the rentable area of the Premises is other than that certified by Landlord’s architect and Landlord disagrees with the measurement certified by Tenant’s architect, then Landlord’s and Tenant’s architects shall together select a third licensed architect, at Landlord’s and Tenant’s joint expense, who shall ultimately decide the rentable area of the Premises.

1.10 Permitted Purpose : All lawful uses including without limitation office administration, warehouse storage and distribution, watch and jewelry design/repair/manufacture, and such other uses incidental to the foregoing.

1.11 Rent Commencement Date : The Rent Commencement Date shall be the same date as the Commencement Date, unless otherwise extended per the terms of this Lease.

1.12 Spec Building : A to be built building located on the Land and within the Project to be occupied by other tenants of the Project, as shown in Exhibit “B” . For purposes of this Lease, the rentable area of the Spec Building shall be deemed to be 12,000 square feet until such time as Landlord has completed construction of the Spec Building. Upon construction of the Spec Building, Landlord’s architect shall certify to Tenant the rentable area of the Spec Building. For purposes hereof, the rentable area of the Spec Building shall be calculated in accordance with the methods of measurement rentable area as described in the Standard Method for Measuring Floor Area in Office Building, ANSI Z65.1-1996, as promulgated by the Building Owners and Managers Association (BOMA) International.

1.13 Term : That time period between the Commencement Date and the Termination Date. Hereafter, all references to the “Term” of this Lease shall be deemed to be a reference as well to such additional periods of time, if any, for which the Term may be extended. Provided Tenant is not then in default of this Lease beyond any applicable notice and cure period, Tenant shall have two (2) five year periods to extend the Lease Term, at the same terms and conditions as the initial Lease Term, except the rent shall be as shown in Exhibit “A-1” attached hereto.

1.14 Termination Date : The date that is fifteen (15) lease years from the Commencement Date. Should the Commencement Date fall on any day other than the 1 st day of a calendar month, then the Termination Date shall be the last day of the month that is fifteen (15) lease years from the Commencement Date. For purposes hereof, “lease year” shall mean a twelve (12) calendar month period, the first of which shall commence on the Commencement Date.

2. USE/COMPLIANCE . Tenant shall use the Premises solely for the Permitted Purpose, and for no other purpose whatsoever. The foregoing is a material consideration to Landlord in entering into this Lease. Tenant shall not do, bring, keep or permit to be done within the Premises, nor bring, keep or permit to be brought therein, anything which is prohibited by, or will, in any way violate any Governmental Requirement or cause a cancellation or an increase in the rate of any commercially reasonable insurance policy covering the Premises. Notwithstanding the foregoing, Landlord represents and warrants to Tenant that the Permitted Purpose is permitted under Governmental Requirements, and Landlord acknowledges that Tenant’s use of the Premises for the Permitted Purpose will not contravene any of the requirements set forth in the immediately preceding sentence. If Tenant’s use of the Premises is changed to something other than the Permitted Purpose such that extra insurance premiums will be chargeable to Landlord, Landlord shall so notify Tenant and Tenant will either discontinue such changed use or upon request Tenant will reimburse Landlord for all extra premiums resulting from Tenant’s changed use of the Premises. The foregoing is a material consideration to Tenant in entering into this Lease. Tenant shall not do or permit anything to be done within the Premises for any unlawful purpose, nor shall Tenant cause, maintain or permit any legal nuisance within the Premises or commit or suffer to be committed any waste within the Premises.

3. RENT .

3.1 The term “Rent” as used in this Lease, shall include the Base Rent, and all other items, costs and expenses identified herein as “Additional Rent”, together with all other amounts payable by Tenant to Landlord under this Lease. Beginning on the Rent Commencement Date, Tenant shall pay each monthly installment of Rent (plus all sales taxes from time to time imposed by any Governmental Authority in connection with rents paid by Tenant under this Lease), in advance on the first calendar day of each month during the Term. Monthly installments for any fractional calendar month, at the beginning or end of the Term, shall be prorated based

 

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on the number of days in such month that fall during the Term. Tenant shall pay all Rent, without demand, deduction or set off (except as otherwise expressly provided in this Lease), to Landlord at the place specified for notice in Section 25 below. Notwithstanding anything herein to the contrary, Tenant shall be entitled to set off against Rent any final monetary judgment in its favor against Landlord. Tenant also shall pay a late charge (“Late Charge”) equal to five percent (5%) of the amount of any delinquent installment of Rent as an administrative fee with each payment of Rent not paid within ten (10) days after Landlord’s notice to Tenant that it is past due. Notwithstanding the foregoing, Landlord shall not be required to give notice of a late payment more than twice in any calendar year, and after the second notice of such late payment, the late charge shall be applicable to any remaining payments in said calendar year that are not made within 10 days after the due date thereof. The provisions herein for a Late Charge shall not be construed to extend the date for payment of any sums required to be paid by Tenant hereunder or to relieve Tenant of its obligations to pay all such items at the time or times herein stipulated.

3.2 Beginning on the Rent Commencement Date, in addition to the Base Rent hereunder, Tenant shall pay, as Additional Rent, 1/12th of its pro-rata share of the “Expenses” (as hereinafter defined) monthly, in advance, together with the payment of Base Rent. Expenses shall be equitably pro-rated for any partial calendar year during the Term, and Tenant shall only be responsible for its pro-rata share of said prorated Expenses. Landlord shall reasonably estimate the Expenses which will be payable for each calendar year (or partial calendar year) during the Term, in advance. Within ninety (90) days after the end of each calendar year during the Term, Landlord shall furnish Tenant a detailed statement of the actual Expenses incurred throughout the prior calendar year. An adjustment shall be made between Landlord and Tenant with payment to or repayment by Landlord, as the case may require, to the end that Landlord shall receive the entire amount actually owed by Tenant for Expenses for such calendar year (or partial calendar year) and Tenant shall receive reimbursement for any overpayments within thirty (30) days after delivery of said statement by Landlord. The foregoing adjustment obligation of Landlord and Tenant shall survive expiration or termination of this Lease. If such statements show an Expense payment due from Tenant to Landlord then Tenant shall make the payment within thirty (30) days after receipt of such statements. The payment of any Additional Rent by Tenant shall not preclude it from questioning the correctness of any such statement. Tenant, its attorneys, accountants and agents, at its sole cost and expense, shall, during normal business hours following prior written notice to Landlord, have the right to examine and audit Landlord’s books and records, including such other records and accounts as may contain information related to the Expenses for the period in question and to make copies thereof. In the event such audit reveals an overstatement of Landlord’s Expenses of more than four percent (4%), Landlord shall reimburse Tenant for reasonable out-of-pocket costs and expenses incurred by it in conducting such audit. On or before November 15th of each calendar year during the Term, Landlord agrees to provide Tenant with a good faith estimate of the projected Expenses for the immediately following calendar year. In the event Tenant is not satisfied with the projected Expenses, Tenant shall have the right, in its sole discretion, to elect to (i) take over any specified maintenance or service to be provided to the Project for the immediately following calendar year or (ii) for any specified maintenance or service that Tenant is not satisfied with the projected cost thereof, require Landlord to obtain at least two (2) additional bids from qualified third parties reasonably selected by Tenant to provide such specified maintenance or service to the Project. Such election must be made by Tenant, if at all, within thirty (30) days after Tenant’s receipt of the estimated projected Expenses from Landlord. In the event Tenant elects to have Landlord re-bid any specified service or maintenance, Landlord agrees to accept the third party with the lowest bid (including any previous bids obtained by Landlord). Further, prior to entering into any service or maintenance contract for the Project, Landlord agrees to provide to Tenant the proposed contract (which shall include the cost therefore), and if Tenant is not satisfied with the cost thereof, Tenant shall have the right, in its sole discretion, to elect to (i) take over the maintenance or service in question or (ii) require Landlord to obtain at least two (2) additional bids from qualified third parties reasonably selected by Tenant to provide the maintenance or service in question. Such election must be made by Tenant, if at all, within thirty (30) days after Tenant’s receipt of the proposed contract from Landlord. In the event Tenant elects to have Landlord re-bid the maintenance or service in question, Landlord agrees to accept the third party with the lowest bid (including any previous bids obtained by Landlord).

3.3 For purposes of this Section , Tenant’s pro-rata share equals: (i) one hundred percent (100%) of the portion of the Expenses that relate solely to the Premises; plus (ii) the portion of the Expenses that relate to the Common Areas multiplied by a fraction, the numerator of which is the rentable area of the Premises and the denominator of which is the rentable area of the Premises plus the rentable area of the Spec Building (regardless of whether Landlord actually builds the Spec Building) and if Landlord adds additional buildings in the future then the rentable area of such buildings; and “Expenses” constitute the aggregate of all of the costs and expenses incurred, borne, or accrued with respect to the ownership, operation, use and maintenance of the Common Areas and the Premises, including, without limitation Real Estate Taxes (as hereinafter defined), utilities servicing the Common Areas and/or the Premises (and not otherwise directly paid for by Tenant pursuant to other provisions of this Lease), management fees and all commercially reasonable premiums for all commercial reasonable insurance policies maintained by Landlord in connection with the Common Areas and the Premises. For purposes of this Section , “Real Estate Taxes” shall include any form of ad valorem real estate tax, assessment or levy (including without limitation all general and special assessments and improvement bond(s)), imposed on the Land from time to time by any Governmental Authority; provided, however, “Real Estate Taxes” shall not include penalties, fines or

 

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late charges or any transfer taxes assessed in connection with any financing, refinancing, mortgaging, selling or change of ownership of the Land or the Project (or any portion thereof). Further, to the extent any portion of Real Estate Taxes are payable in installments, Real Estate Taxes for any calendar year shall only include the minimum installment coming due for the calendar year in question. Landlord agrees to pay Real Estate Taxes sufficiently early each year to obtain the maximum prepayment discount allowed by Florida law. Landlord, and upon timely request by Tenant, shall within the respective times and in the manner prescribed by law for such purposes, petition for reduction of the assessed valuation of the Project and the Land, claim a refund of real estate taxes or assessments or otherwise challenge the validity or applicability of any real estate tax, assessment or similar or related laws (a “Tax Protest”). Landlord shall prosecute any Tax Protest with due diligence and continuity. Landlord shall provide Tenant with copies of any application, petition or other pleading filed in connection with a Tax Protest. Tenant may, at its own expense but subject to reimbursement as provided below, join with Landlord in making any such application, petition or other pleading, retain co-counsel, attend hearings, present evidence and arguments, and generally participate in the conduct of the Tax Protest, and in connection therewith, Landlord shall make available to Tenant any material in its possession relating to the cost of the Premises and the Land, the income derived from the operation thereof and any other facts Tenant may reasonably require. Landlord shall reimburse Tenant for the reasonable expenses incurred by Tenant in connection with any Tax Protest to the extent that the net refund of taxes resulting therefrom, after payment of Landlord’s expenses, shall be sufficient to do so. In addition to any Tax Protest, Landlord agrees, at no cost or expense to Landlord, to cooperate with Tenant if Tenant desires to pursue obtaining a ruling or determination from the City or County in which the Land is located for a tax rebate in connection with the construction and occupancy of the Project. Tenant shall pay before delinquency all taxes, assessments, license fees, and other charges that are levied and assessed against Tenant’s personal property installed or located in or on the Premises. Further, Tenant shall, upon request, deliver to Landlord paid tax receipts evidencing Tenant’s timely payment of all taxes assessed upon Tenant’s personal property. Notwithstanding anything herein to the contrary: (i) the formula set forth above to determine Tenant’s pro-rata share of the Expenses that relate to the Common Areas shall be the same formula used when determining Tenant’s pro-rata share of Real Estate Taxes, and said formula shall be used in both instances regardless of whether Landlord builds the Spec Building; and (ii) Expenses shall not include any of the following:

3.3.1 capital improvements, capital replacements, capital repairs or the cost of the initial construction (or remedy of defects of the initial construction) of the Project;

3.3.2 rentals and other related expenses incurred in leasing equipment ordinarily considered to be of a capital nature;

3.3.3 mortgage principal or interest payments or any other financing or refinancing costs, including, but not limited to “points” or commitment fees;

3.3.4 ground rent and related costs;

3.3.5 depreciation or amortization of the Project or any equipment used in connection therewith;

3.3.6 the cost of any fine or penalty incurred by Landlord due to Landlord’s violation of any Governmental Requirement and any interest or penalties due for late payment by Landlord, or costs incurred by Landlord due to the violation by Landlord or any tenant of the terms and conditions of any lease of space in the Project;

3.3.7 costs incurred to test, survey, clean up, contain, abate, remove or otherwise in connection with pollutants, contaminants, toxic or hazardous waste or other substances deemed hazardous or potentially hazardous to persons or the environment;

3.3.8 expenses incurred by Landlord to lease space to new or existing tenants including, but not limited to, leasing commissions, advertising and promotional expenditures, and professional fees with respect to same;

3.3.9 expenses incurred by Landlord to negotiate lease terms with or litigate against prospective or existing tenants or in connection with any financing, sale or syndication of the Project;

3.3.10 costs and expenses incurred for the service, repair or replacement of any item covered by warranty;

3.3.11 costs of repairs necessitated by Landlord’s willful misconduct or of correcting any original design or construction defects in the Project’s construction, materials or equipment;

3.3.12 expenses for any item or service not provided to Tenant but exclusively to any tenant in the Project (such as, by way of example and not limitation, any guard service which is provided solely for the benefit of occupancy by any bank or other financial institution in the Project);

3.3.13 management fees or Landlord’s general corporate overhead and administrative expenses which, in the aggregate, exceed 4% of Tenant’s Base Rent for the year in question;

 

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3.3.14 fees paid to Landlord or affiliates of Landlord to the extent that such fees exceed the customary amount charged for the services provided;

3.3.15 rental paid to Landlord for any building management office;

3.3.16 expenses for art work;

3.3.17 charitable or political contributions;

3.3.18 bad debt losses;

3.3.19 costs incurred in connection with signage on or for the benefit of other tenants of the Project;

3.3.20 costs which are reimbursable by tenants, insurance, awards or otherwise;

3.3.21 the cost of any impact fees, off-site improvement costs, “tap fees” or one-time lump sum sewer or water connection fees for the Project and the Land payable in connection with the initial construction of the Project and permitting of the Project;

3.3.22 overhead and profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for goods and/or services to the extent the same exceeds the costs of such goods and/or services rendered by unaffiliated third parties on a competitive basis;

3.3.23 costs for which Landlord has been compensated by the management/administrative charge referenced above;

3.3.24 costs arising from the negligence or fault of Landlord or its agents, or any vendors, contractors or providers of materials or services selected, hired or engaged by Landlord or its agent including, without limitation, the selection of building materials;

3.3.25 costs (including in connection therewith all attorneys’ fees and costs of settlement judgments and payments in lieu thereof) arising from claims, disputes or potential disputes of potential or actual claims litigation or arbitrations pertaining to the Landlord and/or the Project and/or the Land;

3.3.26 costs related to maintaining Landlord’s legal existence, including by way of example but not limitation, trustee’s fees, annual fees, organizational and administrative expenses and accounting fees (other than with respect to the operation of the Project);

3.3.27 Accounting fees unrelated to the Landlord’s maintenance of the Common Areas; and

3.3.28 Any fees or costs of whatsoever nature that relate solely to the Spec Building or any tenants or occupants of the Spec Building.

At no time shall Landlord be entitled to recover from Tenant more than Tenant’s pro-rata share of one hundred percent (100%) of the actual Expenses.

3.4 Notwithstanding anything to the contrary contained in this Lease: (i) notwithstanding the actual Expenses incurred by Landlord for the first lease year, Tenant’s pro-rata share of Expenses in the first lease year shall not exceed $3.00 per square foot of rentable area of the Premises; and (ii) beginning with the second lease year and each lease year thereafter, Tenant shall not be required to pay its pro-rata share of Controllable Expenses that are in excess of the Cap. For purposes of the preceding sentence: “Cap” for the second lease year shall be 105% of the actual Controllable Expenses incurred by Landlord in the first lease year (notwithstanding the $3.00 per square foot cap on Expenses set forth in item (i) above), and for each lease year thereafter, the Cap shall be 105% of the Controllable Expenses for the preceding lease year that were used in determining Tenant’s pro-rata share for said lease year (but never in excess of 105% of the Cap for the preceding lease year); and “Controllable Expenses” means all Expenses other than Real Estate Taxes, utilities and commercially reasonable insurance premiums for all commercial reasonable insurance policies maintained by Landlord in connection with the Common Areas and the Premises. For illustration purposes only, if actual Controllable Expenses for the first lease year were $4.00 per square foot, then the Cap for Controllable Expenses for the second lease year would be $4.20 per square foot, and if actual Controllable Expenses for the second lease year were $4.10 per square foot, then the Cap for Controllable Expenses for the third lease year would be $4.31 per square foot.

 

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4. CONSTRUCTION .

4.1 Landlord agrees, at its sole cost and expense, to perform Landlord’s Work as follows: in a first-class, good and workmanlike manner; free from defects; using good materials; in accordance with the terms of this Lease; and in compliance with all applicable Governmental Requirements and all matters of record in Broward County, Florida affecting the Land (including without limitation the Permitted Exceptions). For purposes of this Lease, “Landlord’s Work” includes the following:

4.1.1 Landlord shall make such improvements and perform such work in the construction of the Premises and the Common Areas as set forth in final working drawings, plans and specifications (collectively, “Working Drawings”) as are approved in writing by the parties (the Working Drawings, after the same have been approved in writing by the parties, are referred to as the “Plans”). As used herein, the “Preliminary Plans” refers to the site plan attached hereto as Exhibit “B” and the plans and all of the specifications and materials identified in Exhibit “C” attached hereto. Landlord, at its sole expense, shall cause the Working Drawings to be prepared in accordance with the Preliminary Plans, and the Working Drawings shall provide for hot water servicing restrooms and kitchen areas in the Premises. The Working Drawings shall be delivered to Tenant as soon as reasonably possible following the date of this Lease (but in no event later than the date that is forty-five (45) days after the date of this Lease) for Tenant’s approval which shall not be unreasonably withheld or conditioned. Tenant agrees to approve or disapprove of the Working Drawings within thirty (30) days after receipt of same. Landlord shall cause a complete building permit application for Landlord’s Work together with copies of the Plans to be filed with the appropriate Governmental Authority no later than 10 days after the Plans are approved by Tenant. Further, if any matters of record in Broward County, Florida affecting the Land (including without limitation the Permitted Exceptions) require approval of the Plans from any non-governmental person or entity, then, prior to submitting the Plans to the appropriate Governmental Authority, Landlord shall, at its sole cost and expense, obtain all such necessary approvals. Changes to the Plans as required by any such non-governmental person or entity or by said Governmental Authority shall be subject to Tenant’s written approval which shall not be unreasonably withheld, conditioned or delayed, provided said changes are not material in nature. Landlord’s Work shall include construction of all elements in the Plans including without limitation: all site work; underground utilities; landscaping; paving; building shell; and Tenant’s leasehold improvements in the Premises. For purposes hereof, “building shell” is defined as the general building structure of the Premises including without limitation the elevator, restrooms, fire sprinkler system and stairwells. Tenant’s leasehold improvements include without limitation all drywall, paint, ceiling, HVAC, electric lights, electrical outlets, electric systems, carpet/flooring, plumbing (including restrooms), interior building permits, modification of sprinkler system, alarms, furnishings and cabinets. It is the intent of the parties that Landlord is providing a turnkey construction at its sole expense in accordance with the Plans.

4.2 Landlord agrees, at its sole cost and expense, to diligently pursue obtaining all Governmental Requirements necessary to perform Landlord’s Work. Further, Landlord shall diligently prosecute Landlord’s Work to completion without interruption or delay.

4.3 The “Completion Date” shall be the date on which Substantial Completion has occurred. Tenant shall be entitled to occupy the Premises on the Completion Date. “Substantial Completion” shall mean and require the satisfaction of all of the following conditions:

4.3.1 The physical completion of the construction of all elements of Landlord’s Work substantially in accordance with the Plans and the terms and conditions of this Lease, subject only to minor punch list items;

4.3.2 All landscaping and equipping of the Premises and the Common Areas shall have been substantially completed such that a temporary certificate of occupancy has been issued and Tenant in its reasonable judgment is able to fully conduct its business operations in the Premises; provided, however, that any remaining minor punch list work shall be completed in accordance with the Plans no later than 30 days thereafter.

4.3.3 All on-site and off-site work shown in the Plans shall have been substantially completed, and regardless whether or not shown in the Plans, construction, dedication and acceptance by all Governmental Authorities of any streets, roadways and alleyways contiguous to the Land which are necessary or advisable for ingress and egress to the Project shall have occurred and Tenant shall have access to the roadways shown on the site plan attached hereto as Exhibit “B” ;

4.3.4 All utilities described in the Plans have been constructed and connected to all portions of the Common Areas and the Premises, and have been inspected and approved by all Governmental Authorities;

 

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4.3.5 Landlord’s architect has delivered to Tenant a certificate of substantial completion, making exception for Tenant approved punch list items. The certificate shall be on AIA Form G704-1992, except that the certification paragraph shall be replaced with a certification that items 4.3.1 through 4.3.4 of this Section have occurred.

4.3.6 Temporary or final certificate of occupancy, if any, required for Tenant to lawfully occupy the Premises without conditions has been obtained and a copy thereof delivered to Tenant;

4.3.7 Landlord’s Work is in compliance with all Governmental Requirements;

4.3.8 Landlord has good and marketable title to the Land and is otherwise legally able to provide “quiet enjoyment” to Tenant pursuant to the terms of this Lease;

4.3.9 Landlord has delivered to Tenant a certified title report indicating that title to the Land is subject to no matters of record or other exceptions other than the Permitted Exceptions set forth on Exhibit “D” attached hereto;

4.3.10 Tenant has received a fully executed and delivered SNDA in recordable form from all existing mortgagees and ground or underlying lessors, if any;

4.3.11 Landlord has delivered to Tenant the certificate of insurance required by Section 10.4 below; and

4.3.12 If any matters of record in Broward County, Florida affecting the Land (including without limitation the Permitted Exceptions) require approval of any portion of Landlord’s Work from any non-governmental person or entity, Landlord shall have obtained any such necessary approval and a copy thereof delivered to Tenant.

Notwithstanding satisfaction of all of the above conditions, the Completion Date will be extended for any Landlord Delays. For purposes hereof, a “Landlord Delay” means any wrongful action by Landlord that interferes with Tenant’s occupancy of the Premises. Further, notwithstanding the list of Permitted Exceptions set forth on Exhibit “D” attached hereto, Landlord represents and warrants to Tenant that none of the Permitted Exceptions, nor any other matters of record in Broward County, Florida affecting the Land, nor any agreements binding on Landlord or the Land will prohibit or inhibit (i) the completion of Landlord’s Work pursuant to the Plans or (ii) Tenant’s occupancy and use of the Premises for its intended use of office administration, warehouse storage and distribution, and watch and jewelry design/repair/manufacture.

4.4 Landlord agrees that Tenant will not be required to pay any so-called “impact fee” or off-site improvement costs as a condition of or in connection with any improvements made for the benefit of Tenant or the granting of any building permit or certificate of occupancy; and any such fees or cost shall be paid by Landlord as and when due. Notwithstanding anything to the contrary contained in this Lease (or in any exhibit hereto), Landlord represents and warrants that as of the Completion Date: (i) the Premises and the Common Areas shall be in full compliance with all applicable Governmental Requirements; (ii) Landlord shall have obtained any necessary approvals of Landlord’s Work from any non-governmental person or entity required pursuant to any matters of record in Broward County, Florida affecting the Land (including without limitation the Permitted Exceptions); (iii) there shall be no defects in the Premises; and (iv) all utilities and equipment servicing the Premises and the Common Areas shall be in good working order. In the event this representation is not true and correct, Tenant can elect, but is not obligated, to expend such monies as are needed to correct the situation and offset the same together with interest at prime plus 2% against Rent. Further, any delay in Tenant occupying the Premises and opening for business on account of failure of any of the items set forth above shall postpone the Rent Commencement Date for an equal number of days of such delay.

4.5 Landlord agrees to provide Tenant with at least sixty (60) days prior written notice of the Completion Date. Landlord agrees that Tenant, at least forty-five (45) days prior to the Completion Date, shall have access to the Premises in order to install its fixtures, cabling, equipment and other personal property, and do such other work as is necessary to prepare the Premises for Tenant’s occupancy and use. Landlord agrees that Tenant shall not be obligated to pay any Rent or other charge for such access and use of the Premises prior to the Commencement Date. Tenant agrees that any such activities will not unreasonably interfere with the completion of Landlord’s Work. In the event Landlord fails to timely give Tenant the notice required under this Section 4.5 or if Tenant is unable to access the Premises for the entire duration of said forty-five (45) day period to perform the work permitted under this Section 4.5 , then, in either event, the Rent Commencement Date shall be extended for forty-five (45) days.

4.6 Notwithstanding anything to the contrary in this Lease: (i) if by the date that is forty-five (45) days after the date of this Lease, Landlord is unable to provide evidence that it has obtained a commitment from a lender to finance construction of the

 

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Premises in accordance with the terms of this Lease, then Tenant shall have the right to cancel this Lease at any time after said date provided Tenant delivers written notice of its intention to cancel prior to the date that Landlord delivers evidence that it has obtained a commitment from a lender to finance construction of the Premises in accordance with the terms of this Lease; (ii) if by October 1, 2004, (a) the Plans are not approved by Landlord and Tenant or (b) the Plans along with a complete building permit application have not been filed by Landlord with the appropriate Governmental Authority, then Tenant shall have the right to cancel this Lease at any time after said date provided Tenant delivers written notice of its intention to cancel prior to the date that both of the preceding conditions are satisfied; (iii) if by January 1, 2005, (a) a building permit for Landlord’s Work is not obtained from the appropriate Governmental Authority or (b) construction of the Premises has not commenced, then Tenant shall have the right to cancel this Lease at any time after said date provided Tenant delivers written notice of its intention to cancel prior to the date that both of the preceding conditions are satisfied. For the purposes of the preceding sentence, commencement of construction means that: (1) Landlord has executed a binding construction contract with its general contractor for construction of the Premises; (2) a notice of commencement, in form required by Florida statutes Section 713 with respect to construction of the Premises has been recorded and posted on-site; (3) Landlord has acquired the Land and obtained all necessary construction and/or permanent financing with respect to the Premises; and (4) poured footers for the Premises have been completed; (iv) if for any reason, including events of force majeure, Tenant does not have access to the Premises by July 1, 2005 in order to commence the work permitted by Section 4.5 above and such failure to have access as of such date contributes to Tenant being in hold over under the Current Lease (as defined below), then Landlord shall be liable to Tenant upon demand for Overage Rent (as defined below); (v) if the Completion Date does not occur for any reason, including events of force majeure, by August 1, 2005 (the “Required Completion Date”), then, in addition to all other remedies provided under this Lease, Landlord shall be liable to Tenant upon demand for Overage Rent. For purposes hereof, “Overage Rent” shall equal one-half (1/2) of the base rent and common area maintenance charges required to be paid by Tenant under its current lease for space at 14051 N.W. 14 th Street, Sunrise, Florida 33323 (the “Current Lease”) during each month that Tenant is in hold over under the Current Lease; (vi) if the Completion Date does not occur for any reason, including events of force majeure, by September 1, 2005, then, in addition to being liable for Overage Rent, Landlord shall be liable to Tenant for one hundred percent (100%) of any other damages that Tenant is required to pay under the Current Lease as a result of being in hold over (provided, however, such other damages shall be capped at an amount not to exceed $50,000.00); and/or (vii) if the Completion Date does not occur for any reason, including events of force majeure, by the date that is 90 days after the Required Completion Date, then Tenant shall have the right to cancel this Lease at any time after said date provided Tenant delivers written notice of its intention to cancel prior to the Completion Date. If Tenant cancels this Lease as contemplated by this paragraph, Landlord shall pay Tenant $50,000.00 as liquidated damages. Notwithstanding anything to the contrary in this paragraph: (1) in the event Tenant has not executed this Lease and delivered same to Landlord by August 20, 2004, then all dates set forth in this paragraph shall be extended one (1) day for each day that Tenant delays execution and delivery of this Lease to Landlord; and (2) only for purposes of determining whether Landlord is liable to Tenant for Overage Rent, the dates set forth in items (iv) and (v) above shall be extended day for day for any delays due to force majeure events, provided Landlord has notified Tenant, in writing, within ten (10) days of the occurrence of such force majeure event, together with Landlord’s estimate of the delay resulting from such force majeure event. In the event Landlord fails to timely deliver said notice, then the dates set forth in items (iv) and (v) above shall not be extended for any delays that result from such force majeure event. For purposes the preceding item (2) only, “force majeure” shall mean acts of God, restrictions by any Governmental Authority, civil riots, floods, hurricanes, terrorism or fire that is not caused by the acts or omissions of Landlord or any of its employees, agents or contractors.

4.7 If, after making commercially reasonable good faith efforts, Landlord is unable to obtain on or before the date that is thirty (30) days after the date of this Lease a commitment from a lender to finance the construction of the Premises, then Landlord shall have the right to terminate this Lease provided Landlord delivers to Tenant written notice of its intent to terminate within five (5) days after expiration of said thirty (30) day period. If Landlord fails to timely deliver said notice, then Landlord’s right of termination under this Section 4.7 shall be deemed null and void.

5. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS . Notwithstanding anything to the contrary in this Lease, Tenant shall only be required to comply with Governmental Requirements which are particularly related to Tenant’s specific use of the Premises as opposed to laws which are generally applicable to all tenants in the Project. Except as provided in the immediately preceding sentence, Landlord shall at its expense be responsible, for complying with all Governmental Requirements affecting the design, construction and operation of the Common Areas and the Premises (including structural components of the Premises) or relating to the performance by Landlord of any duties or obligations to be performed by it hereunder.

6. PARKING . Landlord agrees that at all times it shall provide parking on the Land sufficient for the entire Project as required by Governmental Requirements (but not less than a ratio of 4 parking spaces for every 1,000 square feet of building space), for the non-exclusive use of tenants of the Project, including Tenant, its employees and invitees. The general layout of the parking is shown on Exhibit “B” attached hereto. Tenant agrees to cooperate with Landlord and other tenants in the use of the parking facilities.

 

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Notwithstanding the foregoing, Landlord shall designate twenty (20) parking spaces within the Project as reserved for use by Tenant, its employees and its invitees, and Landlord shall take reasonable efforts to prevent use of such reserved parking spaces by other tenants of the Project or their invitees. The location of such reserved spaces is shown on Exhibit “B” attached hereto. Landlord will use reasonable efforts to enforce Tenant’s right to exclusively use its designated spaces, including towing if necessary, failing which Tenant shall be entitled to effect such enforcement at Landlord’s expense.

7. UTILITIES . Landlord, as part of Landlord’s Work, shall be responsible for providing the Premises and the Common Areas with all necessary or desired utility service connections (including without limitation water, sewer, telephone, cable and electricity), and Landlord shall be responsible for the cost of any “tap fees” or one time lump sum utility connection fees for the Project payable in connection with the initial construction of the Project. Landlord shall not be required to pay any re-occurring fees, costs, or expenses associated with the use of any utilities of any kind whatsoever by Tenant during the Term, all of which such re-occurring costs shall be the responsibility of Tenant, at its sole cost and expense. Tenant acknowledges and agrees that Landlord is not responsible for providing Tenant with propane gas and/or oxygen to be used by Tenant in connection with Tenant’s watch and jewelry design/repair/manufacture operations within the Premises. However, Landlord agrees to cooperate with Tenant (including granting any necessary easement(s) to the gas provider/distributor) in Tenant’s efforts to obtain all necessary permits and the installation of any applicable systems, tanks, equipment and distribution lines on, over or under the Land to the Premises from the gas and/or oxygen source to the end-use location within the Premises.

8. MAINTENANCE BY TENANT . Except as otherwise provided in this Lease, Tenant shall be responsible for all repairs, interior and exterior, structural and nonstructural, in and to the Premises and the facilities and systems thereof, the need for which arises solely out of: (a) the performance or existence of any work performed by Tenant; (b) the installation, use or operation of Tenant’s personal property in the Premises; (c) the moving of Tenant’s personal property in or out of the Premises; or (d) the wrongful or negligent act or omission of Tenant or any of its subtenants or its or their employees, agents or contractors. In addition, Tenant, at its expense, shall promptly replace all scratched, damaged or broken doors and glass in the Premises (however, Landlord shall be responsible for any needed replacement of windows to the extent needed due to defective materials or installation or due to casualty). Tenant shall promptly make, at Tenant’s expense, all repairs in or to the Premises for which Tenant is responsible. Tenant agrees, at its sole cost and expense, to be responsible for clearing plumbing stoppages that occur within the Premises.

9. MAINTENANCE BY LANDLORD; SERVICES .

9.1 Landlord shall keep and maintain the Premises and the Common Areas and the systems and facilities serving same in good working order, condition and repair, and shall make all repairs and replacements, structural and otherwise, interior and exterior, as and when needed in or about the Premises or the Common Areas, except for those repairs for which Tenant is responsible pursuant to any of the provisions of this Lease. Landlord’s maintenance obligations shall be performed such that the Premises and the Common Areas shall be and remain in first class condition. Landlord’s obligations include without limitation:

9.1.1 all maintenance of the roof, foundation and structural and non-structural elements of the Premises as needed to keep the Premises in a safe, dry and tenantable condition;

9.1.2 all maintenance, replacement and repair of utility installations and non-visible electrical conduit and wire, and all plumbing (excluding plumbing stoppages that occur within the Premises), electrical, mechanical, HVAC and life safety elements of the Premises;

9.1.3 all cleaning, maintenance, replacement and repair (including sweeping and striping) of the Common Areas necessary to maintain all driveways, sidewalks, street, parking areas and landscaping in a safe, sightly and serviceable condition; and

9.1.4 repair of any defects (including replacement of defective materials) in Landlord’s Work.

The expenses incurred by Landlord per subparagraphs 9.1.2 and 9.1.3 above shall be included in Expenses.

9.2 Heat, Ventilation and Air Conditioning . Landlord shall maintain the heating, ventilating and air conditioning systems (“HVAC”) serving the Premises in good operating condition and shall furnish heat, ventilating and air conditioning in the Premises as may be reasonably required for reasonably comfortable occupancy of the Premises (as determined by Tenant) during all hours of all days in which Tenant elects to operate from all or any portion of the Premises. Landlord agrees to install controls within the Premises that will allow Tenant to set and freely adjust all HVAC operating hours and temperature levels for the Premises. The HVAC design for the Premises shall be engineered so that the area of the Premises to be occupied by Tenant’s credit department, as

 

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shown in the floor plan(s) attached hereto as Exhibit “C” , will be supplied with separate HVAC service. The HVAC design and specifications shall be set forth in the Plans. Finally, Landlord acknowledges that Tenant will be installing specialized HVAC units in Tenant’s server/computer room which will require adequate electrical supply to run 24 hours a day, 7 days a week. The expenses incurred by Landlord for maintaining the HVAC shall be included in Expenses.

9.3 Electricity and Telephone . Tenant’s use of electrical energy in the Premises shall not, at any time, exceed the capacity of any of the electrical conductors and equipment in or otherwise serving the Premises provided that the such capacity and equipment is otherwise constructed and installed in accordance with the Plans. In order to insure that such capacity is not exceeded and to avert possible adverse effects upon the Premises’ electrical service, Tenant shall not, without Landlord’s prior written consent in each instance connect appliances or equipment to the Premises, electric distribution system, telephone system or make any alteration or addition to the electrical system of the Premises existing on the Commencement Date. The immediately preceding sentence shall be inapplicable to normal office equipment and lighting, and instead, is intended to apply only to non-standard equipment drawing substantial electrical current such as supplemental HVAC units and the like. Should Landlord grant its consent for such non-standard equipment, all additional risers or other equipment required therefor (only to the extent same shall exceed the electrical capacity and equipment contemplated as part of Landlord’s Work) shall be provided by Landlord and the cost thereof shall be paid by Tenant upon Landlord’s demand. Tenant agrees that it shall arrange for billing and payment of Tenant’s electric and telephone consumption within the Premises directly with the local utility provider.

9.4 Elevator, Water, Directory . The use of any elevators within the Premises shall be available to Tenant 24 hours per day, 365 days per year. Landlord shall furnish adequate hot and cold water to the Premises for drinking, lavatory and cleaning purposes. Landlord at its expense shall provide Tenant with its own exclusive water meter and Tenant shall pay the cost of such usage directly to the utility company. The building directory shall be for the exclusive use of Tenant.

9.5. Janitorial, Trash . Tenant shall, at its cost and expense, arrange for janitorial cleaning services to the interior of the Premises. However, Landlord shall be responsible for cleaning and maintaining the exterior of the Premises (including the exterior windows thereof) and the Common Areas in a first class condition. Landlord agrees, as part of Landlord’s Work, to provide an outside trash enclosure for Tenant’s exclusive use in the location identified on the site plan attached hereto as Exhibit “B” . Tenant agrees, at its sole cost and expense, to contract with a waste management company to provide trash removal services for the interior of the Premises as well as the exterior trash enclosure area.

9.6. Availability of Service and Right to Stop Service . All of Landlord’s services will be provided 24 hours per day, 365 days per year, except as expressly provided otherwise in this Article 9 . Subject to Tenant’s right to abate Rent and cancel this Lease as contemplated by Section 9.8 , Landlord reserves the right, without any liability to Tenant and without affecting Tenant’s covenants and obligations hereunder, to stop service of the heating, air conditioning, electric, sanitary, elevator or other building systems serving the Premises, or to stop any other services required by Landlord under this Lease, whenever and for so long as may be necessary, by reason of accidents, emergencies, blackouts, strikes or the making of repairs or changes which Landlord is required by this Lease or by Governmental Requirement to make or in good faith deems necessary, by reason of difficulty in securing proper supplies of fuel, steam, water electricity, labor or supplies, or by reason of any other cause beyond Landlord’s reasonable control. Notwithstanding the foregoing, Landlord is required to use all reasonable efforts to restore services as quickly as possible after disruption of same.

9.7. Availability of Landlord’s Representative . A representative of Landlord (or Property manager) will be available 24 hours per day, 365 days per year.

9.8 Except as otherwise provided herein, Landlord shall have no liability to Tenant, nor shall Tenant’s covenants and obligations hereunder be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord’s making any repairs or changes which Landlord is required or permitted by this Lease, or required by Governmental Requirement, to make in or to any portion of the Premises or the Common Areas, in or to the fixtures, equipment or appurtenances of the Premises. Notwithstanding the foregoing, Landlord’s maintenance and repair obligations shall be performed in such a manner as to minimize disruption of Tenant’s normal business operations. Further, in the event of any disruption of service(s) that in Tenant’s reasonable opinion renders the Premises unusable for Tenant’s normal business operations and continues for more than one (1) business day: all Rent shall abate on a per diem basis for each subsequent day in which the Premises remain in such unusable condition; and except as provided otherwise in case of casualty, Tenant shall be entitled to cancel this Lease if the Premises remain in such unusable condition for a continuous period of thirty (30) days. As used herein, unusable includes HVAC services failing to maintain an ambient temperature throughout the office portion of the Premises as contemplated by the operating parameters for HVAC set forth in the Preliminary Plans.

 

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10. INSURANCE; INDEMNITY .

10.1 Tenant, at its sole cost and expense, shall, throughout the Term, procure and maintain:

10.1.1 Commercial general liability insurance with respect to the Premises and Tenant’s activities therein and thereabout, insuring against liability for personal injury, death and property damage, including liability arising out of Tenant’s indemnity set forth in this Lease (contractual liability endorsement), with a combined single limit of not less than $3,000,000.00 per occurrence;

10.1.2 Worker’s Compensation Insurance in at least the statutorily required amounts; and

10.1.3 “Causes of Loss – Special Form” property insurance in an amount adequate to cover the replacement costs of all personal property, decorations, trade fixtures, furnishings, equipment and all contents of the Premises (excluding, however, any leasehold improvements).

10.2 Tenant’s insurance shall be with a Best’s A- rated company licensed to transact business in the State of Florida. Landlord shall be named as an additional insured under Tenant’s commercial general liability insurance, and such insurance shall be primary and non-contributing with any insurance carried by Landlord. Tenant’s insurance policies shall contain a provision or endorsement requiring thirty (30) days notice to Landlord prior to any cancellation or any reduction in amount of coverage below the amount required under this Lease. Tenant shall deliver to Landlord as a condition precedent to its taking occupancy of the Premises (but not to its obligation to pay Rent), a certificate or certificates of insurance evidencing the coverages required under this Lease, and Tenant shall upon the expiration of such policies, deliver to Landlord certificate(s) of insurance evidencing the renewal of such policies.

10.3 Landlord shall, throughout the Term, procure and maintain:

10.3.1 Commercial general liability insurance with respect to the Premises and the Common Areas and Landlord’s activities therein and thereabout, insuring against liability for personal injury, death and property damage, including liability arising out of Landlord’s indemnity set forth in this Lease (contractual liability endorsement), with a combined single limit of not less than $3,000,000.00 per occurrence; and

10.3.2 “Causes of Loss – Special Form” property insurance covering the Premises and the Common Areas, including without limitation the leasehold improvements in the Premises, in an amount equal to one-hundred percent (100%) of the full insurable value thereof (actual replacement value, without deduction for physical depreciation as such may be adjusted to account for increased replacement costs).

10.4 Landlord’s insurance shall be with a Best’s A- rated company licensed to transact business in the State of Florida. Tenant shall be named as an additional insured under Landlord’s insurance, and such insurance shall be primary and non-contributing with any insurance carried by Tenant. Landlord’s insurance policies shall contain a provision or endorsement requiring thirty (30) days notice to Tenant prior to any cancellation or any reduction in amount of coverage below the amount required under this Lease. Landlord shall deliver to Tenant prior to Tenant taking occupancy of the Premises a certificate or certificates of insurance evidencing the coverages required under this Lease, and Landlord shall upon the expiration of such policies, deliver to Tenant certificate(s) of insurance evidencing the renewal of such policies.

10.5 Tenant, as a material part of the consideration to be rendered to Landlord, hereby agrees that it will indemnify Landlord and save it harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence within the Premises, or the occupancy or use by Tenant of the Premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, employees, licensees or contractors in or about the Premises. In case Landlord shall be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses and reasonable attorney’s fees incurred or paid by Landlord in connection with such litigation, unless Landlord is made a party to such litigation because of any act or omission of Landlord, its agents, employees, licensees or contractors. Notwithstanding anything to the contrary in this Lease: (i) the amounts of insurance required of Tenant shall not be construed in any manner whatsoever so as to limit Tenant’s liability hereunder and Tenant’s indemnification and holding harmless of Landlord shall survive the termination of this Lease; and (ii) no indemnity by Tenant shall extend to claims arising by virtue of acts or omissions of (a) Tenant’s invitees or (b) Landlord, its agents, employees,

 

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licensees, invitees or contractors. Further, under no circumstances shall Tenant be liable for claims arising outside of the Premises unless resulting from Tenant’s negligent or wrongful acts.

10.6 Landlord, as a material part of the consideration to be rendered to Tenant, hereby agrees that it will indemnify Tenant and save it harmless from and against any and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence within the Common Areas, or in any way connected with Landlord’s use, occupancy, management or control of the Project or the Land, or occasioned wholly or in part by any act or omission of Landlord, its agents, employees, licensees or contractors in or about the Project. In case Tenant shall be made a party to any litigation commenced by or against Landlord, then Landlord shall protect and hold Tenant harmless and shall pay all costs, expenses and reasonable attorney’s fees incurred or paid by Tenant in connection with such litigation, unless Tenant is made a party to such litigation because of any act or omission of Tenant, its agents, employees, licensees or contractors. Notwithstanding anything herein to the contrary, in no event shall Landlord’s indemnity extend to negligent or wrongful acts or omissions of Tenant, its agents, employees or contractors.

10.7 The indemnity obligations of each party hereunder shall survive expiration or termination of this Lease.

11. WAIVER OF SUBROGATION . Tenant and Landlord release each other and waive any right of recovery against each other for loss or damage to their respective property or to the Premises (whether due to the negligence of either party, their agents, employees, licensees, invitees or otherwise) to the extent that such loss or damage would be covered by “Causes of Loss – Special Form” property insurance, irrespective of whether either party actually maintains such insurance. Tenant and Landlord agree that all policies of insurance obtained by either of them in connection with the Premises shall contain appropriate waiver of subrogation clauses, if necessary.

12. REPAIRS .

12.1 Each party (the “first party” only for purposes of this Section ) shall have the right at any time, upon expiration of the applicable grace period set forth in this Lease regarding default of the other party (or without notice in case of emergence), to make any payment or perform any act required of the other party under any provision in this Lease, and in exercising such right, to incur necessary and incidental costs and expenses, including reasonable attorney fees. Nothing herein shall imply any obligation on the part of the first party to make any payment or perform any act required of the other party, and the exercise of the right to do so shall not constitute a release of any obligation or a waiver of any default.

12.2 Subject to the arbitration provisions set forth in this Section , all payments made and all costs and expenses incurred in connection with any exercise of the right set forth in Section 12.1 shall be reimbursed by the other party to the first party within thirty (30) days after the other party’s receipt of a bill setting forth the amounts so expended and supporting documentation including paid receipts, together with interest at the Default Rate from the respective dates of the making of such payments or the incurring of such costs and expenses; and any such payment by Tenant may be offset against Rent if not paid within said thirty (30) day period. Any payment so made by Landlord shall be treated as Additional Rent owed by Tenant. If either party should dispute in writing the first party’s entitlement to such amounts within fifteen (15) days after its receipt of an invoice for the same, then first party’s entitlement to such amounts shall be subject to mediation or arbitration as provided in this Section . The parties shall first engage the services of a professional mediator and attempt to resolve the dispute by mutual agreement following mediation. If the parties fail to agree upon a mediator within three (3) days following demand by either party, or if the parties fail to resolve the dispute through mutual agreement following such mediation, the parties shall then attempt to agree upon an arbitrator within ten (10) days following mediation (or their inability to agree upon a mediator within three (3) days following demand by either party). If the parties cannot agree on an arbitrator within said ten (10) days, then each party shall select one (1) arbitrator within ten (10) days following the mediation. If either party should fail to designate an arbitrator within said ten (10) day period, then the arbitrator selected within said period by the other party shall be deemed the arbitrator. If each of the parties select an arbitrator within said ten (10) day period, each of the arbitrators so selected shall select a third arbitrator. In the event the arbitrators selected by the parties cannot agree on a third arbitrator, then the arbitrator shall be selected by the American Arbitrator Association. The third arbitrator so selected shall conduct the arbitration as the sole arbitrator. Each mediator and arbitrator shall be knowledgeable and have experience in the particular matter in question. The mediation and arbitration shall be conducted in Broward County, Florida. The arbitration shall be conducted in accordance with the then-prevailing rules of the American Arbitration Association. The decision rendered by the arbitrator shall be binding upon the parties, and Tenant may offset against Rent any award of the arbitrator in Tenant’s favor. All costs of arbitration and reasonable attorneys’ fees shall be paid by the non-prevailing party. If neither party substantially entirely prevails, the arbitrator shall apportion the costs and reasonable attorneys’ fees.

 

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13. TENANT’S PROPERTY . Furnishings, trade fixtures, equipment, inventory and other personal property (collectively, “Tenant’s Property”) installed by or for Tenant and paid for by Tenant shall be the property of Tenant. Any of Tenant’s Property paid for by Landlord shall remain the property of Landlord until the earlier of the expiration date of the initial term of this Lease or the date Tenant fully pays Landlord for such property; provided, however, Tenant shall be entitled to use same during Landlord’s ownership period. At any time during the term of this Lease, Tenant may remove any of Tenant’s Property and shall repair any damage caused by such removal. If Tenant is required by this Lease to remove any of Tenant’s Property by Lease expiration and Tenant fails to remove such property, Landlord may do so and keep and use or dispose of the same in its sole discretion without any liability to Tenant on account thereof, and further may charge the cost of any such removal, storage or disposition to Tenant. Landlord expressly waives any interest in and all rights of levy, distraint or execution with respect to Tenant’s Property, including without limitation any statutory or common law security interest or landlord’s lien for rent.

14. ALTERATIONS BY TENANT . Tenant shall not cut, drill into, disfigure, deface, or injure any part of the structure of the Premises, nor obstruct or permit any obstruction, alteration, addition, or installation to the structure of the Premises without the prior written consent of Landlord. All alterations, additions or installations, including but not limited to partitions, air conditioning ducts or equipment (excluding, however, Tenant’s Property), shall become the property of Landlord at the expiration or any earlier termination of the Term. Tenant may, at its own expense and without Landlord’s consent, from time to time, make such non-structural alterations, additions or changes in and to the Premises as it may deem necessary or suitable. All work performed by Tenant shall be done: (a) in a good and workmanlike manner, (b) with materials of the quality and appearance comparable to those in the Building, (c) in compliance with all Governmental Requirements, and (d) by contractors or mechanics fully licensed by all applicable Governmental Authorities. Prior to the commencement of any work by or for Tenant, Tenant shall furnish to Landlord certificates evidencing the existence of worker’s compensation insurance covering all persons employed for such work and with respect to whom death or bodily injury claims could be asserted against Landlord, Tenant, or the Premises. Landlord, at Tenant’s cost, shall cooperate with Tenant in securing building and other permits or authorizations required from time to time for any work permitted hereunder.

15. ASSIGNMENT; SUBLETTING . The identity and financial position of the Tenant is a material consideration of Landlord entering into this Lease. Except as otherwise provided in this Section , Tenant shall not, directly or indirectly, assign this Lease or sublet the Premises or any part thereof, nor permit all or any part of the Premises to be used or occupied by another, without first obtaining the written consent of Landlord (which consent shall not be unreasonably, withheld, delayed or conditioned). Landlord agrees, within thirty (30) days following receipt of notice from Tenant of its intent to enter into an assignment or sublease, to either approve or disapprove of the transfer in question. Landlord’s failure to notify Tenant of its disapproval within such 30 day period together with specific reasons for its disapproval shall be deemed to be an approval of the transfer in question. Any consent by Landlord, unless specifically stated therein, shall not relieve Tenant from its obligations under this Lease. The acceptance of Rent by Landlord from any other person shall neither be deemed to be a waiver of any of the provisions of this Lease nor be deemed to be a consent to the assignment of this Lease or subletting of the Premises. If Landlord shall consent to any assignment or subletting, the assignee/subtenant shall assume all obligations of Tenant hereunder arising from and after the effective date of such assignment or sublease (provided, however, if any subtenant is subleasing only a portion of the Premises, then said subtenant only assumes the obligations of Tenant with respect to the subleased portion of the Premises), and Tenant shall not thereafter be relieved of any liability hereunder in the performance of any of the terms, covenants and conditions hereof. In the event Tenant shall request the consent of Landlord to any assignment or subletting of this Lease, Tenant shall pay, as Additional Rent, an administrative fee equal to Five Hundred Dollars ($500.00). Tenant hereby acknowledges and agrees that the acceptance of such administrative fee by Landlord shall not constitute a consent by Landlord to the proposed assignment or sublease. Notwithstanding anything herein to the contrary, Tenant shall have the right, without obtaining Landlord’s consent, to assign this Lease, sublet the Premises or any part thereof or otherwise transfer its interest under this Lease to the following persons or entities: (i) any person or entity that controls, is controlled by, or under common control with Tenant; (ii) any person or entity that acquires or merges (or otherwise consolidates) with Tenant or that Tenant is merged (or otherwise consolidated) into; and/or (iii) any person or entity to which a substantial portion of Tenant’s assets are transferred.

16. LIENS . Notwithstanding any provision of this Lease to the contrary, Tenant shall never, under any circumstances, have the power to subject the interest of Landlord in the Premises or the Land to any mechanics’ or materialmen’s liens or liens of any kind nor shall any provision in this Lease ever be construed as empowering Tenant to encumber or cause Tenant to encumber the title or interest of Landlord in the Premises or the Land. In order to comply with the provisions of Section 713.10 Florida Statutes, it is specifically provided that neither Tenant nor anyone claiming by, through or under Tenant, including but not limited to contractors, subcontractors, materialmen, mechanics and laborers, shall have any right to file or place any kind of lien whatsoever upon the Premises or the Land or any improvement thereon, and any such liens are specifically prohibited. All parties with whom Tenant may deal are put on notice that Tenant has no power to subject Landlord’s interest to any claim or lien of any kind or character, and all such persons so dealing with Tenant must look solely to the credit of Tenant, and not to Landlord’s interest or assets. Tenant shall put all

 

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such parties with whom Tenant may deal on notice of the terms of this Section. If at any time a lien or encumbrance is filed against the Premises or the Land as a result of Tenant’s work, materials or obligations, Tenant shall promptly bond over or discharge said lien or encumbrance, and if said lien or encumbrance has not been bonded or removed within twenty (20) days from the date Tenant receives written notice of such filing from Landlord, Tenant agrees that Landlord shall have the right to bond over or otherwise discharge said lien. Tenant agrees, within thirty (30) days after receipt of a detailed bill, to reimburse Landlord for all reasonable costs incurred by Landlord in exercising its rights pursuant to the immediately foregoing sentence.

17. CASUALTY/DAMAGE AND DESTRUCTION . If during the Term hereof the Premises and/or the Common Areas is damaged by reason of fire or other casualty, Tenant shall give immediate notice to Landlord as soon as practicable after learning of such casualty. If the Premises and/or the Common Areas shall at any time be damaged or destroyed by fire or other casualty, Landlord shall promptly repair or rebuild the same, at Landlord’s expense, to the extent it is necessary to make the Premises and/or the Common Areas at least equal in value to that existing immediately prior to such casualty (including without limitation reconstructing Landlord’s Work) and as nearly similar to it in character as shall be practicable and reasonable. All Rent (or in case of partial destruction of the Premises and/or the Common Areas, in proportion to the degree of the Premises and/or the Common Areas in which Tenant determines in its reasonable judgment that it is unable to use or conduct its normal business affairs) shall abate until a date which is the earlier of (i) thirty (30) days after Landlord completes reconstruction as required or (ii) the date on which Tenant occupies the Premises for conducting of its normal business affairs. If the Premises shall be so damaged by fire or otherwise within the last twenty-four (24) months of the Term such that the cost of restoration shall exceed fifty percent (50%) of the replacement value thereof, exclusive of foundations, immediately prior to such damage, Landlord may, within 60 days of such damage, give notice to Tenant of its election to terminate this Lease and, unless within thirty (30) days after receipt of such notice Tenant chooses to exercise any available renewal option, subject to the further provisions of this Section , this Lease shall cease and come to an end on the date of the expiration of thirty (30) days from the delivery of such notice with the same force and effect as if such date were the date hereinbefore fixed for the expiration of the Term, and the Rent shall be apportioned and paid to the time of such termination. In such event, the entire insurance proceeds shall be and remain the outright property of Landlord. Notwithstanding anything herein to the contrary, if Landlord does not commence casualty repairs within ninety (90) days after the occurrence of a casualty (subject, however, to delays due to force majeure or receipt of insurance proceeds from its insurance company, provided Landlord diligently and in good faith pursues receipt of insurance proceeds and no such delay is as a result of the acts or omissions of Landlord), Tenant shall be entitled to cancel this Lease by notice of cancellation given to Landlord prior to commencement of casualty repairs; and if Landlord does not complete casualty repairs as required within one hundred eighty (180) days after the date of the casualty plus up to ninety (90) days on account of occurrence of force majeure events after the date Landlord commences its restoration, Tenant shall be entitled to cancel this Lease by notice of cancellation given to Landlord prior to completion of casualty repairs pursuant to this Section .

18. CONDEMNATION . If all or any part of the Premises shall be taken under power of eminent domain or like power, or sold under imminent threat thereof to any public authority or private entity having such power, this Lease shall terminate as to the part of the Premises so taken or sold, effective as of the date possession is required to be delivered to such authority or entity. Rent for the remaining Term shall be reduced in the proportion that the Premises is reduced by the taking. If a partial taking or sale of the Premises (i) reduces the size of the Premises by more than twenty percent (20%), or (ii) renders the Premises commercially unviable to Tenant (in Tenant’s reasonable discretion), Tenant may terminate this Lease by notice to Landlord given within sixty (60) days after Tenant receives written notice from landlord of the portion to be taken or sold; such termination to be effective on the date set forth in said notice to Landlord or when the portion is taken or sold, whichever is sooner. All condemnation awards and similar payments shall be paid and belong to Landlord, except any amounts awarded or paid specifically for Tenant’s trade fixtures and relocation costs. Without limiting the generality of the foregoing, all leasehold interest awards shall belong to and be paid to Landlord, and Tenant shall execute any assignment or other documentation requested by Landlord to effectuate such award or payment. Notwithstanding the foregoing, Tenant shall be entitled to make a separate claim (and receive compensation as permitted by Law) against the condemning authority for Tenant’s loss of property, improvement expenses and business damages.

19. ACCESS . Upon reasonable notice to Tenant (which at a minimum shall be two (2) business days), except in the case of an emergency (in which case Landlord shall give Tenant such advance notice as is practical under the circumstances), Landlord shall be permitted to enter the Premises at all reasonable times for the purposes of inspecting and repairing the Premises, ascertaining compliance by Tenant with the provisions of this Lease or otherwise performing its obligations under this Lease. Upon reasonable notice to Tenant (which at a minimum shall be three (3) business day), Landlord may, during Tenant’s normal business hours, show the Premises to prospective purchasers or mortgagees. During the last twelve (12) months of the Term and upon reasonable notice to Tenant (which at a minimum shall be three (3) business day), Landlord may, during Tenant’s normal business hours, show the Premises to prospective tenants. In exercising its access rights under this Section , Landlord shall use reasonable efforts so as to minimize any inconvenience to or disruption of Tenant’s normal business operations (which means Landlord shall cooperate with Tenant by scheduling any non-emergency repairs at a time as is reasonably convenient for Tenant so as not to interfere with its normal

 

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business operations). Notwithstanding anything to the contrary in this Lease, Tenant has the right to designate certain areas within the Premises as “secured areas” (e.g., vault room and server/computer room) and Landlord is not allowed access to such areas during the term of this Lease, except as approved by Tenant in each instance and during any such access Landlord must be accompanied by a representative of Tenant. Except for interruptions due to any casualty or condemnation, Landlord shall ensure that Tenant’s access to the Premises from a public right-of-way and parking exists twenty-four (24) hours per day, three hundred sixty-five (365) days per year substantially in accordance with the layout shown on the site plan attached hereto as Exhibit “B” .

20. SIGNS . In the event Tenant desires to install any signs on the exterior of the Premises or in the interior which are visible from the public roadways adjacent to the Project, then Tenant may do so, provided said signs are approved by Landlord (which approval shall not be unreasonably withheld, delayed or conditioned), and further provided Tenant does so in compliance with Governmental Requirements, including, without limitation, all requirements imposed by the City of Tamarac. Upon expiration or termination of this Lease, all signs installed by Tenant pursuant to this Section shall be removed and any damage resulting therefrom shall be promptly repaired, otherwise such removal and repair may be done by Landlord and the cost thereof charged to Tenant as Additional Rent hereunder.

21. TENANT’S DEFAULT .

21.1 All rights and remedies of Landlord herein enumerated shall be cumulative, and none shall exclude any other rights or remedies allowed by law or in equity. The occurrence of any of the following shall constitute an “Event of Default” under this Lease by Tenant: (i) Tenant shall fail to make payment of any monthly installment of Rent, Additional Rent, or any other charges hereunder in the amount as herein provided within ten (10) days after the date Tenant receives written notice from Landlord of such late payment; (ii) Tenant shall violate or fail to perform any of the other terms, covenants or conditions herein made by Tenant, and such violation or failure shall continue for a period of thirty (30) days after written notice thereof to Tenant by Landlord or, if such violation or failure shall reasonably require longer than thirty (30) days to cure, if Tenant shall fail to commence to cure same within thirty (30) days after receipt of notice thereof and thereafter continuously prosecute the curing of the same to completion with due diligence; (iii) Tenant shall make a general assignment for the benefit of its creditors or shall file a petition for bankruptcy or other reorganization, liquidation, dissolution or similar relief; (iv) a proceeding is filed against Tenant seeking any relief mentioned in (iii) above and said proceeding is not discharged within one hundred twenty (120) days of the filing thereof; (v) a trustee, receiver or liquidator shall be appointed for Tenant on a substantial part of its property located at the Premises and said trustee, receiver or liquidator is not dismissed within one hundred twenty (120) days of the appointment thereof; or (vi) Tenant enter into an assignment or sublease other than as specifically permitted under this Lease.

21.2 After the occurrence of an Event of Default, Landlord, in its sole discretion, may, at any time thereafter:

21.2.1 Declare the entire balance of all forms of Rent and Additional Rent due under this Lease for the remainder of the then current term of the Lease (the “Accelerated Period”) to be due and payable and may collect the then present value of the same, calculated using a discount rate equal to the prime rate (as published by the Wall Street Journal) plus 2%;

21.2.2 Terminate Tenant’s right to occupy the Premises;

21.2.3 Enter the Premises and re-let the same or any part of the Premises in the name of Landlord, or otherwise, as Tenant’s agent, for a term shorter or longer than the balance of the Term, and may grant concessions or free rent in connection therewith, thereby terminating Tenant’s right to possess the Premises, without terminating Tenant’s obligations to pay the entire balance of all forms of Rent and Additional Rent in accordance with Florida law for the remainder of the Term, plus brokerage commissions incurred by Landlord in connection with any reletting of the Premises. Landlord shall have no obligation to re-let the Premises, and its failure to do so, or failure to collect rent on re-letting, shall not affect Tenant’s liability under this Lease. In no event shall Tenant be entitled to a credit or repayment for re-rental income which is payable by Tenant under this Lease or which covers a period after the original term of this Lease; and/or

21.2.4 Terminate this Lease and any right of renewal and retake possession of the Premises.

In the event Landlord elects to accelerate rent under Section 21.2.1, Landlord agrees that in the event Landlord relets all or any portion of the Premises during any portion of the Accelerated Period, then, within five (5) days after receiving any rental payments on account of such reletting, Landlord shall pay Tenant that portion of said rental payments equal to the Rent and Additional Rent that would have been due under this Lease for the same period. Landlord’s obligation to pay Tenant said rental payments shall

 

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apply only to those rental payments received by Landlord that relate to the Accelerated Period. Landlord’s obligations under this paragraph shall survive termination of the Lease.

21.3 Any and all property which may be removed from the Premises by Landlord, pursuant to the authority of this Lease or of law, to which Tenant is or may be entitled, may be handled, removed or stored by Landlord at the sole risk, cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all reasonable expenses incurred in such removal and all storage charges against such property. Any such property of Tenant not removed from the Premises or retaken from storage by Tenant within thirty (30) days after the end of the Term or of Tenant’s right to possession of the Premises, however terminated, shall be conclusively deemed to have been forever abandoned by Tenant and may either be retained by Landlord as its property or may be disposed of in such manner as Landlord may see fit in its sole discretion.

21.4 If any of Tenant’s checks for Rent are dishonored by Tenant’s bank, the amount due shall be subject to Late Charges as outlined in Section 3.1 . In addition thereto, Tenant shall pay to Landlord a service charge covering administrative expenses relating hereto in the amount of One Hundred Dollars ($100.00) per such check.

21.5 In addition to the Late Charge, any payments required to be made by Tenant under the provisions of this Lease not made by Tenant when and as due shall, from the date when the particular amount became due to the date of payment thereof to Landlord, bear interest at the rate of twelve percent (12%) per annum or the maximum lawful rate of interest allowed by law (whichever is lower). Notwithstanding anything to the contrary in this Lease, Tenant does not intend or expect to pay, nor does Landlord expect to charge, accept, or collect any Rent, Late Charge or interest which collectively would be greater than the highest legal rate of interest which may be charged under the laws of the State of Florida.

22. QUIET ENJOYMENT . If and so long as Tenant pays all Rent and keeps and performs each and every term, covenant and condition herein contained on the part of Tenant to be kept and performed, Tenant shall quietly occupy and enjoy the Premises without hindrance, molestation or interference by Landlord or any party claiming by, under or through Landlord.

23. HOLDOVER TENANCY . If Tenant shall hold over after the expiration of the Term, at Landlord’s option, Tenant may be deemed to be occupying the Premises as a tenant from month to month, which tenancy may be terminated by thirty (30) days notice. During such tenancy, Tenant agrees to pay to Landlord, monthly in advance, Base Rent in an amount equal to one hundred fifty percent (150%) of the monthly installment of Base Rent which was payable on the last day of the Term (unless a different rate is agreed upon), plus Additional Rent at the same rate as due on the last day of the Term, and to be bound by all of the terms, covenants and conditions herein specified. Notwithstanding the foregoing, Tenant shall be entitled to holdover in the Premises on a month-to-month basis, for up to three (3) months at a monthly rate equal to the last month of the Term or renewal term (as the case may be), by notifying Landlord of such holdover not less than 6 months prior to expiration of the Term or renewal term.

24. AMENDMENT; WAIVER; APPROVAL; CONSENT . This Lease constitutes the entire agreement between the parties with respect to the Project, and no representations, except as herein expressly set forth, have been made by any party to the other. Neither Landlord nor Tenant shall, in any way or for any purpose, become or be deemed to be a partner, employer, principal, master, agent or joint venturer of or with the other. This Lease shall not be amended or modified except in writing signed by both parties. Failure of either party to exercise any of its rights in one or more instances shall not be construed as a waiver of said party’s right to strict performance of such rights or as to any subsequent breach of any such rights. Wherever this Lease requires either the Landlord’s consent or approval, such consent or approval shall only be deemed given when in writing and, unless set forth expressly to the contrary, such consent or approval shall not be unreasonably withheld, conditioned or delayed.

 

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25. NOTICES . All notices, communications and statements required or permitted under this Lease shall be in writing, delivered in person or sent by United States Registered or Certified Mail, return receipt requested, with postage prepaid, or Express Mail or Federal Express (or other similar courier service having a delivery system which provides for or makes available a signed receipt of delivery) addressed to the parties as follows:

 

AS TO TENANT (Before Lease Commencement):    TENANT (After Lease Commencement):

Marc Weinstein

  

At the Leased Premises

Senior Vice President

  

Attention: Senior Vice President

Mayor’s Jewelers of Florida, Inc.

  

14051 N.W. 14 th Street

  

Sunrise, Florida 33323

  

Fax: (954) 846-2715

  

WITH A COPY TO (Before and After Lease Commencement):

Holland & Knight LLP

  

One East Broward Boulevard

  

Suite 1300

  

Fort Lauderdale, Florida 33301

  

Attention: Robert M. Motes, Esq.

  
AS TO LANDLORD:    WITH A COPY TO:

c/o BUTTERS REALTY & MANAGEMENT LLC

  

Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.

1096 East Newport Center Drive

  

200 East Broward Boulevard

Suite # 100

  

Suite 1900

Deerfield Beach, Florida 33442

  

Fort Lauderdale, Florida 33301

Fax (954) 570-8844

  

Attention: Peter Desiderio

Mail service shall be deemed effective upon the earlier of either seventy-two (72) hours after deposit in the U.S. mail in accordance herewith or upon receipt or refusal to accept receipt by a reputable courier service. Either party by written notice to the other may designate additional parties to receive copies of notices sent to it. Such designees may be changed by written notice. Either party may at any time, in the manner set forth for giving notice to the other, designate a different address to which notices, communication and statements to it shall be sent.

26. SCHEDULES; EXHIBITS . All schedules, exhibits and typewritten riders, if any, attached or added hereto are made a part of this Lease by reference and the terms, covenants, and conditions thereof shall control over any inconsistent provisions in the Sections of this Lease.

27. LIMITATION OF LANDLORD’S LIABILITY . The term “Landlord” as used herein shall mean only the owner or owners, at the time in question, of the fee title to the Land. In the event of any transfer of such title or interest, Landlord herein named (and in the case of any subsequent transfers, then the grantor) shall be relieved from and after the date of such transfer of all liability in respect of Landlord’s obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Landlord (or the then grantor) shall be binding on Landlord’s (or the then grantor’s) successors and assigns and the liabilities of Landlord (or the then grantor) hereunder shall be deemed assumed by Landlord’s (or the then grantor’s) successors and assigns, only during their respective periods of ownership. The obligations of Landlord under this Lease do not constitute personal obligations of Landlord or the individual partners, shareholders, directors, and officers, and Tenant shall look solely to Landlord’s then existing interest in the Land and the Premises, and to no other assets of Landlord, for satisfaction of any liability in respect of this Lease, and will not seek recourse against the individual partners, shareholders, directors, officers, or any of their personal assets for such satisfaction.

28. LANDLORD’S RESERVED RIGHTS . With prior written notice to Tenant, but without being required to obtain Tenant’s consent, Landlord shall have the right to sell the Premises (or any portion(s) thereof) and assign this Lease to the purchaser, and upon such sale Landlord shall be released from all of its obligations under this Lease, provided that the purchaser, in a written instrument, assumes in full all of Landlord’s obligations and liabilities under this Lease; and Tenant agrees to attorn to such purchaser, or any other successor or assign of Landlord through foreclosure or deed in lieu of foreclosure or otherwise, and to recognize such person as successor Landlord under this Lease, and such successor Landlord shall be bound by all of the terms of this Lease for the remainder of the Term (and any renewals thereof) and shall be deemed to have assumed in full all Landlord’s obligations and liabilities under this Lease.

 

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29. ESTOPPEL CERTIFICATE . Within thirty (30) days after written request of either party hereto (the Requesting Party), the other party hereto (the Responding Party) shall execute and deliver at no charge to the Requesting Party or its designee, a written statement certifying: (i) that this Lease is unmodified and in full force and effect, or is in full force and effect as modified and stating the modifications; (ii) the amount of Rent and the date to which Rent has been paid in advance; (iii) the amount of any security deposited with Landlord; and (iv) that to the actual knowledge of the Responding Party (without investigation) there is no then existing default under the Lease or, if the Responding Party claims there is a default, stating the nature of any claimed default. Any such statement by the Responding Party may be relied upon by a purchaser, lender or subtenant of the Premises, or any assignee of this Lease.

30. ACCORD AND SATISFACTION . No receipt and retention by Landlord of any payment tendered by Tenant in connection with this Lease shall give rise to or support or constitute an accord or satisfaction, or a compromise or other settlement, notwithstanding any accompanying statement, instruction or other assertion to the contrary (whether by notation on a check or in a transmittal letter or otherwise), unless Landlord expressly agrees to an accord and satisfaction, or a compromise or other settlement, in a separate writing duly executed by Landlord. Landlord may receive and retain, absolutely and for itself, any and all payments so tendered, notwithstanding any accompanying instructions by Tenant to the contrary.

31. SEVERABILITY . The parties intend this Lease to be legally valid and enforceable in accordance with all of its terms, covenants and conditions to the fullest extent permitted by law. If any term, covenant or condition hereof shall be invalid or unenforceable, the parties agree that such term, covenant or condition shall be stricken from this Lease, the same as if it never had been contained herein. Such invalidity or unenforceability shall not extend to any other term, covenant or condition of this Lease, and the remaining terms, covenants or conditions hereof shall continue in effect to the fullest extent permitted by law, the same as if such stricken term, covenant and condition never had been contained herein.

32. SUBORDINATION . Provided Tenant receives a fully executed subordination, non-disturbance and attornment agreement (“SNDA”), in a form reasonable acceptable to Tenant, from the mortgagee or holder of any Superior Instrument, the rights of Tenant hereunder are and shall be, at the election of any mortgagee, subordinate to the lien of any mortgage or mortgages, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the Land or the Premises (or any portion(s) thereof), and to all advances made or hereafter to be made upon the security thereof and all renewals, modifications or extensions thereof (collectively, the “Superior Instruments”). At a minimum, the SNDA shall provide as follows: any person acquiring title to the Premises through foreclosure or deed in lieu of foreclosure, or otherwise shall honor the terms of this Lease so long as Tenant is not in default thereunder beyond any applicable notice and cure period(s); although the holder of the Superior Instrument shall not be personally liable for any default of Landlord, Tenant shall nonetheless be entitled to any abatements or offsets regarding rent as are expressly provided by this Lease; and although this Lease shall be subordinate to any such Superior Instrument, it shall not be subject to any of the same. Landlord warrants and represents that the Land and the Premises is currently not subject to any Superior Instruments except as follows: mortgage in favor of Bank of America, N.A.(the “Existing Mortgage”). If Landlord fails to deliver to Tenant prior to the Completion Date a SNDA, in a form reasonable acceptable to Tenant and meeting the minimum requirements of this Section , having been signed in recordable form by the holder of the Existing Mortgage or any then existing Superior Instrument, Tenant shall be entitled to cancel this Lease by notice to Landlord.

33. TIME . Time is of the essence of this Lease with respect to all obligations hereunder and applies to all terms, covenants, and conditions contained herein with respect to either party’s obligations hereunder. All “days” set forth in this Lease shall be deemed to be “calendar days” unless specifically stated to the contrary.

34. SUCCESSORS AND ASSIGNS . All terms and conditions to be observed and performed by Landlord and Tenant hereunder shall be applicable to and binding upon their respective heirs, administrators, executors, and permitted successors and assigns. All expressed covenants of this Lease shall be deemed to be covenants running with the land.

35. CAPTIONS AND SECTION NUMBERS . The captions and section numbers are for convenience of reference only and in no way shall be used to construe or modify the provisions set forth in this Lease. It is understood and agreed that verbs and pronouns in the singular number are uniformly used throughout this Lease regardless of gender, number of the parties hereto.

36. AUTHORITY . The person executing this Lease, on behalf of Tenant, does hereby covenant and warrant that Tenant is duly authorized to transact business, is in good standing and existing, that Tenant is qualified to do business in the State of Florida, Tenant has full right and authority to enter into this Lease, and that the persons signing on behalf of Tenant were authorized to do so. The person executing this Lease, on behalf of Landlord, does hereby covenant and warrant that Landlord is duly authorized to transact

 

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business, is in good standing and existing, that Landlord is qualified to do business in the State of Florida, Landlord has full right and authority to enter into this Lease, and that the persons signing on behalf of Landlord were authorized to do so.

37. APPLICABLE LAW . This Lease shall be construed according to the laws of the State of Florida. Should any provision of this Lease require judicial interpretation, it is agreed by the parties hereto that the court interpreting or construing the same shall not apply a presumption that any such provision shall be more strictly construed against the party who itself or through its agent prepared the same, as all parties have participated in the preparation of the provisions of this Lease and that all terms, covenants and conditions were negotiable.

38. BROKER INDEMNIFICATION . As part of the consideration for the granting of this Lease, Landlord and tenant each represents and warrants to the other that no broker or agent negotiated or was instrumental in negotiating or consummating this Lease, other than Stiles Realty, representing Tenant, and Butters Realty & Management, representing Landlord, and each party shall indemnify and hold the other harmless against and from all liabilities arising from any such claims caused or incurred by it (including without limitation, the cost of attorneys’ fees in connection therewith). Landlord shall be solely responsible for the commission or fee due Stiles Realty and Butters Realty & Management.

39. SURRENDER OF PREMISES . Tenant agrees to surrender to Landlord, at the end of the Term or upon any earlier termination of this Lease, the Premises in (i) broom-clean condition; (ii) Tenant shall remove its trade fixtures, furnishings and equipment from the Premises and shall repair any damage caused by such removal; and (iii) Tenant shall also remove all rubbish from the Premises. If Tenant fails to surrender possession of the Premises as required hereunder, Tenant hereby expressly authorizes Landlord, as agent of Tenant, to remove such rubbish and make such repairs as may be necessary to restore the Premises to such condition, at the sole cost and expense of Tenant.

40. ATTORNEYS’ FEES . If either party herein brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to its costs and reasonable attorney’s fees, including all appeals, from the non-prevailing party.

41. LANDLORD’S DEFAULT . Should Landlord be in default under any of the terms, covenants or conditions of this Lease, Tenant shall give Landlord prompt written notice thereof, and Tenant shall allow Landlord a reasonable length of time in which to cure such default, which time shall not, in any event be less than thirty (30) days from the date of Landlord’s receipt of such notice. If the default cannot be cured within such thirty (30) days, no event of default shall be deemed to have occurred so long as Landlord shall commence the curing of such default within the thirty (30) day period and shall thereafter diligently continue the curing of same. In the event Landlord fails to cure any such default within the period prescribed in this Section , or fails to diligently cure any such default, then, after written notice from Tenant to Landlord, Tenant may, but shall not be obligated to, perform any such obligations of Landlord, and Landlord shall upon demand reimburse Tenant for all reasonable costs incurred by Tenant in curing same. Landlord’s reimbursement obligation shall survive expiration or termination of the Lease. Notwithstanding Tenant’s right to elect to cure a Landlord default hereunder, in the event of a default by Landlord hereunder, Tenant reserves all rights and remedies at law or in equity.

42. FORCE MAJEURE . Neither party shall be required to perform any term, covenant or condition in this Lease so long as such performance is delayed or prevented by force majeure, which shall mean acts of God, material or labor shortages, restrictions by any Governmental Authority, civil riots, floods, hurricanes, and any other cause not within the reasonable control of said party.

43. TENDER AND DELIVERY OF LEASE . Submission of this Lease does not constitute an offer, right of first refusal, reservation of or option for the Premises or any part thereof. This Lease becomes effective as a lease upon execution and delivery by both Landlord and Tenant.

44. HAZARDOUS WASTE .

44.1 Tenant covenants to Landlord that Tenant’s use and activities on the Premises shall be conducted in compliance with all applicable environmental ordinances, rules, regulations, statutes, orders, and laws of all local, state, or federal agencies or bodies with jurisdiction over the Premises or the activities conducted on the Premises (hereinafter collectively referred to as the “Environmental Laws”). In the event any of Tenant’s activities require the use of “hazardous” or “toxic” substances, as such terms are defined by any of the Environmental Laws, then Tenant covenants to Landlord that Tenant shall obtain all permits and approvals required under the Environmental Laws with respect to the use of such toxic or hazardous substances.

 

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44.2 In the event Tenant breaches any of its covenants and agreements contained in Section 44.1 and as a result thereof the Premises are contaminated, Tenant shall be responsible, at its sole cost and expense, to clean-up the contamination in accordance with the requirements of applicable Environmental Laws, and to fully indemnify and hold Landlord harmless from any and all losses, liabilities, expenses (including but not limited to reasonable attorneys’ and paralegals’ fees at trial and all appellate levels) and costs incurred by Landlord in connection with Tenant’s clean-up. In the event Tenant fails to clean-up such contamination, Landlord shall have the right to initiate a clean-up of the Premises in accordance with the requirements of applicable Environmental Laws, in which case Landlord shall be reimbursed by Tenant for, and indemnified by Tenant from, any and all reasonable costs, expenses, losses, and liabilities incurred in connection with such clean-up of the Premises (including all reasonable attorneys’ and paralegals’ fees at trial and all appellate levels).

44.3 Landlord covenants to Tenant that Landlord’s use, management, operation and activities on the Project shall be conducted in compliance with all applicable Environmental Laws. In the event any of Landlord’s activities require the use, handling or storage of hazardous or toxic substances or waste, then Landlord covenants to Tenant that Landlord shall obtain all permits and approvals required under the Environmental Laws with respect to the use, handling or storage of such toxic or hazardous substances or waste.

44.4 In the event Landlord breaches any of its covenants and agreements contained in Section 44.3 and as a result thereof the Premises or the Land are contaminated, Landlord shall be responsible, at its sole cost and expense, to clean-up the contamination in accordance with the requirements of applicable Environmental Laws, and to fully indemnify and hold Tenant harmless from any and all losses, liabilities, expenses (including but not limited to reasonable attorneys’ and paralegals’ fees at trial and all appellate levels) and costs incurred by Tenant in connection with Landlord’s clean-up.

44.5 Notwithstanding anything to the contrary in this Lease, Landlord shall be solely responsible for, and Tenant shall have no liability with respect to, any hazardous or toxic substance or waste on, under or within the Premises or the Land not introduced by Tenant. Landlord shall indemnify and hold harmless Tenant from and against any liability in connection with any hazardous or toxic substance or waste described in the preceding sentence, and Landlord agrees to promptly clean-up any same in accordance with the requirements of applicable Environmental Laws. Landlord represents and warrants that as of the date hereof there are no hazardous or toxic substances or waste presently on, under or within the Premises or the Land.

44.6 The indemnity obligations of each party hereunder shall survive expiration or termination of this Lease.

45. OPTION TO EXTEND . Tenant is given the option to extend the term of all the provisions contained in this Lease for two (2) additional periods of five (5) years (each an “Extended Term”). The first Extended Term shall commence following expiration of the initial term and the second Extended Term shall commence following expiration of the first Extended Term. Tenant shall exercise each Extended Term by giving notice of exercise of the applicable option (“Option Notice”) to Landlord at least 180 days before the expiration of the initial term or first Extended Term, as applicable; provided that , if Tenant is in default beyond any applicable notice and cure period on the date of giving the Option Notice, the Option Notice shall be totally ineffective, or if Tenant is in default beyond any applicable notice and cure period on the date the Extended Term is to commence, the Extended Term shall not commence and this Lease shall expire at the end of the initial term or the first Renewal Term, as applicable. Notwithstanding anything contained herein to the contrary, if Tenant shall fail to give written notice within the aforesaid time limit, Tenant’s right to exercise each option shall nevertheless continue until thirty (30) days after Landlord shall have given Tenant notice of Landlord’s election to terminate such option, and Tenant may exercise such option at any time until the expiration of said thirty (30) day period. It is the intention of the parties to avoid forfeiture of Tenant’s rights to extend the Term under the options set forth in this Section through inadvertent failure to give notice of exercise thereof within the time limits prescribed. Accordingly, if Tenant shall fail to give notice to Landlord of Tenant’s election to extend the Term for the Extended Term, and if Landlord shall fail to give notice to Tenant of Landlord’s election to terminate Tenant’s right to extend this Lease for the Extended Term, then the Term shall be automatically extended from month to month upon all of the terms and conditions then in effect, subject to Tenant’s right under such option to extend the Term for the remainder of the Extended Term and to Landlord’s right to place the thirty (30) day limit on such option by a notice in the manner provided in this Section. Tenant shall have no other right to extend the term beyond the second Extended Term.

46. RADON GAS . Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit.

 

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47. JURY WAIVER; COUNTERCLAIMS . LANDLORD AND TENANT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM INVOLVING ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH (i) THIS LEASE, (ii) THE RELATIONSHIP OF LANDLORD AND TENANT, (iii) TENANT’S USE OR OCCUPANCY OF THE PREMISES OR (iv) THE RIGHT TO ANY STATUTORY RELIEF OR REMEDY.

48. EXPANSION AREA .

48.1 Tenant may elect to have Landlord increase the size of the Premises at any time during the first ten (10) years of the initial lease term, by an amount that shall not exceed 10,000 rentable square feet (two floors of 5,000 rentable square feet each). Tenant must notify Landlord of its desire to expand by giving Landlord at least one years notice prior to the desired date of occupancy of the expansion space. The location of the expansion space is as indicated on Exhibit “B” attached hereto. The construction of the expansion space shall be in accordance with all of the terms of Article 4 of this Lease, as modified to reference the expansion space (and not the existing Premises), and Landlord shall use materials of at least equal quality to that existing in the Premises and finishes that match the existing Premises. It is the intent of the parties that Landlord is providing a turnkey construction at its sole expense in accordance with the approved plans for the expansion space.

48.2 Upon the Completion Date (as defined in Section 4.3 , as modified to reference the expansion space) of the expansion space: (i) Base Rent shall increase by an amount equal to the rentable square feet of the expansion space multiplied by the then per rentable square foot rate that Tenant is paying on the existing Premises; (ii) the definition of Premises shall include the expansion space; and (iii) Tenant’s pro-rata share of Expenses for the Common Areas and Real Estate Taxes shall be adjusted accordingly. The rentable square feet of the expansion space shall be determined in accordance with Section 1.9 of this Lease.

49. DEPOSIT . Landlord acknowledges receipt from Tenant of the Deposit. The Deposit shall be held by Landlord in a separate interest bearing account in an investment selected by Tenant. The Deposit shall be held by Landlord as collateral security for the payment of Rent and other sums of money payable by Tenant under this Lease, and for the faithful performance of all other terms, covenants and conditions of Tenant hereunder. Provided no Event of Default has occurred and is continuing, the amount of the Deposit, plus all interest earned thereon, shall be repaid in full to Tenant within thirty (30) days after Tenant has delivered to Landlord a copy of the audited financial statements of Mayor’s Jewelers, Inc., a Delaware corporation, or its successor or assign by merger or otherwise (“Mayor’s”) evidencing that Mayor’s had either positive cash flow from operating activities or positive EBITDA (earnings before interest income, interest and other financial costs, income tax expense and depreciation and amortization) for fiscal year 2004 or any fiscal year thereafter, that is the subject of the audited financial statements; provided, however, under no circumstances will Landlord be obligated to repay the Deposit, plus all interest earned thereon, prior to the date that Tenant takes occupancy of the Premises. Upon any Event of Default by Tenant that occurs prior to Landlord’s repayment of the Deposit, all or part of the Deposit then being held by Landlord, may, at Landlord’s sole discretion, be applied on account of such default, and thereafter Tenant shall promptly restore the resulting deficiency in the Deposit. In the event Landlord has repaid the Deposit to Tenant pursuant to this Section , then the foregoing sentence shall be null and void. Tenant hereby waives the benefit of any provision of law requiring the Deposit to be held in escrow or in trust. Tenant further acknowledges that the Deposit is not to be construed as prepaid Rent by Tenant for the last rental period of the Term.

50. RIGHT OF FIRST OFFER . At any time during the Term of this Lease, if Landlord intends to sell the Project, then Landlord shall give Tenant notice (“Landlord’s Notice”). If Tenant fails to notify Landlord within fifteen (15) days from the date of receipt of Landlord’s Notice that Tenant wishes to purchase the Project, Tenant shall have waived any and all rights it may have under this paragraph. If Tenant notifies Landlord (“Tenant’s Notice”) within said fifteen (15) days from the date of Landlord’s Notice that Tenant desires to purchase the Project, then Landlord and Tenant shall work together in good faith to negotiate the terms and conditions of the purchase. If Landlord and Tenant are unable to agree upon mutually satisfactory terms and conditions within thirty (30) days after Landlord’s receipt of Tenant’s Notice, then either party can elect by written notice to the other to terminate negotiations with respect to the purchase, and Landlord shall thereafter be free to sell the Project to a third party.

 

21


IN WITNESS WHEREOF, the respective parties have signed, sealed and delivered this Lease on the date and year written below.

 

WITNESSES:     LANDLORD: Westpoint Business Park LTD
/s/ Linda Gambino     By:   Westpoint Business Park LLC, its general partner
Print Name: Linda Gambino        
/s/ Suzanne Rogero       By:    /s/ Malcolm Butters
Print Name: Suzanne Rogero       Print Name: Malcolm Butters
      Title: Manager
      Date: 9-13-04

 

WITNESSES:     TENANT: Mayor’s Jewelers of Florida, Inc.
/s/ Phyllis Secan     By:    /s/ Thomas A. Andruskevich
Print Name: Phyllis Secan     Print Name: Thomas A. Andruskevich
    Title: CEO
/s/ Nancy Ivey     Date: 8-19-04
Print Name: Nancy Ivey       [SEAL]

 

22


EXHIBIT “A”

LEGAL DESCRIPTION OF PROJECT

[See Attached]

 

23


EXHIBIT “A”

LEGAL DESCRIPTION:

A PARCEL OF LAND BEING A PORTION OF TRACT A AND A PORTION OF TRACT D, WESTPOINT SECTION 7 PLAT, ACCORDING TO THE PLAT THEREOF RECORDED IN PLAT BOOK 162, PAGE 23, OF THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA. SAID PARCEL BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCE AT THE SOUTHEAST CORNER OF THE SOUTHEAST ONE-QUARTER (S.E. 1/4) OF SECTION 7, TOWNSHIP 49 SOUTH, RANGE 41 EAST;

THENCE S.89°06’50”W., ALONG THE SOUTH LINE OF SAID SOUTHEAST ONE-QUARTER (S.E. 1/4), A DISTANCE OF 107.88 FEET;

THENCE N.00°53’10”W., A DISTANCE OF 60.00 FEET TO THE MOST SOUTHERLY SOUTHEAST CORNER OF SAID TRACT D;

THENCE S.89°06’50”W., A DISTANCE OF 392.20 FEET;

THENCE N.87°27’09”W., A DISTANCE OF 200.36 FEET;

THENCE S.89°06’50”W., A DISTANCE OF 300.00 FEET. THE PREVIOUS THREE (3) COURSES BEING COINCIDENT WITH THE SOUTH LINE OF SAID TRACT D;

THENCE N 46°0021” W., A DISTANCE OF 49.39 FEET;

THENCE N.0 1°07’32”W., A DISTANCE OF 294.92 FEET TO A POINT OF CURVATURE OF A TANGENT CURVE CONCAVE TO THE WEST;

THENCE NORTHERLY ALONG THE ARC OF SAID CURVE, TO THE LEFT, HAVING A CENTRAL ANGLE OF 00°09’23” AND A RADIUS OF 1860.00 FEET FOR AN ARC DISTANCE OF 5.08 FEET TO A POINT ON A NON-TANGENT LINE;

THENCE N.00°00’37”W., A DISTANCE OF 101.30 FEET TO A POINT ON THE ARC OF A NON-TANGENT CURVE CONCAVE TO THE WEST, A RADIAL LINE OF SAID CURVE THROUGH SAID POINT HAVING A BEARING OF S.85°36’18”W;

THENCE NORTHERLY ALONG THE ARC OF SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 08°08’25” AND A RADIUS OF 1865.00 FEET FOR AN ARC DISTANCE OF 264.97 FEET TO A POINT OF COMPOUND CURVATURE. SAID POINT ALSO BEING THE POINT OF BEGINNING;

THENCE NORTHERLY ALONG THE ARC OF SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 01°32’13” AND A RADIUS OF 1865.00 FEET FOR AN ARC DISTANCE OF 50.02 FEET TO A POINT ON A NON-TANGENT LINE;

THENCE S.75°55’40”W., A DISTANCE OF 12.00 FEET TO A POINT ON THE ARC OF A NON-TANGENT CURVE CONCAVE TO THE WEST, A RADIAL LINE OF SAID CURVE THROUGH SAID POINT HAVING A BEARING OF S.75°55’40”W;

THENCE NORTHERLY ALONG THE ARC OF SAID CURVE TO THE LEFT, HAVING A CENTRAL ANGLE OF 02°59’54” AND A RADIUS OF 1853.00 FEET FOR AN ARC DISTANCE OF 96.97 FEET TO A POINT OF REVERSE CURVATURE OF A TANGENT CURVE CONCAVE TO THE EAST;

THENCE NORTHERLY ALONG THE ARC OF SAID CURVE, TO THE RIGHT, HAVING A CENTRAL ANGLE OF 02°45’32” AND A RADIUS OF 2947.00 FEET FOR AN ARC DISTANCE OF 141.91 FEET TO A POINT ON A NON-TANGENT LINE;

THENCE N.06°30’26”W., A DISTANCE OF 100.92 FEET TO A POINT ON THE ARC OF A NON-TANGENT CURVE CONCAVE TO THE EAST, A RADIAL LINE OF SAID CURVE THROUGH SAID POINT HAVING A BEARING OF N.77°38’26”E;

THENCE NORTHERLY ALONG THE ARC OF SAID CURVE TO THE RIGHT, HAVING A CENTRAL ANGLE OF 04°00’07” AND A RADIUS OF 2935.00 FEET FOR AN ARC DISTANCE OF 205.00 FEET TO A POINT ON A NON-TANGENT LINE. THE PREVIOUS NINE COURSES BEING COINCIDENT WITH THE EAST RIGHT-OF-WAY LINE OF HIATUS ROAD;

THENCE N.82°48’50”E., A DISTANCE OF 42.40 FEET TO A POINT OF CURVATURE OF A TANGENT CURVE CONCAVE TO THE SOUTH;

THENCE EASTERLY ALONG THE ARC OF SAID CURVE TO THE RIGHT, HAVING A CENTRAL ANGLE OF 20°16’35” AND A RADIUS OF 1140.00 FEET FOR AN ARC DISTANCE OF 403.43 FEET TO A POINT ON A NON-TANGENT LINE;

THENCE S.01°36’21’E., A DISTANCE OF 535.38 FEET;

THENCE S.88°35’12”W., A DISTANCE OF 225.14 FEET;

THENCE S.77°27’53”W., A DISTANCE OF 99.33 FEET TO THE POINT OF BEGINNING.

SAID LANDS SITUATE WITHIN THE CITY OF TAMARAC, BROWARD COUNTY, FLORIDA.

 

24


EXHIBIT “A-1”

BASE RENT

 

Year   Annual Base
Rent
  Per S.F.   Estimated
Annual CAM
  Annual Florida
Sales Tax
  Total Annual
Initial Term        
    1     $ 478,510.00   $ 10.00   $ 143,553.00   $ 37,323.78   $ 659,386.78
    2     $ 526,361.00   $ 11.00     T.B.D.     T.B.D.     T.B.D.
    3     $ 574,212.00   $ 12.00     T.B.D.     T.B.D.     T.B.D.
    4     $ 662,063.00   $ 13.00     T.B.D.     T.B.D.     T.B.D.
    5     $ 669,914.00   $ 14.00     T.B.D.     T.B.D.     T.B.D.
    6     $ 683,312.00   $ 14.28     T.B.D.     T.B.D.     T.B.D.
    7     $ 696,978.00   $ 14.5656     T.B.D.     T.B.D.     T.B.D.
    8     $ 710,918.00   $ 14.8569     T.B.D.     T.B.D.     T.B.D.
    9     $ 725,136.00   $ 15.1540     T.B.D.     T.B.D.     T.B.D.
    10   $ 739,639.00   $ 15.4571     T.B.D.     T.B.D.     T.B.D.
    11   $ 754,431.00   $ 15.7663     T.B.D.     T.B.D.     T.B.D.
    12   $ 769,520.00   $ 16.0816     T.B.D.     T.B.D.     T.B.D.
    13   $ 781,911.00   $ 16.4032     T.B.D.     T.B.D.     T.B.D.
    14   $ 800,609.00   $ 16.7313     T.B.D.     T.B.D.     T.B.D.
    15   $ 816,621.00   $ 17.0659     T.B.D.     T.B.D.     T.B.D.
Option Period I        
    16   $ 832,953.00   $ 17.4072     T.B.D.     T.B.D.     T.B.D.
    17   $ 849,612.00   $ 17.7554     T.B.D.     T.B.D.     T.B.D.
    18   $ 866,605.00   $ 18.1105     T.B.D.     T.B.D.     T.B.D.
    19   $ 883,937.00   $ 18.4727     T.B.D.     T.B.D.     T.B.D.
    20   $ 901,616.00   $ 18.8421     T.B.D.     T.B.D.     T.B.D.
Option Period II        
    21   $ 919,648.00   $ 19.2190     T.B.D.     T.B.D.     T.B.D.
    22   $ 938,041.00   $ 19.6034     T.B.D.     T.B.D.     T.B.D.
    23   $ 956,802.00   $ 19.9954     T.B.D.     T.B.D.     T.B.D.
    24   $ 975,938.00   $ 20.3953     T.B.D.     T.B.D.     T.B.D.
    25   $ 995,456.00   $ 20.8032     T.B.D.     T.B.D.     T.B.D.

TBD= To Be Determined

 

25


EXHIBIT “B”

SITE PLAN OF PROJECT

[See Attached]

 

26


EXHIBIT B

LOGO


EXHIBIT “C”

PRELIMINARY PLANS AND SPECIFICATIONS

[See Attached]

 

28


EXHIBIT C – Page 1

LOGO


EXHIBIT C – Page 2

LOGO


EXHIBIT C – Page 3

LOGO


Exhibit C – Page 4

Mayors Jewelers Specifications

 

EXTERIOR   
Building Shell:    Tiltwall concrete
Entrance:    Building will have doors and sidelights with 9/16” laminated and tinted impact resistant glass and aluminum storefront systems
Exterior Paint:    Texcoat, with reveals to be used to accentuate specific areas
Roof:    4 Ply with gravel over lightweight concrete over insulation board minimum (R-11) on a metal deck
Landscape:    Per plans
Parking:    1.25” asphalt over 6” limerock base
Site Lighting:    Site lighting will utilize 25 foot high poles and “shoebox” type fixtures and will be designed to provide a minimum of 1 foot-candle in the parking areas. Accent lighting to be provided at each entrance feature and around the building
Patio:    To be placed by employee entrance using a paver surface
Signage:    Monument signs at each street front with electrical
Glass:    Hurricane impact glass – 9/16” laminate tinted green
Doors:    Exterior doors shall have 7 foot high hollow metal doors in hollow metal frames+
INTERIOR   
Walls:    Standard interior partitions- 5/8” drywall partitions to extend to minimum 2” above the ceiling
   Insulated partitions- provide insulation in the cavity of all walls around all restrooms, conference rooms, board room, executive offices, computer room, jewelry and watch repair area and between the office and warehouse areas
   Full height partitions- partitions shall be extended to the deck in the following locations; restrooms, conference rooms, computer room, boardroom , jewelry and watch repair area, and non-rated electrical rooms
   Rated partitions- full height rated partitions shall be provided at the following locations; electrical rooms w/ transformers over 112.5 KVA, elevator equipment rooms and the computer room
Paint:    2 Coats latex, Sherwin Williams or equal


Exhibit C – Page 5

Mayors Jewelers Specifications

 

Lighting:    1) 2’ x 4’ 3 bulb Parabolic fluorescent in office
   2) High bay metal halide lights in warehouse
Ceiling Tile:    2’ x 4’ Acoustical tile, selection to be determined
Carpet:    1) 26 Oz. general commercial grade throughout except as listed below
   2) Upgraded carpet in executive area and boardroom – Second floor
Vinyl Tile:    Breakrooms
Marble:    Lobby
Special flooring:    Jewelry and Watch repair, as per tenant spec (vinyl squares with raised areas)
Concrete Floor:    Warehouse
Ceramic Tile:    Restrooms
HVAC:   

1) Package units on roof

 

2) 3 Tons per 1,000 sq.ft.

 

3) Fiberglass duct with diffuser

 

4) 2.5 Tons per 1,000 sq. ft. in warehouse

 

5) Liebert unit(s) in computer room, as per tenant spec

Plumbing:   

1) American Standard fixtures or equal

 

2) Tank type water closets

 

3) Sink(s) as per tenant spec in Jewelry/Watch repair area

 

4) Exhaust hood as required in Jewelry/Watch area as per tenant spec

Fire Safety:   

1) Complete sprinkler system with recessed heads and alarms

 

2) Computer room to have FM 200 system, as per tenant spec

 

3) 5 lb. fire extinguishers in semi-recessed cabinets

Hardware:    Yale 5300 series lever handles or equivalent, with stops and closers as required
Cabinetry:    All surfaces, including counters, to be laminate unless noted otherwise. Cabinets to be constructed to AWI “Custom Grade” . Upgraded cabinetry for boardroom to be determined
Operable Partitions:    partitions to be soundproof folding panels in each conference room as per tenant spec with a rating to be determined


Exhibit C – Page 6

Mayors Jewelers Specifications

 

Elevator:   

One elevator with the following specs:

 

•      3,000 lb. capacity

 

•      100 fpm speed

 

•      finishes to be determined

Computer Room:   

1) Raised floor with ramping

 

2) UPS system by Tenant

Doors/Hardware:   

1) 3’ x 7’ stain grade solid core wood with wood frame Schlage hardware – lever type, chrome

 

2) Shop area/warehouse to have metal doors with metal frames

Generator:    By Tenant
Computer/Phone Wiring:    $25,000 allowance – provided Stiles commission is $300,000 or less
Air Compressor:    By Tenant
Air Compressor Lines:    $10,000 allowance
Furniture/Appliances:    By Tenant
Gas:   

If available by Sunrise Gas - To be brought into building and into the Jewelry Repair area Hook up to equipment by tenant

 

If not available – Tenant to contract with propane provider to supply tanks; lines still to be handled as above

Millwork:    Wood base in executive area on second floor
Electrical:   

1)      As per plans

 

2)      Cubicles to be fed from power poles (poles supplied by furniture vendor)

 

3)      220 V to be supplied to locations as specified by tenant

 

4)      Electrical to be provided from generator to areas specified by tenant

Telecommunications:    Provide conduits for telephone service. Run conduits from telephone room to the easement and coordinate with Bell South


LOGO


EXHIBIT “D”

LIST OF PERMITTED EXCEPTIONS

[See Attached]

 

36


PERMITTED EXCEPTIONS

 

1. Taxes and assessments for the year 2004 and subsequent years, not yet due and payable.

 

2. Restrictions, dedications and easements as contained on the Plat of Westpoint Section 7 Plat recorded in Plat Book 162, page 23; as affected by Notice Regarding Easement in Official Records Book 30719, Page 1169; and as further affected by Resolution No. 2001-386 vacating and abandoning various drainage, lake and lake maintenance easements shown on said Plat, as recorded in Official Records Book 31654, Page 1764, all of the public records of Broward County, Florida.

 

3. Restrictions, covenants, conditions, easements, assessments, and right to a lien as set forth in Declaration of Protective Covenants, Restrictions and Easements for Westpointe Centre, recorded in Official Records Book 30719, Page 1174, as affected by Supplement Number One recorded in Official Records Book 32245, Page 1267, as further affected by Memorandum of Restrictions recorded in Official Records Book 37034, Page 1852, and as further affected by Agreement Regarding Permitted Use recorded in Official Records Book 37034, Page 1861.

 

4. Notice of Adoption of Development Order recorded in Official Records Book 17193, Page 450; as modified in Official Records Book 22902, Page 716; as affected by Agreement recorded in Official Records Book 23077, Page 686; as further affected by Ordinance No. 0-94-20 recorded in Official Records Book 23077, Page 705; as further affected by Ordinance No. 0-2000-33 as attached to Notice recorded in Official Records Book 31174, Page 1872, as further affected by Assignment recorded in Official Records Book 37034, Page 1830, and as further affected by Agreement Regarding Improvements and DRI Extension, recorded in Official Records Book 37034, Page 1839.

 

5. Terms, conditions, and provisions of Road Impact Agreement with Broward County, recorded in Official Records Book 30743, Page 26, as partially released in Official Records Book 31395, Page 1662, Official Records Book 31395, Page 1756, and Official Records Book 31395, Page 1766. (As to Parcel 2 only).

 

6. Terms, conditions, and provisions of Agreement for Traffic Signalization with Broward County, recorded in Official Records Book 30743, Page 107.

 

7. Tamarac Utilities West Water and Sewer Utility Easement in favor of the City of Tamarac, recorded in Official Records Book 17472, Page 667, and in Official Records Book 19362, Page 632. (As to Parcels 2 and 3)

 

8. Drainage Easement in favor of Broward County recorded in Official Records Book 29443, Page 680. (As to Parcels 2 and 3)

 

9. Utility Easement in favor of Broward County recorded in Official Records Book 29443, Page 683. (As to Parcels 2 and 3)

 

10. Easement(s) in favor of Florida Power & Light Company set forth in instrument(s) recorded in Official Records Book 29471, Page 1531, Official Records Book 31547, Page 1771, and Official Records Book 31579, Page 1922. (As to Parcels 2 and 3)

 

11. Informational Note: Tamarac Utilities Bill of Sale Absolute Water & Sewer Collection Systems recorded in Official Records Book 32344, Page 1254. (As to Parcels 2 and 3)

 

37


PERMITTED EXCEPTIONS

(Continued)

 

12. Matters as shown on that certain survey prepared by Stoner & Associates, Inc., updated September 16, 2002, under Project No. 02-6312WBP.

 

13. Terms, conditions, and provisions of that certain Agreement for Traffic Signalization by and between Broward County, Florida and West Pointe Land, L.L.C. recorded in Official Records Book 30743, Page 107.

 

14. Terms, conditions, and provisions of Assignment of rights under Development Order, as amended, in favor of Westpoint Business Park, Ltd., recorded in Official Records Book 33949, Page 478.

 

15. Terms, conditions, and provisions of Assignment of rights under Plat in favor of Westpoint Business Park, Ltd. recorded in Official Records Book 33949, Page 490.

 

16. Terms, conditions and provisions of Assignment and Delegation of Declarant’s Rights in favor of Westpointe Centre Association, Inc. recorded in Official Records Book 35401, Page 2.

 

17. Road Impact Fee Agreement recorded August 12, 2003 in Official Records Book 35801, Page 458.

 

18. Agreement for Amendment of Notation on Plat recorded August 12, 2003 in Official Records Book 35801, Page 435.

 

19. Agent of Record for Notice of Expiration of Findings of Adequacy recorded August 12, 2003 in Official Records Book 35801, Page 485.

 

20. Declaration of Reciprocal Easements, recorded in Official Records Book 37034, Page 1882.

 

NOTE: ALL OF THE FOREGOING INSTRUMENTS REFER TO THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA, UNLESS OTHERWISE NOTED.

 

38

Exhibit 4.17

EMPLOYMENT AGREEMENT

AMENDING 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 the 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 the Employee was engaged and hired to continue to be the Employer’s President and Chief Executive Officer pursuant to the terms of an Employment Agreement between the parties hereto signed by the Employer on September 27, 2004 and by the Employee on September 1, 2004 and with effect from April 1, 2005 (the “Employment Agreement” ).

WHEREAS the parties hereto wish to amend the terms of the Employment Agreement to give effect to the requirements of an agreement and plan of merger and reorganization among Henry Birks & Sons Inc., Birks Merger Corporation and Mayors Jewelers Inc. dated as of April 18, 2005, as amended (the “Merger Agreement” ).

WHEREAS it is in the interest of both parties that such amendment be made.

Wherefore, it is agreed as follows:

 

  1. The Employment Agreement is by amended by the addition, at section 5.1, of the following sub-paragraph (f):

 

  (f)

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), any new restricted stock or any other new equity granted or issued for a compensatory purpose following the “Effective Time” as defined in the Merger Agreement 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 the Employer (on a fully diluted basis) pursuant to this Section 5.1.

 

  2. 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.

 

  3. 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 présentes ont demandé et par les présentes confirment leur demande que la présente convention ainsi que tous avis, documents, ou procédures s ' y rapportant soient rédigés en anglais.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the dates indicated below.

 

Signed at LOGO ,     HENRY BIRKS & SONS INC.
this 14 day of November 2005    
     

By:

  LOGO
      Lorenzo Rossi di Montelera
Signed at LOGO ,    
this 14 day of November 2005    
     

By:

  LOGO
      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 confirm its guarantee of all obligations of the EMPLOYER in favour of the EMPLOYEE under the Employment Agreement as hereby amended.

 

Signed at LOGO ,     INIZIATIVA S.A.
this 14 day of November 2005    
     

By:

  LOGO
      Filippo Recami

Exhibit 4.19

EMPLOYMENT AGREEMENT

AGREEMENT ENTERED INTO AS OF JULY 1, 2004 (hereinafter referred to as the “Agreement”),

 

BY AND BETWEEN:   HENRY BIRKS & SONS INC., a corporation duly incorporated having its head office at 1240 Phillips
Square, Montreal, Canada herein acting and represented by its President and Chief Executive Officer,
Thomas A. Andruskevich, duly authorized for the purposes hereof as he hereby declares (hereinafter referred
to as the “EMPLOYER”),
AND   RANDOLPH DIRTH domiciled at 37 Rosewell Road, Bedford, NH 03110 (hereinafter referred to as the
“EMPLOYEE”),

WHEREAS the EMPLOYER is engaged in the business of operating a chain of retail stores specializing in jewelry, timepieces, china, crystal and giftware;

WHEREAS the EMPLOYEE declares possessing certain expertise in the fields of Merchandising and high end gift,

WHEREAS the EMPLOYEE declares not being prevented from working as such in Canada;

WHEREAS the EMPLOYER wishes to hire the EMPLOYEE as its Group Vice President Merchandising and the EMPLOYEE wishes to accept such position, the whole upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PREMISES AND AGREEMENTS HEREIN SET FORTH, THE PARTIES HERETO ACKNOWLEDGE AND AGREE AS FOLLOWS:

1. PRELIMINARY

The preamble hereto shall form an integral part hereof as if recited herein at length.

2. NATURE OF SERVICES

2.1 The EMPLOYER hereby engages and hires the EMPLOYEE to be its Group Vice President Merchandising and the EMPLOYEE hereby accepts and agrees to such engagement and employment.

2.2 The function of the EMPLOYEE while under employment with the EMPLOYER will consist without limitation to the following:

 

    Develop, and manage the Category Management and Demand Management in collaboration with others and perform all duties that may be assigned to him in the course of the employment, to meet reasonable goals and objectives determined from time to time by the President and Chief Executive Officer;

 

1


    Use his best efforts to execute and implement, adequately control, follow up on the implementation of and achieve the strategies and goals contained in the EMPLOYER’ Strategic Plan and annual Profit Plan;

 

    Manage, develop and train the EMPLOYER’s employees under its authority in a manner to best serve Mayors’ interests;

 

    Maximize the EMPLOYER’s business opportunities and collaborate with other Senior Management Members to properly manage inventory level.

 

    Undertake to perform or prepare studies and/or reports in a timely manner as required on occasion by the President and Chief Executive Officer;

 

    Participate in the preparation and periodical revisions of the EMPLOYER’s Profit Plan and Strategic Plan;

 

    Act as a Senior Management Team Member;

2.3 It is hereby agreed that the EMPLOYEE shall provide his services to the EMPLOYER primarily in Montreal on a full time and exclusive basis while working for the EMPLOYER.

3. TERM

3.1 This Agreement and the employment of the EMPLOYEE shall begin on July 1 st , 2004 (Starting Date) and shall continue for an indefinite period (the “Term”) unless terminated as provided for in this Agreement.

4. SALARY

In consideration of the services to be rendered pursuant to this Agreement the EMPLOYER shall pay to the EMPLOYEE the gross amount of US$100,000 per year (yearly Base Salary) of this Agreement. The amount described herein shall be paid in accordance with the EMPLOYER’s payroll practices.

5. BONUS

5.1 In addition to the Base Salary and subject to the EMPLOYEE being an employee of the EMPLOYER at the end of any given fiscal year, EMPLOYEE might be entitled to a bonus based on the following conditions and criteria:

Maximum Bonus Amount per year : Up to a maximum of US$175,000 per fiscal year, subject to the EMPLOYEE meeting all bonus criteria (such as aged inventory and inventory turn goals) as set in the annual Bonus letter. For greater clarity it is understood that this Bonus mechanism exclude and replace the bonus applicable to other members of Senior Management.

Mechanism : The EMPLOYEE will earn 10% of US$175,000 as a year end bonus for each gross margin dollar increase that represents a 1% increase over the EMPLOYER’s total gross margin dollar profit plan, the whole as further described in the annual bonus letter up to the annual maximum payout.

Reference : The reference document shall be the audited financial statements, as approved by the EMPLOYER’s Board of Directors;

Timing : the bonus, if any, shall be payable within 15 days from the date the financial statements are approved by the Board of Directors. EMPLOYEE will have to be an active EMPLOYEE of the EMPLOYER on March 31 st , of any given year, to be eligible for a bonus payment prorated for any portion of the year.

 

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6. VACATION

6.1 The EMPLOYEE shall be entitled to 3 weeks paid vacation for the calendar year ending December 31, 2004, and for the subsequent year 4 weeks per calendar year, prorated for any portion of a year. Vacation days shall be earned in each fiscal year for use in that same year on the basis of days worked in that fiscal year. Unless otherwise approved by the President & Chief Executive Officer, the EMPLOYEE shall not be entitled to carry forward any unused vacation.

6.2 Statutory Holidays : You will not benefit from Canadian statutory holidays as EMPLOYEE and EMPLOYER both agree that the EMPLOYEE will benefit from all U.S. statutory holidays considering the residency of EMPLOYEE’s family members.

7. BENEFITS

The EMPLOYEE shall be covered under MAYORS JEWELLERS group insurance and will not be covered by the EMPLOYER.

8. EXPENSES

8.1 The EMPLOYEE shall be reimbursed for reasonable business expenses exclusively incurred by him in the fulfillment of his duties hereunder, the whole upon the presentation of appropriate receipts or vouchers and according to the prevailing EMPLOYER Travel Policy as it may be modified from time to time by the EMPLOYER.

8.2 The EMPLOYEE shall also be reimbursed of the following expenses:

 

    Temporary living reimbursement: The EMPLOYEE shall be entitled to reimbursement or direct payment from the EMPLOYER of his temporary lodging expenses while traveling for business purpose to Montreal (excluding meals). Whenever possible, the hotel will be arranged and paid directly by the EMPLOYER.

 

    Reimbursement of work permit cost: The EMPLOYEE shall be reimbursed for the costs related to the issuance of a Canadian work permit, if any.

 

    Commuting expenses : The EMPLOYEE shall be reimbursed for its mileage while commuting from his home to his Montreal Office. From August 1 st , 2004 the EMPLOYER will grant the EMPLOYEE the use of a Company car including payment of maintenance, repair, insurance and gasoline the whole for a maximum of CDN$1,500 per month.

It is understood that to the extent these provisions generate a taxable benefit for income tax purposes, these taxes will be the sole responsibility of the EMPLOYEE.

9. STOCK OPTION

 

  Subject to the EMPLOYER’s Board of Directors’ approval and the provisions of the Stock Option Plan (copy of which is attached) and the Shareholder agreement, if applicable as may be amended, from time to time, by the Board of Directors, the EMPLOYEE will receive an initial allocation of stock options allowing the EMPLOYEE to purchase 10,000 shares of the EMPLOYER with an exercise price of $7.73 vesting as follows: the options shall remain open for exercise until April 14, 2014; these options will vest over a four-year period in four consecutive equal numbers on April 14 th , 2005, April 14 th , 2006, April 14 th , 2007 April 14 th , 2008.

 

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10. TERMINATION

10.1 The EMPLOYER shall be entitled to terminate this Agreement and the EMPLOYEE’s employment for just cause at any time and such, without any notice or any form of compensation (except otherwise stated by laws) of any nature whatsoever. Just cause shall include, but not be limited to: the commission of any fraudulent act; the commission of any serious statutory infraction which may have an adverse effect on the EMPLOYER or which is incompatible with the performance of the EMPLOYEE’s duties; the breach of his fiduciary duty; the acceptance, directly or indirectly, of any benefit tantamount to a “kick-back”; a material breach or a repeated non material breach of any EMPLOYER policy and procedure or any other circumstances that would be a just cause for termination of the EMPLOYEE’s employment with Mayors’s Jewellers Inc or within the meaning of the law, the whole without notice or pay in lieu of notice or any indemnity whatsoever.

10.2 Should the employment be terminated by the EMPLOYER for any reason whatsoever (other than for cause) or should the EMPLOYEE resign or voluntarily leave his employment either party shall provide the other a prior written notice of 90 days, or any shorter notice as may be mutually agreed upon between the parties. If the EMPLOYER terminates the EMPLOYEE for any reasons other than just cause, and requires that the EMPLOYEE leave his employment before 90 days have elapsed, the EMPLOYER agrees to pay the EMPLOYEE upon the departure date in one cash lump sum equal to a total of 90 days Base Salary only less any Base Salary received subsequent to the date which written notice is received.

10.3 Termination for any reason whatsoever or resignation of this Agreement shall automatically be deemed to terminate the Agreement with Mayor’s Jewelers Inc..

11. CONFIDENTIAL INFORMATION

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, strategies, pricing policies, financial records, clients lists and any information regarding the EMPLOYER’s marketing, sales or dealer network, which is not generally known to the public through legitimate origins. None of Henry Birks & Sons Inc.’s Confidential Information shall be used to the benefit of Mayor’s Jewelers Inc..

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.

12. MISCELLANEOUS

12.1 Assignment . The rights and obligations of the EMPLOYEE under this Agreement shall not be assignable by the EMPLOYEE.

 

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12.2 Governing Law . This Agreement shall be construed in accordance with and governed for all purposes by the laws of the Province of Quebec and Canada, if applicable.

12.3 Notices . Any notice, request, or instruction to be given hereunder shall be in writing and shall be deemed given on the same day when personally delivered or three days after being sent by United States certified mail, postage prepaid, with return receipt, to the parties at their respective addresses set forth below:

 

  (a) To the EMPLOYER: Henry Birks & Sons Inc., 1240 Phillips Square Montreal Attention: President and Chief Executive Officer

 

  (b) To the EMPLOYEE: Mr. Randolph Dirth, 37 Rosewell Road, Bedford, NH 03110

12.4 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 EMPLOYEE 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 EMPLOYEE against the EMPLOYER, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the EMPLOYER of the covenants in this Agreement.

12.5 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.

12.6 Survival of Rights and Obligations . All rights and obligations of the EMPLOYEE or the EMPLOYER arising during the term of this Agreement shall continue to have full force and effect after the date that this Agreement terminates or expires.

12.7 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.

12.8 Written Resignation . In the event this Agreement is terminated for any reason (except by death), the EMPLOYEE agrees that if at the time EMPLOYEE is a director or officer of the EMPLOYER or any of its direct or indirect subsidiaries, EMPLOYEE will immediately deliver a written resignation as such director or officer, such resignation to become effective immediately.

12.9 Return of Documents and Property . Upon the termination of the EMPLOYEE’s employment with the EMPLOYER, or at any time upon the request of the EMPLOYER, the EMPLOYEE (or EMPLOYEE’s heirs or personal representatives) shall deliver to the EMPLOYER (a) all documents and materials (including, without limitation, computer files) containing confidential information relating to the business and affairs of the EMPLOYER and its direct and

 

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indirect subsidiaries, and (b) all documents, materials and other property (including, without limitation, computer files) belonging to the EMPLOYER or its direct or indirect subsidiaries, which in either case are in the possession or under the control of the EMPLOYEE (or EMPLOYEE’s heirs or personal representatives).

12.10 EMPLOYEE’s Representations . The EMPLOYEE represents and warrants to the EMPLOYER that (i) he is able to perform fully his 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.

12.11 In the performance of the EMPLOYEE’s functions and duties, the EMPLOYEE agrees to dedicate the necessary time, attention and effort required and to always behave in a manner that is in the best interests of the EMPLOYER. Forming part of this Agreement, the EMPLOYEE has received the “Standards of Business Conduct” dated December 2003 to which he agrees to adhere. The EMPLOYEE undertakes to respect and do its best to ensure that all employees under his authority will adhere to the EMPLOYER’s Policy and Procedure.

The EMPLOYEE undertakes to act honestly and in good faith in particular, he shall refrain from placing himself in a position of conflict of interest with the EMPLOYER.

Execution

Upon execution below by both parties, this Agreement will enter into full force and effect as of July 1, 2004.

HENRY BIRKS & SONS INC.

Per: /s/ Thomas A. Andruskevich

Thomas A. Andruskevich, President and Chief EMPLOYEE Officer

Signed at Montreal, this 7th day of July 2004

Acknowledged and accepted

RANDOLPH DIRTH

Signature: /s/ Randolph Dirth

Signed at Montreal, this 8th day of July, 2004

 

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Exhibit 4.25

EMPLOYMENT AGREEMENT

This is an Employment Agreement (the “Agreement”), dated September 11 nd , 2003, entered into by and between MAYORS JEWELERS of Florida INC. (hereinafter referred to as “EMPLOYER”), and JOHN C. ORRICO (hereinafter referred to as “EMPLOYEE”).

RECITATIONS

WHEREAS, EMPLOYER is engaged in the business of operating a chain of retail stores, a corporate sales division and is a jewelry manufacturer. EMPLOYER is specialized in jewelry, timepieces, china, crystal and giftware (the “Business”);

WHEREAS , EMPLOYEE declares that he possesses an expertise in the fields of merchandising, manufacturing and operations of a jewelry chain;

WHEREAS, EMPLOYEE declares (complete with the list of diploma) and not being prevented from working as such;

WHEREAS, EMPLOYER wishes to employ EMPLOYEE as Group Vice President, Supply Chain Operations and the EMPLOYEE is willing to accept such employment on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES AND AGREEMENTS HEREIN SET FORTH, THE PARTIES HERETO ACKNOWLEDGE AND AGREE AS FOLLOWS:

TERMS

1. Employment : EMPLOYER hereby employs EMPLOYEE as its Group Vice President, Supply Chain Operations, and EMPLOYEE hereby accepts such employment, upon the terms and conditions set forth in this Agreement.

2. Term : EMPLOYEE’s employment shall commence on the date of this Agreement and continue until terminated by either party pursuant to the terms of Section 12.

3. Duties :

(a) EMPLOYEE shall be employed by EMPLOYER as its Group Vice President, Supply Chain Operations and shall devote his full-time efforts to the business of EMPLOYER. EMPLOYEE’s specific duties shall include, but are not limited to, the following:

 

    Re-organizing and integrating the Merchandising Supply Chain Operations and developing a Supply Chain Organization of EMPLOYER and its affiliates;

 

    Developing, organizing and managing all the factory locations of the EMPLOYER and its affiliates and responsible for internal and external manufacturing of all merchandise;


    Managing Inventory levels in partnership with the Central Merchandising Office;

 

    Developing, setting-up and supporting the implementation of quality control standards;

 

    Supporting, developing, and training the employees under his authority in a manner to best serve EMPLOYER’s interests;

 

    Maximizing EMPLOYER’s opportunity through a positive liaison with other members of Senior Management and specifically the COOs, the Group Vice-President-Marketing and the Creative Director to ensure the efficient and amicable operations that support the EMPLOYER’s (and its affiliates) best interest;

 

    Undertaking to perform or prepare presentations, studies, special projects, and/or reports as required on occasion by the Senior Vice Presidents and Chief Operating Officers;

 

    Participating in the preparation and periodical revision of the EMPLOYER’s (and its affiliates’) Profit Plan and EMPLOYER’s Strategic Plan;

 

    Supporting the overall development of the EMPLOYER and its affiliates as well as its Vision, Mission, and Guiding Principles; and

 

    Performing any other duties reasonably required of him by EMPLOYER the whole in accordance with the Strategic Plan of the Company and within the limits set by the annual Profit Plan;

(b) EMPLOYEE agrees that he shall provide his services to EMPLOYER primarily in North America (mainly Florida and Canada) on a full time and exclusive basis. EMPLOYEE further acknowledges and agrees that he will be required to travel extensively, primarily in the United States and Canada, as business requires, and represents that nothing prevents him from traveling abroad. The EMPLOYEE may be required to be based in the United States of America or in Canada. The Employer agrees that he will pay or reimburse all pre-approved travel expenses according to the Company travel policy.

4. Compensation and Stock Options :

4.1 During the term of this Agreement, EMPLOYER agrees to pay EMPLOYEE an annual base salary of US$200,000, which will be paid to EMPLOYEE in 26 bi-weekly installments, in arrears on the last day of each month.

4.2 In addition to the base salary and subject to the EMPLOYEE being an employee of the EMPLOYER at the end of any given fiscal year, the EMPLOYEE shall be entitled to participate in any management bonus plan offered to other members of the management team; the existence of a management bonus plan and the terms, conditions, and criteria of any management bonus plan, including the amounts of bonuses, shall be determined at the sole discretion of the President and Chief Executive Officer and the Senior Vice President and Chief Operating Officer of EMPLOYER. A separate bonus letter will be sent to the EMPLOYEE on a yearly basis, outlining the specific terms and conditions of the bonus plan. The target bonus is 35% of the yearly Base Salary. The primary factors in determining the bonus payment, if any, will be set in the yearly letter and in accordance with the Mayors and Affiliates’ Performance Bonus Plan. The final amount of the bonus, if any, will be determined at the discretion of the President and Chief Executive Officer.

 

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4.3 Subject to the Mayors Board of Directors approval and the provisions of the EMPLOYER Stock Option Plan, the EMPLOYEE will receive an initial allocation of stock options allowing the EMPLOYEE to purchase 50,000 shares of the EMPLOYER with an exercise price per share equal to the closing price on the date the options are approved by the Board of Directors. Subject to the Henry Birks & Sons Board of Directors approval and the provisions of the Henry Birks & Sons Stock Option Plan, the EMPLOYEE will receive an initial allocation of stock options allowing the EMPLOYEE to purchase 5,000 non-voting common shares of the Henry Birks & Sons with an exercise price per share equal to the closing price on the date the options are approved by the Board of Directors.

5. Benefits : EMPLOYEE shall be entitled to four weeks paid vacation per calendar year on a prorated basis based on the amount of time EMPLOYEE has been employed by EMPLOYER during the calendar year. EMPLOYEE shall not be entitled to carry forward from year-to-year any unused vacation. EMPLOYEE shall also be entitled to participate in EMPLOYER’s group health insurance plans and other benefit programs on the same terms and conditions as other new employees of comparable rank within the Company. The terms and conditions of such Plans may be changed from time-to-time by EMPLOYER at its sole discretion and shall be governed by the applicable Plan documents.

6. Non-Disclosure of Confidential Information : EMPLOYEE acknowledges that, in the course of EMPLOYEE’s employment with EMPLOYER, EMPLOYER will disclose to EMPLOYEE certain information of a highly sensitive nature relating to EMPLOYER’s proprietary interests not generally known to the public or in the Business, including but not limited to, any technical or non-technical data, design, work in progress, budgets, business plans, strategies, pricing policies, financial records, supplier lists, client lists, and any information regarding EMPLOYER’s (or any of its affiliates) marketing, sales or dealer network (hereinafter referred to as “Confidential Information”). Therefore, to protect EMPLOYER’s legitimate business interest in protecting its trade secrets and Confidential Information, EMPLOYEE agrees not to disclose to any person, other than an employee of EMPLOYER or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by EMPLOYEE of his duties under this Agreement, any such Confidential Information during or after the termination of this Agreement without the written consent of EMPLOYER’s Board of Directors or a person authorized by the Board of Directors to provide such written consent. EMPLOYEE further agrees to indemnify and compensate EMPLOYER for any loss, liability, or damages (including attorneys’ fees and expenses at any level of proceedings) incurred by EMPLOYER as a result of EMPLOYEE’s unauthorized disclosure or use of trade secrets or confidential information.

7. Non-competition; Non-solicitation : EMPLOYEE acknowledges that, in the course of his employment with EMPLOYER, EMPLOYEE will obtain knowledge of confidential business information and trade secrets essential to the business and competitive position of EMPLOYER. EMPLOYEE further acknowledges that he will have substantial contact with EMPLOYER’s present and prospective clients, vendors, and dealers and with

 

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EMPLOYER’s employees. To protect EMPLOYER’s legitimate business interest in protecting its confidential information and business relationships, EMPLOYEE agrees that, for a period of six (6) months following the termination of his employment with EMPLOYER for any reason, EMPLOYEE will not:

 

  (a) accept employment with, or otherwise consult with or participate in the business of, any entity engaged in the Business within Canada and Eastern United States (New York, New Jersey, Atlanta, Georgia, Florida);

 

  (b) directly or indirectly solicit, call upon, or otherwise do business with, on his own behalf or on behalf of any entity, any clients, vendors, dealers or prospective clients, vendors, or dealers of EMPLOYER whom EMPLOYEE had contact with, or otherwise learned of, during his employment with EMPLOYER; or

 

  (c) directly or indirectly solicit, recruit, hire, or attempt to hire, on his own behalf or on behalf of any entity, any employee of EMPLOYER whom EMPLOYEE had contact with, or otherwise learned of, during EMPLOYEE’s employment with EMPLOYER.

8. Return of Property : EMPLOYEE acknowledges that during EMPLOYEE’s employment EMPLOYEE will obtain property from EMPLOYER, including but not limited to merchandise sample, computer, cellular and any other related equipments. In the event EMPLOYEE’s employment with EMPLOYER terminates for any reason, EMPLOYEE agrees to immediately return to EMPLOYER any and all property or documents (and copies of documents) of EMPLOYER in EMPLOYEE’s possession.

9. Ideas and Inventions : EMPLOYEE agrees to assign to EMPLOYER all EMPLOYEE’s right, title, and interest in or to any and all ideas, concepts, know-how, techniques, processes, methods, inventions, discoveries, developments, innovations, and improvements (hereinafter referred to as “Inventions”) conceived or made by EMPLOYEE, whether alone or with others, which either (a) involve or are reasonably related to the business of EMPLOYER or (b) incorporate or are based on, in whole or in part, any of EMPLOYER’s Confidential Information. Such Inventions shall be the property of EMPLOYER or its nominees. EMPLOYEE agrees to disclose all Inventions to EMPLOYER promptly and to provide all assistance reasonably requested by EMPLOYER to preserve EMPLOYER’s interest in the Inventions. Such assistance will be provided at EMPLOYER’s expense, but without any additional compensation to EMPLOYEE. EMPLOYEE agrees to execute, acknowledge, and deliver any instruments confirming the complete ownership by EMPLOYER of such Inventions. Such assignments shall include the right to sue for infringement.

10. Copyrights : EMPLOYER acknowledges that any work created by incorporating all or any portion of EMPLOYER’s Confidential Information will be considered a derivative work. EMPLOYEE agrees that any work prepared for EMPLOYER which is eligible for copyright protection in the United States or elsewhere shall be a work made for hire. If any such work is deemed for any reason not to be a work made for hire, EMPLOYEE assigns all right, title, and interest in the copyright in such work, and all extensions and renewals thereof, to EMPLOYER, and agrees to provide all assistance reasonably requested by EMPLOYER in the

 

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establishment, preservation, and enforcement of its copyright in such work. Such assistance will be provided at EMPLOYER’s expense, but without any additional compensation to EMPLOYEE. EMPLOYEE agrees to waive all moral rights relating to the work developed or produced, including without limitation any and all rights of identification of authorship and any and all rights of approval, restriction or limitation on use or subsequent modifications.

11. Remedies : EMPLOYER and EMPLOYEE both acknowledge and agree that if EMPLOYEE breaches any of the provisions in Sections 6, 7, 8, 9, or 10 of this Agreement the harm caused to EMPLOYER, though great and irreparable, would be difficult to ascertain. Therefore, EMPLOYER, in addition to and without limiting any other remedy or right it may have at law or in equity or otherwise, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction enjoining any such breach, and EMPLOYEE hereby waives any and all defenses EMPLOYEE may have on the ground of inappropriateness of any such equitable relief.

12. Termination of the Agreement : EMPLOYEE may terminate this Agreement for any reason and without cause by providing EMPLOYER with written notice of the termination at least 90 days prior to the date of termination. EMPLOYER may terminate this Agreement (a) for any reason and without cause by providing EMPLOYEE with written notice of the termination at least 90 days prior to the date of termination or (b) immediately and without prior written notice in the event that (i) EMPLOYER determines that EMPLOYEE has failed to perform his duties under this Agreement; (ii) EMPLOYER determines that EMPLOYEE has failed to perform diligently and satisfactorily the usual and customary duties attendant to the services he is providing EMPLOYER under this Agreement; (iii) EMPLOYEE violates any of EMPLOYER’s policies and procedures; (iv) EMPLOYEE breaches any provision in this Agreement; (v) EMPLOYEE is insubordinate to EMPLOYER or fails to follow EMPLOYER’s instructions; or (vi) EMPLOYEE suffers a disability that renders him unable to perform the essential functions of the position of Group Vice President, Supply Chain Operations with or without reasonable accommodation. In the event that EMPLOYEE’s employment is terminated for any reason, EMPLOYEE shall receive only such compensation as EMPLOYEE has accrued through the date of termination, including any benefits for which EMPLOYEE may be eligible pursuant to EMPLOYER’s policies.

13. Notice : Any notice required or permitted to be given under this Agreement shall be in writing and personally delivered or sent by Federal Express or another nationally recognized overnight delivery service, postage pre-paid and addressed as follows:

To EMPLOYER:

MAYORS JEWELERS OF FLORIDA, INC

14051 Northwest 14 th Street, Suite 200

Sunrise, Florida,

33323 United States of America

Attention: Senior Vice President and Chief Operating Officer

Copy to: Henry Birks & Sons Inc.

1240 Phillips Square

Montreal, Quebec H3B 3H4 Canada

Attention: President and Chief Executive Officer

Copy to: Vice President Human Resources and Vice President General Counsel

 

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To EMPLOYEE:

John C. ORRICO

240 Turrill Brook Drive

Southbury, CT. 06488

14. Assignment; Binding Effect : EMPLOYEE agrees that this Agreement shall inure to the benefit of and be binding upon EMPLOYER’s successors. EMPLOYER further agrees that EMPLOYER may assign the Agreement at any time. However, due to the personal nature of EMPLOYEE’s services to EMPLOYER, EMPLOYEE may not delegate his duties or assign his rights under this Agreement without EMPLOYER’s prior written consent.

15. Severability : If any provision of this Agreement is held to be invalid, illegal, or unenforceable, in whole or in part, such invalidity shall not affect any otherwise valid provision, and all other valid provisions shall remain in full force and effect.

16. Titles : The titles and headings preceding the text of the sections of this Agreement have been inserted solely for convenience of reference and do not constitute a part of this Agreement or affect its meaning, interpretation, or effect.

17. Waiver : The failure of either party to insist in any one or more instances upon performance of any terms or conditions of this Agreement shall not be construed as a waiver of future performance of any such term, covenant, or condition, and the obligations of either party with respect to such term, covenant, or condition shall continue in full force and effect.

18. Complete Agreement/Right to Enter Into Agreement : EMPLOYEE agrees and understands that this Agreement supersedes any and all prior Agreements, negotiations, or understandings between EMPLOYER and EMPLOYEE, and that this Agreement is the complete and exclusive Agreement between EMPLOYER and EMPLOYEE. EMPLOYEE warrants and represents that EMPLOYEE has read this Agreement and understands its terms, that EMPLOYEE has the legal right to enter into this Agreement, and that EMPLOYEE enters into this Agreement willingly and without duress. EMPLOYEE further warrants and represents that EMPLOYEE is not bound by any other agreement, contract, or duty that would prevent or impede EMPLOYEE from devoting EMPLOYEE’s best efforts to EMPLOYER. This Agreement cannot be amended, modified, or supplemented in any respect except by a subsequent written agreement entered into by both parties.

19. Attorneys’ Fees : In the event that EMPLOYER seeks to enforce any provision in this Agreement in any proceeding, EMPLOYER shall be entitled to recover from EMPLOYEE its attorneys’ fees (including fees incurred in consulting counsel prior to the institution of such proceedings) and costs.

 

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20. Governing Law; Forum : This Agreement shall be governed and interpreted by Florida law. EMPLOYEE consents to the jurisdiction of any court, state or federal, within Broward County, Florida, and agrees that all litigation regarding this Agreement shall be brought in Broward County, Florida, only. EMPLOYEE agrees to waive his privilege of venue and any right he may have in selection of venue in suits brought by EMPLOYER or EMPLOYEE in connection with this Agreement.

The terms of this Agreement are agreed to by:

 

EMPLOYER:          

 

/s/ Thomas A. Andruskevich

    

 

9-23-03

    
             
Mayors Jewelers, Inc.      Date     
By Thomas A. Andruskevich,          
Chairman, President & CEO          
EMPLOYEE:          

 

/s/ John C. Orrico

    

 

9-29-03

    
             
John C. Orrico      Date     

 

7

Exhibit 4.27

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT made at Montreal, on February 24, 2006 by and between Miranda Melfi (the “Executive”) and Birks & Mayors Inc., a company incorporated under the laws of Canada (the “Company”).

WHEREAS the Company is a luxury retailer, designer, manufacturer and wholesaler of fine jewelry, timepieces, sterling silverware and gifts (the “Business”);

WHEREAS the Company has determined that it is to the advantage and interest of the Company to retain the Executive’s services under the terms and conditions set forth herein;

WHEREAS the Executive desires to be retained by the Company under the terms and conditions set forth herein;

WHEREAS , the Executive declares that, to the best of her knowledge and subject to the requirements of applicable immigration laws, she is not prevented from working as such in Canada and the United States;

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 Group Vice-President, Legal Affairs and Corporate Secretary 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, responsibilities as well as the reporting relationship and duties may be changed from time to time so long as they are consistent with her skills and experience and that the Executive continues to be a member of the Senior Management team. 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 Montreal, provide her services to the Company primarily in Canada, with the need to travel to South Florida on a basis determined by business requirement and as agreed with the President and CEO, and any other traveling needs as may be required by the position. The work is to be performed essentially from the office of the Company in Montreal.

 

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1.3 Effective Date . This Agreement shall start on April 3rd, 2006 (“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 two hundred thousand Canadian dollars (CAD$200,000) less all applicable deductions, taxes, and withholdings, payable in the manner dictated by the Company’s standard payroll policies. The Executive is 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 two hundred thousand Canadian dollars (CAD$200,000). The Executive’s base gross salary from time to time shall be referred to herein as the “Base Salary”.

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 26, 2006 to March 25, 2007. 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 mutually determined by the President & CEO and the Executive. For the Fiscal Year ending March 25, 2007, and each Fiscal Year thereafter, the target bonus is forty percent (40%) of the Base Salary.

b) The Executive will need to be an active employee continuously from the Effective Date through the date of the payment of the bonus in order to receive the 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.

c) Long-term Incentive Awards. For each Fiscal Year of the Company through which the Executive remains an active employee of the Company, the Executive will be eligible for a long-term incentive award of the Company’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.

2.3 Participation in Benefit Plans and Associate Discount Policy . The Company will provide the Executive with the group insurance coverages from the first

 

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day of employment, currently including life, ADD, disability, 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. In addition, the Executive will be entitled to participate in the Company’s Associate Discount Policy. The Executive will be eligible to participate in any pension plan that may be established by the Company for Senior Management. 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 2. The Executive is also entitled to an annual executive physical examination at Medisys or any other clinic in Montreal, the cost of which shall be borne by the Company.

2.4 Vacation Days . The Executive shall be entitled to twenty (20) days of vacation for each Calendar Year consistent with the Company’s vacation policy for Senior Management officers. The vacation days are earned for a given Calendar Year during that same Calendar Year; as a result, for any portion of a Calendar Year worked, the vacation shall be prorated on the basis of the number of days worked during the Calendar 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 one thousand two hundred Canadian dollars (CAD$1,200) 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) Parking: the Company will pay for indoor parking on a monthly basis.

c) The Company will pay reasonable annual payments to professional associations and professional memberships once approved by the President & CEO of the Company.

d) Equipment: The Company will provide to the Executive all the equipment required to perform her work to include such things as: cell phone, PC, etc. In addition the Company will pay for a fax at home as well as for the monthly Internet access at home.

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.

 

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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), (ii) the willful engaging by the Executive in misconduct which is financially injurious to the Company, or (iii) the Executive’s conviction with respect to the commission of a felony or a crime involving bad faith or dishonesty; or (iv) any breach by the Executive of any material term of this Agreement ; or (vi) the Executive’s material violation of any of the Company’s policies; or (vii) the Executive’s insubordination or any act or omission of the Executive, which pursuant to applicable law, constitutes a serious reason for termination of employment without notice, payment in lieu of notice or any indemnity whatsoever. 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) “Incapacity” shall mean the Executive’s inability to perform the Executive’s duties by reason of any medical condition whatsoever (including mental or physical illness) for a continuous period of at least one hundred and eighty (180) days in any three-hundred sixty-five (365) day period. In the event of a dispute as to whether the Executive is incapacitated 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 incapacitated and the date when such incapacity arose. The cost of any such medical examination shall be borne by the Company.

c) “Good Reason” shall mean (i) the Executive ceases to be a member of the Senior Management of the Company, or (ii) the Company breaches any material provision of this Agreement including, but not limited, to the Company requiring the relocation of the Executive outside of Montreal, or (iii) the occurrence of a “Change in Control”. A “Change in Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied: (i) any “Person” (other than members of the Controlling Shareholder Group, the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company controlled, directly or indirectly, by the controlling shareholders of the Company), is or becomes the “beneficial owner”, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities; (ii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation or entity, OTHER THAN a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 80% of the combined voting power of the voting securities of

 

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the Company or such surviving entity outstanding immediately after such merger or consolidation, or a merger or consolidation with or into any company the voting securities of which are beneficially owned 50% or more by the Controlling Shareholder Group, provided that the voting securities of the surviving entity outstanding immediately after such merger or consolidation are beneficially owned 50% or more by the Controlling Shareholder Group; (iii) the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or (iv) the total combined voting power of the Company (or any successor entity) represented by shares of voting stock owned by members of the Controlling Shareholder Group is reduced to less than 50%.

The “Controlling Shareholder Group” includes: (i) Dr. Lorenzo Rossi di Montelera, (ii) the spouse and lineal descendants of Dr. Lorenzo Rossi di Montelera; (iii) any trust whose principal beneficiaries are persons described in clauses (i) and (ii). A “Person” includes any natural person and any corporation, limited liability company, partnership, trust or other entity.

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 of the Agreement

a) Executive may terminate this Agreement (i) for any reason, other than for Good Reason, by providing the Company with written notice specifying the intention of the Executive to resign, in accordance with Section 6.2, at least thirty (30) days prior to the date of termination or resignation, unless a shorter period is agreed between the parties, or (ii) for Good Reason by written notice to the Company not more than thirty (30) days after the occurrence of the event giving rise to such notice.

b) Company may terminate this Agreement at any time: (i) without Cause by providing Executive with written notice of the termination at least ninety (90) days prior to the date of termination or (ii) immediately and without prior notice in the event of Death, Incapacity or for Cause.

c) The Executive will be paid salary continuation from the date of notice until the effective date of such date of termination or resignation, as indicated in Sections 3.2 (a) and 3.2(b)(i), at the rate in effect immediately prior to such notice of resignation or termination and all other amounts to which the Executive is entitled as of such date under any compensation plans or benefit program of the Company according to the terms of such plans or programs, provided that the Executive’s continued participation is possible under the general terms and provisions of such benefit plans and programs.

 

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d) In the event of the termination of this Agreement by the Executive in accordance with Section 3.2 (a), the Company shall pay or provide to the Executive 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 and all other unpaid amounts to which the Executive is entitled as of such date under any compensation plan or program of the Company according to the terms of such plans or programs (including payment for any vacation time earned but not taken during the year in which termination occurs and any reimbursements not yet paid but due for business expenses previously incurred less any amounts owed the Company for items such as, but not limited to, travel advances, merchandise purchases), such payments to be made in a lump sum within fifteen (15) days following the date of resignation or termination.

e) In the event of the termination of this Agreement at any time, in accordance with Sections 3.2(a)(ii) or 3.2(b)(i) , the Company shall pay or provide the Executive only the following:

(i) The amount in 3.2(d)(i) above;

(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 three hundred and sixty-five (365), such amount to be paid no later than the time annual bonuses are paid to other executives of the Company; and

(iii) At the end of the agreed upon notice period set forth at Sections 3.2(b)(i) or 3.2(a)(ii) as the case may be, the Company will provide salary continuation, as described in Section 3.2(c), for an additional ninety (90) days or such additional period that would be required in accordance with applicable law and jurisprudence, whichever is greater, provided the Executive makes a good faith effort to find employment and such salary continuance shall cease on the date the Executive begins employment with another employer.

(iv) As a condition to her entitlement to receive termination payments under subsections 3.2(e)(i) – (iii) of this Agreement, the Executive shall have executed and delivered to the Company a full and satisfactory release substantially in the form attached hereto as Exhibit A.

f) In the event of the termination of this Agreement by the Company at any time, in accordance with Section 3.2(b)(ii), only the amounts set forth in clause (i) of Section 3.2(d) shall be payable to the Executive, provided however that in the event of Death or Incapacity, the amount set forth in clause (ii) of Section 3.2(e) shall be payable as well.

 

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For greater clarity, except as set forth above, no other payment whatsoever shall be due by the Company to the Executive.

3.3 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, thereafter for the period in which salary continuation may be provided in accordance with Section 3.2(e)(iii) but not more than 6 months, 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, employee, independent contractor or otherwise with, any other individual, 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 subsidiaries (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 Canada or any of the foreign countries in which the Company or any of its subsidiaries 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 subsidiaries; 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 subsidiaries in aggregate) does not derive Material Revenues (as defined below) from the aggregate of all Prohibited Businesses, (B) such entity (including its subsidiaries in aggregate) is not a Competitor (as defined below) of the Company and its subsidiaries 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 subsidiaries in aggregate) are derived from the aggregate of all Prohibited Businesses; an entity shall be deemed a “Competitor” of the Company and its subsidiaries if the combined gross receipts of the entity (including its subsidiaries in aggregate) from any Prohibited Business is more than 25% of the gross receipts of the Company and its subsidiaries in such Prohibited Business;

 

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b) Employ, assist in employing, or otherwise engage in business with any present executive, officer, employee or agent of the Company or its subsidiaries;

c) Induce any person who is an executive, officer, employee or agent of the Company, or any member of the Company or its subsidiaries, to terminate their relationship with the Company or any of its subsidiaries; 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 subsidiaries, 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 subsidiaries, it being acknowledged by the Executive that all such information regarding the business of the Company or its subsidiaries 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 or generally know to the public 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 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 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.

 

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4.5 The Executive has carefully considered the nature and extent of the restrictions upon 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 not designed to 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 determines that any of the covenants contained in this Section 4 (the “Restrictive Covenants”), or any part thereof, are 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 the Province of Quebec. If the courts of this jurisdiction 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 .

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 the Company, or to a purchaser of all or substantially all of the assets 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 Province of Quebec and the laws of Canada applicable therein.

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

 

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after being sent by certified mail, postage prepaid, with return receipt requested, to the parties at their respective addresses set forth below:

 

  a) To the Company:

Birks & Mayors Inc.

1240 Phillips Square

Montreal, Quebec

H3B 3H4

Attention: President and CEO

 

  b) To the Executive:

Miranda Melfi

41 Merineau

Kirkland, Quebec

H9J 3V8

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.

 

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6.5 Jurisdiction . Any legal action or proceeding arising out of or relating to this Agreement shall be brought exclusively in the courts of the Province of Quebec and, by execution and delivery of this Agreement, the Executive and the Company irrevocably consent to the jurisdiction of those courts. The Executive and the Company irrevocably waive any objection, including any objection based on the grounds of forum non-conveniens, which either may now or hereinafter have to the bringing of any action or proceeding in such jurisdiction in respect of any Agreement or any transaction related thereto.

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 to enforce their rights under this Agreement, then the prevailing party, as determined by a court of competent jurisdiction, 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. However, nothing in this subsection prohibits the Company from seeking relief under Section 4 of this Agreement

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 her right or ability to enter into and fully perform the terms of this Agreement.

6.11 Currency . For the avoidance of doubt, any references to monies or dollars set forth in this Agreement shall be in Canadian Dollars.

 

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6.12 Language . The parties hereto acknowledge that they have requested and are satisfied that this Agreement and all related documents be drawn up in the English language. Les parties aux présentes reconnaissent avoir requis que la présente entente et les documents qui y sont relatifs soient rédigés en anglais.

IN WITNESS WHEREOF , the parties hereto have set their hands and seals upon the date and year first above written.

 

BIRKS & MAYORS INC.
By:  

/s/ Thomas A. Andruskevich

 

/s/ Miranda Melfi

  MIRANDA MELFI

 

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Exhibit 4.43

BIRKS & MAYORS INC.

2006 EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the 2006 Employee Stock Purchase Plan (the “ Plan ”) of Birks & Mayors Inc. (the “ Company ”).

1. Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Subsidiaries (as defined below) with an opportunity to purchase Class A Voting Shares of the Company through payroll deductions. It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “ Code ”). The provisions of the Plan shall, accordingly, be constructed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.

2. Definitions.

(a) “ Board ” shall mean the Board of Directors of the Company or any committee of the Board of Directors of the Company that has been authorized by resolution of the Board of Directors of the Company to administer this Plan.

(b) “ Class A Voting Shares ” shall mean the Class A Voting Shares, without nominal or par value, of the Company.

(c) “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

(d) “ Company ” shall mean Birks & Mayors Inc., a corporation currently existing under the Canada Business Corporations Act , R.S.C., 1985, chapter C-44.

(e) “ Compensation ” shall mean all regular straight time earnings, payments of overtime, shift premiums, incentive compensation, incentive payments, bonuses and commissions (except to the extent that the exclusion of any such items is specifically directed by the Board).

(f) “ Designated Subsidiaries ” shall mean the Subsidiaries which have been designated by the Board from time to time, in its sole discretion, as eligible to participate in the Plan.

(g) “ Employee ” means any person, excluding senior officers of the Company, who is customarily employed for at least twenty (20) hours per week and has been so employed for at least six (6) months continuous by the Company or one of its Designated Subsidiaries.

(h) “ Plan ” shall mean this 2006 Employee Stock Purchase Plan.

(i) “ Subsidiary ” shall mean a corporation or other legal person or entity (partnership, joint venture or otherwise), domestic or foreign, of which not less than fifty


percent (50%) of the total combined voting power of all classes of stock of such corporation or other entity are held directly or indirectly by the Company or of which the Company has the power to direct, whether directly or indirectly, the management and policies of such other legal person or entity, whether or not such corporation or other legal person or entity now exists or is hereafter organized or acquired by the Company or an affiliate of the Company and which is treated as a “Subsidiary” under Section 424(f) of the Code.

3. Eligibility.

(a) Any Employee as defined in Section 2 herein shall be eligible to participate in the Plan, subject to the limitations imposed by Section 423(b) of the Code.

(b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee would own shares (calculated including outstanding options to purchase) possessing five percent (5%) or more of the total combined voting power or value of all classes of shares of the Company or of any Parent or Subsidiary of the Company as determined in accordance with Section 424(d) of the Code, or (ii) which permits his rights to purchase shares under all employee stock purchase plans of the Company and its Parent and Subsidiaries to accrue at a rate which exceeds $25,000 of the fair market value of the shares (determined at the time such option is granted) for each calendar year in which such stock option is outstanding at any time.

4. Offering Dates. The Plan shall be implemented by one offering during each six-month period of the Plan, commencing on or about July 1, 2006 and continuing thereafter until terminated, in accordance with Section 19 hereof. The Board shall have the power to change the duration of offering periods with respect to future offerings without shareholder approval, if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first offering period to be affected.

5. Participation.

(a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing a payroll deduction on the form provided by the Company, and filing it with the Company’s or the Designated Subsidiary’s payroll office prior to the applicable offering date.

(b) Payroll deductions for a participant shall commence on the first payroll following the offering date and shall end on the termination date of the offering to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10.

6. Payroll deductions.

(a) At the time a participant files his subscription agreement, he shall elect to have payroll deductions made on each payday during the offering period at a rate not exceeding ten percent (10%) of the Compensation which he is to receive on such payday, and the aggregate of such projected payroll deduction during the offering period shall not exceed ten percent (10%) of his aggregate projected Compensation during said offering period.

 

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(b) All payroll deductions authorized by a participant shall be credited to his account under the Plan. A participant may not make any additional payments into such account.

(c) A participant may discontinue his participation in the Plan as provided in Section 10 herein, or may lower, but not increase, the rate of his payroll deductions during the offering period by completing and filing with the Company’s or a Designated Subsidiary’s payroll office a new authorization for payroll deduction. The change in rate shall be effective within fifteen (15) days following the Company’s or the Designated Subsidiary’s receipt of the new authorization.

(d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein, a participant’s payroll deductions may be decreased to zero percent at such time during any offering period which is scheduled to end during the current calendar year (the “ Current Offering Period ”) that the aggregate of all payroll deductions which were previously used to purchase stock under the Plan in a prior offering period which ended during that calendar year plus all payroll deductions accumulated with respect to the Current Offering Period equal $25,000 or more. Payroll deductions shall recommence at the rate provided in such participant’s subscription agreement at the beginning of the first offering period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10.

(e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company’s Class A Voting Shares issued under the Plan is disposed of, the participant must make adequate provision for the Company’s federal, state, foreign or other tax or social insurance withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Class A Voting Shares. At any time, the Company may, but will not be obligated to, withhold from the participant’s compensation, the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefit attributable to the sale or early disposition of Class A Voting Shares by the Employee.

7. Grant of Option.

(a) At the beginning of each six-month offering period, each eligible Employee participating in the Plan shall be granted an option to purchase (at the per share option price set forth in Section 7(b)) up to a number of shares of the Company’s Class A Voting Shares purchasable by each Employee’s projected accumulated payroll deduction (not to exceed an amount equal to ten percent (10%) of his Compensation as of the date of the commencement of the applicable offering period) divided by eighty-five percent (85%) of the fair market value of a share of the Company’s Class A Voting Shares at the beginning of said offering period, subject to the limitations set forth in Section 3(b) and 12 hereof. The fair market value of a share of the Company’s Class A Voting Shares shall be determined as provided in Section 7(b) herein.

(b) The option price per share of such shares shall be the lesser of: (i) 85% of the fair market value of a share of the Class A Voting Shares of the Company at the commencement of the six-month offering period; or (ii) 85% of the fair market value of a share

 

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of the Class A Voting Shares of the Company at the time the option is exercised at the termination of the six-month offering period. The fair market value of the Company’s Class A Voting Shares on a given date shall be the reported closing price of the Class A Voting Shares on the American Stock Exchange (or such other exchange or market on which such shares are then listed) for that date.

8. Exercise of Option. Unless a participant withdraws from the Plan as provided in Section 10, his option for the purchase of shares shall be exercised automatically at the end of the offering period, and the maximum number of full shares subject to such option shall be purchased for him at the applicable option price with the accumulated payroll deductions in his account. During his lifetime, a participant’s option to purchase shares hereunder is exercisable only by him.

9. Delivery. As promptly as practicable after the termination of each offering, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his option. Any cash remaining to the credit of a participant in his account under the Plan after a purchase of shares at the termination of each offering period, or which is insufficient to purchase a full Class A Voting Share of the Company, shall be returned to the participant.

10. Withdrawal; Termination of Employment.

(a) A participant may withdraw all but not less than all the payroll deductions credited to his account under the Plan at any time prior to the end of the offering period by giving written notice to the payroll office of the Company or the Designated Subsidiary. All of the participant’s payroll deductions credited to his account shall be paid to him promptly after receipt of his notice of withdrawal and his option for the current period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for him during the offering period.

(b) Upon termination of the participant’s employment prior to the end of the offering period for any reason, including retirement or death, the payroll deductions credited to his account shall be returned to him or, in the case of his death, to the person or persons entitled thereto under Section 14, and his option shall be automatically terminated.

(c) In the event an Employee fails to remain in the continuous employ of the Company or a Designated Subsidiary for at least twenty (20) hours per week during the offering period in which the employee is a participant, he shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to his account shall be returned to him and his option terminated.

(d) A participant’s withdrawal from an offering shall not have any effect upon his eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company or a Designated Subsidiary.

11. Interest. No interest shall accrue on the payroll deductions of a participant in the Plan.

 

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12. Stock.

(a) The maximum number of the Company’s Class A Voting Shares which shall be made available for sale under the Plan shall be 100,000 shares, subject to adjustment upon changes in capitalization of the Company as provided in Section 18. The shares to be sold to participants under the Plan may, at the election of the Company, be either treasury shares, shares authorized but unissued, or shares purchased on the open market. If the total number of shares, which would otherwise be subject to options granted pursuant to Section 7(a) hereof, at the beginning of an offering period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised or are then outstanding), the Company shall allocate options for shares remaining available for option grants pro rata among the participants in accordance with the amounts otherwise determined pursuant to Section 7(a). In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each participant affected thereby and shall similarly reduce the rate of payroll deductions, if necessary.

(b) A participant shall have no interest or voting right in shares covered by his option until such option has been exercised and a share certificate has been issued to such participant.

(c) Shares to be delivered to a participant under the Plan shall be registered either in the name of the participant or, if so instructed by the participant, in the name of the participant and his spouse.

13. Administration. The Plan shall be administered by the Board. The administration, interpretation or application of the Plan by the Board shall be final, conclusive and binding upon all participants. Members of any committee that has been authorized by the Board to administer this Plan and who are eligible Employees, are permitted to participate in the Plan.

14. Designation of Beneficiary.

(a) Where permissible under applicable law, a participant may file a written designation of a beneficiary who is to receive any shares or cash or both to which the participant may be entitled under the Plan at the time of his death.

(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver any shares and any cash to which the participant was entitled to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver any such shares and any such cash to the spouse or children of the participant, or if no spouse or no child is known to the Company, then to such other person as the Company may designate.

 

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15. Transferability. Neither payroll deductions credited to a participant’s account nor any rights with regard to the exercise of any option or rights to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 14) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 10.

16. Use of Funds. All payroll deductions received or held by the Company or a Designated Subsidiary under the Plan may, in accordance with applicable law, be used by the Company or a Designated Subsidiary for any corporate purpose, and the Company or a Designated Subsidiary shall not be obligated to segregate such payroll deductions.

17. Reports. Individual accounts shall be maintained for each participant in the Plan. Statements of account shall be given to participating Employees semiannually promptly following the share purchase date, which statements shall set forth the amount of payroll deductions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any.

18. Adjustments Upon Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Class A Voting Shares covered by each option under the plan which has not yet been exercised and the number of Class A Voting Shares which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the “ Reserves ”), as well as the price per Class A Voting Share covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of Class A Voting Shares or another class of voting shares of the Company effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of any class shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Class A Voting Shares subject to an Option.

The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per Class A Voting Share covered by each outstanding option, in the event that the Company effects one or more reorganizations, capitalizations or recapitalizations, rights, or offerings, and in the event the Company is consolidated with or merged into any other corporation.

19. Amendment or Termination. The Board may at any time terminate or amend the Plan. No termination shall affect options previously granted. No amendment shall make any change in any option granted under the Plan which adversely affects the right of any participant. To the extent necessary to comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended, or under Section 423 of the Code (or any successor rule or provision or any other applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as required.

 

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20. Notices. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt hereof.

21. Shareholder Approval. This Plan shall be subject to approval by the affirmative vote of the holders of a majority of the outstanding total combined voting power of all classes of stock of the Company present or represented and entitled to vote thereon.

22. Conditions Upon Issuance of Shares. Shares shall not be issued with respect to any option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933 , as amended, the Securities Exchange Act of 1934 , as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, including, without limitation, the American Stock Exchange and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

23. Term of Plan. The Plan shall become effective upon the approval by the shareholders of the Company. It shall continue in effect until February 10, 2016, unless sooner terminated under Section 19.

 

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Exhibit 4.44

BIRKS & MAYORS INC.

LONG-TERM INCENTIVE PLAN

 

1. Purposes of the Plan .

The purposes of this Long-Term Incentive Plan are 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 the Company’s business. Awards granted under the Plan may be Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock Awards, Restricted Stock Units, Performance Units, Performance Shares or Stock Appreciation Rights.

 

2. Definitions. As used herein, the following definitions shall apply :

(a) “ Administrator ” means the Board or any Committee or Officer as shall be administering the Plan, in accordance with Section 4 of the Plan.

(b) “ Applicable Law ” means the legal requirements relating to the administration of the Plan under applicable federal, state, local and foreign corporate, tax and securities laws, and the rules and requirements of any stock exchange or quotation system on which the Shares are listed or quoted.

(c) “ Award ” means an Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit, Performance Unit or Performance Share granted under the Plan.

(d) “ Award Agreement ” means a written agreement by which an Award is evidenced.

(e) “ Board ” means the Board of Directors of the Company.

(f) “ Change in Control ” means the happening of any of the following:

(i) When any “person”, as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, a Subsidiary or a Company employee benefit plan, including any trustee of such plan acting as trustee, or any person or affiliate of such person who beneficially owns on the date of adoption of this Plan securities of the Company representing 50 percent or more of the combined voting power of the Company), is or becomes the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act ), directly or indirectly, of securities of the Company representing 50 percent or more of the combined voting power of the Company’s then outstanding securities (provided, however, that for purposes of this paragraph (i), a Change in Control shall not result from the transfer of securities of the Company by any individual (the “Transferor”) to any other individual described in section 5(h)(iii)(A) of this Plan (“Family Member”), or to a trust in which the Transferor and his or her Family Members own more than 50 percent of the beneficial interests or to an entity in

 

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which the Transferor and his or her Family Members own more than 50 percent of the combined voting power); or

(ii) The closing of the sale of all or substantially all of the assets of the Company or the merger of the Company with or into another corporation; provided, however, that a sale of assets to or a merger with or into any person that beneficially owns on the date of adoption of this Plan securities of the Company representing 50% or more of the total combined voting power of the Company, or a sale of assets to or merger with or into any affiliate of such person, shall not constitute a Change in Control.

(g) “ Change in Control Price ” means, as determined by the Board,

(i) the highest Fair Market Value of a Share within the 60-day period immediately preceding the date of determination of the Change in Control Price by the Board (the “60-Day Period”), or

(ii) the highest price paid or offered per Share, as determined by the Board, in any bona fide transaction or bona fide offer related to the Change in Control of the Company, at any time within the 60-Day Period, or

(iii) some lower price as the Board, in its discretion, determines to be a reasonable estimate of the fair market value of a Share.

(h) “ Code ” means the Internal Revenue Code of 1986, as amended.

(i) “ Committee ” means a committee appointed by the Board in accordance with Section 4 of the Plan and constituted to satisfy Applicable Law.

(j) “ Company ” means Birks & Mayors Inc., a corporation currently existing under the Canada Business Corporations Act , R.S.C., 1985, chapter C-44.

(k) “ Consultant ” means a person, other than an Employee or an Officer of the Company or a Parent or a Subsidiary of the Company that (a) is engaged to provide services to the Company that (a) is engaged to provide services to the Company or a Subsidiary of the Company, other than services provided in relation to a distribution of securities, (b) provides the services under a written contract with the Company or a Subsidiary of the Company, and (c) spends or will spend a significant amount of time and attention on the affairs and business of the Company or a Subsidiary of the Company; and the definition of Consultant above includes, for an individual consultant, a corporation of which the individual consultant is an employee or a shareholder, and a partnership of which the individual consultant is an employee or a partner. A non-Employee Director who is paid only a director’s fee by the Company or who is compensated by the Company for his or her services as a non-Employee Director shall be deemed to meet the definition of Consultant for the purposes of this Plan whether or not the other criteria above is met and, in addition, as used herein, “consulting relationship” shall be deemed to include services by a non-Employee Director.

(l) “ Continuous Status as an Employee or Consultant ” means that the employment or consulting relationship is not interrupted or terminated. Continuous Status as an

 

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Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved in writing by the Board, an Officer, or a person designated in writing by the Board or an Officer as authorized to approve a leave of absence, including sick leave, military leave, or any other personal leave; provided, however, that for purposes of Incentive Stock Options, any such leave may not exceed 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract (including certain Company policies) or statute, or (ii) transfers between locations of the Company or between the Company, a Parent, a Subsidiary or successor of the Company; or (iii) a change in the status of the Grantee from Employee to Consultant or from Consultant to Employee.

(m) “ Covered Shares ” means the Shares subject to an Award.

(n) “ Date of Grant ” means the date on which the Administrator makes the determination granting the Award, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Grantee within a reasonable time after the Date of Grant.

(o) “ Date of Termination ” means the date on which a Grantee’s Continuous Status as an Employee or Consultant terminates.

(p) “ Director ” means a member of the Board.

(q) “ Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code.

(r) “ Employee ” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither service as a Director nor payment of a director’s fee by the Company shall be sufficient to constitute “employment” by the Company. Notwithstanding the foregoing, no person shall be considered an Employee under the Plan unless such person is treated as an employee on the books and records of the Company, any Parent or any Subsidiary.

(s) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(t) “ Fair Market Value ” means, as of any date, the value of a Share determined as follows:

(i) If the Shares are listed on an established stock exchange or a national market system, including, without limitation, the American Stock Exchange or the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System, the Fair Market Value of a Share shall be the closing sales price for such a share (or the closing bid, if no sales were reported) as quoted on such system or exchange (or the exchange with the greatest volume of trading in Shares) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii) If the Shares are not quoted on the American Stock Exchange but are quoted on the NASDAQ System (but not on the National Market System thereof) or are

 

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regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share shall be the mean between the high bid and low asked prices for the Shares on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(iii) In the absence of an established market for the Shares, the Fair Market Value of a Share shall be determined in good faith by the Administrator.

(u) “ Grantee ” means an individual who has been granted an Award.

(v) “ Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(w) “ ITA ” means the Income Tax Act (Canada).

(x) “ Mature Shares ” means Shares for which the holder thereof has good title, free and clear of all liens and encumbrances, and that such holder either (i) has held for at least six months or (ii) has purchased on the open market.

(y) “ Nonstatutory Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.

(z) “ Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(aa) “ Option ” means an Incentive Stock Option or a Nonstatutory Stock Option granted under the Plan.

(bb) “ Parent ” means a corporation, whether now or hereafter existing, in an unbroken chain of corporations ending with the Company if each of the corporations other than the Company holds at least 50 percent of the total combined voting power of all classes of stock of one of the other corporations in such chain.

(cc) “ Performance Period ” means the time period during which the performance goals established by the Administrator with respect to a Performance Unit or Performance Share, pursuant to Section 9 of the Plan, must be met.

(dd) “ Performance Share ” has the meaning set forth in Section 9 of the Plan.

(ee) “ Performance Unit ” has the meaning set forth in Section 9 of the Plan.

(ff) “ Plan ” means this Long-Term Incentive Plan.

(gg) “ Restricted Stock Award ” means an Award that is awarded to a Grantee pursuant to Section 8 of the Plan.

 

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(hh) “ Restricted Stock Units ” means a right to receive Shares subject to the terms and conditions set forth in the Award Agreement.

(ii) “ Rule 16b-3 ” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan.

(jj) “ Shares ” means Class A Voting Shares, without nominal or par value, of the Company, as adjusted in accordance with Section 11 of the Plan.

(kk) “ Stock Appreciation Right ” or “ SAR ” means a right granted under Section 7 of the Plan.

(ll) “ Subsidiary ” means a corporation, domestic or foreign, of which not less than 50 percent of the total combined voting power of all classes of stock is held, directly or indirectly, by the Company, whether or not such corporation now exists or is hereafter organized or acquired, whether directly or indirectly, by the Company.

 

3. Stock Subject to the Plan .

Subject to the provisions of Section 11 of the Plan and except as otherwise provided in this Section 3, the maximum aggregate number of Shares that may be subject to Awards is 900,000 Shares. In addition, the maximum aggregate number of Shares that may be subject to Incentive Stock Options is 900,000 Shares. The grant of a SAR shall not reduce the number of Shares that may be subject to Awards; however, the number of Shares issued by the Company upon the exercise of a SAR shall reduce the number of Shares that may be subject to Awards. The Shares may be either treasury or authorized but unissued Shares.

If an Award expires or becomes unexercisable without having been exercised in full, the remaining Shares that were subject to the Award shall become available for future Awards under the Plan (unless the Plan has terminated). If any Shares (whether subject to or received pursuant to an Award granted hereunder, or otherwise obtained, and including Shares that are deemed (by attestation or otherwise) to have been delivered to the Company as payment for all or any portion of the exercise price of an Award) are withheld or applied as payment by the Company in connection with the exercise of an Award or the withholding of taxes related thereto, such Shares, to the extent of any such withholding or payment, shall again be available or shall increase the number of Shares available, as applicable, for future Awards under the Plan. The Board may from time to time determine the appropriate methodology for calculating the number of Shares issued pursuant to the Plan.

 

4. Administration of the Plan .

(a) Procedure.

(i) Multiple Administrative Bodies . The Plan may be administered by different bodies with respect to different groups of Employees and Consultants. Except as provided below, the Plan shall be administered by (A) the Board, or (B) a Committee.

 

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(ii) Rule 16b-3 . To the extent the Administrator considers it desirable for transactions relating to Awards to be eligible to qualify for an exemption under Rule 16b-3, the transactions contemplated under the Plan shall be structured to satisfy the requirements for exemption under Rule 16b-3.

(iii) Section 162(m) of the Code . To the extent the Administrator considers it desirable for compensation delivered pursuant to Awards to be eligible to qualify for an exemption from the limit on tax deductibility of compensation under Section 162(m) of the Code, the transactions contemplated under the Plan shall be structured to satisfy the requirements for exemption under Section 162(m) of the Code.

(iv) Authorization of Officers and Committees to Grant Options . In accordance with Applicable Law, the Board may, by a resolution adopted by the Board, authorize Committees and/or one or more Officers to designate Officers and Employees and Consultants (excluding the Officers so authorized) to be Grantees of Options and determine the number of Options to be granted to such Officers and Employees; provided, however, that the resolution adopted by the Board so authorizing such Officer or Officers shall specify the total number and the terms (including the exercise price, which may include a formula by which such price may be determined) of Options such Committee or Officer or Officers may so grant.

(b) Powers of the Administrator . Subject to the provisions of the Plan, and in the case of a Committee or Officers, subject to the specific duties delegated by the Board to such Committee or Officers, the Administrator shall have the authority, in its sole and absolute discretion:

(i) to determine the Fair Market Value of the Shares, in accordance with Section 2(t) of the Plan;

(ii) to select the Consultants and Employees to whom Awards will be granted under the Plan;

(iii) to determine whether, when, to what extent and in what types and amounts Awards are granted under the Plan, except as otherwise provided in Section 6(a)(iii) of the Plan with respect to non-Employee Directors;

(iv) to determine the number of Shares to be covered by each Award granted under the Plan, except as otherwise provided in Section 6(a)(iii) of the Plan with respect to non-Employee Directors;

(v) to determine the forms of Award Agreements, which need not be the same for each grant or for each Grantee, for use under the Plan;

(vi) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted under the Plan. Such terms and conditions, which need not be the same for each grant or for each Grantee, include, but are not limited to, the exercise price, the time or times when Options and SARs may be exercised (which may be based on performance criteria), the extent to which vesting is suspended during a leave of absence, any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation

 

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regarding any Award or the Shares relating thereto, based in each case on such factors as the Administrator shall determine;

(vii) to construe and interpret the terms of the Plan and Awards;

(viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including, without limiting the generality of the foregoing, rules and regulations relating to the operation and administration of the Plan to accommodate the specific requirements of local and foreign laws and procedures;

(ix) to modify or amend each Award (subject to Section 13 of the Plan);

(x) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted by the Administrator;

(xi) to determine the terms and restrictions applicable to Awards;

(xii) to make such adjustments or modifications to Awards granted to Grantees who are Employees of Subsidiaries that have headquarters outside of Canada and the United States as are advisable to fulfill the purposes of the Plan or to comply with Applicable Law;

(xiii) to delegate its duties and responsibilities under the Plan with respect to sub-plans applicable to Subsidiaries that have headquarters outside of Canada and the United States, except its duties and responsibilities with respect to Employees who are also Officers or Directors subject to Section 16 of the Exchange Act ; and

(xiv) to make all other determinations deemed necessary or advisable for administering the Plan.

(c) Effect of Administrator’s Decision . The Administrator’s decisions, determinations and interpretations shall be final and binding on all Grantees and any other holders of Awards.

 

5. Eligibility and General Conditions of Awards .

(a) Eligibility . All Employees and Consultants are eligible for grants of Awards. Awards other than Incentive Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. No Incentive Stock Options shall be granted to Employees who are resident of Canada under the ITA or a tax convention to which Canada is a party. If otherwise eligible, an Employee or Consultant who has been granted an Award may be granted additional Awards.

(b) Maximum Term . Subject to the following provision, the term during which an Award may be outstanding shall not extend more than ten years after the Date of Grant, and shall be subject to earlier termination as specified elsewhere in the Plan or Award Agreement; provided, however, that any deferral of a cash payment or of the delivery of Shares

 

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that is permitted or required by the Administrator pursuant to Section 10 of the Plan may, if so permitted or required by the Administrator, extend more than ten years after the Date of Grant of the Award to which the deferral relates.

(c) Award Agreement . To the extent not set forth in the Plan, the terms and conditions of each Award, which need not be the same for each grant or for each Grantee, shall be set forth in an Award Agreement.

(d) Termination of Employment or Consulting Relationship . In the event that a Grantee’s Continuous Status as an Employee or Consultant terminates (other than upon the Grantee’s death or Disability), then, unless otherwise provided by the Award Agreement, and subject to Section 11 of the Plan:

(i) the Grantee may exercise his or her unexercised Option or SAR, but only within such period of time as is determined by the Administrator, and only to the extent that the Grantee was entitled to exercise it at the Date of Termination (but in no event later than the expiration of the term of such Option or SAR as set forth in the Award Agreement). In the case of an Incentive Stock Option, the Administrator shall determine such period of time (in no event to exceed three months from the Date of Termination) when the Option is granted. If, at the Date of Termination, the Grantee is not entitled to exercise his or her entire Option or SAR, the Shares covered by the unexercisable portion of the Option or SAR shall revert to the Plan. If, after the Date of Termination, the Grantee does not exercise his or her Option or SAR within the time specified by the Administrator, the Option or SAR shall terminate, and the Shares covered by such Option or SAR shall revert to the Plan;

(ii) the Grantee’s Restricted Stock Awards, to the extent forfeitable immediately before the Date of Termination, shall thereupon automatically be forfeited;

(iii) the Grantee’s Restricted Stock Awards that were not forfeitable immediately before the Date of Termination shall promptly be settled by delivery to the Grantee of a number of unrestricted Shares equal to the aggregate number of the Grantee’s vested Restricted Stock Awards; and

(iv) any Performance Shares or Performance Units with respect to which the Performance Period has not ended as of the Date of Termination shall terminate immediately upon the Date of Termination.

(e) Disability of Grantee . In the event that a Grantee’s Continuous Status as an Employee or Consultant terminates as a result of the Grantee’s Disability, then, unless otherwise provided by the Award Agreement:

(i) the Grantee may exercise his or her unexercised Option or SAR at any time within 12 months from the Date of Termination, but only to the extent that the Grantee was entitled to exercise the Option or SAR at the Date of Termination (but in no event later than the expiration of the term of the Option or SAR as set forth in the Award Agreement). If, at the Date of Termination, the Grantee is not entitled to exercise his or her entire Option or SAR, the Shares covered by the unexercisable portion of the Option or SAR shall revert to the Plan. If, after the Date of Termination, the Grantee does not exercise his or her Option or SAR within the

 

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time specified herein, the Option or SAR shall terminate, and the Shares covered by such Option or SAR shall revert to the Plan.

(ii) the Grantee’s Restricted Stock Awards, to the extent forfeitable immediately before the Date of Termination, shall thereupon automatically be forfeited;

(iii) the Grantee’s Restricted Stock Awards that were not forfeitable immediately before the Date of Termination shall promptly be settled by delivery to the Grantee of a number of unrestricted Shares equal to the aggregate number of the Grantee’s vested Restricted Stock Awards;

(iv) any Performance Shares or Performance Units with respect to which the Performance Period has not ended as of the Date of Termination shall terminate immediately upon the Date of Termination.

(f) Death of Grantee . In the event of the death of a Grantee, then, unless otherwise provided by the Award Agreement,

(i) the Grantee’s unexercised Option or SAR may be exercised at any time within 12 months following the date of death (but in no event later than the expiration of the term of such Option or SAR as set forth in the Award Agreement), by the Grantee’s estate (or the liquidator of the estate) or by a person who acquired the right to exercise the Option or SAR by bequest or inheritance, but only to the extent that the Grantee was entitled to exercise the Option or SAR at the date of death. If, at the time of death, the Grantee was not entitled to exercise his or her entire Option or SAR, the Shares covered by the unexercisable portion of the Option or SAR shall immediately revert to the Plan. If, after death, the Grantee’s estate (or the liquidator of the estate) or a person who acquired the right to exercise the Option or SAR by bequest or inheritance does not exercise the Option or SAR within the time specified herein, the Option or SAR shall terminate, and the Shares covered by such Option or SAR shall revert to the Plan.

(ii) the Grantee’s Restricted Stock Awards, to the extent forfeitable immediately before the date of death, shall thereupon automatically be forfeited;

(iii) the Grantee’s Restricted Stock Awards that were not forfeitable immediately before the date of death shall promptly be settled by delivery to the Grantee’s estate (or the liquidator of the estate) or to the person who acquired the right thereto by bequest or inheritance, of a number of unrestricted Shares equal to the aggregate number of the Grantee’s vested Restricted Stock Awards;

(iv) any Performance Shares or Performance Units with respect to which the Performance Period has not ended as of the date of death shall terminate immediately upon the date of death.

(g) Buyout Provisions . The Administrator may at any time offer to buy out, for a payment in cash or Shares, an Award previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee in writing at the time the Award is granted. Any such cash offer made to an Officer or Director shall comply with the provisions of Rule 16b-3 relating to cash settlement of stock appreciation rights. This

 

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provision is intended only to clarify the powers of the Administrator and shall not in any way be deemed to create any rights on the part of Grantees to buyout offers or payments.

(h) Non-transferability of Awards .

(i) Except as provided in Section 5(h)(iii) below, each Award, and each right under any Award, shall be exercisable only by the Grantee during the Grantee’s lifetime, or, if permissible under Applicable Law, by the Grantee’s guardian or legal representative.

(ii) Except as provided in Section 5(h)(iii) below, no Award (prior to the time, if applicable, Shares are issued in respect of such Award), and no right under any Award, may be assigned, alienated, pledged, attached, sold or otherwise transferred to, or encumbered by a Grantee otherwise than, as the case may be, by will or by the laws of descent and distribution (or in the case of Restricted Stock Awards, to the Company) and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Subsidiary; provided, that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.

(iii) To the extent and in the manner permitted by Applicable Law, and to the extent and in the manner permitted by the Administrator (after obtaining an opinion of legal counsel that such transfer does not violate or conflict with any Applicable Law), and subject to such terms and conditions as may be prescribed by the Administrator, a Grantee may transfer an Award to:

(A) a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Grantee (including adoptive relationships);

(B) any person sharing the Grantee’s household (other than a tenant or employee);

(C) a trust in which persons described in (A) and (B) have more than 50 percent of the beneficial interest;

(D) a foundation in which persons described in (A) or (B) or the Grantee control the management of assets; or

(E) any other entity in which the persons described in (A) or (B) or the Grantee own more than 50 percent of the voting interests;

provided such transfer is not for value. The following shall not be considered transfers for value: a transfer under a domestic relations order in settlement of marital property rights, and a transfer to an entity in which more than 50 percent of the voting interests are owned by persons described in (A) or (B) above or the Grantee, in exchange for an interest in such entity.

 

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6. Stock Options .

(a) Limitations.

(i) Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. Any Option designated as an Incentive Stock Option:

(A) shall not have an aggregate Fair Market Value (determined for each Incentive Stock Option at the Date of Grant) of Shares with respect to which Incentive Stock Options are exercisable for the first time by the Grantee during any calendar year (under the Plan and any other employee stock option plan of the Company or any Parent or Subsidiary (“Other Plans”)), determined in accordance with the provisions of Section 422 of the Code, that exceeds US$100,000 (the “$100,000 Limit”);

(B) shall, if the aggregate Fair Market Value (determined on the Date of Grant) of Shares with respect to the portion of such Incentive Stock Option that is exercisable for the first time during any calendar year (“Current Grant”) by the Grantee and all Incentive Stock Options previously granted under the Plan and any Other Plans that are exercisable for the first time during a calendar year (“Prior Grants”) by such Grantee would exceed the $100,000 Limit, be exercisable as follows:

(1) The portion of the Current Grant that would, when added to any Prior Grants, be exercisable with respect to Shares that would have an aggregate Fair Market Value (determined as of the respective Date of Grant for such Options) in excess of the $100,000 Limit shall, notwithstanding the terms of the Current Grant, be exercisable for the first time by the Grantee in the first subsequent calendar year or years in which it could be exercisable for the first time by the Grantee when added to all Prior Grants without exceeding the $100,000 Limit; and

(2) If, viewed as of the date of the Current Grant, any portion of a Current Grant could not be exercised under the preceding provisions of this Section 6(a)(i)(B) during any calendar year commencing with the calendar year in which it is first exercisable through and including the last calendar year in which it may by its terms be exercised, such portion of the Current Grant shall not be an Incentive Stock Option, but shall be exercisable as a separate Option at such date or dates as are provided in the Current Grant.

(ii) No Employee shall be granted, in any fiscal year, Options to purchase more than 200,000 Shares. The limitation described in this Section 6(a)(ii) shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 11 of the Plan. If an Option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11 of the Plan), the canceled Option will be counted against the limitation described in this Section 6(a)(ii).

 

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(iii) The determination of the number of Shares to be covered by each Option granted to Consultants who are non-Employee Directors and the frequency of such grants shall be made in accordance with the applicable rules and procedures established by the Board.

(b) Term of Option . The term of each Option shall be stated in the Award Agreement; provided, however, that in the case of an Incentive Stock Option, the term shall be 10 years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Grantee who, at the time the Incentive Stock Option is granted, owns shares of the Company representing more than 10 percent of the voting power of all classes of shares of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five years from the date of grant or such shorter term as may be provided in the Award Agreement.

(c) Option Exercise Price and Consideration .

(i) Exercise Price . The per share exercise price for the Shares to be issued pursuant to the exercise of an Option shall be determined by the Administrator. Except as otherwise provided in this Section 6(c)(i), the exercise price of an Incentive Stock Option shall be no less than 100 percent of the Fair Market Value per Share on the Date of Grant.

(A) In the case of an Incentive Stock Option granted to an Employee who on the Date of Grant owns shares representing more than 10 percent of the voting power of all classes of shares of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110 percent of the Fair Market Value per Share on the Date of Grant.

(B) Any Option that is (1) granted to a Grantee in connection with the acquisition (“Acquisition”), however effected, by the Company of another corporation or entity (“Acquired Entity”) or the assets thereof, (2) associated with an option to purchase shares or other equity interests of the Acquired Entity or an affiliate thereof (“Acquired Entity Option”) held by such Grantee immediately prior to such Acquisition, and (3) intended to preserve for the Grantee the economic value of all or a portion of such Acquired Entity Option, may be granted with such exercise price as the Administrator determines to be necessary to achieve such preservation of economic value.

(d) Waiting Period and Exercise Dates . At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. An Option shall be exercisable only to the extent that it is vested according to the terms of the Award Agreement.

(e) Form of Consideration . The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. The acceptable form of consideration may consist of any combination of cash, personal check, wire transfer or, subject to the approval of the Administrator:

(i) pursuant to rules and procedures approved by the Administrator, promissory notes;

 

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(ii) Mature Shares;

(iii) pursuant to rules and procedures approved by the Administrator, (A) through the sale of the Shares acquired on the exercise of the Option through a broker-dealer to whom the Grantee has submitted an irrevocable notice of exercise and irrevocable instructions to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay the exercise price, together with, if requested by the Company, the amount of federal, state, local or foreign withholding taxes payable by the Grantee by reason of such exercise, or (B) through simultaneous sale through a broker of Shares acquired upon exercise; or

(iv) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Law.

(f) Exercise of Option ; Procedure for Exercise; Rights as a Shareholder .

(A) Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement.

(B) An Option may not be exercised for a fraction of a Share.

(C) An Option shall be deemed exercised when the Company receives:

(1) written notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and

(2) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Award Agreement and the Plan.

(3) Shares issued upon exercise of an Option shall be issued in the name of the Grantee or, if requested by the Grantee, in the name of the Grantee and his or her spouse. Until the share certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares underlying the Option, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such share certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the share certificate is issued, except as provided in Section 11 of the Plan.

(4) Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

 

7. Stock Appreciation Rights .

(a) Grant of SARs . Subject to the terms and conditions of the Plan, the Administrator may grant SARs in tandem with an Option (“Tandem SARs”) or alone and

 

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unrelated to an Option. Tandem SARs shall expire no later than the expiration of the underlying Option.

(b) Exercise of SARs . SARs shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares over which the SAR is to be exercised. Tandem SARs may be exercised:

(i) with respect to all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option;

(ii) only with respect to the Shares for which its related Option is then exercisable; and

(iii) only when the Fair Market Value of the Shares subject to the Option exceeds the exercise price of the Option.

The exercise price per Share of a SAR shall not be less than the Fair Market Value of a Share on the date of grant of the SAR. The value of the payment with respect to the Tandem SAR may be no more than 100 percent of the difference between the exercise price of the underlying Option and the Fair Market Value of the Shares subject to the underlying Option at the time the tandem SAR is exercised.

(c) Payment of SAR Benefit . Upon exercise of a SAR, the Grantee shall be entitled to receive payment from the Company in an amount determined by multiplying:

(i) the excess of the Fair Market Value of a Share on the date of exercise over the SAR exercise price; by

(ii) the number of Shares with respect to which the SAR is exercised;

provided, that the Administrator may provide in the Award Agreement that the benefit payable on exercise of a SAR shall not exceed such percentage of the Fair Market Value of a Share on the Date of Grant, or any other limitation, as the Administrator shall specify. As determined by the Administrator, the payment upon exercise of a SAR may be in cash, in Shares that have an aggregate Fair Market Value (as of the date of exercise of the SAR) equal to the amount of the payment, or in some combination thereof, as set forth in the Award Agreement.

(d) No Employee shall be granted, in any fiscal year, SARs with respect to more than 200,000 Shares. The limitation described in this Section 7(d) shall be adjusted proportionately in connection with any change in the Company’s capitalization as described in Section 11 of the Plan. If a SAR is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 11 of the Plan), the canceled SAR will be counted against the limitation described in this Section 7(d).

 

8. Restricted Stock Awards .

Subject to the terms of the Plan, the Administrator may grant Restricted Stock Awards to any Employee or Consultant, in such amount and upon such terms and conditions as

 

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shall be determined by the Administrator. No Restricted Stock Awards shall be granted to Employees who are resident of Canada under the ITA or a tax convention to which Canada is a party.

(a) Administrator Action . The Administrator acting in its absolute discretion shall have the right to grant Restricted Stock Awards to Employees and Consultants under the Plan from time to time. Each Restricted Stock Award shall be evidenced by a Restricted Stock Awards Agreement, and each Restricted Stock Awards Agreement shall set forth the conditions, if any, which will need to be timely satisfied before the grant will be effective and the conditions, if any, under which the Grantee’s interest in the related Shares will be forfeited. Restricted Stock Awards may be Performance-Based Restricted Stock Awards or non-Performance-Based Restricted Stock Awards.

(b) Performance-Based Restricted Stock Awards .

(i) Effective Date . A Performance-Based Restricted Stock Award shall be effective as of the date the Administrator certifies that the applicable conditions described in Section 8(b)(iii) of the Plan have been timely satisfied.

(ii) Share Limitation . No more than 200,000 Shares may underlie Performance-Based Restricted Stock Awards granted to an Employee or a Consultant in any fiscal year.

(iii) Grant Conditions . The Administrator, acting in its absolute discretion, may select from time to time Employees and Consultants to receive grants of Performance-Based Restricted Stock Awards in such amounts as the Administrator may, in its absolute discretion, determine, subject to any limitations provided in the Plan. The Administrator shall make the effectiveness of each grant subject to the attainment of certain performance targets. The Administrator shall determine the performance targets which will be applied with respect to each grant of Performance-Based Restricted Stock Award at the time of grant, but in no event later than 90 days after the commencement of the period of service to which the performance targets relate. The performance criteria applicable to Performance-Based Restricted Stock Award grants will be one or more of the following criteria of the Company: (i) Share price; (ii) average annual growth in earnings per share; (iii) increase in shareholder value; (iv) earnings per share; (v) net income; (vi) return on assets; (vii) return on shareholders’ equity; (viii) increase in cash flow; (ix) operating profit or operating margins; (x) revenue growth; and (xi) operating expenses. The related Restricted Stock Awards Agreement shall set forth the applicable performance criteria and the deadline for satisfying the performance criteria.

(iv) Forfeiture Conditions . The Administrator may make each grant of Performance-Based Restricted Stock Awards (if, when and to the extent that the grant becomes effective) subject to one, or more than one, objective employment, performance or other forfeiture condition which the Administrator acting in its absolute discretion deems appropriate under the circumstances for Employees or Consultants generally or for a Grantee in particular, and the related Restricted Stock Awards Agreement shall set forth each such condition and the deadline for satisfying each such forfeiture condition. A Grantee’s nonforfeitable interest in the Shares related to a grant of Performance-Based Restricted Stock Awards shall depend on the

 

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extent to which each such condition is timely satisfied. A share certificate shall be issued (subject to the conditions, if any, described in this Section 8(b)) to, or for the benefit of, the Grantee with respect to the number of Shares for which a grant has become effective as soon as practicable after the date the grant becomes effective.

(c) Restricted Stock Awards Other Than Performance-Based Restricted Stock Awards .

(i) Effective Date . A grant of Restricted Stock Awards which is not a grant of Performance-Based Restricted Stock Awards shall be effective (a) as of the date set by the Administrator when the grant is made or, if the grant is made subject to one, or more than one, condition, (b) as of the date the Administrator determines that such conditions have been timely satisfied. No more than 200,000 Shares may underlie Restricted Stock Awards which are not Performance-Based granted to an Employee or a Consultant in any fiscal year.

(ii) Grant Conditions . The Administrator acting in its absolute discretion may make the grant of Restricted Stock Awards which are not Performance-Based Restricted Stock Awards to a Grantee subject to the satisfaction of one, or more than one, objective employment, performance or other grant condition which the Administrator deems appropriate under the circumstances for Employees or Consultants generally or for a Grantee in particular, and the related Restricted Stock Awards Agreement shall set forth each such condition and the deadline for satisfying each such grant condition.

(iii) Forfeiture Conditions . The Administrator may make each grant of Restricted Stock Awards which is not a grant of Performance-Based Restricted Stock Awards (if, when and to the extent that the grant becomes effective) subject to one, or more than one, objective employment, performance or other forfeiture condition which the Administrator acting in its absolute discretion deems appropriate under the circumstances for Employees or Consultants generally or for a Grantee in particular, and the related Restricted Stock Awards Agreement shall set forth each such condition and the deadline for satisfying each such forfeiture condition. A Grantee’s nonforfeitable interest in the Shares related to a grant of Restricted Stock Awards which is not a grant of Performance-Based Restricted Stock Awards shall depend on the extent to which each such condition is timely satisfied. A share certificate shall be issued (subject to the conditions, if any, described in this Section 8(c)) to, or for the benefit of, the Grantee with respect to the number of Shares for which a grant has become effective as soon as practicable after the date the grant becomes effective.

(d) Dividends and Voting Rights . Each Restricted Stock Awards Agreement shall state whether the Grantee shall have a right to receive any cash dividends which are paid with respect to Shares underlying his or her Restricted Stock Award after the date his or her Restricted Stock Award grant has become effective and before the first day that the Grantee’s interest in such underlying Shares is forfeited completely or becomes completely nonforfeitable. If a Restricted Stock Awards Agreement provides that a Grantee has no right to receive a cash dividend when paid, such agreement shall set forth the conditions, if any, under which the Grantee will be eligible to receive one, or more than one, payment in the future to compensate the Grantee for the fact that he or she had no right to receive any cash dividends on the Shares underlying his or her Restricted Stock Awards when such dividends were paid. If a Restricted

 

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Stock Awards Agreement calls for any such payments to be made, the Company shall make such payments from the Company’s general assets, and the Grantee shall be no more than a general and unsecured creditor of the Company with respect to such payments. If a stock dividend is declared on the Shares underlying Restricted Stock Awards after the grant is effective but before the Grantee’s interest in such underlying Shares has been forfeited or has become nonforfeitable, such stock dividend shall be treated as part of the grant of the related Restricted Stock Award, and a Grantee’s interest in such stock dividend shall be forfeited or shall become nonforfeitable at the same time as the underlying Shares with respect to which the stock dividend was paid is forfeited or becomes nonforfeitable. If a dividend is paid other than in cash or Shares, the disposition of such dividend shall be made in accordance with such rules as the Administrator shall adopt with respect to each such dividend. A Grantee shall have the right to vote the underlying Shares related to his or her Restricted Stock Awards after the grant is effective with respect to such underlying Shares but, as the case may be, before his or her interest in such Shares has been forfeited.

(e) Satisfaction of Forfeiture Conditions . Shares underlying Restricted Stock Awards shall cease to be restricted at such time as a Grantee’s interest in such Shares becomes nonforfeitable under the Plan, and the certificate representing such Shares shall be reissued as soon as practicable thereafter without any further restrictions related to Section 8(b) or Section 8(c) and shall be transferred to the Grantee.

(f) Restricted Stock Units . The Administrator may grant Restricted Stock Units to Employees or Consultants who are resident of Canada under the ITA or a tax convention to which Canada is a party so long as same vest and are payable no later than December 31 of the third year following their grant, subject to any other terms and conditions set out in an Restricted Stock Units Award Agreement.

(i) Effective Date . A Restricted Stock Units Award shall be effective as of the date the Administrator certifies that the applicable conditions described in Section 8(f)(iii) of the Plan have been timely satisfied.

(ii) Share Limitation . No more than 200,000 Shares may underlie Restricted Stock Units Awards granted to an Employee or a Consultant in any fiscal year.

(iii) Grant Conditions . The Administrator, acting in its absolute discretion, may select from time to time Employees and Consultants to receive grants of Restricted Stock Units Award in such amounts as the Administrator may, in its absolute discretion, determine, subject to any limitations provided in the Plan. The Administrator shall make the effectiveness of each grant subject to the attainment of certain performance targets. The Administrator shall determine the performance targets which will be applied with respect to each grant of Restricted Stock Units Awards at the time of grant, but in no event later than 90 days after the commencement of the period of service to which the performance targets relate. The performance criteria applicable to Restricted Stock Units Award grants will be one or more of the following criteria of the Company: (i) Share price; (ii) average annual growth in earnings per share; (iii) increase in shareholder value; (iv) earnings per share; (v) net income; (vi) return on assets; (vii) return on shareholders’ equity; (viii) increase in cash flow; (ix) operating profit or operating margins; (x) revenue growth; and (xi) operating expenses. The related Restricted Stock

 

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Units Award Agreement shall set forth the applicable performance criteria and the deadline for satisfying the performance criteria. For sake of greater certainty, no Shares or Share certificates shall be issued, and no Employee or Consultant shall have any entitlement to same (or any voting or dividend rights further to any such Shares), pursuant to a grant of a Restricted Stock Unit Award unless and until such time as all performance criteria applicable to such Restricted Stock Unit Award has been satisfied.

 

9. Performance Units and Performance Shares .

(a) Grant of Performance Units and Performance Shares . Subject to the terms of the Plan, the Administrator may grant Performance Units or Performance Shares to any Employee or Consultant in such amounts and upon such terms as the Administrator shall determine. The Administrator shall not grant Performance Units or Performance Shares that vest more than three (3) years after the year during which they are granted to Employees or Consultants who are resident of Canada under the ITA or a tax convention to which Canada is a party.

(b) Value/Performance Goals . Each Performance Unit shall have an initial value that is established by the Administrator on the Date of Grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Date of Grant. The Administrator shall set performance goals that, depending upon the extent to which they are met, will determine the number or value of Performance Units or Performance Shares that will be paid to the Grantee.

(c) Payment of Performance Units and Performance Shares .

(i) Subject to the terms of the Plan, after the applicable Performance Period has ended, the holder of Performance Units or Performance Shares shall be entitled to receive a payment based on the number and value of Performance Units or Performance Shares earned by the Grantee over the Performance Period, determined as a function of the extent to which the corresponding performance goals have been achieved.

(ii) If a Grantee is promoted, demoted or transferred to a different business unit of the Company or a Subsidiary of the Company during a Performance Period, then, to the extent the Administrator determines appropriate, the Administrator may adjust, change or eliminate the performance goals or the applicable Performance Period as it deems appropriate in order to make them appropriate and comparable to the initial performance goals or Performance Period.

(d) Form and Timing of Payment of Performance Units and Performance Shares . Payment of earned Performance Units or Performance Shares shall be made in a lump sum following the close of the applicable Performance Period. The Administrator may pay earned Performance Units or Performance Shares in cash or in Shares (or in a combination thereof) that have an aggregate Fair Market Value equal to the value of the earned Performance Units or Performance Shares at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions deemed appropriate by the Administrator. The form of

 

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payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.

 

10. Tax Withholding .

The Company shall deduct from all cash distributions under the Plan any taxes required to be withheld by federal, state, local or foreign government. Whenever the Company proposes or is required to issue or transfer Shares under the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy any federal, state, local and foreign withholding tax requirements prior to the delivery of any certificate or certificates for such shares. A Grantee may pay the withholding tax in cash, or, if the applicable Award Agreement provides, a Grantee may elect to have the number of Shares he is to receive reduced by the smallest number of whole Shares that, when multiplied by the Fair Market Value of the Shares determined as of the Tax Date (defined below), is sufficient to satisfy federal, state, local and foreign, if any, withholding taxes arising from exercise or payment of a grant under the Plan (a “Withholding Election”). A Grantee may make a Withholding Election only if the Withholding Election is made on or prior to the date on which the amount of tax required to be withheld is determined (the “Tax Date”) by executing and delivering to the Company a properly completed notice of Withholding Election as prescribed by the Administrator. The Administrator may in its sole discretion disapprove and give no effect to the Withholding Election.

 

11. Adjustments Upon Changes in Capitalization or Change of Control .

(a) Changes in Capitalization . Subject to any required action by the shareholders of the Company, the number of Covered Shares, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per share of Covered Shares, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or any other similar transaction; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been effected without receipt of consideration so as to result in any such adjustment. Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Covered Shares.

(b) Change in Control . In the event of a Change in Control, then the following provisions shall apply:

(i) Vesting . The Administrator, in the exercise of its sole discretion, may provide that any Award outstanding on the date such Change in Control is determined to have occurred that is not yet exercisable and vested on such date shall become fully exercisable and vested on the date of such Change in Control.

 

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(ii) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, to the extent that an Award is outstanding, it will terminate immediately prior to the consummation of such proposed action. The Administrator may, in the exercise of its sole discretion in such instances, declare that any Option or SAR shall terminate as of a date fixed by the Administrator and give each Grantee the right to exercise his or her Option or SAR as to all or any part of the Covered Shares, including Shares as to which the Option or SAR would not otherwise be exercisable.

(iii) Merger or Asset Sale or Other Change in Control . In the event of the occurrence of a merger of the Company with or into another corporation or the sale of substantially all of the assets of the Company, in each case resulting in a Change in Control, or other event resulting in a Change in Control, the Administrator, in the exercise of its sole discretion, shall be entitled to take any of the following actions, or any other action that the Administrator, in the exercise of its sole discretion, determines to be fair to the holders of Awards:

(A) prior to the occurrence of such a Change in Control, 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 a parent or subsidiary of the successor corporation;

(B) prior to the occurrence of such a Change in Control, provide that all outstanding Awards, to the extent they are exercisable and vested (including, if so determined by the Administrator in the exercise of its sole discretion, Awards that shall become exercisable and vested pursuant to Section 11(b)(i) above), shall be terminated in exchange for a cash payment equal to the Change in Control Price (reduced by the exercise price applicable to such Awards). These cash proceeds shall be paid to the Grantee or, in the event of death of a Grantee prior to payment, to the estate of the Grantee or to a person who acquired the right to exercise the Award by bequest or inheritance; or

(C) prior to the occurrence of such a Change in Control, provide for the Grantee to have the right to exercise the Award as to all or a portion of the Covered Shares, including, if so determined by the Administrator in the exercise of its sole discretion, Shares as to which it would not otherwise be exercisable. If the Administrator makes an Award exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Grantee that the Award shall be fully exercisable for a period of 15 days from the date of such notice (or such shorter period of time as the Administrator determines to be reasonable in the exercise of its sole discretion), and the Award will terminate upon the expiration of such period.

 

12. Term of Plan .

The Plan shall become effective upon its approval by the shareholders of the Company within 12 months before or after the date of its adoption by the Board. Such shareholder approval shall be obtained in the manner and to the degree required under applicable law, rule or regulation, including the requirements of any exchange or quotation system on which the Shares are listed or quoted. The Plan shall continue in effect until the tenth anniversary of adoption of the Plan by the Board, unless terminated earlier under Section 13 of the Plan.

 

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13. Amendment and Termination of the Plan .

(a) Amendment and Termination . The Board may at any time amend, alter, suspend or terminate the Plan.

(b) Shareholder Approval . The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule or statute, or any other applicable corporate or securities law, rule or regulation, including the requirements of any exchange or quotation system on which the Shares are listed or quoted). Such shareholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the Applicable Law, rule or regulation.

(c) Effect of Amendment or Termination . No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Grantee, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company.

 

14. Conditions Upon Issuance of Shares .

(a) Legal Compliance . Shares shall not be issued pursuant to an Award unless the exercise, if applicable, of such Award and the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933 , as amended, the Exchange Act , the rules and regulations promulgated thereunder, any other Applicable Law, and the requirements of the American Stock Exchange or any other share exchange or quotation system upon which the Shares may then be listed or quoted, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

(b) Investment Representations . As a condition to the exercise of an Award, the Company may require, among other things, that the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.

 

15. Liability of Company .

(a) Inability to Obtain Authority . The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the grant of any Awards or to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to grant any Awards or to issue or sell such Shares as to which such requisite authority shall not have been obtained.

(b) Grants Exceeding Allotted Shares . If, as of the date of grant, the granting of an Award exceeds or causes to be exceeded the maximum number of Shares that may be issued under the Plan without additional shareholder approval, such Award shall be void with

 

21


respect to such excess Covered Shares, unless shareholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Section 13 of the Plan. The Company shall have no liability to the Grantee if the grant of an Award exceeds or causes to be exceeded the maximum number of Shares that may be issued under the Plan.

 

16. Reservation of Shares .

The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

 

17. Rights of Employees and Consultants .

Neither the Plan nor any Award shall confer upon a Grantee any right with respect to continuing the Grantee’s employment or consulting relationship with the Company or any of its Subsidiaries, nor shall they interfere in any way with the Grantee’s right or the Company’s right to terminate such employment or consulting relationship at any time, with or without cause.

 

18. Sub-plans for Foreign Subsidiaries .

The Board may adopt sub-plans applicable to particular Subsidiaries that have headquarters outside of Canada and the United States. All Awards granted under such sub-plans shall be treated as grants under the Plan. The rules of such sub-plans may take precedence over other provisions of the Plan, with the exception of Section 3, but unless otherwise superseded by the terms of such sub-plan, the provisions of the Plan shall govern the operation of such sub-plan.

 

19. Construction .

The Plan shall be construed under the laws of the State of Florida, to the extent not preempted by federal law, without reference to the principles of conflict of laws.

 

20. Authorized Shares.

In no event shall the Company issue Shares, or Awards requiring the Company to issue Shares, pursuant to this Plan if such issuance, when combined with the Shares issuable under any of the Company’s other equity incentive award plans (whether currently in force or hereafter existing) and all other Shares issuable under this Plan, would exceed 1,304,025 Shares (the “Share Limit”), unless the issuance of such Shares or Awards in excess of the Share Limit is approved by the shareholders of the Company. The preceding sentence shall not limit the Company’s ability to issue Awards under this Plan that are payable other than in Shares, including cash-settled SARs. Notwithstanding the Share Limit imposed by this section 20, the Company acknowledges that as of June 2, 2006, the Company has outstanding grants of equity incentive awards that exceed the Share Limit and it is the specific intent of the Company that such Share Limit shall have no effect on the validity of any stock options or other equity incentive awards granted by the Company pursuant to any plan or employment agreement prior to June 2, 2006. For clarification purposes, any outstanding grants under any equity incentive award plans, which are payable at the discretion of the Company in cash or stock, shall be paid in cash until such time as the number of outstanding grants of equity incentive awards falls below the Share Limit.

 

22

Exhibit 4.45

LOGO

S TOCK OPTION AGREEMENT

 

BETWEEN   

HENRY BIRKS & SONS INC.

a company duly incorporated according to the laws of Canada, having its head office at 1240 Phillips Square, Montreal, (Quebec); hereinafter referred to as “Birks”;

AND    FILIPPO RECAMI

Whereas Filippo Recami is employed by a related corporation of Birks;

Whereas Filippo Recami is a member of the Board of Directors, of the Development Committee and other ad hoc Committees of Birks hereinafter collectively referred to as the “Board”.

Whereas it is in the best interests of Birks to encourage a sense of proprietorship on the part of Filippo Recami and to induce Filippo Recami to continue in the service of a corporation related to Birks.

Now therefore the parties have agreed as follows:

Grant of options: Birks hereby grants to Filippo Recami an option to acquire 126,672 non-voting common shares (“Shares”), representing 2% of the issued and outstanding Shares in the capital stock of Birks on June 1 st , 1999, upon the following terms and conditions:

Exercise Price: The exercise price shall be an amount equal to CDN$6.25 per Share, which the parties together with the auditors of Birks have determined to be the fair market value for such Share as of the date of this agreement (the “Exercise Price”). It is agreed that the Exercise Price has been determined on the basis of the current number of issued and outstanding Shares, being 6,313,618.

Reorganization of share capital: In the event of a reorganization of the capital stock of Birks or if its Shares are subdivided, consolidated, converted, reclassified or split or that any other action of a similar nature affecting the Shares is taken by Birks, then the option and the Exercise Price shall be adjusted accordingly.

Henry Birks et Fils Inc. • Henry Birks & Sons Inc.

 

1


Option period: Unless otherwise provided in this agreement, the option shall be exercisable in whole or in part at any time prior to November 1 st , 2009 (“the Option Period”).

Cessation of function: If Filippo Recami ceases to serve on the Board prior to the end of the Option Period, other than by reason of Death, Disability or Retirement, the option shall remain exercisable for a period of 3 months from the date of such cessation but no later than the end of the Option Period, and thereafter the option shall expire. Notwithstanding the provisions of this section, if Filippo Recami resigns from his position or if his employment with any corporation related to Birks is terminated for cause the option shall expire immediately.

Disability: If Filippo Recami ceases to serve on the Board prior the end of the Option Period by reason of Disability, the option shall remain exercisable, for a period of 6 months from the date of Disability, but no later than the end of the Option Period, and thereafter the option shall expire. For the purpose of this agreement Disability means a physical or mental impairment sufficient to make the individual eligible for benefits under a long-term disability program.

Retirement: If Filippo Recami ceases to serve on the Board prior the end of the Option Period by reason of Retirement, the option shall remain exercisable, for a period of 6 months from the date of Retirement, but no later than the end of the Option Period, and thereafter the option shall expire. For the purpose of this agreement Retirement means cessation of function at or after the age of 60 years, except in the case of termination for cause or Disability

Death: If Filippo Recami ceases to serve on the Board prior the end of the Option Period by reason of Death, the option shall remain exercisable by his estate, for a period of 12 months from the date of Death, but no later than the end of the Option Period, and thereafter the option shall expire.

Brokerage fees upon transfer: Filippo Recami shall be responsible for the payment of any brokerage fees in respect of the sale or transfer of Share acquired as a result of exercising the option hereby granted.

Rights not transferable: Except as provided herein, the rights of Filippo Recami pursuant to this agreement are non-assignable and non-transferable in whole or in part, either directly or indirectly. No attempted assignment or transfer thereof otherwise than in accordance with the provisions hereof shall be effective.

Responsibility for tax: Birks shall not be responsible for any tax which may be payable by Filippo Recami as a consequence of this agreement, exercise of option or sale or transfer of Shares.

Applicable law: This agreement shall be governed by the laws of the Province of Quebec and the laws of Canada applicable therein.

 

2


No further rights: This agreement shall not entitle Filippo Recami to be re-elected to the Board or to continue in the employment of any related corporation of Birks.

Source of option: The option described in this agreement and any Shares acquired pursuant to its exercise shall not be governed by Birks Employee Stock Option Plan established effective May 1, 1997.

Language: Les parties aux présentes ont exigé que cette convention soit redigée en anglais. The parties hereto have required that this agreement be written in English.

 

LOGO     LOGO
Henry Birks & Sons Inc.     Filippo Recami
Per:  

Dr. Lorenzo Rossi di Montelera,

Chairman

     

 

3

Exhibit 4.46

LOGO

S TOCK OPTION AGREEMENT

 

BETWEEN   

HENRY BIRKS & SONS INC.

a company duly incorporated according to the laws of Canada, having its head office at 1240 Phillips Square, Montreal, (Quebec) (hereinafter referred to as “Birks”);

AND    GÉRALD BERCLAZ

Whereas Gérald Berclaz is a director of Iniziativa SA Luxembourg, a related company of Birks;

Whereas Gérald Berclaz is member of the Development Committee of Birks;

Whereas it is in the best interest of Birks to encourage a sense of proprietorship on the part of Gérald Berclaz and to induce him to continue in the service of a corporation related to Birks;

Now therefore the parties have agreed as follows:

Grant of Options: Birks hereby grants to Gérald Berclaz an option to acquire 16,667 non-voting common Shares (“Shares”) in the capital stock of Birks upon the following terms and conditions

These options shall vest over a period of time as follows:

8,334 are vested immediately,

4,167 will vest on June 30, 2000, and

4,166 will vest on June 30, 2001

Exercise Price: The exercise price shall be an amount equal to CDN$6.25 per Share, which the parties together with the auditors of Birks have determined to be the fair market value for such Shares on the date of the award (the “Exercise Price”) It is agreed that the Exercise Price has been determined on the basis of the current number of issued and outstanding shares being 6,313,618 common shares.

Reorganization of share capital of Birks: In the event of a reorganization of the capital stock of Birks or if its Shares are subdivided, consolidated, converted, reclassified or split or any other action of a similar nature affecting the Shares is taken by Birks, then the option and the Exercise Price shall be adjusted accordingly.

Henry Birks et Fils Inc. • Henry Birks & Sons Inc.


Option period: Unless otherwise provided in this agreement, the option shall be exercisable in whole or in part at any time prior to June 30, 2008 (the “Option Period”).

Cessation of Employment: If Gérald Berclaz ceases to act as a member of Birks’s Committee(s) prior to the end of the Option Period other than by reason of Death, Disability or Retirement, the option then held by Gérald Berclaz shall remain exercisable, to the extent that it was exercisable at the time of such cessation, for a period of 6 months from the date of such cessation but no later than the end of the Option Period, and thereafter the option shall expire.

Disability: If Gérald Berclaz ceases to act as a member of Birks’s Committee(s) prior the end of the Option Period by reason of Disability, the option then held by Gérald Berclaz shall remain exercisable, to the extent that it was exercisable at the time of Disability, for a period of 6 months from the date of Disability, but no later than the end of the Option Period, and thereafter the option shall expire. For the purpose of this agreement Disability means a physical or mental impairment sufficient to make the individual eligible for benefits under a long-term disability program.

Retirement: If Gérald Berclaz ceases to act as a member of Birks’s Committee(s) prior the end of the Option Period by reason of Retirement, the option then held by Gérald Berclaz shall remain exercisable, to the extent that it was exercisable at the time of Retirement, for a period of 6 months from the date of Retirement, but no later than the end of the Option Period, and thereafter the option shall expire. For the purpose of this agreement Retirement means termination after the age of 60 years if Gérald Berclaz is then entitled to a pension fund or a retirement program.

Death: If Gérald Berclaz ceases to act as a member of Birks’s Committee(s) prior the end of the Option Period by reason of Death, the option then held by Gérald Berclaz shall remain exercisable by his estate, to the extent that it was exercisable at the time of his Death, for a period of 6 months from the date of Death, but no later than the end of the Option Period, and thereafter the option shall expire.

Brokerage fees upon transfer: Gérald Berclaz shall be responsible for the payment of any brokerage fees in respect of the sale or transfer of Share acquired as a result of exercising the option hereby granted.

Responsibility for tax: Birks shall not be responsible for any tax which may be payable by Gérald Berclaz as a consequence of this agreement, exercise of option, or sale or transfer of Shares.

Applicable law: This agreement shall be governed by the laws of the Province of Quebec and the laws of Canada applicable therein.

No further rights: This agreement shall not entitle Gérald Berclaz to be re-elected to the Birks Committee or to continue in the employment of any related corporation of Birks.

 

2


Source of option: The option described in this agreement and any Shares acquired pursuant to its exercise shall not be governed by Birks Employee Stock Option Plan established effective May 1, 1997.

Language: Les parties aux présentes ont exigé que cette convention soit redigée en anglais. The parties hereto have required that this agreement be written in English

 

LOGO     LOGO

Henry Birks & Sons Inc.

Per: Dr. Lorenzo Rossi di Montelera, Chairman

    Gérald Berclaz

 

3

Exhibit 4.47

LOGO

S TOCK OPTION AGREEMENT

 

BETWEEN    HENRY BIRKS & SONS INC., a company duly incorporated according to the laws of Canada, having its head office at 1240 Phillips Square, Montreal, (Quebec); hereinafter referred to as “Birks”;
AND    PETER O’BRIEN

Whereas Peter O’Brien is a member of the Board of Directors and/or other ad hoc Committees of Birks hereinafter collectively referred to as the “Board”.

Whereas it is in the best interests of Birks to encourage a sense of proprietorship on the part of Peter O’Brien and to induce Peter O’Brien to continue in the service of a corporation related to Birks.

Now therefore the parties have agreed as follows:

Grant of options: Birks hereby grants to Peter O’Brien an option to acquire 5,000 non-voting common shares (“Shares”), of the issued and outstanding Shares in the capital stock of Birks, upon the following terms and conditions:

Exercise Price: The exercise price shall be equal to CDN$7.73 per Share, the fair market value for such Share as of the date of this agreement (the “Exercise Price”).

Redeem: In order to provide Peter O’Brien with a market for the shares at any time that Birks is not a public corporation, Peter O’Brien is entitled to require that Birks redeem the shares at fair market value on the date of the request.

Reorganization of share capital: In the event of a reorganization of the capital stock of Birks or if its Shares are subdivided, consolidated, converted, reclassified or split or that any other action of a similar nature affecting the Shares is taken by Birks, then the option and the Exercise Price shall be adjusted accordingly.

Option period: Unless otherwise provided in this agreement, the option shall be exercisable without condition in whole or in part at any time prior to April 23, 2014 (“the Option Period”).

Brokerage fees upon transfer: Peter O’Brien shall be responsible for the payment of any brokerage fees in respect of the sale or transfer of Share acquired as a result of exercising the option hereby granted.

Henry Birks et Fils Inc. • Henry Birks & Sons Inc.

1240, Square Phillips, Montréal QC H3B 3H4 CANADA • Tél.: 514.397.2511

 

1


Rights not transferable: Except as provided herein, the rights Peter O’Brien pursuant to this agreement are non-assignable and non-transferable in whole or in part, either directly or indirectly. No attempted assignment or transfer thereof otherwise than in accordance with the provisions hereof shall be effective.

Responsibility for tax: Birks shall not be responsible for any tax which may be payable by Peter O’Brien as a consequence of this agreement, exercise of option or sale or transfer of Shares.

Applicable law: This agreement shall be governed by the laws of the Province of Quebec and the laws of Canada applicable therein.

No further rights: This agreement shall not entitle Peter O’Brien to be re-elected to the Board or to continue in the employment of any related corporation of Birks.

Source of option: The option described in this agreement and any Shares acquired pursuant to its exercise shall not be governed by Birks Employee Stock Option Plan.

Language: Les parties aux présentes ont exigé que cette convention soit redigée en anglais. The parties hereto have required that this agreement be written in English.

 

Henry Birks & Sons Inc.    
LOGO     LOGO
Per:   Thomas A. Andruskevich    

Peter O’Brien

Title: President and CEO and Director    

 

2

Exhibit 4.48

LOGO

S TOCK OPTION AGREEMENT

 

BETWEEN    HENRY BIRKS & SONS INC., a company duly incorporated according to the laws of Canada, having its head office at 1240 Phillips Square, Montreal, (Quebec); hereinafter referred to as “Birks”;
AND    MARGHERITA OBERTI

Whereas Margherita Oberti is a member of the Board of Directors and/or other ad hoc Committees of Birks hereinafter collectively referred to as the “Board”.

Whereas it is in the best interests of Birks to encourage a sense of proprietorship on the part of Margherita Oberti and to induce Margherita Oberti to continue in the service of a corporation related to Birks.

Now therefore the parties have agreed as follows:

Grant of options: Birks hereby grants to Margherita Oberti an option to acquire 5,000 non-voting common shares (“Shares”), of the issued and outstanding Shares in the capital stock of Birks, upon the following terms and conditions:

Exercise Price: The exercise price shall be equal to CDN$7.73 per Share, the fair market value for such Share as of the date of this agreement (the “Exercise Price”).

Redeem: In order to provide Margherita Oberti with a market for the shares at any time that Birks is not a public corporation, Margherita Oberti is entitled to require that Birks redeem the shares at fair market value on the date of the request.

Reorganization of share capital: In the event of a reorganization of the capital stock of Birks or if its Shares are subdivided, consolidated, converted, reclassified or split or that any other action of a similar nature affecting the Shares is taken by Birks, then the option and the Exercise Price shall be adjusted accordingly.

Option period: Unless otherwise provided in this agreement, the option shall be exercisable without condition in whole or in part at any time prior to April 23, 2014 (“the Option Period”).

Brokerage fees upon transfer: Margherita Oberti shall be responsible for the payment of any brokerage fees in respect of the sale or transfer of Share acquired as a result of exercising the option hereby granted.

Henry Birks et Fils Inc. • Henry Birks & Sons Inc.

1240, Square Phillips, Montréal QC H3B 3H4 CANADA • Tél.: 514.397.2511

 

1


Rights not transferable: Except as provided herein, the rights Margherita Oberti pursuant to this agreement are non-assignable and non-transferable in whole or in part, either directly or indirectly. No attempted assignment or transfer thereof otherwise than in accordance with the provisions hereof shall be effective.

Responsibility for tax: Birks shall not be responsible for any tax which may be payable by Margherita Oberti as a consequence of this agreement, exercise of option or sale or transfer of Shares.

Applicable law: This agreement shall be governed by the laws of the Province of Quebec and the laws of Canada applicable therein.

No further rights: This agreement shall not entitle Margherita Oberti to be re-elected to the Board or to continue in the employment of any related corporation of Birks.

Source of option: The option described in this agreement and any Shares acquired pursuant to its exercise shall not be governed by Birks Employee Stock Option Plan.

Language: Les parties aux présentes ont exigé que cette convention soit redigée en anglais. The parties hereto have required that this agreement be written in English.

 

Henry Birks & Sons Inc.    
LOGO       LOGO
Per:   Thomas A. Andruskevich       Margherita Oberti
Title:   President and CEO and Director      

 

2

Exhibit 4.49

LOGO

S TOCK OPTION AGREEMENT

 

BETWEEN    HENRY BIRKS & SONS INC., a company duly incorporated according to the laws of Canada, having its head office at 1240 Phillips Square, Montreal, (Quebec); hereinafter referred to as “Birks”;
AND    LORENZO ROSSI Dl MONTELERA

Whereas Lorenzo Rossi di Montelera is a member of the Board of Directors and/or other ad hoc Committees of Birks hereinafter collectively referred to as the “Board”.

Now therefore the parties have agreed as follows:

Grant of options: On April 23, 2004, Birks granted to Lorenzo Rossi di Montelera an option to acquire 5,000 non-voting common shares (“Shares”), of the issued and outstanding Shares in the capital stock of Birks, upon the following terms and conditions:

Exercise Price: The exercise price shall be equal to CDN$7.73 per Share, the fair market value for such Share as of the date of grant (the “Exercise Price”).

Redeem: In order to provide Lorenzo Rossi di Montelera with a market for the shares at any time that Birks is not a public corporation, Lorenzo Rossi di Montelera is entitled to require that Birks redeem the shares at fair market value on the date of the request.

Reorganization of share capital: In the event of a reorganization of the capital stock of Birks or if its Shares are subdivided, consolidated, converted, reclassified or split or that any other action of a similar nature affecting the Shares is taken by Birks, then the option and the Exercise Price shall be adjusted accordingly.

Option period: Unless otherwise provided in this agreement, the option shall be exercisable without condition in whole or in part at any time prior to April 23, 2014 (“the Option Period”).

Brokerage fees upon transfer: Lorenzo Rossi di Montelera shall be responsible for the payment of any brokerage fees in respect of the sale or transfer of Share acquired as a result of exercising the option hereby granted.

Henry Birks et Fils Inc. • Henry Birks & Sons Inc.

1240, Square Phillips, Montréal QC H3B 3H4 CANADA • Tél.: 514.397.2511

 

1


Rights not transferable: Except as provided herein, the rights Lorenzo Rossi di Montelera pursuant to this agreement are non-assignable and non-transferable in whole or in part, either directly or indirectly. No attempted assignment or transfer thereof otherwise than in accordance with the provisions hereof shall be effective.

Responsibility for tax: Birks shall not be responsible for any tax which may be payable by Lorenzo Rossi di Montelera as a consequence of this agreement, exercise of option or sale or transfer of Shares.

Applicable law: This agreement shall be governed by the laws of the Province of Quebec and the laws of Canada applicable therein.

Source of option: The option described in this agreement and any Shares acquired pursuant to its exercise shall not be governed by Birks Employee Stock Option Plan.

Language: Les parties aux présentes ont exigé que cette convention soit redigée en anglais. The parties hereto have required that this agreement be written in English.

 

Henry Birks & Sons Inc.    
LOGO     LOGO
Per:   Thomas A. Andruskevich     Lorenzo Rossi di Montelera
Title: President and CEO    

 

2

Exhibit 4.50

EXECUTION COPY

WARRANT AGREEMENT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE BEING OFFERED PURSUANT TO AN EXEMPTION THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT AND THE BLUE SKY LAWS.

MAYOR’S JEWELERS, INC.

Warrant for the Purchase

of Shares of Common Stock

 

November 14, 2005    25,150 Warrant Shares

FOR VALUE RECEIVED, Mayor’s Jewelers, Inc., a Delaware corporation (the “Company”), hereby certifies that Carlo Coda-Nunziante (the “Holder”), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) the number of fully paid and nonassessable shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), set forth above, subject to adjustment pursuant to Sections 7 and 8 hereof, at the applicable Exercise Price (as hereinafter defined).

For purposes of this Warrant, “Warrant Shares” means the 25,150 shares of Common Stock deliverable upon exercise of this Warrant, as of the date hereof, and as adjusted from time to time pursuant to the provisions of this Warrant. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable upon exercise of this Warrant as a result of such adjustment.

Section 1. Exercise of Warrant . This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on

 

1


the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier’s check to the order of Mayor’s Jewelers, Inc. or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at its office, the Company shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or his designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. Notwithstanding the foregoing, the Exercise Price may be paid by surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised. With respect to the Warrant, “Spread” means the Current Market Value (as hereinafter defined) of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein.

Section 2. Exercise Period and Exercise Price . (a) This Warrant shall be exercisable during the period (the “Exercise Period”) beginning the date of execution of this Warrant Agreement (the “Original Issue Date”) and ending at 5:00 p.m. (New York City time) on a date twenty (20) years from August 20, 2002 (the “Termination Date”).

(b) “Exercise Price” means $0.54 per share.

Section 3. Authorization of Shares . The Company hereby agrees that upon exercise of this Warrant all shares of its Common Stock shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

Section 4. Fractional Shares . The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under

 

2


this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a “security”) at the date herein specified shall be:

(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “Current Market Value” per share of the security shall be determined in good faith by the Board of Directors of the Company, or

(ii) if the security is registered under the Exchange Act, the “Current Market Value” per share of the security shall be deemed to be the average of the daily Market Prices (as hereinafter defined) of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily Market Prices for all of the trading days before such date for which daily Market Prices are available. The Market Price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on the New York Stock Exchange, American Stock Exchange or the Nasdaq Stock Market, the closing price on the primary exchange or stock market on which the Common Stock is then listed or quoted on, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange or stock market, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange or stock market and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.

Section 5. Exchange, Transfer, Assignment or Loss of Warrant . (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.

(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.

 

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(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like tenor and date.

 

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Section 6. Rights of the Holder . The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.

Section 7. Adjustments for Stock Dividends, Subdivisions, Combinations or Consolidations . In the event that the Company shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification, stock split or otherwise, into a greater or lesser number of shares of Common Stock, the Exercise Price and the Number of Warrant Shares in effect immediately prior to such dividend, subdivision, combination or consolidation shall, concurrently with the effectiveness of such dividend, subdivision, combination or consolidation, be proportionately decreased or increased, as appropriate.

Section 8. Reclassification, Reorganization, Consolidation or Merger . In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that would have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7.

Section 9. Transfer to Comply with the Securities Act . Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the

 

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same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the “Securities Act”), shall bear a legend substantially in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be “Warrant Shares” for all purposes of this Warrant.

Section 10. Listing on Securities Exchanges . The Company shall use its reasonable efforts to list on each national securities exchange or inter-dealer quotation system on which any Common Stock may at any time be listed all shares of Common Stock from time to time issuable upon conversion of the Preferred Stock and the Company shall maintain such listing of all shares of Common Stock issuable upon the conversion of the Preferred Stock so long as any shares of its Common Stock shall be so listed on such national securities exchange or inter-dealer quotation system. Any such listing shall be at the Company’s expense.

Section 11. Availability of Information . The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for

 

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such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.

Section 12. Successors and Assigns . All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.

Section 13. Headings . The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 14. Amendments . This Warrant may not be amended except by the written consent of the Company and the Holder.

Section 15. Notices . Unless otherwise provided in this Warrant, any notice or other communication or mailing required or permitted to be made or given to any party hereto pursuant to this Warrant shall be deemed made or given if delivered by hand on the date of such delivery to such party or, if mailed, on the fifth day after the date of mailing, if sent to such party by certified or registered mail or air mail, postage prepaid, addressed to it (in the case of the Holder) at 1290 Leeward Way, Weston, Florida 33327, or (in the case of the Company) at its address at Mayor’s Jewelers, Inc., 14051 N.W. 14 th Street, Sunrise, Florida 33323, Attention: Chief Executive Officer, or to such other address as is designated by written notice, similarly given to each other party hereto.

Section 16. Governing Law; Jurisdiction . This Warrant shall be governed by, and construed in accordance with, the laws of the State of New York 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 New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York 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 above-named courts, 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 contemplated by this Agreement may not be enforced in or by any of the above-named courts.

 

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

 

MAYOR’S JEWELERS, INC.
By:  

/s/ Marc Weinstein

Name:   Marc Weinstein
Title:   Chief Administrative Officer and
  Senior Vice President

Acknowledgment and Agreement

By signing below, the Holder of this Warrant does hereby acknowledge receipt hereof and does hereby agree to be bound by the terms and conditions hereof.

 

By:  

/s/ Carlo Coda-Nunziante

Name:   Carlo Coda-Nunziante

 

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PURCHASE FORM

To: Mayor’s Jewelers, Inc.

The undersigned irrevocably exercises the Warrant for the purchase of                      shares (subject to adjustment) of Common Stock of Mayor’s Jewelers, Inc., for the Warrant and herewith makes payment of $                      (the “Exercise Price”) through the following method:

 

    such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of Mayor’s Jewelers, Inc.

or

 

    such payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant Agreement) equal to the aggregate Exercise Price,

all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to Mayor’s Jewelers, Inc. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.

 

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The undersigned hereby certifies to Mayor’s Jewelers, Inc. that it is, at the time of exercise of the Warrant, an “accredited investor” as defined in Rule 501(a) of the Securities Act of 1933, as amended.

Date:                      ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

Securities and/or check to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 


( 1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

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Any unexercised part of the Warrant evidenced by the within Warrant to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

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FORM OF ASSIGNMENT

FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address of Assignee

   Social Security
or Other
Identifying
Number of
Assignee
   Number of
Shares of
Common Stock
Assigned to
Assignee

 

 

and does hereby irrevocably constitute and appoint                      as the undersigned’s attorney to make such transfer on the books of                      (Mayor’s Jewelers, Inc. or other such party) maintained for that purpose, with full power of substitution in the premises.

Date:                       ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

(1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

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Exhibit 4.51

EXECUTION COPY

WARRANT AGREEMENT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE BEING OFFERED PURSUANT TO AN EXEMPTION THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT AND THE BLUE SKY LAWS.

MAYOR’S JEWELERS, INC.

Warrant for the Purchase

of Shares of Common Stock

 

November 14, 2005   50,301 Warrant Shares

FOR VALUE RECEIVED, Mayor’s Jewelers, Inc., a Delaware corporation (the “Company”), hereby certifies that Joseph A. Keifer, III (the “Holder”), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) the number of fully paid and nonassessable shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), set forth above, subject to adjustment pursuant to Sections 7 and 8 hereof, at the applicable Exercise Price (as hereinafter defined).

For purposes of this Warrant, “Warrant Shares” means the 50,301 shares of Common Stock deliverable upon exercise of this Warrant, as of the date hereof, and as adjusted from time to time pursuant to the provisions of this Warrant. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable upon exercise of this Warrant as a result of such adjustment.

Section 1. Exercise of Warrant . This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on

 

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the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier’s check to the order of Mayor’s Jewelers, Inc. or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at its office, the Company shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or his designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. Notwithstanding the foregoing, the Exercise Price may be paid by surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised. With respect to the Warrant, “Spread” means the Current Market Value (as hereinafter defined) of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein.

Section 2. Exercise Period and Exercise Price . (a) This Warrant shall be exercisable during the period (the “Exercise Period”) beginning the date of execution of this Warrant Agreement (the “Original Issue Date”) and ending at 5:00 p.m. (New York City time) on a date twenty (20) years from August 20, 2002 (the “Termination Date”).

(b) “Exercise Price” means $0.54 per share.

Section 3. Authorization of Shares . The Company hereby agrees that upon exercise of this Warrant all shares of its Common Stock shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

Section 4. Fractional Shares . The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under

 

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this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a “security”) at the date herein specified shall be:

(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “Current Market Value” per share of the security shall be determined in good faith by the Board of Directors of the Company, or

(ii) if the security is registered under the Exchange Act, the “Current Market Value” per share of the security shall be deemed to be the average of the daily Market Prices (as hereinafter defined) of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily Market Prices for all of the trading days before such date for which daily Market Prices are available. The Market Price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on the New York Stock Exchange, American Stock Exchange or the Nasdaq Stock Market, the closing price on the primary exchange or stock market on which the Common Stock is then listed or quoted on, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange or stock market, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange or stock market and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.

Section 5. Exchange, Transfer, Assignment or Loss of Warrant . (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.

(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.

 

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(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like tenor and date.

 

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Section 6. Rights of the Holder . The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.

Section 7. Adjustments for Stock Dividends, Subdivisions, Combinations or Consolidations . In the event that the Company shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification, stock split or otherwise, into a greater or lesser number of shares of Common Stock, the Exercise Price and the Number of Warrant Shares in effect immediately prior to such dividend, subdivision, combination or consolidation shall, concurrently with the effectiveness of such dividend, subdivision, combination or consolidation, be proportionately decreased or increased, as appropriate.

Section 8. Reclassification, Reorganization, Consolidation or Merger . In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that would have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7.

Section 9. Transfer to Comply with the Securities Act . Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the

 

5


same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the “Securities Act”), shall bear a legend substantially in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be “Warrant Shares” for all purposes of this Warrant.

Section 10. Listing on Securities Exchanges . The Company shall use its reasonable efforts to list on each national securities exchange or inter-dealer quotation system on which any Common Stock may at any time be listed all shares of Common Stock from time to time issuable upon conversion of the Preferred Stock and the Company shall maintain such listing of all shares of Common Stock issuable upon the conversion of the Preferred Stock so long as any shares of its Common Stock shall be so listed on such national securities exchange or inter-dealer quotation system. Any such listing shall be at the Company’s expense.

Section 11. Availability of Information . The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for

 

6


such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.

Section 12. Successors and Assigns . All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.

Section 13. Headings . The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 14. Amendments . This Warrant may not be amended except by the written consent of the Company and the Holder.

Section 15. Notices . Unless otherwise provided in this Warrant, any notice or other communication or mailing required or permitted to be made or given to any party hereto pursuant to this Warrant shall be deemed made or given if delivered by hand on the date of such delivery to such party or, if mailed, on the fifth day after the date of mailing, if sent to such party by certified or registered mail or air mail, postage prepaid, addressed to it (in the case of the Holder) at 3100 N. Ocean Blvd., Suite 609, Fort Lauderdale, Florida 33308, or (in the case of the Company) at its address at Mayor’s Jewelers, Inc., 14051 N.W. 14 th Street, Sunrise, Florida 33323, Attention: Chief Executive Officer, or to such other address as is designated by written notice, similarly given to each other party hereto.

Section 16. Governing Law; Jurisdiction . This Warrant shall be governed by, and construed in accordance with, the laws of the State of New York 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 New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York 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 above-named courts, 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 contemplated by this Agreement may not be enforced in or by any of the above-named courts.

 

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

 

MAYOR’S JEWELERS, INC.
By:  

/s/ Marc Weinstein

Name:   Marc Weinstein
Title:   Chief Administrative Officer and
  Senior Vice President

Acknowledgment and Agreement

By signing below, the Holder of this Warrant does hereby acknowledge receipt hereof and does hereby agree to be bound by the terms and conditions hereof.

 

By:  

/s/ Joseph A. Kiefer, III

Name:   Joseph A. Kiefer, III

 

8


PURCHASE FORM

To: Mayor’s Jewelers, Inc.

The undersigned irrevocably exercises the Warrant for the purchase of                      shares (subject to adjustment) of Common Stock of Mayor’s Jewelers, Inc., for the Warrant and herewith makes payment of $                      (the “Exercise Price”) through the following method:

 

    such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of Mayor’s Jewelers, Inc.

or

 

    such payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant Agreement) equal to the aggregate Exercise Price,

all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to Mayor’s Jewelers, Inc. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.

 

9


The undersigned hereby certifies to Mayor’s Jewelers, Inc. that it is, at the time of exercise of the Warrant, an “accredited investor” as defined in Rule 501(a) of the Securities Act of 1933, as amended.

Date:                      ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

Securities and/or check to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 


( 1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

10


Any unexercised part of the Warrant evidenced by the within Warrant to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

11


FORM OF ASSIGNMENT

FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address of Assignee

  

Social Security

or Other

Identifying

Number of

Assignee

  

Number of

Shares of

Common Stock

Assigned to

Assignee

 

 

and does hereby irrevocably constitute and appoint                      as the undersigned’s attorney to make such transfer on the books of                      (Mayor’s Jewelers, Inc. or other such party) maintained for that purpose, with full power of substitution in the premises.

Date:                       ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

 


(1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

12

Exhibit 4.52

EXECUTION COPY

WARRANT AGREEMENT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE BEING OFFERED PURSUANT TO AN EXEMPTION THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT AND THE BLUE SKY LAWS.

MAYOR’S JEWELERS, INC.

Warrant for the Purchase

of Shares of Common Stock

 

November 14, 2005    50,301 Warrant Shares

FOR VALUE RECEIVED, Mayor’s Jewelers, Inc., a Delaware corporation (the “Company”), hereby certifies that Marco Pasteris (the “Holder”), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) the number of fully paid and nonassessable shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), set forth above, subject to adjustment pursuant to Sections 7 and 8 hereof, at the applicable Exercise Price (as hereinafter defined).

For purposes of this Warrant, “Warrant Shares” means the 50,301 shares of Common Stock deliverable upon exercise of this Warrant, as of the date hereof, and as adjusted from time to time pursuant to the provisions of this Warrant. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable upon exercise of this Warrant as a result of such adjustment.

Section 1. Exercise of Warrant . This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on

 

1


the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier’s check to the order of Mayor’s Jewelers, Inc. or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at its office, the Company shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or his designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. Notwithstanding the foregoing, the Exercise Price may be paid by surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised. With respect to the Warrant, “Spread” means the Current Market Value (as hereinafter defined) of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein.

Section 2. Exercise Period and Exercise Price . (a) This Warrant shall be exercisable during the period (the “Exercise Period”) beginning the date of execution of this Warrant Agreement (the “Original Issue Date”) and ending at 5:00 p.m. (New York City time) on a date twenty (20) years from August 20, 2002 (the “Termination Date”).

(b) “Exercise Price” means $0.54 per share.

Section 3. Authorization of Shares . The Company hereby agrees that upon exercise of this Warrant all shares of its Common Stock shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

Section 4. Fractional Shares . The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under

 

2


this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a “security”) at the date herein specified shall be:

(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “Current Market Value” per share of the security shall be determined in good faith by the Board of Directors of the Company, or

(ii) if the security is registered under the Exchange Act, the “Current Market Value” per share of the security shall be deemed to be the average of the daily Market Prices (as hereinafter defined) of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily Market Prices for all of the trading days before such date for which daily Market Prices are available. The Market Price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on the New York Stock Exchange, American Stock Exchange or the Nasdaq Stock Market, the closing price on the primary exchange or stock market on which the Common Stock is then listed or quoted on, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange or stock market, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange or stock market and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.

Section 5. Exchange, Transfer, Assignment or Loss of Warrant . (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.

(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.

 

3


(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like tenor and date.

 

4


Section 6. Rights of the Holder . The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.

Section 7. Adjustments for Stock Dividends, Subdivisions, Combinations or Consolidations . In the event that the Company shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification, stock split or otherwise, into a greater or lesser number of shares of Common Stock, the Exercise Price and the Number of Warrant Shares in effect immediately prior to such dividend, subdivision, combination or consolidation shall, concurrently with the effectiveness of such dividend, subdivision, combination or consolidation, be proportionately decreased or increased, as appropriate.

Section 8. Reclassification, Reorganization, Consolidation or Merger . In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that would have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7.

Section 9. Transfer to Comply with the Securities Act . Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the

 

5


same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the “Securities Act”), shall bear a legend substantially in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be “Warrant Shares” for all purposes of this Warrant.

Section 10. Listing on Securities Exchanges . The Company shall use its reasonable efforts to list on each national securities exchange or inter-dealer quotation system on which any Common Stock may at any time be listed all shares of Common Stock from time to time issuable upon conversion of the Preferred Stock and the Company shall maintain such listing of all shares of Common Stock issuable upon the conversion of the Preferred Stock so long as any shares of its Common Stock shall be so listed on such national securities exchange or inter-dealer quotation system. Any such listing shall be at the Company’s expense.

Section 11. Availability of Information . The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for

 

6


such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.

Section 12. Successors and Assigns . All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.

Section 13. Headings . The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 14. Amendments . This Warrant may not be amended except by the written consent of the Company and the Holder.

Section 15. Notices . Unless otherwise provided in this Warrant, any notice or other communication or mailing required or permitted to be made or given to any party hereto pursuant to this Warrant shall be deemed made or given if delivered by hand on the date of such delivery to such party or, if mailed, on the fifth day after the date of mailing, if sent to such party by certified or registered mail or air mail, postage prepaid, addressed to it (in the case of the Holder) at c/o Henry Birks & Sons Inc., 1240 Square Phillips, Montreal, Quebec, Canada H3B 3H4, or (in the case of the Company) at its address at Mayor’s Jewelers, Inc., 14051 N.W. 14 th Street, Sunrise, Florida 33323, Attention: Chief Executive Officer, or to such other address as is designated by written notice, similarly given to each other party hereto.

Section 16. Governing Law; Jurisdiction . This Warrant shall be governed by, and construed in accordance with, the laws of the State of New York 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 New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York 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 above-named courts, 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 contemplated by this Agreement may not be enforced in or by any of the above-named courts.

 

7


IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

 

MAYOR’S JEWELERS, INC.
By:  

/s/ Marc Weinstein

Name:   Marc Weinstein
Title:   Chief Administrative Officer and
  Senior Vice President

Acknowledgment and Agreement

By signing below, the Holder of this Warrant does hereby acknowledge receipt hereof and does hereby agree to be bound by the terms and conditions hereof.

 

By:  

/s/ Marco Pasteris

Name:   Marco Pasteris

 

8


PURCHASE FORM

To: Mayor’s Jewelers, Inc.

The undersigned irrevocably exercises the Warrant for the purchase of                      shares (subject to adjustment) of Common Stock of Mayor’s Jewelers, Inc., for the Warrant and herewith makes payment of $                      (the “Exercise Price”) through the following method:

 

    such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of Mayor’s Jewelers, Inc.

or

 

    such payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant Agreement) equal to the aggregate Exercise Price,

all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to Mayor’s Jewelers, Inc. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.

 

9


The undersigned hereby certifies to Mayor’s Jewelers, Inc. that it is, at the time of exercise of the Warrant, an “accredited investor” as defined in Rule 501(a) of the Securities Act of 1933, as amended.

Date:                      ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

Securities and/or check to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 


( 1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

10


Any unexercised part of the Warrant evidenced by the within Warrant to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

11


FORM OF ASSIGNMENT

FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address of Assignee

   Social Security
or Other
Identifying
Number of
Assignee
   Number of
Shares of
Common Stock
Assigned to
Assignee

 

 

and does hereby irrevocably constitute and appoint                      as the undersigned’s attorney to make such transfer on the books of                      (Mayor’s Jewelers, Inc. or other such party) maintained for that purpose, with full power of substitution in the premises.

Date:                       ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

 


(1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

12

Exhibit 4.53

EXECUTION COPY

AMENDED AND RESTATED WARRANT AGREEMENT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE BEING OFFERED PURSUANT TO AN EXEMPTION THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT AND THE BLUE SKY LAWS.

MAYOR’S JEWELERS, INC.

Warrant for the Purchase

of Shares of Common Stock

 

November 14, 2005   288,517 Warrant Shares

FOR VALUE RECEIVED, Mayor’s Jewelers, Inc., a Delaware corporation (the “Company”), hereby certifies that Henry Birks & Sons Inc., a Canadian corporation (the “Holder”), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) the number of fully paid and nonassessable shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), set forth above, subject to adjustment pursuant to Sections 7 and 8 hereof, at the applicable Exercise Price (as hereinafter defined).

For purposes of this Warrant, “Warrant Shares” means the 288,517 shares of Common Stock deliverable upon exercise of this Warrant, as of the date hereof, and as adjusted from time to time pursuant to the provisions of this Warrant. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable upon exercise of this Warrant as a result of such adjustment.

Section 1. Exercise of Warrant . This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on

 

1


the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier’s check to the order of Mayor’s Jewelers, Inc. or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at its office, the Company shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or its designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. Notwithstanding the foregoing, the Exercise Price may be paid by surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised. With respect to the Warrant, “Spread” means the Current Market Value (as hereinafter defined) of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein.

Section 2. Exercise Period and Exercise Price. (a) This Warrant shall be exercisable during the period (the “Exercise Period”) beginning the date of execution of this Warrant Agreement (the “Original Issue Date”) and ending at 5:00 p.m. (New York City time) on a date twenty (20) years from August 20, 2002 (the “Termination Date”).

(b) “Exercise Price” means $0.29 per share.

Section 3. Authorization of Shares . The Company hereby agrees that upon exercise of this Warrant all shares of its Common Stock shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

Section 4. Fractional Shares . The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under

 

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this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a “security”) at the date herein specified shall be:

(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “Current Market Value” per share of the security shall be determined in good faith by the Board of Directors of the Company, or

(ii) if the security is registered under the Exchange Act, the “Current Market Value” per share of the security shall be deemed to be the average of the daily Market Prices (as hereinafter defined) of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily Market Prices for all of the trading days before such date for which daily Market Prices are available. The Market Price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on the New York Stock Exchange, American Stock Exchange or the Nasdaq Stock Market, the closing price on the primary exchange or stock market on which the Common Stock is then listed or quoted on, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange or stock market, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange or stock market and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.

Section 5. Exchange, Transfer, Assignment or Loss of Warrant . (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.

(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.

 

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(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like tenor and date.

 

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Section 6. Rights of the Holder . The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.

Section 7. Adjustments for Stock Dividends, Subdivisions, Combinations or Consolidations . In the event that the Company shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification, stock split or otherwise, into a greater or lesser number of shares of Common Stock, the Exercise Price and the Number of Warrant Shares in effect immediately prior to such dividend, subdivision, combination or consolidation shall, concurrently with the effectiveness of such dividend, subdivision, combination or consolidation, be proportionately decreased or increased, as appropriate.

Section 8. Reclassification, Reorganization, Consolidation or Merger . In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that would have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7.

Section 9. Transfer to Comply with the Securities Act . Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the

 

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same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the “Securities Act”), shall bear a legend substantially in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be “Warrant Shares” for all purposes of this Warrant.

Section 10. Listing on Securities Exchanges . The Company shall use its reasonable efforts to list on each national securities exchange or inter-dealer quotation system on which any Common Stock may at any time be listed all shares of Common Stock from time to time issuable upon conversion of the Preferred Stock and the Company shall maintain such listing of all shares of Common Stock issuable upon the conversion of the Preferred Stock so long as any shares of its Common Stock shall be so listed on such national securities exchange or inter-dealer quotation system. Any such listing shall be at the Company’s expense.

Section 11. Availability of Information . The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for

 

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such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.

Section 12. Successors and Assigns . All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.

Section 13. Headings . The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 14. Amendments . This Warrant may not be amended except by the written consent of the Company and the Holder.

Section 15. Notices . Unless otherwise provided in this Warrant, any notice or other communication or mailing required or permitted to be made or given to any party hereto pursuant to this Warrant shall be deemed made or given if delivered by hand on the date of such delivery to such party or, if mailed, on the fifth day after the date of mailing, if sent to such party by certified or registered mail or air mail, postage prepaid, addressed to it (in the case of the Holder) at its address at Henry Birks & Sons Inc., 1240 Square Phillips, Montreal, Quebec, Canada H3B 3H4, Attention: General Counsel, or (in the case of the Company) at its address at Mayor’s Jewelers, Inc., 14051 N.W. 14 th Street, Sunrise, Florida 33323, Attention: Chief Executive Officer, or to such other address as is designated by written notice, similarly given to each other party hereto.

Section 16. Governing Law; Jurisdiction . This Warrant shall be governed by, and construed in accordance with, the laws of the State of New York 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 New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York 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 above-named courts, 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 contemplated by this Agreement may not be enforced in or by any of the above-named courts.

 

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Section 17. Amendment and Restatement of Existing Warrant Agreement . The Parties agree that the Warrant Agreement, dated as of August 20, 2002 (the “Existing Agreement”), between the Company and the Holder is hereby amended and restated in its entirety as set forth herein and that the Existing Agreement shall be of no further force or effect.

 

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

 

MAYOR’S JEWELERS, INC.
By:  

/s/ Marc Weinstein

Name:   Marc Weinstein
Title:   Chief Administrative Officer and
  Senior Vice President

Acknowledgment and Agreement

By signing below, the Holder of this Warrant does hereby acknowledge receipt hereof and does hereby agree to be bound by the terms and conditions hereof.

 

HENRY BIRKS & SONS INC.
By:  

/s/ Thomas A. Andruskevich

Name:   Thomas A. Andruskevich
Title:   President and Chief Executive Officer

 

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PURCHASE FORM

To: Mayor’s Jewelers, Inc.

The undersigned irrevocably exercises the Warrant for the purchase of                      shares (subject to adjustment) of Common Stock of Mayor’s Jewelers, Inc., for the Warrant and herewith makes payment of $                      (the “Exercise Price”) through the following method:

 

    such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of Mayor’s Jewelers, Inc.

or

 

    such payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant Agreement) equal to the aggregate Exercise Price,

all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to Mayor’s Jewelers, Inc. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.

 

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The undersigned hereby certifies to Mayor’s Jewelers, Inc. that it is, at the time of exercise of the Warrant, an “accredited investor” as defined in Rule 501(a) of the Securities Act of 1933, as amended.

Date:                      ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

Securities and/or check to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 


( 1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

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Any unexercised part of the Warrant evidenced by the within Warrant to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

12


FORM OF ASSIGNMENT

FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address of Assignee

  

Social Security

or Other

Identifying

Number of

Assignee

  

Number of

Shares of

Common Stock

Assigned to

Assignee

 

 

and does hereby irrevocably constitute and appoint                      as the undersigned’s attorney to make such transfer on the books of                      (Mayor’s Jewelers, Inc. or other such party) maintained for that purpose, with full power of substitution in the premises.

Date:                       ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

 


(1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

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Exhibit 4.54

EXECUTION COPY

AMENDED AND RESTATED WARRANT AGREEMENT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE BEING OFFERED PURSUANT TO AN EXEMPTION THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT AND THE BLUE SKY LAWS.

MAYOR’S JEWELERS, INC.

Warrant for the Purchase

of Shares of Common Stock

 

November 14, 2005   306,317 Warrant Shares

FOR VALUE RECEIVED, Mayor’s Jewelers, Inc., a Delaware corporation (the “Company”), hereby certifies that Henry Birks & Sons Inc., a Canadian corporation (the “Holder”), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) the number of fully paid and nonassessable shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), set forth above, subject to adjustment pursuant to Sections 7 and 8 hereof, at the applicable Exercise Price (as hereinafter defined).

For purposes of this Warrant, “Warrant Shares” means the 306,317 shares of Common Stock deliverable upon exercise of this Warrant, as of the date hereof, and as adjusted from time to time pursuant to the provisions of this Warrant. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable upon exercise of this Warrant as a result of such adjustment.

Section 1. Exercise of Warrant . This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on

 

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the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier’s check to the order of Mayor’s Jewelers, Inc. or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at its office, the Company shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or its designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. Notwithstanding the foregoing, the Exercise Price may be paid by surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised. With respect to the Warrant, “Spread” means the Current Market Value (as hereinafter defined) of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein.

Section 2. Exercise Period and Exercise Price . (a) This Warrant shall be exercisable during the period (the “Exercise Period”) beginning the date of execution of this Warrant Agreement (the “Original Issue Date”) and ending at 5:00 p.m. (New York City time) on a date twenty (20) years from August 20, 2002 (the “Termination Date”).

(b) “Exercise Price” means $0.34 per share.

Section 3. Authorization of Shares . The Company hereby agrees that upon exercise of this Warrant all shares of its Common Stock shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

Section 4. Fractional Shares . The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under

 

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this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a “security”) at the date herein specified shall be:

(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “Current Market Value” per share of the security shall be determined in good faith by the Board of Directors of the Company, or

(ii) if the security is registered under the Exchange Act, the “Current Market Value” per share of the security shall be deemed to be the average of the daily Market Prices (as hereinafter defined) of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily Market Prices for all of the trading days before such date for which daily Market Prices are available. The Market Price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on the New York Stock Exchange, American Stock Exchange or the Nasdaq Stock Market, the closing price on the primary exchange or stock market on which the Common Stock is then listed or quoted on, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange or stock market, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange or stock market and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.

Section 5. Exchange, Transfer, Assignment or Loss of Warrant . (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.

(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.

 

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(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like tenor and date.

 

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Section 6. Rights of the Holder . The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.

Section 7. Adjustments for Stock Dividends, Subdivisions, Combinations or Consolidations . In the event that the Company shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification, stock split or otherwise, into a greater or lesser number of shares of Common Stock, the Exercise Price and the Number of Warrant Shares in effect immediately prior to such dividend, subdivision, combination or consolidation shall, concurrently with the effectiveness of such dividend, subdivision, combination or consolidation, be proportionately decreased or increased, as appropriate.

Section 8. Reclassification, Reorganization, Consolidation or Merger . In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that would have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7.

Section 9. Transfer to Comply with the Securities Act . Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the

 

5


same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the “Securities Act”), shall bear a legend substantially in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be “Warrant Shares” for all purposes of this Warrant.

Section 10. Listing on Securities Exchanges . The Company shall use its reasonable efforts to list on each national securities exchange or inter-dealer quotation system on which any Common Stock may at any time be listed all shares of Common Stock from time to time issuable upon conversion of the Preferred Stock and the Company shall maintain such listing of all shares of Common Stock issuable upon the conversion of the Preferred Stock so long as any shares of its Common Stock shall be so listed on such national securities exchange or inter-dealer quotation system. Any such listing shall be at the Company’s expense.

Section 11. Availability of Information . The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for

 

6


such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.

Section 12. Successors and Assigns . All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.

Section 13. Headings . The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 14. Amendments . This Warrant may not be amended except by the written consent of the Company and the Holder.

Section 15. Notices . Unless otherwise provided in this Warrant, any notice or other communication or mailing required or permitted to be made or given to any party hereto pursuant to this Warrant shall be deemed made or given if delivered by hand on the date of such delivery to such party or, if mailed, on the fifth day after the date of mailing, if sent to such party by certified or registered mail or air mail, postage prepaid, addressed to it (in the case of the Holder) at its address at Henry Birks & Sons Inc., 1240 Square Phillips, Montreal, Quebec, Canada H3B 3H4, Attention: General Counsel, or (in the case of the Company) at its address at Mayor’s Jewelers, Inc., 14051 N.W. 14 th Street, Sunrise, Florida 33323, Attention: Chief Executive Officer, or to such other address as is designated by written notice, similarly given to each other party hereto.

Section 16. Governing Law; Jurisdiction . This Warrant shall be governed by, and construed in accordance with, the laws of the State of New York 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 New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York 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 above-named courts, 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 contemplated by this Agreement may not be enforced in or by any of the above-named courts.

 

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Section 17. Amendment and Restatement of Existing Warrant Agreement . The Parties agree that the Warrant Agreement, dated as of August 20, 2002 (the “Existing Agreement”), between the Company and the Holder is hereby amended and restated in its entirety as set forth herein and that the Existing Agreement shall be of no further force or effect.

 

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

 

MAYOR’S JEWELERS, INC.
By:  

/s/ Marc Weinstein

Name:   Marc Weinstein
Title:   Chief Administrative Officer and
  Senior Vice President

Acknowledgment and Agreement

By signing below, the Holder of this Warrant does hereby acknowledge receipt hereof and does hereby agree to be bound by the terms and conditions hereof.

 

HENRY BIRKS & SONS INC.
By:  

/s/ Thomas A. Andruskevich

Name:   Thomas A. Andruskevich
Title:   President and Chief Executive Officer

 

9


PURCHASE FORM

To: Mayor’s Jewelers, Inc.

The undersigned irrevocably exercises the Warrant for the purchase of                                          shares (subject to adjustment) of Common Stock of Mayor’s Jewelers, Inc., for the Warrant and herewith makes payment of $                                          (the “Exercise Price”) through the following method:

 

    such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of Mayor’s Jewelers, Inc.

or

 

    such payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant Agreement) equal to the aggregate Exercise Price,

all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to Mayor’s Jewelers, Inc. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.

 

10


The undersigned hereby certifies to Mayor’s Jewelers, Inc. that it is, at the time of exercise of the Warrant, an “accredited investor” as defined in Rule 501(a) of the Securities Act of 1933, as amended.

Date:                      ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

Securities and/or check to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 


( 1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

11


Any unexercised part of the Warrant evidenced by the within Warrant to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

12


FORM OF ASSIGNMENT

FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address of Assignee

   Social Security
or Other
Identifying
Number of
Assignee
   Number of
Shares of
Common Stock
Assigned to
Assignee

 

 

and does hereby irrevocably constitute and appoint                      as the undersigned’s attorney to make such transfer on the books of                      (Mayor’s Jewelers, Inc. or other such party) maintained for that purpose, with full power of substitution in the premises.

Date:                       ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

(1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

13

Exhibit 4.55

EXECUTION COPY

AMENDED AND RESTATED WARRANT AGREEMENT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE BEING OFFERED PURSUANT TO AN EXEMPTION THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE EXCEPT IN COMPLIANCE WITH THE ACT AND THE BLUE SKY LAWS.

MAYOR’S JEWELERS, INC.

Warrant for the Purchase

of Shares of Common Stock

 

November 14, 2005    306,317 Warrant Shares

FOR VALUE RECEIVED, Mayor’s Jewelers, Inc., a Delaware corporation (the “Company”), hereby certifies that Henry Birks & Sons Inc., a Canadian corporation (the “Holder”), is entitled, subject to the provisions of this Warrant, to purchase from the Company, at any time or from time to time during the applicable Exercise Period (as hereinafter defined) the number of fully paid and nonassessable shares of common stock of the Company, par value $0.0001 per share (the “Common Stock”), set forth above, subject to adjustment pursuant to Sections 7 and 8 hereof, at the applicable Exercise Price (as hereinafter defined).

For purposes of this Warrant, “Warrant Shares” means the 306,317 shares of Common Stock deliverable upon exercise of this Warrant, as of the date hereof, and as adjusted from time to time pursuant to the provisions of this Warrant. Unless the context requires otherwise all references to Common Stock and Warrant Shares in this Warrant shall, in the event of an adjustment pursuant to Section 7 hereof, be deemed to refer also to any securities or property then issuable upon exercise of this Warrant as a result of such adjustment.

Section 1. Exercise of Warrant . This Warrant may be exercised, as a whole or in part, at any time or from time to time during the applicable Exercise Period or, if such day is a day on which banking institutions in New York City are authorized by law to close, then on

 

1


the next succeeding day that shall not be such a day, by presentation and surrender hereof to the Company at its principal office (or at such other address as the Company may hereafter notify the Holder in writing) with the Purchase Form annexed hereto duly executed and accompanied by proper payment of the aggregate applicable Exercise Price in lawful money of the United States of America in the form of a certified or cashier’s check to the order of Mayor’s Jewelers, Inc. or by wire transfer of same day funds, for the number of Warrant Shares specified in such form. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this Warrant and such Purchase Form, together with the aggregate applicable Exercise Price (as hereinafter defined) for the number of Warrant Shares specified in such Purchase Form, at its office, the Company shall issue and deliver to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the Warrant Shares. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the date of the surrender of this Warrant, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Warrant Shares shall not then be actually delivered to the Holder or its designee. The Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of the Warrant Shares. Notwithstanding the foregoing, the Exercise Price may be paid by surrendering a part of the Warrant having an aggregate Spread equal to the aggregate Exercise Price of the part Warrant being exercised. With respect to the Warrant, “Spread” means the Current Market Value (as hereinafter defined) of the Warrant Shares issuable upon exercise of such part of the Warrant less the Exercise Price of such part of the Warrant, in each case as adjusted as provided herein.

Section 2. Exercise Period and Exercise Price . (a) This Warrant shall be exercisable during the period (the “Exercise Period”) beginning the date of execution of this Warrant Agreement (the “Original Issue Date”) and ending at 5:00 p.m. (New York City time) on a date twenty (20) years from August 20, 2002 (the “Termination Date”).

(b) “Exercise Price” means $0.39 per share.

Section 3. Authorization of Shares . The Company hereby agrees that upon exercise of this Warrant all shares of its Common Stock shall be duly authorized and, when issued upon such exercise in accordance with the terms of this Warrant, shall be validly issued, fully paid and nonassessable, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale (other than any restrictions on sale pursuant to applicable federal and state securities laws) and free and clear of all preemptive rights.

Section 4. Fractional Shares . The Company shall not be required to issue fractional shares of Common Stock on the exercise of this Warrant. If any fraction of a share of Common Stock would, except for the provisions of this Section 4, be issuable on the exercise of this Warrant (or specified portion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then Current Market Value per share of Common Stock multiplied by such fraction computed to the nearest whole cent. For the purposes of any computation under

 

2


this Warrant, the Current Market Value per share of Common Stock or of any other equity security (herein collectively referred to as a “security”) at the date herein specified shall be:

(i) if the security is not registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “Current Market Value” per share of the security shall be determined in good faith by the Board of Directors of the Company, or

(ii) if the security is registered under the Exchange Act, the “Current Market Value” per share of the security shall be deemed to be the average of the daily Market Prices (as hereinafter defined) of the security for the 10 consecutive trading days immediately preceding the day as of which Current Market Value is being determined or, if the security has been registered under the Exchange Act for less than 10 consecutive trading days before such date, then the average of the daily Market Prices for all of the trading days before such date for which daily Market Prices are available. The Market Price for each such trading day shall be: (A) in the case of a security listed or admitted to trading on the New York Stock Exchange, American Stock Exchange or the Nasdaq Stock Market, the closing price on the primary exchange or stock market on which the Common Stock is then listed or quoted on, on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, (B) in the case of a security not then listed or admitted to trading on any securities exchange or stock market, the last reported sale price on such day, or if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reputable quotation source designated by the Company, (C) in the case of a security not then listed or admitted to trading on any securities exchange or stock market and as to which no such reported sale price or bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reputable quotation service, or a newspaper of general circulation in the Borough of Manhattan, City and State of New York, customarily published on each business day, designated by the Company, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than 10 days prior to the date in question) for which prices have been so reported, and (D) if there are no bid and asked prices reported during the 10 days prior to the date in question, the Current Market Value of the security shall be determined as if the security were not registered under the Exchange Act.

Section 5. Exchange, Transfer, Assignment or Loss of Warrant . (a) This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent for other warrants of different denomination, entitling the Holder thereof to purchase in the aggregate the same number of Warrant Shares and otherwise carrying the same rights as this Warrant.

(b) This Warrant may be divided or combined by the Holder with other warrants that carry the same rights upon presentation hereof at the office of the Company together with a written notice specifying the names and denominations in which new warrants are to be issued and signed by the Holder hereof. The term “Warrant” as used herein includes any warrants into which this Warrant may be divided or for which it may be exchanged.

 

3


(c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like tenor and date.

 

4


Section 6. Rights of the Holder . The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant.

Section 7. Adjustments for Stock Dividends, Subdivisions, Combinations or Consolidations . In the event that the Company shall pay a stock dividend on the Common Stock, or the outstanding shares of Common Stock shall be subdivided, combined or consolidated, by reclassification, stock split or otherwise, into a greater or lesser number of shares of Common Stock, the Exercise Price and the Number of Warrant Shares in effect immediately prior to such dividend, subdivision, combination or consolidation shall, concurrently with the effectiveness of such dividend, subdivision, combination or consolidation, be proportionately decreased or increased, as appropriate.

Section 8. Reclassification, Reorganization, Consolidation or Merger . In the event of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a subdivision or combination of the outstanding Common Stock, a change in the par value of the Common Stock or a transaction subject to Section 7) or in the event of any consolidation or merger of the Company with or into another corporation (other than a merger in which merger the Company is the continuing corporation and that does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in the event of any sale, lease, transfer or conveyance to another corporation of the property and assets of the Company as an entirety or substantially as an entirety, the Company shall, as a condition precedent to such transaction, cause effective provisions to be made so that such other corporation shall assume all of the obligations of the Company hereunder and the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale, lease, transfer or conveyance by a holder of the number of shares of Common Stock that would have been received upon exercise of this Warrant immediately prior to such reclassification, capital reorganization, change, consolidation, merger, sale, lease or conveyance. Any such provision shall include provision for adjustments in respect of such shares of stock and other securities and property that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section 8 shall similarly apply to successive reclassification, capital reorganizations and changes of shares of Common Stock and to successive changes, consolidations, mergers, sales, leases, transfers or conveyances. In the event that in connection with any such capital reorganization, or reclassification, consolidation, merger, sale, lease, transfer or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, as a whole or in part, for, or of, a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Section 7.

Section 9. Transfer to Comply with the Securities Act . Neither this Warrant, nor any of the Warrant Shares, nor any interest therein, may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, as a whole or in part, except in compliance with applicable United States federal and state securities or Blue Sky laws and the terms and conditions hereof. Each Warrant shall bear a legend in substantially the

 

5


same form as the legend set forth on the first page of this initial Warrant. Each certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such exercise is registered under the Securities Act of 1933, as amended (the “Securities Act”), shall bear a legend substantially in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) NOR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE. THE SECURITIES ARE “RESTRICTED” AND MAY NOT BE OFFERED OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY WILL BE PROVIDED WITH AN OPINION OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE AVAILABLE.

Any certificate for any Warrant Shares issued at any time in exchange or substitution for any certificate for any Warrant Shares bearing such legend (except a new certificate for any Warrant Shares issued after registration of such Warrant Shares under the Securities Act) shall also bear such legend unless, in the opinion of counsel for the Company, the Warrant Shares represented thereby need no longer be subject to the restriction contained herein. The provisions of this Section 9 shall be binding upon all subsequent holders of certificates for Warrant Shares bearing the above legend and all subsequent Holders of this Warrant, if any. Warrant Shares sold pursuant to a Registration Statement under the Securities Act pursuant to Section 12, sold by the holder thereof in compliance with Rule 904 of the Securities Act or sold by the holder thereof in compliance with Rule 144 under the Securities Act shall thereafter cease to be deemed to be “Warrant Shares” for all purposes of this Warrant.

Section 10. Listing on Securities Exchanges . The Company shall use its reasonable efforts to list on each national securities exchange or inter-dealer quotation system on which any Common Stock may at any time be listed all shares of Common Stock from time to time issuable upon conversion of the Preferred Stock and the Company shall maintain such listing of all shares of Common Stock issuable upon the conversion of the Preferred Stock so long as any shares of its Common Stock shall be so listed on such national securities exchange or inter-dealer quotation system. Any such listing shall be at the Company’s expense.

Section 11. Availability of Information . The Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act to the extent it is required to do so under the Exchange Act, and shall likewise comply with all other applicable public information reporting requirements of the Securities and Exchange Commission (including those required to make available the benefits of Rule 144 under the Securities Act) to which it may from time to time be subject. The Company shall also cooperate with the holder of this Warrant and the holder of any Warrant Shares in supplying such information as may be necessary for

 

6


such holder to complete and file any information reporting forms currently or hereafter required by the Commission as a condition to the availability of Rule 144 or any successor rule under the Securities Act for the sale of this Warrant or the Warrant Shares. The provisions of this Section 11 shall survive termination of this Warrant, whether upon exercise of this Warrant in full or otherwise. The Company shall also provide to holders of this Warrant the same information that it provides to holders of its Common Stock.

Section 12. Successors and Assigns . All the provisions of this Warrant by or for the benefit of the Company or the Holder shall bind and inure to the benefit of their respective successors, assigns, heirs and personal representatives.

Section 13. Headings . The headings of sections of this Warrant have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

Section 14. Amendments . This Warrant may not be amended except by the written consent of the Company and the Holder.

Section 15. Notices . Unless otherwise provided in this Warrant, any notice or other communication or mailing required or permitted to be made or given to any party hereto pursuant to this Warrant shall be deemed made or given if delivered by hand on the date of such delivery to such party or, if mailed, on the fifth day after the date of mailing, if sent to such party by certified or registered mail or air mail, postage prepaid, addressed to it (in the case of the Holder) at its address at Henry Birks & Sons Inc., 1240 Square Phillips, Montreal, Quebec, Canada H3B 3H4, Attention: General Counsel, or (in the case of the Company) at its address at Mayor’s Jewelers, Inc., 14051 N.W. 14 th Street, Sunrise, Florida 33323, Attention: Chief Executive Officer, or to such other address as is designated by written notice, similarly given to each other party hereto.

Section 16. Governing Law; Jurisdiction . This Warrant shall be governed by, and construed in accordance with, the laws of the State of New York 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 New York state or federal court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of Manhattan of The City of New York 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 above-named courts, 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 contemplated by this Agreement may not be enforced in or by any of the above-named courts.

 

7


Section 17. Amendment and Restatement of Existing Warrant Agreement . The Parties agree that the Warrant Agreement, dated as of August 20, 2002 (the “Existing Agreement”), between the Company and the Holder is hereby amended and restated in its entirety as set forth herein and that the Existing Agreement shall be of no further force or effect.

 

8


IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

 

MAYOR’S JEWELERS, INC.
By:  

/s/ Marc Weinstein

Name:   Marc Weinstein
Title:   Chief Administrative Officer and
  Senior Vice President

Acknowledgment and Agreement

By signing below, the Holder of this Warrant does hereby acknowledge receipt hereof and does hereby agree to be bound by the terms and conditions hereof.

 

HENRY BIRKS & SONS INC.
By:  

/s/ Thomas A. Andruskevich

Name:   Thomas A. Andruskevich
Title:   President and Chief Executive Officer

 

9


PURCHASE FORM

To: Mayor’s Jewelers, Inc.

The undersigned irrevocably exercises the Warrant for the purchase of                      shares (subject to adjustment) of Common Stock of Mayor’s Jewelers, Inc., for the Warrant and herewith makes payment of $                      (the “Exercise Price”) through the following method:

 

    such payment of the Exercise Price being in cash or by certified or official bank check payable to the order of Mayor’s Jewelers, Inc.

or

 

    such payment of the Exercise Price made by surrendering of such additional part of the Warrant having an aggregate Spread (as such term is defined in the Warrant Agreement) equal to the aggregate Exercise Price,

all at the Exercise Price and on the terms and conditions specified in the within the Warrant Agreement therein referred to, surrenders the Warrant and all right, title and interest therein to Mayor’s Jewelers, Inc. and directs (subject to Section 9 of the Warrant Agreement) that the shares of Common Stock deliverable upon the exercise of such Warrant be registered or placed in the name and at the address specified below and delivered thereto.

 

10


The undersigned hereby certifies to Mayor’s Jewelers, Inc. that it is, at the time of exercise of the Warrant, an “accredited investor” as defined in Rule 501(a) of the Securities Act of 1933, as amended.

 

Date:                      ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

Securities and/or check to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 


( 1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

11


Any unexercised part of the Warrant evidenced by the within Warrant to be issued to:

 

Please insert social security or identifying number:

 

Name:

 

Street Address:

 

City, State and Zip Code:

 

12


FORM OF ASSIGNMENT

FOR VALUE RECEIVED the undersigned registered holder of the within Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below (including the undersigned with respect to any part of the Warrant not being assigned hereby) all of the right of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

 

Name of Assignee

  

Address of Assignee

   Social Security
or Other
Identifying
Number of
Assignee
   Number of
Shares of
Common Stock
Assigned to
Assignee

 

 

and does hereby irrevocably constitute and appoint                      as the undersigned’s attorney to make such transfer on the books of                      (Mayor’s Jewelers, Inc. or other such party) maintained for that purpose, with full power of substitution in the premises.

Date:                       ,             

 

 

(Signature of Owner) 1

 

(Street Address)

 

(City)   (State)   (Zip Code)

(1) The signature must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever.

 

13

Exhibit 4.56

EMPLOYMENT AGREEMENT

AGREEMENT ENTERED INTO AS OF JULY 1 st , 2004 (hereinafter referred to as the “Agreement”)

 

BY AND BETWEEN:   MAYOR’S JEWELERS INC., a Delaware corporation duly incorporated having its head office at 14051 N.W. 14th street, Suite 200 Sunrise, Florida, 33323, herein acting and represented by its Chairman and Chief Executive Officer, Thomas A. Andruskevich, duly authorized for the purposes hereof as he hereby declares (hereinafter referred to as the “EMPLOYER”),
AND   RANDOLPH DIRTH domiciled at 37 Rosewell Road, Bedford, NH 03110 (hereinafter referred to as the “EMPLOYEE”),

WHEREAS the EMPLOYER is engaged in the business of operating a chain of retail stores specializing in jewelry, timepieces, china, crystal and giftware;

WHEREAS the EMPLOYEE declares possessing certain expertise in the fields of Merchandising and high end gift,

WHEREAS the EMPLOYEE declares not being prevented from working as such in the United States and Canada;

WHEREAS the EMPLOYER wishes to hire the EMPLOYEE as its Group Vice President Merchandising and the EMPLOYEE wishes to accept such position, the whole upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PREMISES AND AGREEMENTS HEREIN SET FORTH, THE PARTIES HERETO ACKNOWLEDGE AND AGREE AS FOLLOWS:

1. PRELIMINARY

The preamble hereto shall form an integral part hereof as if recited herein at length.

2. NATURE OF SERVICES

2.1 The EMPLOYER hereby engages and hires the EMPLOYEE to be its Group Vice President Merchandising and the EMPLOYEE hereby accepts and agrees to such engagement and employment.

2.2 The function of the EMPLOYEE while under employment with the EMPLOYER will consist without limitation to the following:

 

    Develop, and manage the Category Management and demand management in collaboration with others and perform all duties that may be assigned to you in the course of your employment, to meet reasonable goals and objectives determined from time to time by the President and Chief Executive Officer;

 

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    Use his best efforts to execute and implement, adequately control, follow up on the implementation of and achieve the strategies and goals contained in the EMPLOYER’ Strategic Plan and annual Profit Plan;

 

    Manage, develop and train the EMPLOYER’s employees under your authority, if any, in a manner to best serve Mayors’ interests;

 

    Maximize the EMPLOYER’s business opportunities and collaborate with other Senior Management Members to properly manage inventory level.

 

    Undertake to perform or prepare studies and/or reports in a timely manner as required on occasion by the President and Chief Executive Officer;

 

    Participate in the preparation and periodical revisions of the EMPLOYER’s Profit Plan and Strategic Plan;

 

    Act as a Senior Management Team Member;

2.3 It is hereby agreed that the EMPLOYEE shall devote himself to the business of the EMPLOYER on an exclusive basis while working for the EMPLOYER. The EMPLOYER acknowledges and agrees that the EMPLOYEE is also employed as Group Vice President Merchandising by Henry Birks & Sons Inc. and might be required to travel frequently to Canada.

3. TERM

3.1 This Agreement and the employment of the EMPLOYEE shall begin on July 1 st , 2004 (Starting Date) and shall be for an indefinite period unless otherwise terminated as provided for in this Agreement.

4. SALARY

In consideration of the services to be rendered pursuant to this Agreement the EMPLOYER shall pay to the EMPLOYEE the gross amount of US$75,000 per year (yearly Base Salary) of this Agreement. The amount described herein shall be paid in accordance with the EMPLOYER’s payroll practices.

5. BONUS

5.1 The EMPLOYEE will not participate in the EMPLOYER bonus plan as offered to other members of the Senior Management and will not be entitled to any bonus from the EMPLOYER.

6. VACATION

6.1 The EMPLOYEE shall be entitled to 4 weeks paid vacation per fiscal year, from April 1 to March 31, of any given year, prorated for any portion of a year. Vacation days shall be earned in each fiscal year for use in that same year on the basis of days worked in that fiscal year. Unless otherwise approved by the Chairman & Chief Executive Officer, the EMPLOYEE shall not be entitled to carry forward any unused vacation. Vacation days shall be taken at Birks and Mayors on the same days.

 

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7. INSURANCE BENEFITS

Provided that these benefits and coverage are not a duplication of the benefits and coverage that might be provided to the EMPLOYEE by Henry Birks & Sons Inc. and if acceptable by the EMPLOYER’s group insurance, the EMPLOYER will provide the EMPLOYEE with the same family benefits as are or may become available to other members of Senior Management, limited currently to life, dental and medical insurance benefits, the cost of such benefits to be borne according to the prevailing policy for Senior Management. In this regard as it may be modified from time to time by the EMPLOYER at EMPLOYER’s discretion.

8. EXPENSES

8.1 The EMPLOYEE shall be reimbursed for reasonable business expenses exclusively incurred by him in the fulfillment of his duties hereunder, the whole upon the presentation of appropriate receipts or vouchers and according to the prevailing EMPLOYER Travel Policy as it may be modified from time to time by the EMPLOYER.

It is understood that to the extent these provisions generate a taxable benefit for income tax purposes, these taxes will be the sole responsibility of the EMPLOYEE.

9. TERMINATION

9.1 The EMPLOYER shall be entitled to terminate this Agreement and the EMPLOYEE’s employment for just cause at any time and such, without any notice or any form of compensation (except otherwise stated by laws) of any nature whatsoever. Just cause shall include, but not be limited to: the commission of any fraudulent act; the commission of any serious statutory infraction which may have an adverse effect on the EMPLOYER or which is incompatible with the performance of the EMPLOYEE’s duties; the breach of his fiduciary duty; the acceptance, directly or indirectly, of any benefit tantamount to a “kick-back”; a material breach or a repeated non material breach of any EMPLOYER policy and procedure or any other circumstances that would be a just cause for termination of the EMPLOYEE’s employment with Henry Birks & Sons Inc. or within the meaning of the law, the whole without notice or pay in lieu of notice or any indemnity whatsoever.

9.2 Should the employment be terminated by the EMPLOYER for any reason whatsoever (other than for cause) or should the EMPLOYEE resign or voluntarily leave his employment either party shall provide the other a prior written notice of 90 days, or any shorter notice as may be mutually agreed upon between the parties. If the EMPLOYER terminates the EMPLOYEE for any reasons other than just cause, and requires that the EMPLOYEE leave his employment before 90 days have elapsed, the EMPLOYER agrees to pay the EMPLOYEE upon the departure date in one cash lump sum equal to a total of 90 days Base Salary only, less any Base Salary received subsequent to the date which written notice is received.

9.3 Termination for any reason whatsoever or resignation of this Agreement shall automatically be deemed to terminate the Agreement with Henry Birks & Sons Inc..

 

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10. CONFIDENTIAL INFORMATION

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, strategies, pricing policies, financial records, clients lists and any information regarding the EMPLOYER’s marketing, sales or dealer network, which is not generally known to the public through legitimate origins. None of EMPLOYER’S Confidential Information shall be used to the benefit of Henry Birks & Sons Inc..

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.

11. MISCELLANEOUS

11.1 Assignment . The rights and obligations of the EMPLOYEE under this Agreement shall not be assignable by the EMPLOYEE.

11.2 Governing Law . This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Florida.

11.3 Notices . Any notice, request, or instruction to be given hereunder shall be in writing and shall be deemed given on the same day when personally delivered or three days after being sent by United States certified mail, postage prepaid, with return receipt, to the parties at their respective addresses set forth below:

 

  (a) To the EMPLOYER: Mayor’s Jewelers, Inc. 14051 Northwest 14th Street Sunrise, Florida 33323, Attention: Chairman and Chief Executive Officer

 

  (b) To the EMPLOYEE: Randolph Dirth at 37 Rosewell Road, Bedford, NH 03110

11.4 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 EMPLOYEE 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 EMPLOYEE against the EMPLOYER, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the EMPLOYER of the covenants in this Agreement.

11.5 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.

 

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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.

11.6 Survival of Rights and Obligations . All obligations of the EMPLOYEE stated in Section 10 of this Agreement shall continue to have full force and effect after the date that this Agreement terminates.

11.7 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.

11.8 Written Resignation . In the event this Agreement is terminated for any reason (except by death), the EMPLOYEE agrees that if at the time EMPLOYEE is a director or officer of the EMPLOYER or any of its direct or indirect subsidiaries, EMPLOYEE will immediately deliver a written resignation as such director or officer, such resignation to become effective immediately.

11.9 Return of Documents and Property . Upon the termination of the EMPLOYEE’s employment with the EMPLOYER, or at any time upon the request of the EMPLOYER, the EMPLOYEE (or EMPLOYEE’s heirs or personal representatives) shall deliver to the EMPLOYER (a) all documents and materials (including, without limitation, computer files) containing confidential information relating to the business and affairs of the EMPLOYER and its direct and indirect subsidiaries, and (b) all documents, materials and other property (including, without limitation, computer files) belonging to the EMPLOYER or its direct or indirect subsidiaries, which in either case are in the possession or under the control of the EMPLOYEE (or EMPLOYEE’s heirs or personal representatives).

11.10 EMPLOYEE’s Representations . The EMPLOYEE represents and warrants to the EMPLOYER that (i) he is able to perform fully his 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.

11.11 In the performance of the EMPLOYEE’s functions and duties, the EMPLOYEE agrees to dedicate the necessary time, attention and effort required and to always behave in a manner that is in the best interests of the EMPLOYER. Forming part of this Agreement, the EMPLOYEE has received the “Code of Conduct” dated March, 2004 as may be amended from time to time to which he agrees to adhere. The EMPLOYEE undertakes to respect and do its best to ensure that all employees under his authority will adhere to the EMPLOYER’s Policy and Procedure.

 

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The EMPLOYEE undertakes to act honestly and in good faith in particular; he shall refrain from placing himself in a position of conflict of interest with the EMPLOYER. The EMPLOYER acknowledges and agrees that the EMPLOYEE will also be an employee of HENRY BIRKS & SONS INC.

Execution

Upon execution below by both parties, this Agreement will enter into full force and effect as of July 1, 2006.

MAYOR’S JEWELERS INC.

Per: /s/ Thomas A. Andruskevich

Thomas A. Andruskevich, Chairman and Chief Executive Officer

Signed at Montreal, this 7th day of July 2004

Acknowledged and accepted

Randolph Dirth

Signature: /s/ Randolph Dirth

Signed at Montreal, this 8th day of July, 2004

 

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Exhibit 8.1

LIST OF SUBSIDIARIES OF BIRKS & MAYORS INC.

 

Name

  

Jurisdiction of Incorporation

Henry Birks & Sons U.S., Inc.

  

Delaware

Mayor’s Jewelers, Inc.

  

Delaware

Mayor’s Jewelers of Florida Inc.

  

Florida

Mayor’s Jewelers Intellectual Property Holding Co.

  

Delaware

JBM Retail Company Inc.

  

Delaware

Jan Bell Marketing/Puerto Rico Inc.

  

Puerto Rico

JBM Venture Co. Inc.

  

Delaware

Exclusive Diamonds International Ltd.

  

Israeli

Regal Diamonds International (T.A. Ltd.)

  

Israeli

Exhibit 12.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas A. Andruskevich, certify that:

1. I have reviewed this annual report on Form 20-F of Birks & Mayors Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: July 19, 2006

 

/s/    Thomas A. Andruskevich        

Thomas A. Andruskevich,

President and Chief Executive Officer

Exhibit 12.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael Rabinovitch, certify that:

1. I have reviewed this annual report on Form 20-F of Birks & Mayors Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: July 19, 2006

 

/s/    Michael Rabinovitch        

Michael Rabinovitch,

Senior Vice President and Chief Financial Officer

Exhibit 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Birks & Mayors Inc. (the “Company”) on Form 20-F for the year ended March 25, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Andruskevich, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 19, 2006

 

/s/    Thomas A. Andruskevich        

 

Thomas A. Andruskevich,

President and Chief Executive Officer

Exhibit 13.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Birks & Mayors Inc. (the “Company”) on Form 20-F for the year ended March 25, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael Rabinovitch, Senior Vice President & Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 19, 2006

 

/s/    Michael Rabinovitch        

 

Michael Rabinovitch,

Senior Vice President and Chief Financial Officer