UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 13, 2017

 

 

DAVIDsTEA Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

(888) 873-0006

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 

 

Item 7.01 Regulation FD Disclosure.

 

On April 13, 2017, DAVIDsTEA Inc. (the “Company”), a corporation incorporated under the Canada Business Corporation Act (the “Act”), made available to its shareholders, in compliance with the Act, a proxy statement in respect of its annual and special shareholders’ meeting.  A copy of the Company’s proxy statement is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

 

The information contained in this Item, including Exhibit 99.1 attached hereto, is being furnished and shall not be deemed “filed” for any purpose, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, regardless of any general incorporation language in any such filing.

 

Item 9.01 Financial Statements and Exhibits.

 

(d) Exhibits

 

99.1 Notice of Annual Meeting of Shareholders and Canadian Management Information Circular of DAVIDsTEA Inc., dated April 13, 2017

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Exhibit 99.1

NOTICE OF ANNNUAL AND SPECIAL MEETING OF SHAREHOLDERS

AND

MANAGEMENT INFORMATION CIRCULAR OF

DAVIDsTEA Inc.

For the Annual and SPECIAL Meeting of Shareholders

to be held on June 8, 2017

at DAVIDsTEA head office, 5430, Ferrier Street

Town of Mount-Royal, Québec, Canada, at 2:00pm

April 13, 2017

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that the annual and special meeting (the “Meeting”) of shareholders (the “Shareholders”) of DAVIDsTEA Inc. (“DAVIDsTEA” or the “Company”) will be held at DAVIDsTEA head office, 5430, Ferrier Street, Town of Mount-Royal, Québec, Canada, H4P 1M2 at 2:00pm (Eastern Time), on June 8, 2017, for the purposes of:

Further information regarding the matters to be considered at the Meeting is set out in the accompanying management information circular.

The directors of the Company have fixed the close of business on April 13, 2017 as the record date for determining Shareholders entitled to receive notice of and to vote at the Meeting.

Montreal, Québec, April 13, 2017.

 

IMPORTANT

Shareholders are encouraged to vote. Please complete, date and sign the enclosed form of proxy or voting instruction form and return it in the envelope provided for that purpose. Proxies, to be valid, must be deposited at the office of the registrar and transfer agent of the Company, CST Trust Company (“CST”), located at 320, Bay Street, B1 Level, Toronto, Ontario, Canada, M5H 4A6 no later than 5:00 p.m. (Eastern Time) on June 6, 2017, or, in the event the Meeting is adjourned or postponed, then not less than 48 hours (excluding Saturdays, Sundays and holidays) before the adjourned meeting is reconvened or the postponed meeting is convened. If you appoint Maurice Tousson or Joel Silver as your proxyholder, your common shares of the Company (the “Shares” or “Common Shares”) will be voted in accordance with your instructions in the form of proxy or voting instruction form or, if no such instructions are given, such proxyholders will vote IN FAVOUR of the matters indicated in items (b),  (c) and (d) hereinabove. Shareholders may also vote by telephone or Internet by following the instructions provided in the enclosed form of proxy. If you choose to vote by telephone or Internet, your vote must also be cast no later than 5:00 p.m. (Eastern Time) on June 6, 2017, or, in the event the Meeting is adjourned or postponed, then not less than 48 hours (excluding Saturdays, Sundays and holidays) before the adjourned meeting is reconvened or the postponed meeting is convened.

These Shareholder materials are being sent to both registered and non-registered owners of Common Shares. If you are a non-registered owner of Common Shares, and the Company or its agent has sent these materials directly to you, your name and address and information about your holdings of securities have been obtained in accordance with applicable securities regulatory requirements from the intermediary holding your securities on your behalf.

By choosing to send these materials to you directly, the Company (and not the intermediary holding on your behalf) has assumed responsibility for (i) delivering these materials to you, and (ii) executing your proper voting instructions. Please return your voting instructions as specified in the request for voting instructions.

TABLE OF CONTENTS

 

 

 

MANAGEMENT INFORMATION CIRCULAR

INTRODUCTION

This management information circular (this “Information Circular”) is provided in connection with the solicitation of proxies for use at the annual meeting of Shareholders of DAVIDsTEA Inc. to be held on June 8, 2017, at the time and place and for the purposes stated in the accompanying notice of meeting (the “Notice of Meeting”) and any adjournment thereof. Unless otherwise indicated, the information contained in this Information Circular is given as of April 11,  2017. In this Information Circular, references to the “Company” or “DAVIDsTEA” are to be read as including its sole subsidiary, DAVIDsTEA (USA) Inc., as the context requires.

NOTICE TO DAVIDSTEA SHAREHOLDERS IN THE UNITED STATES

DAVIDsTEA is a Company existing under the laws of Canada. The solicitation of proxies and the transactions contemplated herein involve securities of a Canadian issuer and are being effected in accordance with provincial and Canadian corporate and securities laws. Shareholders should be aware that requirements under such provincial and Canadian laws differ from requirements under United States corporate and securities laws relating to United States corporations. The proxy rules under the United States Securities Exchange Act of 1934, as amended, are not applicable to the Company or this solicitation and therefore this solicitation is not being effected in accordance with such corporate and securities laws.

NON-IFRS MEASURES

Certain terms used or incorporated by reference in this Information Circular, such as EBITDA and Adjusted EBITDA are not measures defined under International Financial Reporting Standards (“IFRS”), do not have standardized meanings prescribed by IFRS and should not be compared to or construed as alternatives to profit/loss, cash flow from operating activities or other measures of financial performance calculated in accordance with IFRS. EBITDA, Adjusted EBITDA and other non-IFRS measures, as computed by DAVIDsTEA, may not be comparable to similar measures as reported by other reporting issuers in similar or different industries.

“EBITDA” is calculated as earnings before interest and financing costs (net of interest income), income taxes, depreciation and amortization. “Adjusted EBITDA” is calculated as earnings before interest and financing costs (net of interest income), income taxes, depreciation,  amortization, deferred rent,  non-cash compensation expense, costs related to onerous contracts or contracts where we expect the costs of the obligations to exceed the economic benefit, gain (loss) on derivative financial instruments, loss on disposal of property and equipment, impairment of property and equipment, and other non-recurring costs.

For a reconciliation of these non-IFRS measures to the most comparable IFRS measures, please see pages 37 to 39 of the Company’s  Form 10‑K filed with the Securities and Exchange Commission on April 12, 2017.

CURRENCY

All dollar amounts set forth herein are expressed in Canadian dollars, unless otherwise indicated, and the symbol “$” or “CDN$” refers to the Canadian dollar and the symbol “US$” or “USD” refers to the U.S. dollar.

FORWARD-LOOKING STATEMENTS

This Information Circular contains certain information that may constitute forward-looking information within the meaning of applicable securities laws, which DAVIDsTEA refers to in this Information Circular as forward-looking statements. These statements reflect DAVIDsTEA’s current expectations related to future events or its future results, performance, achievements, business prospects or opportunities and products and services development, and future trends affecting the Company. All such statements other than statements of historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “would”, “should”, “believe”, “objective”, “ongoing” or the negative of these words or other variations or synonyms of these words or comparable terminology and similar expressions.

Forward-looking statements reflect current estimates, beliefs and assumptions, which are based on DAVIDsTEA’s perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. DAVIDsTEA’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. DAVIDsTEA can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

Many factors could cause our actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors, which are discussed in greater detail under the “Risk Factors” section in DAVIDsTEA’s annual report on Form 10‑K for the fiscal year ended January 28, 2017 (“Annual Report”): our ability to successfully implement our growth strategy; our ability to grow our brand recognition and store base in the United States; significant competition within our industry, changes in consumer preferences and economic conditions affecting disposable income; the effect of a decrease in customer traffic to the shopping malls, centers and street locations where our stores are located; the impact from real or perceived quality or safety issues with our teas, tea accessories and other tea-related merchandise; our ability to obtain quality products from third-party manufacturers and suppliers on a timely basis or in sufficient quantities; actual or attempted breaches of data security; and the impact of weather conditions, natural disasters and manmade disasters on the supply and price of tea.

There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those expressly or impliedly expected or estimated in such statements. Shareholders and investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur. Although the Company cautions that the foregoing list of significant risk factors, as well as those risk factors presented under the heading “Risk Factors” and elsewhere in the Annual Report, are not exhaustive, Shareholders and investors should carefully consider them and the uncertainties they represent and the risks they entail. The forward-looking statements contained in this Information Circular are expressly qualified by this cautionary statement. Unless otherwise indicated by the Company, forward-looking statements in this Information Circular describe DAVIDsTEA’s expectations as of April 11, 2017 and, accordingly, are subject to change after such date. The Company does not undertake to update or revise any forward-looking statements, except in accordance with applicable securities laws.

Additional information relating to DAVIDsTEA can be located under the Company’s profile on SEDAR awww.sedar.com or on the Securities and Exchange Commission’s (“SEC”) electronic data system called EDGAR at www.sec.gov.

VOTING INFORMATION AND GENERAL PROXY MATTERS

Solicitation of Proxies

The enclosed proxy is being solicited by the management of the Company and the expenses of this solicitation will be borne by the Company. The solicitation will be conducted primarily by mail but proxies may also be solicited personally by officers, employees or agents of the Company, without additional compensation. The Company shall directly deliver proxy documents to registered owners and non-registered owners of common shares of the Company which are non-objecting beneficial owners through the Company’s registrar and transfer agent, CST, and the Company shall bear the cost of such delivery. The Company will also reimburse brokers and other persons holding Common Shares on their behalf or on behalf of nominees for reasonable costs incurred in sending the proxy documents to non-registered owners who are objecting beneficial owners.

Record Date

The record date for determining those Shareholders entitled to receive notice and to vote at the Meeting is the close of business on April 12, 2017 (the “Record Date”). Only registered and non-registered owners of Common Shares as of the close of business on the Record Date are entitled to receive notice of and to vote at the Meeting. No person becoming a registered or non-registered owner after the Record Date shall be entitled to receive notice of the Meeting, nor can any registered or non-registered owner vote Common Shares they acquire after the Record Date at the Meeting. The failure of any Shareholder to receive notice of the Meeting does not deprive the Shareholder of the right to vote at the Meeting. As of the Record Date there were 25,455,510 Common Shares issued and outstanding.

Appointment of Proxyholders

The persons named as proxyholders in the enclosed form of proxy or voting instruction form, are Maurice Tousson, a director, or Joel Silver, a director and an officer of the Company. You are entitled to appoint a person, who need not be a Shareholder, other than the persons designated in the enclosed form of proxy, to represent you at the Meeting. If you are a registered or non-objecting beneficial owner, such right may be exercised by inserting in the blank space provided in the form of proxy or voting instruction form the name of the person to be designated or by completing another form of proxy or voting instruction form and, in either case, depositing the form of proxy or voting instruction form with the registrar and transfer agent of the Company, CST, located at 320, Bay Street, B1 Level, Toronto, Ontario, Canada, M5H 4A6, at any time before the proxy deadline, being 5:00 p.m. (Eastern Time) on June 6, 2017, or, in the event the Meeting is adjourned or postponed, then not less than 48 hours (excluding Saturdays, Sundays and holidays) before the adjourned meeting is reconvened or the postponed meeting is convened. Objecting beneficial owners should follow the instructions provided by their broker or agent and must return the form of proxy or voting instruction form as directed by their broker or agent sufficiently in advance of the proxy deadline to enable their broker or agent to act on it before the proxy deadline. The Company reserves the right to accept late proxies and to waive the proxy deadline with or without notice, but is under no obligation to accept or reject any particular late proxy.

Revocation of Proxies

A Shareholder who executes and returns the accompanying form of proxy may revoke the same (a) by instrument in writing executed by the Shareholder, or by his or her attorney authorized in writing, and deposited either: (i) at the principal executive offices of the Company, to the attention of Nathalie Rolland, the Corporate Secretary of the Company, 5430, Ferrier Street, Town of Mount-Royal, Québec, Canada, H4P 1M2, at any time up to and including the last business day preceding the day of the Meeting or any adjournment thereof at which the proxy is to be used, or (ii) with the chairman of the Meeting on the day of the Meeting or any adjournment thereof, or (b) in any other manner permitted by law. If the Shareholder is a Company, any such instrument of revocation must be executed by a duly authorized officer or attorney thereof.

Exercise of Voting Rights by Proxies

The persons named in the enclosed form of proxy will, on a show of hands or any ballot that may be called for, vote (or withhold from voting) the shares in respect of which they are appointed as proxies in accordance with the instructions of the Shareholders appointing them. If a Shareholder specifies a choice with respect to any matter to be acted upon, the shares will be voted accordingly. If no instructions are given, the shares will be voted FOR the election of the nominees of the Board of Directors of the Company (the “Board of Directors” or the “Board”) as directors,  FOR the

appointment of Ernst & Young LLP as auditors and FOR approving the reduction of the Company’s stated capital. The enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations to matters identified in the Notice of Meeting, and with respect to other business which may properly come before the Meeting or any adjournment thereof. As of the date hereof, management of the Company knows of no such amendment, variation or other business to come before the Meeting. If any such amendment or other business properly comes before the Meeting, or any adjournment thereof, the persons named in the enclosed form of proxy will vote on such matters in accordance with their best judgement.

Voting Process

The voting process is different depending on whether you are a registered or non-registered owner of Common Shares and, if you are a non-registered owner of Common Shares, whether you are a non-objecting beneficial owner or objecting beneficial owner. If you have Common Shares registered in your own name, you are a registered owner. If you do not hold Common Shares in your own name, you are a non-registered owner. If your Common Shares are listed in an account statement provided to you by a broker, then it is likely that those Common Shares will not be registered in your name, but under the broker’s name or under the name of an agent of the broker such as CDS Clearing and Depository Services Inc., the nominee for many Canadian brokerage firms, or its nominee.

There are two kinds of non-registered owners: (i) objecting beneficial owners, i.e., those who object to their name being made known to the issuers of shares which they own, and (ii) non-objecting beneficial owners, i.e., those who do not object to their name being made known to the issuers of the shares which they own. Non-objecting beneficial owners will receive a voting instruction form from the Company’s registrar and transfer agent, CST. This is to be completed and returned to CST in the envelope provided.

Securities regulation requires brokers or agents to seek voting instructions from objecting beneficial owners in advance of the Meeting. Objecting beneficial owners should be aware that brokers or agents can only vote Common Shares if instructed to do so by the objecting beneficial owner. Your broker or agent (or their agent, Broadridge Financial Solutions, Inc.) will have provided you with a voting instruction form or form of proxy for the purpose of obtaining your voting instructions. Every broker has its own mailing procedures and provides instructions for voting. You must follow those instructions carefully to ensure your Common Shares are voted at the Meeting.

If you are an objecting beneficial owner receiving a voting instruction form or proxy from a broker or agent, you cannot use that proxy to vote in person at the Meeting. To vote your Common Shares at the Meeting, the voting instruction form or proxy must be returned to the broker or agent well in advance of the Meeting, as instructed by the broker or agent. If you wish to attend and vote your Common Shares in person at the Meeting, follow the instructions for doing so provided by your broker or agent.

Voting in Person at the Meeting

Registered owners may attend and vote in person at the Meeting. Non-objecting beneficial owners wishing to attend and vote in person at the Meeting should insert their name in the space provided in the voting instruction form and deposit it with CST, at any time before the proxy deadline. Objecting beneficial owners wishing to attend and vote in person at the Meeting should follow the instructions provided by their broker or agent. If you are a Canadian resident objecting beneficial owner, you need only insert your name in the space provided for the proxyholder appointment in the voting instruction form or proxy form, and return it as instructed by your broker or agent and you should not complete the voting section of the proxy form or voting information form, as you will vote in person at the Meeting. If you are an objecting beneficial owner resident in the United States, you will likely be instructed to mark the appropriate box on the other side of the voting instruction form to request a legal proxy to be issued and mailed to you by your broker or agent, and you will need to send the voting instruction form to your broker or agent, receive the legal proxy from your broker or agent and deposit the legal proxy with CST prior to the deadline.

Interest of Certain Persons in Matters to be Acted Upon

No person who has been a director or an executive officer of the Company nor any proposed nominee for election as a director of the Company at any time since the beginning of its last completed financial year, or any associate or affiliate of any such director, officer or proposed nominee, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting, except as set forth in this Information Circular.

Voting Securities and Principal Holders Thereof

As at the Record Date, 25,455,510  Common Shares are issued and outstanding, being the only class of shares of the Company entitled to be voted at the Meeting. The Common Shares are the only securities of the share capital of the Company which carry voting rights. References to Common Shares, options and related information such as price per share made herein have been adjusted to reflect a one point six for one (1.6:1) stock split on the Common Shares effective as of May 21, 2015. Each Common Share entitles its holder to one vote with respect to the matters voted at the Meeting. Holders of Common Shares whose names are registered on the lists of Shareholders of the Company as at the Record Date will be entitled to exercise the voting rights attached to the Common Shares in respect of which they are so registered at the Meeting, or any adjournment thereof, if present or represented by proxy thereat. To the knowledge of the Board of Directors, the only persons who beneficially own, directly or indirectly, or exercise control or direction over, voting securities carrying 10% or more of the voting rights attached to any class of voting securities of the Company, as at the Record Date, are:

Note:

BUSINESS OF THE MEETING

The Meeting will be constituted as an annual and special meeting. The audited consolidated financial statements of the Company for the year ended January 28, 2017 and the auditor’s report thereon will be presented to the Shareholders at the Meeting, but no vote thereon or with respect thereto is required or proposed to be taken. Shareholders will be asked to consider and vote on:

A.          Presentation of the Financial Statements

As indicated above, the audited consolidated financial statements of the Company for the year ended January 28, 2017 and the auditor’s report thereon will be presented to the Shareholders at the Meeting, but no vote with respect thereto is required or proposed to be taken.

B.           Election of Directors

The articles of the Company (the “Articles”) provide that the Board shall consist of not less than three (3) and not more than fifteen (15) directors. Five (5) of the nominees are currently members of the Board and have been members since the dates indicated below. Messrs. Folliard and Salvaggio, current members of the Board, will not be standing for election. However, the Board is nominating Gary O’Connor and Tyler Gage,as a  new independent member of the Board. Shareholders may vote for each director individually. If prior to the Meeting, any of the nominees shall be unable or, for any reason, become unwilling to serve as a director, it is intended that the discretionary power granted by the form of proxy or voting instruction form shall be used to vote for any other person or persons as directors. Each director is elected to the Board for a one-year term ending at the next annual meeting of Shareholders or when his or her successor is elected, unless he or she resigns or his or her office otherwise becomes vacant.

Nominees

Management of the Company proposes to nominate the persons whose names are set forth below to act as directors of the Company. Except where authority to vote on the election of directors is withheld, the persons named in the accompanying form of proxy intend to vote IN FAVOUR of the election of each of the nominees whose names are hereinafter set forth. If prior to the Meeting, any of the nominees shall for any reason become unable or unwilling to serve as a director, it is intended that the discretionary power granted by the form of proxy shall be used to vote for any other person or persons identified by the Board to serve as directors, unless the Shareholder has specified in the form of proxy that his, her or its Common Shares are to be withheld from voting on the election of directors. The Board and management of the Company have no reason to believe that any of such nominees will be unable or unwilling to serve, for any reason, if elected to office.

The following tables provide information about the proposed nominees for election as directors as at April 11, 2017, including their name, age, place of residence, the year in which they first became directors, independence from the Company, their principal occupation, biography, committee memberships, memberships on boards of other public companies during the last five years (if applicable) and the number of Common Shares and other securities of the Company beneficially owned, or controlled or directed, directly or indirectly, by each director, the whole to the best of the knowledge of the Company based on publicly available information as at April 11, 2017, and the total market value of such securities as at such date. Certain information relating to the nominees being proposed as directors of the Company was not known to the Company and was furnished by each relevant nominee.

 

Securities Held

 

 

 

 

 

Securities Held

 

 

 

Securities Held

 

 

 

 

 

 

Securities Held

 

 

 

Securities Held

 

 

 

Securities Held

 

 

 

 

Securities Held

 

 

 

 

 

 

 

 

 

 

Securities Held

 

 

 

Securities Held

 

 

 

Securities Held

 

Notes:

Record of Attendance of Directors at Board Meetings

The following table sets forth the record of attendance of directors at meetings of the Board, the Company’s audit committee (“Audit Committee”), the Company’s Human resource and compensation committee (“HRCC”) and the Corporate Governance and Nominating Committee, during the year ended January 28, 2017.

Notes:

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

To the knowledge of the Company, none of the proposed directors of the Company is, or within 10 years before the date hereof, has been:

To the knowledge of the Company, none of the proposed directors of the Company have been subject to:

C.          Appointment of Auditor

At the Meeting, Shareholders will be asked to approve a resolution to appoint the auditor of the Company until the close of the next annual meeting of Shareholders or its successor is appointed, and to authorize the directors to fix its remuneration.

Ernst & Young LLP (“EY”) have served as the auditors of the Company since the Company’s fiscal year 2011. For the fiscal year ended January 28, 2017, in addition to retaining EY to report upon the annual consolidated financial statements of the Company, the Company also retained EY to provide various audit, audit-related, and non-audit services.

The aggregate fees billed by EY for the fiscal years ended January 28, 2017 and January 30, 2016 were as follows:

 

 

Notes:

All fees paid and payable by the Company to EY in the fiscal year ended January 28, 2017 were pre-approved by the Audit Committee pursuant to the procedures and policies set forth in the Audit Committee’s written charter (the “Charter of the Audit Committee”).

The Board, upon advice of the Audit Committee, unanimously recommends that Shareholders vote IN FAVOUR of the appointment of EY as auditor of the Company, to hold office until the close of the next annual meeting of Shareholders or its successor is appointed, and authorizing the directors to fix its remuneration. The appointment of EY must be approved by a majority of the votes cast on the matter at the Meeting.

If you appoint Maurice Tousson or Joel Silver as your proxyholder, your Common Shares will be voted in accordance with your instructions in the form of proxy or voting instruction form or, if no such instructions are given, such proxyholders will vote IN FAVOUR of the appointment of EY as auditor of the Company, to hold office until the close of the next annual meeting of Shareholders or its successor is appointed, and authorizing the directors to fix its remuneration.

D.          Reduction in Stated Capital

At the Meeting, the Company’s Shareholders will be asked to consider and , if thought appropriate, approve, with or without variation, the Stated Capital Reduction Resolution, whereby the stated capital of the Company’s Shares will be reduced to 155,947 without any distribution to the Company’s Shareholders.

Approval of the Stated Capital Reduction Resolution will have no adverse impact on the Company’s Shareholders and will not change the outstanding share capital  in any way.

To be effective, the Stated Capital Reduction Resolution must be approved by not less than 662/3 of the votes cast by the Company’s Shareholders present in person or represented by proxy at the Meeting. The Stated Capital is being reduced to reflect the non-cash loss in prior years attributed to the accretion of preferred shares and the loss on embedded derivatives on those preferred shares that was added to the cost of the preferred shares. The additional costs were subsequently transferred to Share Capital when the preferred shares were converted into common shares prior to the initial  public offering of the Company.

If you appoint Maurice Tousson or Joel Silver as your proxyholder, your Common Shares will be voted in accordance with your instructions in the form of proxy or voting instruction form or, if no such instructions are given, such proxyholders will vote IN FAVOUR of the Stated Capital Reduction Resolution.

STATEMENT OF EXECUTIVE COMPENSATION

Report of the HRCC on the Compensation of Executive Officers

The responsibility for determining the principles for compensation of executives and other key employees of the Company rests with the Board. The HRCC is a standing committee of the Board whose purpose is to discharge the Board from its responsibilities with respect to the compensation of the Company’s executive officers and directors. The HRCC is comprised of the following five (5) directors, all of whom of whom are independent from the Company with the exception of Mrs. Di Raddo and Mr. Salvaggio:

The written charter of the HRCC encompasses the following main components and is available for reference on the Company’s website at http://ir.davidstea.com.

The disclosure provided under this section of this Information Circular pertaining to these matters, is qualified in its entirety by reference to the full text thereof.

HRCC Members Qualifications and Skill

All members of the HRCC are qualified to sit on the committee and possess skills in human resources, succession planning and compensation which enable them to accomplish their duties with rigor and assertiveness. Their qualifications and skills were obtained among other things through their experience as follows :

Independent Compensation Consultants to the HRCC

The HRCC retained the services of PCI - Perrault Consulting (“PCI”) in 2014 to assist the committee with executive and other compensation matters. During the fiscal year ended January 28, 2017, PCI assisted the HRCC with a few mandates including the review of the compensation of Board members. Most of these mandates have required in camera discussion with the HRCC and its Chair, without the presence of management.

The table below presents the fees paid to PCI during the two most recent fiscal years:

PCI confirmed the fees paid by DAVIDsTEA are not of such magnitude as to compromise its independence from the Company.

Compensation, Discussion and Analysis

The following relates to the compensation of the named executive officers for the fiscal year ending January 28, 2017. The “Named Executive Officers”, being the President and Chief Executive Officer of the Company (“CEO”), its Chief Financial Officer (“CFO”), and the three most highly compensated executive officers of the Company, including any of its subsidiaries, who each earned total compensation that exceed $150,000 for the fiscal year ended January 28, 2017, are:

Each year, the HRCC reviews and determines the compensation of the Named Executive Officers.

Notes:

Compensation Philosophy and Overview of Components

The objectives of the compensation program are to attract, retain and motivate highly skilled executives, to reward them for their performance and contributions to the Company’s short- and long-term success, and to align the interests of our executive officers with those of the Shareholders. The compensation of each executive officer is determined based on a number of factors, including the executive officer’s qualifications and experience, role, responsibilities and contributions, as well as the market and our financial condition.

The compensation program includes incentive programs intended to align executive compensation with the Company’s performance, to motivate our executive officers to work toward the achievement of our short- and long-term corporate objectives, including strategic goals and increasing Shareholder value and, where appropriate, to reward superior performance. The named executive officers are also entitled to receive benefits and executive perquisites in accordance with the Company’s policies.

The compensation program aims at striking the right balance between fixed and variable compensation so as to keep the executives motivated to thrive in achieving the operating and financial goals, while promoting a prudent risk-taking culture.

Below are the main compensation components we use as well as the reasoning behind their utilization.

 

The table below illustrates the proportion of each compensation component comprising the total direct compensation of the named executive officers at target level.

 

Benchmarking

To ensure that its compensation programs are competitive, DAVIDsTEA conducts periodic benchmarking studies based on compensation data included in management proxy circulars and published surveys from known firms, with an objective that the target total direct compensation for the senior management team be positioned in line with the Company’s compensation philosophy and components detailed in the above section. The current compensation comparator group was developed from Canadian and American publicly-traded companies that either specialize in beverage and/or drinks, packaged foods or specialty retail outlets following analysis done by the Company’s independent compensation consultants. In choosing the companies, attention was also given to the size of revenues, EBITDA and market capitalization to ensure they were in a range comparable with DAVIDsTEA. Below is the list of the seventeen (17) organizations comprising the compensation comparator group:

 

Compensation Risk Oversight

The Board of Directors and the HRCC are very mindful of risks associated with the Company’s compensation policies and practices and take into account their implications when making compensation decisions. At this time, there have been no risks identified that are likely to have material adverse effects on the Company, its operations or finances.

In order to limit the chances of creating compensation policies that would encourage named executive officers to take excessive or inappropriate risks, the Board and the HRCC have adopted a number of practices and policies designed to safeguard the Company’s and its Shareholders’ interests.

The Use of an Independent Compensation Consultant

By having a consultant that is exclusively dedicated to the Board and the HRCC, the Company ensures that their decisions are validated by an independent whose mission is to guard the Company against compensation policies and practices that would encourage excessive risk-taking.

The Balance between Fixed and Variable Compensation

While it feels it is important to link a significant portion of the Named Executive Officers’ total direct compensation with the Company’s share price and financial results, we are also mindful that it doesn’t become an incentive to take excessive risk for them to be earned. As such, it is ensured that the fixed portion of compensation also represents a sufficient portion of the Named Executive Officers’ compensation program. The Company has also approved for fiscal 2016 a cap on the maximum amount payable under the annual incentive program at two times target level, which limits the upside from the plan at a reasonable level to motivate the executives, while remaining within the Company’s risk appetite framework.

The Choice of Performance Measures

The Company has made the conscious choice of using the same performance measures and objectives for all of the Named Executive Officers, which promotes a culture of collaboration and prioritizes efforts to achieve the desired results, while reducing the risks of an individual taking excessive risks for personal benefit. Using budgeted adjusted EBITDA as a performance criterion ensures that it is well known to the Shareholders, investors and employees what the Company’s management will be evaluated on and the related formulae. The Company also feels that adjusted EBITDA is a significant measure of the Company’s growth and is well understood by both employees and Shareholders and therefore represents a logical choice of performance measure for the annual incentive program.

The Executive Share Ownership Policy

Any nominee for election as a director at a Shareholders’ meeting for whom the number of votes withheld exceeds the number of votes in favour will be deemed not to have received the support of Shareholders and will immediately tender his or her resignation to the Board of Directors following the meeting. The Corporate Governance and Nominating Committee and the HRCC will consider the resignation and whether or not it should be accepted and will make a recommendation to the Board. The Board will then determine whether or not to accept the resignation within ninety (90) days following the applicable Shareholders’ meeting. Any director who will tender his or her resignation pursuant to this policy will not participate in the deliberations of the committee or the Board regarding the resignation. Save in exceptional circumstances, the resignation will be accepted by the Board. The resignation will be effective when accepted by the Board. This policy will only apply to uncontested elections, meaning elections where the number of nominees for director is equal to the number of directors to be elected as determined by the Board.

The Insider Trading Policy

The Company has adopted an insider trading policy that regulates the equity transactions of all of the employees but most notably of directors and officers. In addition to being only authorized to trade the Company’s securities during insider trading windows (which open the second full day after financial results are released each quarter to permit market adjustments), all of their transactions, must be pre-approved and cleared by the Corporate Secretary so as to avoid even the appearance of trading based on non-public information.

The Insider Trading Policy permits insiders from time to time to establish an automatic securities disposition plan (“ASDP”), pursuant to which an insider may sell securities of the Company through a third party plan administrator based on a set of pre-arranged instructions or to trade securities pursuant to a pre-arranged trading plan that complies with Rule 10b5‑1 under the United States Securities Exchange Act of 1934 (“10b5‑1 Plan”). ASDPs and 10b5‑1 Plans are designed to provide insiders who may, from time to time, possess material non-public information with the ability to buy or sell securities while availing themselves of an exemption from insider trading prohibitions and liability under the Securities Act (Québec) and U.S. securities laws. Any ASDP or 10b5‑1 Plan adopted by an insider of the Company must comply with all applicable Canadian or U.S. securities laws and regulations, and such other terms as set out in the Company’s policy as it may be amended from time to time. When an insider establishes an ASDP or 10b5‑1 Plan, he or she must represent to the Company that he or she is not in possession of any material non-public information and is not attempting to evade applicable securities laws.

On December 18, 2015, Mr. Luis Borgen entered into a 10b5‑1 Plan to sell Shares acquired through the exercise of stock options in compliance with the Insider Trading Policy of the Company. This Plan expired on July 22, 2016.

Hedging Prohibition

Hedging transactions can be accomplished through a variety of mechanisms including prepaid forward contracts, equity swaps and collars and other similar devices. Because hedging transactions permit the holder of the securities to continue to own them without the full risks and rewards of ownership, they can cause the interests us such person not to be aligned with the other Shareholders and therefore the employees, officers and director are prohibited from hedging any equity-based compensation or Company shares.

Elements of Compensation Program

The following presents in greater detail the Company’s compensation components and illustrates its application for the most recently completed financial year.

Base salaries

Base salaries of the Named Executive Officers are determined annually by the HRCC. When determining base salary each year, the HRCC takes the following factors into account: each executive’s experience and individual performance, the Company’s performance as a whole, cost of living adjustments and other industry conditions, but does not assign any specific weighting to any factor. As a guideline, the salary component of the compensation program aims to be positioned at the median of the comparator group.

For the fiscal year ended January 28, 2017, the HRCC approved base salary increases varying from 0% to 12% for the Named Executive Officers, for an average increase of 3.4%.

Notes:

Short-Term Incentive plan

The annual incentive program is a cash bonus intended to compensate officers for achieving short-term corporate goals. It is also intended to reward the Named Executive Officers for both the overall performance of the Company and individual performance during the year. The Company believes that establishing cash bonus opportunities is an important factor in both attracting and retaining the services of qualified and highly skilled executives. As DAVIDsTEA is an organization still in its early stages, it is important for the Company to roll-out its strategy and reap the benefits of its growth. As such, the HRCC determined that the most meaningful measure of successful growth was Adjusted EBITDA and reviews annually the weight attributed to each financial objectives. Therefore, for fiscal 2016, the formula attributed 75% to corporate Adjusted EBITDA and 25% to other profit-based financial objectives. Notwithstanding the above formula, the HRCC may, in its sole discretion, adjust the calculated payment, as much as to cancel payment altogether, should it determine that the calculated payment requires adjustment.

For the fiscal year ended January 28, 2017, the Company did not meet the annual incentive program targets. As such, no payment was made to the Named Executive Officers under the Short-Term Incentive Plan.

(expressed as a percentage of base salary)

 

Mid- and Long-Term Incentive Plans

In 2015, the Board and the shareholders of the Company adopted the 2015 Omnibus Equity Plan (the “2015 Omnibus Plan”) in connection with our IPO. Following its adoption by the Board on March 31, 2015, all equity and equity-based awards, including awards to the Named Executive Officers, are made under the 2015 Omnibus Plan.  Accordingly, the restricted stock unit and option awards made in Fiscal 2016 to executive officers were all made under the 2015 Omnibus

Plan. As our Common Shares are currently traded solely on the NASDAQ Global Market, the grant value and number of units awarded are determined based on the U.S dollar share price and are not subject to currency conversion.

Prior to the IPO, executive officers participated in the amended and restated equity incentive plan (the “Equity Plan”). Until March 31, 2015, the annual stock option grants were made under the Equity Plan. Since then, they are made under the 2015 Omnibus Plan.

The target award values for the Named Executive Officers are indicated in the table below. Actual fiscal 2016 awards can be found in the summary compensation table set out below. Under the 2015 Omnibus Plan, when calculating the number of stock options and/or restricted share units/performance share units granted based on the target award values, the Company does not convert for US-Canadian currency rates.

(expressed as a percentage of base salary)

 

Fiscal 2016 Stock Options

Stock option awards serve to align the interests of the Named Executive Officers with the interests of the Shareholders because no value is created unless the value of the Common Shares appreciates after the grant. Stock options also encourage retention through the use of time-based vesting, as vesting is generally subject to the executive’s continued employment. Stock options may also build share ownership among our Named Executive Officers if the executive retains the shares following exercise. Stock options are granted at an exercised price equal to the closing price of our Common Shares of the NASDAQ Global Market on the day of the grant. Stock options are generally granted with a seven-year term and vest in equal instalments over four years.  

Fiscal 2016 Restricted Stock Units

Restricted stock units serve to align the interests of the Named Executive Officers with the interests of the Shareholders as their value is tied to the price of our Common Shares.  Restricted stock units with a multi-year vesting schedule also promote employee retention and, therefore, are a valuable tool in assisting the Company roll out its strategy in the longer term. The number of units granted is calculated by dividing the value of the award by the closing price of a Share of our common stock on the NASDAQ Global Market. Restricted stock units generally vest as to 25% of the units on the first and second anniversaries and 50% of the units on the third anniversary. Restricted stock units may be settled, at the HRCC’s discretion, in Shares of our common stock, cash or in a combination of Shares and cash.  

Benefits

We provide modest benefits to the Named Executive Officers, which are limited to participation in the basic health and welfare plans. These benefits are available to all salaried employees of the Company.

Perquisites

All the Named Executive Officers are eligible to a discount on DAVIDsTEA products, which discount is offered to all of the regular employees. In addition, the Company pays annual professional association fees and provides life insurance to certain of our Named Executive Officers.

Retirement Plans

We do not maintain any qualified or non-qualified defined benefit plans or supplemental executive retirement plans that cover the Named Executive Officers. In addition, the executives do not participate in a defined contribution pension plan, a collective RRSP or a 401K in the United States, to which the Company contributes.

Compensation of the former President and Chief Executive Officer

On October 21, 2016, the Company announced that Mr. Sylvain Toutant would leave his position of President and Chief Executive Officer of the Company effective January 29, 2017. In connection with this departure, Mr. Toutant and the Company entered into a letter agreement dated October 20, 2016, describing the terms and conditions of his departure. Pursuant to this letter agreement, and in exchange for certain covenants from Mr. Toutant, including a release of claims, Mr. Toutant will continue to receive his salary for a period of 18 months following his departure as well as a cash performance bonus for the Company’s fiscal year 2016 at the level determined by the HRCC according to previously approved performance targets and to be paid in one payment. In addition, all of the unvested options held by Mr. Toutant accelerated effective January 29, 2017. The awards of options remain exercisable for a period of 180 days following the date of Mr. Toutant’s departure. The Company agreed to reimbursed out of pocket legal expenses up to CDN $ 10,000 incurred by Mr. Toutant  in connection with the letter agreement.

Compensation of the former Chief Merchandising and Marketing Officer

Effective January 19, 2017, Mrs. Isabelle Grisé ceased to work for the Company. In connection with her departure as the Chief Merchandising and Marketing Officer, the Company and Mrs. Grisé came to an agreement on the terms and conditions of her separation. Pursuant to this agreement, and in exchange for certain covenants from Mrs. Grisé, including a release of claims, Mrs. Grisé received a lump sum amount equal to seven and a half (7.5) months of her regular base salary plus twenty-five thousand dollars ($25,000), subject to reduction for all appropriate withholdings and deductions. All awards granted to Mrs. Grisé during her employment at the Company were treated in compliance with the Company’s 2015 Omnibus Plan, which is further detailed on page 21 of this Information Circular.

Summary Compensation Table

The following table illustrates the compensation paid to the Named Executive Officers for the last three completed fiscal years, as applicable. All compensation is disclosed in Canadian dollars. For employees who receive all or a portion of their compensation in U.S. dollars, unless otherwise indicated, an exchange rate of $1.3108 for 2016, $1.4074 for 2015 and $1.2716 for 2014 has been used to convert to Canadian dollars, which represents the exchange rate of the U.S. Federal Reserve Bank of New York at noon on the last day of each fiscal year, and which, in the Company’s opinion, is an appropriate reflection of exchange rates variation during the year.

 

Notes: