Annual information form
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120904825 v3 K-BRO LINEN INC. A NNUAL INFORMATION FORM MARCH 20, 2025 14903-137 Avenue, Edmonton, Alberta, Canada T5V 1R9 Phone 780.453.5218 | Fax 780.455.6676 www.k-brolinen.com | inquiries@k-brolinen.com
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2 120904825 v3 TABLE OF CONTENTS MEANING OF CERTAIN REFERENCES ................................................................................................................................................... 3 FORWARD LOOKING INFORMATION ..................................................................................................................................................... 3 CORPORATE STRUCTURE ........................................................................................................................................................................... 5 DESCRIPTION OF THE BUSINESS – CANADIAN OPERATIONS ................................................................................................... 8 DESCRIPTION OF THE BUSINESS – U.K. OPERATIONS ............................................................................................................... 13 DIRECTORS AND EXECUTIVE OFFICERS ........................................................................................................................................... 16 DESCRIPTION OF CAPITAL STRUCTURE ........................................................................................................................................... 18 MARKET FOR SECURITIES ....................................................................................................................................................................... 20 DIVIDEND INFORMATION ........................................................................................................................................................................ 21 AUDIT COMMITTEE INFORMATION .................................................................................................................................................... 23 RISK FACTORS ............................................................................................................................................................................................... 24 LEGAL PROCEEDINGS ................................................................................................................................................................................ 33 REGULATORY ACTIONS ............................................................................................................................................................................. 33 CONFLICTS OF INTEREST ........................................................................................................................................................................ 33 INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS .................................................................. 34 AUDITORS, TRANSFER AGENT AND REGISTRAR .......................................................................................................................... 34 MATERIAL CONTRACTS ............................................................................................................................................................................ 35 INTERESTS OF EXPERTS ........................................................................................................................................................................... 36 ADDITIONAL INFORMATION .................................................................................................................................................................. 36 APPENDIX A – AUDIT COMMITTEE CHARTER ............................................................................................................................. A-1
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3 120904825 v3 MEANING OF CERTAIN REFERENCES All references to "K-Bro", "the Corporation", "us", "our" or "we" in this Annual Information Form ("AIF") includes K-Bro Linen Inc. and its wholly owned subsidiaries, including the operations controlled and consolidated by them, unless otherwise indicated. All references to " Management" refer to directors and executive officers of the Corporation. Unless specifically stated otherwise, all dollar references are to Canadian dollars. A ll references to " fiscal 2024" refer to the 12-month period from January 1, 2024 to December 31, 20 24. All references to " fiscal 2023" refer to the 12-month period from January 1, 20 23 to December 31, 20 23. All references to " fiscal 2022" refer to the 12 - month period from January 1, 2022 to December 31, 2022. FORWARD LOOKING INFORMATION In the interest of providing shareholders of the Corporation ("Shareholders") with information regarding the future plans and operations of the Corporation , this AIF contains forward- looking information that represents internal expectations, estimates or beliefs concerning, among other things, future activities or future operating results of the Corporation and various components thereof. The use of any of the words " anticipate", "continue", "expect", "may", "will", "project", "should", "could", "intend", "plan", "believe", and similar expressions suggesting future outcomes or events are intended to identify forward-looking information. Forward-looking statements reflect Management’s current beliefs, and are based on information currently available to Management and on estimates and assumptions made by Management regarding, among other things, general economic and geopolitical conditions in Canada , the U.K., and globally, in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that are believed by Management to be appropriate and reasonable in the circumstances. However, forward-looking statements are not guarantees of future performance and there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, level of activity, performance , achievements, events, and developments in the future to differ materially from the forward- looking statements contained in or implied by this AIF and in K -Bro's 2024 annual management's discussion and analysis, which is incorporated by reference herein and is filed under the Corporation's profile on SEDAR+ at www.sedarplus.ca, including, among others, the following factors which are discussed in greater detail in the “Risk Factors” section of this AIF: i. K-Bro’s ability to maintain profitability and manage growth; ii. K-Bro’s ability to open new, cost-effective processing plants; iii. various geopolitical risks and global economic factors that may impact K-Bro; iv. K-Bro’s reliance on key personnel; v. increased competition in the industries and markets in which K-Bro competes; vi. increased fuel and energy costs; vii. goods, including textiles, which K-Bro imports; viii. concentration of K-Bro’s customers; ix. K-Bro’s dependence on the public sector for revenue; x. changes in laws or regulations to which K-Bro is subject; xi. environmental matters; xii. K-Bro’s employee relations and collective agreements; xiii. labour shortages and increased labour costs; xiv. catastrophic or unexpected events and public health emergencies; xv. K-Bro’s Credit Facility (as defined below) and debt service; xvi. K-Bro’s transaction processing systems; xvii. K-Bro’s information security systems; xviii. foreign exchange rates; xix. the seasonality of the hospitality industry; xx. Scottish independence; xxi. potential increases in minimum wage laws in Canada or the United Kingdom (“U.K.”); and
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4 120904825 v3 xxii. an investment in Common Shares (as defined below) and risks related thereto. Certain statements regarding forward-looking information included in this AIF may be considered "financial outlook" for purposes of applicable securities laws, and such financial outlook may not be appropriate for purposes other than this AIF. All forward-looking information in this AIF is qualified by these cautionary statements. Readers are cautioned not to place undue importance on forward-looking information. Forward-looking information in this AIF is presented only as of the date made and readers should not rely upon such information as of any other date. The Corporation uses forward looking statements because it believes such statements provide useful information with respect to the currently expected future operations and financial performance of the Corporat ion and cautions readers that the information may not be appropriate for other purposes. Except as required by law, the Corporation disclaims any intention or obligation to update or revise any forward- looking statements to reflect subsequent events or circumstances.
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5 120904825 v3 CORPORATE STRUCTURE K-Bro Linen Inc. (the "Corporation" or "K-Bro") was incorporated under the Business Corporations Act (Alberta) ("ABCA") on November 20, 2010. The Corporation succeeded K-Bro Linen Income Fund following the completion of its conversion on January 1, 2011 from an income trust to a corporation pursuant to a court -approved plan of arrangement under the ABCA (the "Conversion"). K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. K -Bro and its wholly owned subsidiaries operate across Canada and the U.K. and provide a range of linen services to healthcare institutions, hotels and other commercial accounts that include the processing, management and distribution of general linen and operating room linen. The Corporation 's operations in Canada include eleven processing facilities and two distribution centres. The Corporation operates in ten Canadian cities: Québec City, Montréal, Toronto, Regina, Saskatoon, Prince Albert, Edmonton, Calgary, Vancouver and Victoria. The Corporation's operations in the U.K. include Fishers Topco Ltd. ( "Fishers"), which was acquired by a wholly owned subsidiary of K-Bro on November 27, 2017 , and Shortridge Ltd. (“Shortridge”), which was acquired by a wholly owned subsidiary of K-Bro on April 30, 2024. Fishers, established in 1900, is a leading commercial laundry business in Scotlan d and the North East of England. Fishers operates laundry and linen pro cessing facilities in Scotland and provides linen rental, workwear hire and cleanroom garment services to the hospitality, healthcare, manufacturing and pharmaceutical sectors. Fishers operates five facilities in Scotland and the North East of England which are located in Cupar, Perth, Newcastle, Livingston, and Coatbridge. Shortridge, based in Cumbria, was established in 1845 and specializes in providing high quality laundry services to local independent hospitality businesses, including hotels, bed and breakfasts , self -catering units and restaurants. Shortridge operates two facilities in Lillyhall and Dumfries with a depot in Darlington. The Corporation is a reporting issuer in all of the provinces and territories of Canada. The registered and head office of the Corporation is located at # 14903-137 Avenue, Edmonton, Alberta, T5V 1 R9 and its head office telephone number is 780.453.5218.
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6 120904825 v3 Intercorporate Relationships The following organization al chart sets forth the relationships between the Corporation and its material subsidiaries, as well as their respective jur isdictions of incorporation or formation and K -Bro's ownership stake as at January 1, 2025:
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7 120904825 v3 GENERAL DEVELOPMENT OF THE BUSINESS History K-Bro was founded in the early 1950s as an Edmonton-based cloth diaper laundering company. Since then, K-Bro has grown organically, through acquisitions, and by entry into new markets. K -Bro's expansion beyond its roots began in the 1980s, when the Corporation moved into the healthcare and hospitality segments of the laundry and linen services industry in both Edmonton and Toronto . As of March 20, 2025, K-Bro operates eleven laundry and linen processing facilities and two distribution cent res in ten cities across Canada , and eight facilities and one distribution centre across Scotland and the North of England, employing approximately 2,400 and 840 employees, respectively. Recent milestones in K-Bro's development have included: - 2023 (March) – completed the acquisition of Para -Net Buanderie et Nettoyage à sec Inc. , a private healthcare and hospitality linen-focused processor located in Quebec City, QC. - 2023 (November) – completed the acquisition of Buanderie Villeray Limitee and Buanderie La Relance Inc., a private healthcare and hospitality linen-focused processor located in Montreal, QC. - 2024 (April) – completed the acquisition of Shortridge Ltd., a private hospitality linen-focused processor located in Cumbria, England. - 2024 (June) – completed the acquisition of Buanderie C.M. Inc., a private healthcare linen -focused processor located in Montreal, QC. Recent Acquisitions Para-Net Buanderie et Nettoyage a sec Inc. On March 1, 2023 , K -Bro acquired all of the outstanding shares of Para -Net Buanderie et Nettoyage a sec Inc. (“Paranet”), a Quebec -based laundry and linen services company (the “Paranet Acquisition”). Paranet was a private company incorporated in the province of Quebec. The total fair market value of the consideration paid by K-Bro in connection with the Paranet Acquisition as of the closing was $12.2 million, less a working capital adjustment of $0.2 million (the “Paranet Purchase Price”). The Paranet Purchase Price comprised a cash payment of $8.0 million (net of the $0.2 million working capital adjustment) plus the repayment of Paranet’s outstanding debt facilities in the amount of $4.0 million. Buanderie Villeray Limitee and Buanderie La Relance Inc. On November 1, 2023, K-Bro acquired all of the outstanding shares of Buanderie Villeray Limitee and Buanderie La Relance Inc. (“ Villeray”), a Montreal -based laundry and linen services company (the “ Villeray Acquisition”). Villeray was a private company incorporated in the province of Quebec. The total fair market value of the consideration paid by K-Bro in connection with the Villeray Acquisition as of the closing was $ 11.5 million, plus a working capital adjustment of $0. 3 million (the “ Villeray Purchase Price”). The Villeray Purchase Price comprised a cash payment of $ 11.6 million (net of the $0. 3 million working capital adjustment) plus the repayment of Villeray’s outstanding debt facilities in the amount of $0.2 million. Shortridge Ltd. On April 30, 2024, K-Bro acquired all of the outstanding shares of Shortridge Ltd., a Cumbria -based laundry and linen services company (the “Shortridge Acquisition”). Shortridge is a private company incorporated in England.
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8 120904825 v3 The total fair market value of the consideration paid by K -Bro in connection with the Shortridge Acquisition as of the closing was $47.1 ( £27.6) million, plus a working capital adjustment of $0.4 ( £0.3) million (the “ Shortridge Purchase Price”). The Shortridge Purchase Price comprised a cash payment of $47.6 (£27.9) million (net of the $0.4 (£0.3) million working capital adjustment). Buanderie C.M. Inc. On June 20, 2024 K-Bro acquired all of the outstanding shares of Buanderie C.M. Inc. (“ CM”), a Montreal- based laundry and linen services company (the “CM Acquisition”). CM is a private company incorporated in Canada. The total fair market value of the consideration paid by K -Bro in connection with the CM Acquisition as of the closing was $ 12.0 million, plus a working capital adjustment of $0. 2 million (the “ CM Purchase Price”). The CM Purchase Price comprised a cash payment of $ 10.9 million (net of the $0. 2 million working capital adjustment) plus the repayment of CM’s outstanding debt facilities in the amount of $0.9 million. Normal Course Issuer Bid On May 15, 202 3, K-Bro announced its normal course issuer bid to purchase for cancellation up to 881,481 common shares of K-Bro (“Common Shares”) (representing approximately 10% of the public float of the Common Shares as at the close of markets on May 9, 2023) during the 12-month period from May 18, 2023 to May 17, 2024 (the “2023-2024 NCIB”). On May 16, 2024, K-Bro announced the renewal of its normal course issuer bid to purchase for cancellation up to 754,247 Common Shares (representing approximately 10% of the public float of the C ommon Shares as at the close of markets on May 7, 2024) during the 12 -month period from May 21, 2024 to May 20, 2025 (the “ 2024- 2025 NCIB”). K-Bro purchased for cancellation a total of 251,528 C ommon Shares under the 2023 -2024 NCIB, at a weighted average price of $32.94 per Common Share, for a total cash consideration of $8.3 million and, as at March 20, 2025, K-Bro purchased for cancellation a total of 61,148 C ommon Shares under the 2024 -2025 NCIB, at a weighted average price of $35.34 per C ommon Share, for a total cash consideration of $2.2 million . See “Description of Capital Structure – Normal Course Issuer Bid”. DESCRIPTION OF THE BUSINESS – CANADIAN OPERATIONS Overview K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. The Corporation provides a range of services to large healthcare institutions, hotels and other commercial accounts. These services include the processing, management and distribution of linen, including sheets, blankets, towels, operating room linen and a variety of other types of linen. K-Bro's contracts with its Canadian healthcare customers typically range from five to ten years. K-Bro's contracts in the Canadian hospitality sector typically range from two to five years. Industry and Market K-Bro provides laundry an d linen services primarily to the healthcare and hospitality sectors. Typical services offered by K -Bro include the processing, management and distribution of general and operating room linens, including sheets, blankets, towels, tablecloths, surgical gowns , drapes and other linen. Other types of processors in K-Bro's industry in Canada include independent /privately owned facilities (i.e., typically, small single facility companies), public sector central laundries and public and private sector on -premise l aundries ( "OPLs"). Participants in other segments of the laundry and linen services industry, such as uniform rental companies (which own and launder uniforms worn by their customers ' employees) and facilities management companies (which
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9 120904825 v3 manage public sector central laundries and OPLs), typically do not offer services that significantly overlap with those offered by K-Bro. While recognized industry statistics are not available, M anagement estimates that the size of the market for services offered by K -Bro to the healthcare and hospitality segments of the Canadian laundry and linen services industry is between $550 million and $725 million, including between $450 and $550 million of revenue derived from the healthcare segment and between $100 and $175 million derived from the hospitality segment. Management believes that the healthcare and hospitality segments of the laund ry and linen services industry represent a stable base of annual recurring business with opportunities for growth as additional healthcare beds and funds are made available to meet the needs of an aging Canadian population. Linen processing requirements in the hospitality segment are, to a significant extent, related to the number of hotel rooms and associated hotel room occupancy rates. The number of hotel rooms across Canada and the associated occupancy rates in Canada decreased as a result of the COVID -19 pandemic, but have since stabilized and are expected to return to pre-pandemic levels in the coming years. Industry Characteristics and Trends Management believes that the healthcare and hospitality segments of Canada' s linen services industry exhibit the following primary characteristics and trends. Stable Industry with Moderate Cyclicality The linen processing requirements of healthcare and hospitality institutions are generally stable as the number of approved hospital beds in the healthcare system and number of hotel rooms remain fairly consistent. A characteristic of the industry is that service relationships are typically formalized through contracts, ranging up to ten years in the healthcare segment and from two to five years in the hospitality segment. In general, customer turnover rates are low. The healthcare segment of the laundry and linen services industry in Canada exhibits moderate seasonality as usage falls during holiday seasons. Linen processing volumes in the hospitality segment exhibit more seasonality compared with the healthcare segment as usage typically increases in the summer months. Outsourcing and Privatization Healthcare institutions in many large Canadian cities currently process all or a portion of their linens through public sector central laundries or OPLs located within public sector facilities. Management believes that there are often advantages to healthcare institutions in outsourcing the processing of healthcare linen to private sector laundry companies such as K -Bro. Management believes that larger pr ivate sector companies such as K -Bro that have economies of scale and significant management expertise c an provide laundry and linen services on a more comprehensive and cost-effective basis than customers can achieve through operating their own laundry facilities. In recent years, healthcare institutions in Vancouver, Calgary, Edmonton , Saskatchewan and, to a lesser extent, Southern Ontario have elected to outsource their linen processing requirements. As the largest provider of laundry and linen services to healthcare and hospitality customers in Canada, K -Bro believes that it is well- positioned to capitalize on any further outsourcing of volume. Fragmentation Most Canadian cities have at least one and sometimes several private sector competitors operating in the healthcare and hospitality segments of the laundry and linen services industry. Management is monitoring the impact of its Canadian competitors and new initiatives undertaken by such competitors in order to respond as appropriate. Presently, the Corporation competes with its competitors by providing exceptional customer service at competitive prices.
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10 120904825 v3 Management believes that the presence of these operators provides acquisition and consolidation opportunities for larger industry participants with the financial means to complete acquisitions , such as K-Bro. Customers and Sectors K-Bro's customers include some of the largest healthcare and hospitality institutions in Canada. K-Bro's healthcare customers include hospitals and long-term care facilities. Healthcare customers typically generate approximately 500,000 pounds of linen per year for a hospital and up to 80 million pounds of linen per year for a healthcare region. K-Bro's larger hospitality customers have historically generated between 500,000 and three million pounds of linen per year. For the year ended December 31, 2024, the relative revenue contributions from K-Bro's healthcare and hospitality customers were approximately 52% and 48%, respectively, on a consolidated basis. Operations As part of the provision of laundry and linen services, K -Bro has invested in linen, carts and equipment. These significant investments enable K-Bro to maintain a high level of service over long periods of time for its customers from its highly automated and efficient plants. The following paragraphs describe the various steps involved in the processing of linen for K-Bro's healthcare and hospitality customers. Linen Purchases and Linen Management K-Bro is typically responsible for purchasing linen for its healthcare customers, while its hospitality customers generally own and purchase their own linen. Each healthcare contract specifies the amount of linen that K -Bro must purchase at the commencemen t of the contract term. K -Bro is required to replace linen on a monthly basis during the life of the contract and the typical healthcare contract provides for a specified reimbursement to be paid to K -Bro for such expenditures . Linen is readily available f rom numerous domestic and foreign sources at pricing that is reflective of a competitive global market for textile sales as well as the commodity prices of inputs , such as cotton . Historically, K -Bro has not been required to replace linen at a cost to K -Bro in excess of the maximum reimbursable amounts . Linen, on average over all different types, has a two-to-three year life cycle . Management believes that owning healthcare linen gives it greater control over linen quality and quantity, which is important b oth for customer satisfaction and K -Bro's operating processes (i.e., poor quality linen draws customer complaints and is more difficult to process ). Most of K -Bro's customer contracts include penalty provisions for shortfalls in linen shipments and for linen that does not meet well -defined and measurable quality standards. K-Bro has entered into fixed price linen supply contracts for three-year terms in an effort to limit its exposure to increases in cotton pricing. The majority of K-Bro's processed volume of linen is for healthcare authorities or health systems, such as Alberta Health Services, Fraser Health Authority , Vancouver Coastal Health Authority and 3sHealth, which represent a number of different institutions. In these cases, K-Bro consolidates and standardizes (or "pools") linen, purchasing and processing the same pool of linen for all customers using a common stock of linen. This provides significant operating benefits to K-Bro, as it eliminates the need to manage each i nstitution's volume separately and reduces costs for the associated health authority. Linen Processing K-Bro's employees or its customers collect the soiled linen in designated soiled linen collection containers, known as "tubs", or in clean linen exchange carts . The soiled linen s are transported using K -Bro's delivery fleet that includes mid- size trucks and tra ctor trailers. In Vancouver, Alberta, Saskatchewan, Toronto and Quebec , K-Bro outsources portions of its deliveries by utilizing third party delivery companies. Once collected, the soiled linen is delivered to K-Bro's facilities to be unloaded and staged on the washfloor for processing. The majority of K-Bro's laundry is processed in tunnel washers. Tunnel washers are generally more efficient than smaller industrial washers, which reduces the Corporation 's natural gas, electricity and water consumption and
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11 120904825 v3 labour costs. After the washing and water extraction processes are completed, linen is automatically transported into the dryers. Once the drying process is completed, linen is discharged and automatically conveyed to the finishing department for ironing and dryfold. An y linen that requires ironing is processed by advanced ironers that employ automated feeders and folders to ensure high quality and productivity. Product that does not require ironing (i.e., terry towels) is processed in the dryfold department through automated folding equipment or "small piece folders". Following laundering and processing, fully loaded exchange carts are placed onto delivery vehicles for return to the healthcare facility. The full exchange carts are delivered to the end -user department and the return linen is either removed from the cart or is sent back to the K-Bro plant for refilling. Tubs and carts used in this process are owned by K-Bro at each of its facilities, other than in Edmonton where only certain assets are owned. Management and Labour Force K-Bro's general managers have been in the industry for up to 30+ years. K-Bro's organizational structure has been developed to enable the general managers of its plants to focus on growth and operations in their individual markets, while enabling aggressive business development and tight management controls through K-Bro's separate corporate team. K-Bro's Chief Executive Officer has been with the Corporation for twenty-seven years and has served in this capacity for the past twenty-four years. As of the date hereof, K-Bro employs approximately 2,400 people, approximately 2,200 of whom are employed on an hourly basis, with the balance being salaried plant and corporate personnel. K -Bro's Toronto plant employees are covered by collective bargaining agreements with the United Food and Commercial Workers union ( the "UFCW"), which represents approximately 200 employees. The UFCW collective bargaining agreement in Toronto expires on June 30, 2028 . K-Bro's original Québec City plant employees are covered by collective bargaining agreements with the UFCW, which represents approximately 55 employees and expires on December 31, 2025 . K-Bro’s second Quebec City plant employees are covered by a collective bargaining agreement with t he United Steelworkers, which represents approximately 70 employees and expires on October 31, 2025 . K-Bro's original Vancouver plant has approximately 390 employees who are covered by a collective agreement with Teamsters Canada which expires on December 31, 2025 . K-Bro's Regina facility has approximately 205 employees who are covered by a collective agreement with the UFCW which expired in March 20 24 and for which negotiations are ongoing. The Edmonton, Calgary, Victoria, Montréal and second Vancouver plant employees are not unionized. Utility Cost Management As a significant portion of K -Bro’s cost structure relates to the consumption of natural gas and electricity, K-Bro has entered into fixed price natural gas and electricity contracts , which have between one and two years remaining, with fixed terms to fix the price on a portion of its natural gas and electricity requirements over this time period. As of December 31, 2024 approximately 45% and 20% of K-Bro's annual natural gas and electricity requirements respectively for the Canadian division are fixed. Upon expiration of these contracts, K-Bro will be subject to prevailing market rates . K-Bro reviews its natural gas and electricity requirements and the related forward pricing regularly to determine if it is feasible and desirable to lock in additional volumes or years. Intellectual Property Management believes that several of the trademarks, names and logos (collectively, the "identities") owned by K - Bro enjoy significant brand recognition and market awareness throughout the Canadian laundry and linen industry. As a result, K-Bro takes an active approach to protecting its identities. K-Bro has registered trademarks for several of its owned and licensed brand names, logos and designs, including, but not limited to, the name, design and logo for each of "K -Bro", "K -Bro Linen Systems" and "KOR Services" , as well as the identities of its locally branded operations in Québec. K-Bro also owns certain other non-core identities, and periodically assesses its use of these identities.
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12 120904825 v3 Changes to Contracts There were no changes to any material contracts during the year ended December, 31, 202 4. Environmental Protection K-Bro does not use toxic materials or produce hazardous waste in its laundry facilities. All wastewater is discharged through the municipal sewer system in compliance with applicable environmental laws and regulations and is regularly tested by the relevant authorities to ensure compliance with local by-laws. Compliance with environmental laws and regulations has not and is not expected to give rise, in the aggregate, to any material adverse financial or operational effects upon K -Bro's business. Also, such compliance has not and is not expected to affect K-Bro's competitive position. Environmental laws and regulations and their interpretation, however, have changed rapidly over the years and may continue to do so in the future .
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13 120904825 v3 DESCRIPTION OF THE BUSINESS – U.K. OPERATIONS Overview K-Bro's operations in the U.K. include Fishers and Shortridge (collectively, the “U.K. Subsidiaries”). Fishers, established in 1900, is a leading commercial laundry business in Scotland and the North East of England. Fishers operates laundry and linen processing facilities in Scotland and provides linen rental, workwear hire and cleanroom garment services to the hospitality, healthcare, manufacturing and pharmaceutical sectors. Fishers ' client base includes major hotel chains and prestigious venues across S cotland and the North East of England. Fishers operates five facilities in Scotland and the North East of England which are located in Cupar, Perth, Newcastle, Livingston, and Coatbridge. Shortridge, based in Cumbria and servicing the North West of England, was established in the 1900s and specializes in providing high quality laundry services to local independent hospitality businesses, including hotels, bed and breakfasts, self-catering units and restaurants. Shortridge operates two facilities in Lillyhall and Dumfries with a depot in Darlington. Industry and Market The U.K. Subsidiaries provide laundry and linen services to hospitality, healthcare, and other commercial customers. Typical services offered include the processing, management and distribution of general linen, workwear and clean room garment services. Other types of processo rs in the U.K. include private and public facilities, independent privately -owned facilities (i.e., typically, small single facility companies), public sector central laundries and public and private sector OPLs. The U.K. trade association for industrial laundries, the Textile Services Association, estimates the total U.K. market for textile rental and laundry services to be £ 1.6bn. This is inclusive of hospitality, healthcare, workwear, and cleanroom. Based on geographical density, management estimates the market size for textile rental and laundry services in Scotland and the North of England to be £352m. Linen processing requirements in the hospitality segment are, to a significant extent, related to the number of hotel rooms and associated hotel room occupancy rates. Industry Characteristics and Trends Management believes that the healthcare and hospitality segments of the U.K.'s linen services industry exhibit the following primary characteristics and trends. Stable Industry with Moderate Cyclicality The linen processing requirements of healthcare and hospitality institutions are generally stable as the number of approved hospital beds in the healthcare system and hotel rooms remains con sistent. The h ospitality sector outlook is positive, and volumes have almost recovered to pre-pandemic levels. In addition, a characteristic of the industry is that service relationships are typically formalized through contracts, ranging from to two to five years in the hospitality segment. Customer retention rates continue to be stable, however retention is dependent on providing high quality and dependable service at competitive rates. Fragmentation Most cities in the U.K. have at least one and sometimes several private sector competitors operating in the healthcare and hospitality segments of the laundry and linen services industry. Management is monitoring the impact of its U.K. competitors and new initiatives undertaken by such competitors in order to respond as appropriate. Presently, the U.K. S ubsidiaries compete with their competitors by providing exceptional customer service at competitive prices.
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14 120904825 v3 Customers The U.K. Subsidiaries’ customers include some of the major hotel chains operating in Scotland and the North of England. Fishers’ largest hospitality customers, many of whom maintain over 200 rooms, have historically each generated between 700,000 and 1.2 million pounds of linen per year. Shortridge's largest hospitality customers , mainly independent hotels, spas and self -catering accommodation, have historically generated between 150,000 and 300,000 pounds of linen per year. The U.K. Subsidiaries’ ten largest customers collectively account for approximately 31% of consolidated U .K. revenue, the largest of which accounts for approximately 5% of the consolidated U .K. total fiscal 2024 revenue. Loss of revenue from these customers could have a significant effect on K-Bro. See also "Description of the Business – U.K. Operations – Changes to Contracts" and "Risk Factors". Operations As part of the provision of laundry and linen services, the U .K. Subsidiaries have invested in linen, carts and equipment. These significant investments enable the U.K. Subsidiaries to maintain a high level of service over long periods of time for its customers from its highly automated and efficient plants. The following section describes the various steps involved in the processing of linen for the U.K. Subsidiaries’ healthcare and hospitality customers. Linen Purchases and Linen Management The U .K. Subsidiaries are typically responsible for purchasing linen for their customers. They are required to supply linen to satisfy quotas and to replace linen during the life of the contract. Linen is readily available from numerous domestic and foreign sources at pricing that is reflective of a competitive global market for textile sales as well as the commodity prices of inputs, such as cotton . Linen, on average over all different types, has a two-to- three year life cycle. Management believes that own ing the linen gives it greater control over linen quality and quantity, which is important both for customer satisfaction and operating processes (i.e., poor quality linen draws customer complaints and is more difficult to process). Linen Processing The U.K. Subsidiaries’ employees or their customers collect the soiled linen from customer sites and transport it using the U .K. Subsidiaries’ delivery fleet . Once collected, the soiled linen is delivered to the U .K. Subsidiaries’ facilities to be unloaded and staged on the washfloor for processing. The majority of the U.K. Subsidiaries’ laundry is processed in tunnel washers. Tunnel washers are generally more efficient than smaller industrial washers, which reduces natural gas, electricity and water consumption and labour costs. After the washing and water extraction processes are completed, linen is automatically transported into the dryers. Once the drying process is completed, linen is discharged and conveyed to the finishing department for ironing and dryfold. Any linen requiring ironing is processed by advanced ironers that employ automated feeders and folders to ensure high quality and productivity . Product that does not require ironing (i.e., terry towels) is processed in the dryfold department through automated folding equipment or " small piece folders". Following laundering and p rocessing, fully loaded carts are placed onto delivery vehicles for return to the hospitality facility. Management and Labour Force The U.K. Subsidiaries’ Managing Director has been in the laundry industry for 40 years and has been with Fishers for 25 years, serving as its CEO since 2014. The U .K. Subsidiaries employ a team of seven experienced operations managers, directly leading their local site management teams. As of the date hereof, the U .K. Subsidiaries employ approximately 840 people, approximately 700 of whom are employed on an hourly basis , with the balance being salaried plant employees. Certain of the U .K. Subsidiaries’
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15 120904825 v3 plant employees are covered by a collective bargaining agreement with the GMB union, which represents approximately 25 employees and has an indefinite term. The balance of the U .K. Subsidiaries’ workforce is not unionized. Utility Cost Management As a significant portion of the U.K . Subsidiaries’ cost structure relates to the consumption of natural gas and electricity, the U.K. Subsidiaries have entered into fixed price natural gas and electricity contracts , which have between six and twenty -four months remaining, with fixed terms to fix the price of its electrical and natural gas requirements over this time period. As of December 31, 2024, nearly all of the annual natural gas requirements of the U.K. Subsidiaries are fixed. Upon expiration of these contracts, the U.K. Subsidiaries will be subject to prevailing market rates. K-Bro reviews its natural gas and electricity requirements and the related forward pricing regularly to determine if it is feasible and desirable to lock in additional volumes or years. Intellectual Property Management believes that several of the identities owned by K-Bro enjoy significant brand recognition and market awareness throughout the U.K. laundry and linen industry. As a result, K-Bro takes an active approach to protecting its identities. K -Bro has registered trademarks for several of its owned and licensed brand names, logos and designs, including the name, design and logo for "Fishers" and "Shortridge". Changes to Contracts During fiscal 202 4, the U .K. Subsidiaries renewed or extended contracts with five of its top ten customers. Contracts with two of the U.K. Subsidiaries’ top ten customers are due to be renewed or extended in 2025. Environmental Protection The U .K. Subsidiaries do not use toxic materials or produce hazardous waste in their laundry facilities. All wastewater is discharged through the municipal sewer system in compliance with applicable environmental laws and regulations and is regularly tested by the relevant authorities to ensure compliance with local by -laws. Compliance with environmental laws and regulatio ns has not and is not expected to give rise, in the aggregate, to any material adverse financial or operational effects upon the U .K. Subsidiaries' business. Also, such compliance has not and is not expected to affect the U .K. Subsidiaries' competitive pos ition. Environmental laws and regulations and their interpretation, however, have changed rapidly over the years and may continue to do so in the future.
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16 120904825 v3 DIRECTORS AND EXECUTIVE OFFICERS As at March 20, 2025, the directors and executive officers of the Corporation as a group held, directly or indirectly, in the aggregate, 477,148 Common Shares , representing approximately 4.5% of the issued and outstanding Common Shares. Directors The following table sets out the Corporation 's directors as at March 20, 202 5, their respective municipalities of residence, position(s) with the Corporation , and their principal occupations for at least the last five years. Each director shall hold office until the next annual meeting of the Shareholders or until such person 's successor is appointed or elected. Executive Officers The following table sets out the Corporation 's executive officers as at March 20, 202 5, their respective municipalities of residence and their principal occupations for at least the last five years : Name and Municipality of Residence Position with the Corporation Principal Occupation Director Since Michael B. Percy1,2 Edmonton, Alberta Board Chair Dean, emeritus Alberta School of Business for the University of Alberta June 2015 Matthew B. Hills 1,2 Boston, Massachusetts Director Corporate Director December 2004 Steven E. Matyas1,2 Toronto, Ontario Director Corporate Director December 2004 Elise Rees 1,2 Vancouver, B.C. Director & Chair of Audit Committee Corporate Director June 2021 Linda J. McCurdy Toronto, Ontario Director, President & Chief Executive Officer President & Chief Executive Officer, K-Bro Linen Systems Inc. December 2004 1 Member of the Audit Committee 2 Member of the Compensation, Nominating and Corporate Governance Committee Name and Municipality of Residence Positions Held From To Linda J. McCurdy Toronto, Ontario President & Chief Executive Officer K-Bro Linen Systems Inc. 2000 Present Sean P. Curtis St. Albert, Alberta Senior Vice-President & Chief Operating Officer K-Bro Linen Systems Inc. 1999 Present Kristie L. Plaquin St. Albert, Alberta Chief Financial Officer K-Bro Linen Systems Inc. 2014 Present
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17 120904825 v3 Biographies Set forth below is a description of the background of the d irectors and executive officers of the Corporation. Each of the directors and executive officers of the Corporation has been engaged for more than five years in his or her present principal occupation or in other capacities with K-Bro, except as set forth below. Michael Percy, Board Chair, Director. Mr. Percy most recently served as the Chief of Staff to Premier Jim Prentice of Alberta. Prior to this, Dr. Percy was a Professor of Strategic Management at the Alberta School of Business at the University of Alberta and served as Dean at the Alberta School of Business for three consecutive terms . Mr. Percy received a BA (Honours) from the University of Victoria, and an MA (Economics) and a PhD (Economics) from Queen's University . Mr. Percy previously served as a direct or for ATB Financial, Epcor Utilities Inc., Matrikon, Sawridge, and Timber Holdings . He also served as academic director of the Institute of Corporate Directors program offered at the University of Alberta from 2011 to 2015 and 2016 to 2018. Matthew Hills, Director. Mr. Hills was a Managing Director of LLM Capital Partners, a private equity firm, through 2019. He was previously the senior partner at BG Affiliates, the private equity group that acquired the Corporation in 1997. Mr. Hills has also held positions at Signature Capital, LEK Partnership, Drexel Burnham Lambert and Bain & Company. He received an MBA from Harvard Business School and a BA (Economics and Politics) from Brandeis University. Mr. Hills previously served as a director of CareRx Corp. (TSX-listed) from June 2019 to June 2023. Steven Matyas, Director . Mr. Matyas most recently served as the Chief Executive Officer for Staples Retail Inc., where he has held several positions of increased responsibility since 1991. Mr. Matyas previously served as Executive Vice -President and Chief Operating Officer at Flertom Investments Inc., a chain of card, gift, and stationary stores. He held the same position at SuperPharm Ltd., a chain of franchised pharmacies. Mr. Matyas is a director of Kal Tire and INEO Technologies (TSX-listed). Mr. Matyas received a BSc (Genetics) from the University of Toronto. Elise Rees, Director & Audit Committee Chair. Ms. Rees has over 36 years of experience in public accounting and is an experienced corporate director. Ms. Rees spent 18 years as a partner with Ernst & Young LLP with 14 of these years focused on acquisitions, mergers and corporate restructuring. Ms. Rees has also been the global client - coordinating partner for services to the BC Credit Union industry. Ms. Rees is a Chartered Professional Accountant and obtained her FCPA and FCA designation from the Institute of Chartered Accountants of BC in 2010. In 2007, Elise was honoure d with the Influential Women in Business Award and the Ernst & Young Rosemarie Meschi Award for Advancing Gender Diversity, and in 2012 with the Community Builder Award. Ms. Rees currently serves on the boards of Artemis Gold Inc. and Enmax Corporation, and previously served on the boards of Great Panther Mining Limited until September 2022, Westland Insurance until 2021, the Greater Vancouver Board of Trade until November 2019, and Alcanna Inc. until February 2019. Linda McCurdy, Director, President & Chief Executive Officer . Ms. McCurdy joined K -Bro in May 1998 as Chief Financial Officer and became President & Chief Executive Officer in January 2000. Prior to joining K -Bro, she was Chief Financial Officer of In novotech Inc., a biochemical products processor. Ms. McCurdy 's prior experience also includes six years at the Overwaitea Food Group , where she held a number of financial positions. Ms. McCurdy is a Chartered Professional Accountant and has an MBA from the University of Western Ontario. Sean Curtis, Senior Vice -President & Chief Operating Officer . Mr. Curtis join ed K-Bro in 1984 and has over 40 years of experience in the laundry and linen services industry. As Senior Vice President & Chief Operating Officer, Mr. Curtis works directly with K-Bro's President & CEO in the areas of plant expansions, capital equipment installations and business development into new markets. Kristie Plaquin, Chief Financial Officer . Ms. Plaquin has been with the Corporation since 2001 and was its Chief Financial Officer from January 2004 through May 2005 , during which time the C orporation completed its initial public offering and subsequent debt financings. After a temporary absence from K-Bro from 2005 to 2006 , Ms. Plaquin served as K-Bro's Director of Financial Planning from 2007 to 2014, during which time she played a lead role in K -Bro's growth and financing initiatives until assuming her current role as K-Bro's Chief Financial
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18 120904825 v3 Officer. Ms. Plaquin joined K -Bro from PricewaterhouseCoopers LLP and holds a Bachelor of Commerce degree from the University of Alberta and a Chartered Professional Accountant designation. Cease Trade Orders, Bankruptcies, Penalties or Sanctions To the knowledge of the Corporation, no director or executive officer of the Corporation (a) is at the date hereof or has been, in the last ten years before the date hereof, a director, chief executive officer (CEO) or chief financial officer (CFO) of any company, including the Corporation, that (i) was subject to a cease trade order, similar order or an order that denied the relevant company acc ess to any exemptions under securities legislation, for a period of more than 30 consecutive days (an " Order") that was issued while the director or executive officer was acting in that capacity; or, (ii) was subject to an Order that was issued after the director or executive officer ceased to be a director, CEO or CFO and which resulted from an event that occurred while that person was acting in the capacity as director, CEO or CFO. To the knowledge of the Corporation , no director, executive officer or shareholder holding a sufficient number of securities to materially affect control of the Corporation (a) is at the date hereof or has been, in the last ten years before the date hereof , a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets or (b) has within the last ten years before the date hereof made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the di rector, executive officer or shareholder. Elise Rees, a director of the Corporation, served as director of Great Panther Mining Limited ( "Great Panther") from April 12, 2017 until September 30, 2022. On September 6, 2022, Great Panther announced that it had filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada) (the " BIA") to provide creditor protection while Great Panther s ought to restructure its corporate affairs. Alvarez & Marsal Canada Inc. was appointed as proposal trustee pursuant to the BIA to monitor Great Panther 's operations and restructuring. On October 4, 2022, the Co rporation was granted an initial order to convert its p roceedings under the BIA into proceedings under the Companies' Creditors Arrangement Act (Canada). On December 16, 2022, Great Panther filed an assignment in bankruptcy and Alvarez & Marsal Canada Inc. was appointed trustee of the bankrupt estate. DESCRIPTION OF CAPITAL STRUCTURE The authorized capital of the Corporation consists of an unlimited number of Common Shares and such number of shares of one class designated as preferred shares which number shall not exceed, as at the date of issuance, 1/3 of the Common Shares issued and outstanding as at such time. The following is a summary of the rights, privileges, restrictions and conditions which attach to the Common Shares and preferred shares of the Corporation. Common Shares Each Common Share entitles the holder thereof to receive notice of, to attend, and to one vote at all meetings of the Shareholders. The holders of the Common Shares will be entitled to receive any dividends if, as and when declared by the Corporation's board of directors (the "Board"). The holders of Common Shares will also be entitled to share equally, share- for-share, in any distribution of the assets of the Corporation upon the liquidation, dissolution or winding -up of the Corporation or other distribution of its assets among its Shareholder s for the purpose of winding-up its affairs. Preferred Shares The Board may, prior to the issuance of preferred shares, determine the series designation, rights, privileges, restrictions and conditions attaching to the preferred shares of each series including, without limiting the generality of the foregoing: (i) the rate, amount , and method of calculation of any dividends; (ii) redemption
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19 120904825 v3 and/or purchase rights; (iii) voting rights, and (iv) conversion rights, all subject to the filing of Articles of Amendment in accordance with the ABCA to designate each series of preferred shares. As of March 20, 2025, there were no preferred shares issued or outstanding. Normal Course Issuer Bid On May 15, 2023, K -Bro announced the 2023 -2024 NCIB to purchase for cancellation up to 881,481 C ommon Shares (representing approximately 10% of the public float of the C ommon Shares as at the close of markets on May 9, 2023) during the 12-month period from May 18, 2023 to May 17, 2024. On May 16, 2024, K-Bro announced the renewal of its normal course issuer bid to purchase for cancellation up to 754,247 Common Shares (representing approximately 10% of the public float of the C ommon Shares as at the close of markets on May 7, 2024) during the 12-month period from May 21, 2024 to May 20, 2025. K-Bro purchased for cancellation a total of 251,528 Common Shares under the 2023 -2024 NCIB, at a weighted average price of $32.94 per Common Share, for a total cash consideration of $8.3 million and, as at March 20, 2025, K-Bro purchased for cancellation a total of 61,148 Common Shares under the 2024 -2025 NCIB, at a weighted average price of $35.34 per Common Share, for a total cash consideration of $2.2 million .
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20 120904825 v3 MARKET FOR SECURITIES The Common Shares are listed on the Toronto Stock Exchange (the " TSX") under the trading symbol " KBL". The following table sets out the market price ranges and trading volume s for the Common Shares on the TSX for each month during fiscal 2024. Volume (Shares) Monthly High ($) Monthly Low ($) January 144,110 35.38$ 32.46$ February 78,033 35.30$ 33.31$ March 248,566 35.10$ 31.52$ April 214,621 37.04$ 34.20$ May 648,312 35.69$ 31.68$ June 154,216 33.35$ 30.69$ July 294,573 37.73$ 32.27$ August 318,462 37.74$ 34.50$ September 111,251 37.00$ 34.50$ October 183,907 35.47$ 32.76$ November 386,146 38.49$ 32.87$ December 134,355 40.03$ 37.11$
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21 120904825 v3 DIVIDEND INFORMATION The Board has adopted a dividend policy with the intent to pay a monthly dividend of $0.1000 per Common Share. The Board periodically reviews the Corporation 's dividend policy in the context of the Corporation 's overall profitability, free cash flow, capital requirements and other business needs. To date, the Corporation has declared three monthly dividends of $0.1000 per Common Share in respect of fiscal 2025, payable on February 14, March 14, and April 15 to Shareholders of record at the close of business on January 31, February 28, and March 31, respectively. The Corporation's dividend policy is at the discretion of the Board. There can be no guarantee that the Corporation will maintain its dividend policy. The following table sets forth the monthly cash dividend per Common Share paid by the Corporation for each of its three most recently completed financial years. Period Record Date Payment Date Per Share ($) Total Dividend January January 31, 2024 February 15, 2024 0.10000$ 1,060,849$ February February 29, 2024 March 15, 2024 0.10000$ 1,059,230$ March March 31, 2024 April 15, 2024 0.10000$ 1,057,092$ Q1, 2024 0.30000$ 3,177,171$ April April 30, 2024 May 15, 2024 0.10000$ 1,053,435$ May May 31, 2024 June 14, 2024 0.10000$ 1,057,836$ June June 30, 2024 July 14, 2024 0.10000$ 1,057,836$ Q2, 2024 0.30000$ 3,169,108$ July July 31, 2024 August 15, 2024 0.10000$ 1,057,836$ August August 31, 2024 September 13, 2024 0.10000$ 1,057,836$ September September 30, 2024 October 14, 2024 0.10000$ 1,057,836$ Q3, 2024 0.30000$ 3,173,510$ October October 31, 2024 November 15, 2024 0.10000$ 1,057,836$ November November 30, 2024 December 13, 2024 0.10000$ 1,057,836$ December December 31, 2024 January 15, 2025 0.10000$ 1,057,836$ Q4, 2024 0.30000$ 3,173,510$ Total, 2024 1.20$ 12,693,300$
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22 120904825 v3 Period Record Date Payment Date Per Share ($) Total Dividend January January 31, 2023 February 15, 2023 0.10000$ 1,077,319$ February February 28, 2023 March 15, 2023 0.10000$ 1,077,319$ March March 31, 2023 April 14, 2023 0.10000$ 1,077,319$ Q1, 2023 0.30000$ 3,231,957$ April April 30, 2023 May 15, 2023 0.10000$ 1,077,319$ May May 31, 2023 June 15, 2023 0.10000$ 1,082,066$ June June 30, 2023 July 14, 2023 0.10000$ 1,078,178$ Q2, 2023 0.30000$ 3,237,563$ July July 31, 2023 August 15, 2023 0.10000$ 1,076,859$ August August 31, 2023 September 15, 2023 0.10000$ 1,076,109$ September September 30, 2023 October 14, 2023 0.10000$ 1,073,171$ Q3, 2023 0.30000$ 3,226,139$ October October 31, 2023 November 15, 2023 0.10000$ 1,070,163$ November November 30, 2023 December 15, 2023 0.10000$ 1,066,975$ December December 31, 2023 January 15, 2024 0.10000$ 1,063,547$ Q4, 2023 0.30000$ 3,200,686$ Total, 2023 1.20$ 12,896,346$ Period Record Date Payment Date Per Share ($) Total Dividend January January 31, 2022 February 15, 2022 0.10000$ 1,071,978$ February February 28, 2022 March 15, 2022 0.10000$ 1,071,978$ March March 31, 2022 April 15, 2022 0.10000$ 1,071,978$ Q1, 2022 0.30000$ 3,215,933$ April April 30, 2022 May 13, 2022 0.10000$ 1,071,978$ May May 31, 2022 June 15, 2022 0.10000$ 1,077,514$ June June 30, 2022 July 15, 2022 0.10000$ 1,077,514$ Q2, 2022 0.30000$ 3,227,006$ July July 31, 2022 August 15, 2022 0.10000$ 1,077,418$ August August 31, 2022 September 15, 2022 0.10000$ 1,077,319$ September September 30, 2022 October 14, 2022 0.10000$ 1,077,319$ Q3, 2022 0.30000$ 3,232,057$ October October 31, 2022 November 15, 2022 0.10000$ 1,077,319$ November November 30, 2022 December 15, 2022 0.10000$ 1,077,319$ December December 31, 2022 January 13, 2023 0.10000$ 1,077,319$ Q4, 2022 0.30000$ 3,231,958$ Total, 2022 1.20$ 12,906,955$
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23 120904825 v3 AUDIT COMMITTEE INFORMATION The Audit Committee of the Board (the “Audit Committee”) operates under a written mandate and terms of reference that set out, among other things, its responsibilities and composition requirements. A copy of the Audit Committee's mandate and terms of reference is attached to this AIF as Appendix A . As at the date hereof, the members of the Audit Committee are Elise Rees (Chair), Steven Matyas , Matthew Hills and Michael Percy . In addition to each member 's general business experience, the education and experience of each Audit Committee member that is relevant to the performance of his or her responsibilities as an Audit Committee member is as noted under "Directors and Executive Officers". The Audit Committee mandate and terms of reference require all members to be "financially literate", as such term is defined under applicable securities law. "Financially literate" means the ability to read and understand financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be found in the Corporation 's consolidated financial statements. Based on an assessment of t he employment experience or education of the current members of the Audit Committee, as described above, the Board believes that all of the current members of the Audit Committee are financially literate. In addition, the Audit Committee mandate and terms of reference contain independence requirements applicable to each member and each member currently meets those requirements. The Audit Committee has adopted policies and procedures with respect to the pre-approval of audit and permitted non -audit services to be provided by the Corporation 's auditor, which is currently PricewaterhouseCoopers LLP. Any such services must be permitted services and must be pre- approved by the Audit Committee pursuant to this policy. The Audit Committee must also pre -approve the audit services and associated audit fees to be paid. Pre -approval policies in respect of non -audit services are described in our Audit Committee mandate and terms of reference attached hereto as Appendix A. The following table discloses fees billed to us by our auditor, PricewaterhouseCoopers LLP, for services rendered during fiscal 2024 and fiscal 2023: Service 2024 2023 Audit fees(1) 855,955$ 661,803$ Tax fees(2) 223,016$ 184,606$ All other fees(3) 17,976$ 22,100$ (2) Includes fees for tax advice, tax planning and review of compliance returns (3) Includes fees for advisory services (1) Includes fees for quarterly interim reviews and professional advisory services
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24 120904825 v3 RISK FACTORS The following are certain risk factors relating to the Corporation and the business of the Corporation , which investors should carefully consider before making an investment decision with respect to the Common Shares. These risk factors are a summary of certain risk factors and are qualified in their entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this AIF. These risks and uncertainties are not the only risks and uncertainties facing K-Bro. Additional risks and uncertainties not presently known to the Corporation, or that the Corporation currently deems immaterial, may also impair the operations of the Corporation. If any such risks materialize, the business, financial condition, liquidity and results of operations of the Corporation, as well as the ability of the Corporation to pay dividends on the Common Shares , could be materially adversely affected. Risks Related to K-Bro and the Laundry and Linen Services Industry For additional information regarding changes to the Corpor ation's business expected in 20 25 and known trends, commitments, events or uncertainties, see K -Bro's "2024 Management's Discussion and Analysis" , and in particular, the " Outlook" and "Critical Risks and Uncertainties " sections thereof, which are incorporated by reference herein. Ability to Maintain Profitability and Manage Growth There can be no assurance that K -Bro's business and growth strategy will enable K -Bro to sustain profitability in future periods. K-Bro's future operating results will depend on a number of factors, including its ability to continue to successfully execute its strategic plan . There can be no assurance that K -Bro will be successful in achieving its strategic plan or that this strategic plan will enable K-Bro to maintain its historical revenue growth rates or sustain profitability. Failure to successfully exe cute any material part of K -Bro's strategic plan could have a material adverse effect on K-Bro’s business, financial condition, liquidity and results of operations of the Corporation . Historically, a portion of our growth has come from acquisitions. K -Bro continues to evaluate opportunities for acquiring businesses that may supplement the Corporation's growth. However, there can be no assurance that we will be able to locate and purchase suitable acquisitions. In addition, the success of any acquisition depends in part on our ability to integrate the acquired company with the Corporation 's existing operations . The process of integrating acquired businesses may involve unforeseen difficulties and may requir e a disproportionate amount of Management's attention and our financial and other resources. Although the Corporation conducts due diligence investigations prior to each acquisition, there can be no assurance that we will discover or adequately protect against all material liabilities of an acquired business for which we may be responsible as a successor ow ner or operator. The failure to successfully integrate these acquired businesses or to discover such liabilities could have a material adverse effect on K-Bro’s business, financial condition, liquidity and results of operations. Ability to Open New, Cost-Effective Processing Plants We plan to expand our presence in existing markets and enter new markets. The opening of new processing plants is necessary to gain the capacity required for this expansion. Our ability to open new processing plants depends on our ability to identify attractive locations, attract suitable staff, negotiate leases or real estate purchase agreements on acceptable terms, identify and obtain adequate utility and water sources and comply with environmental regulations, zoning laws and other similar factors. Any i nability to effectively identify and manage these items may materially adversely affect our expansion efforts, and, consequently our business, financial condition, liquidity and results of operations. Geopolitical Risk and Global Economic Factors Government policy, international trade and political relations across the globe may impact overall market and economic stability , including in Canada, the U.K., and other countries in which K -Bro does business. While the nature and extent of geopolitical risks may vary, these risks have the potential to disrupt global economic growth, create volatility in financial markets, decrease market liquidity, increase interest rates, impact foreign exchange,
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25 120904825 v3 increase c ommodity prices, and directly and indirectly influence general business and economic conditions in ways that may have a material adverse impact on the Corporation. Current g eopolitical risks in clude global tensions resulting in sanctions and countersanctions and increa sed protectionism measures. Increased protectionism measures may lead to, among other things, increased equipment and material costs , increased fuel and energy costs, and other material adverse effects on the business, financial cond ition, liquidity and results of operations of the Corporation. Negative economic conditions in Canada, the U.K. and elsewhere may also materially adversely affect our financial performance. Increased unemployment, economic recession, inflation, downturns in the hospitality sector, decreases in healthcare expenditures by the Canadian or U.K. governments, foreign exchange rate fluctuations, higher interest rates, higher tax rates and other changes in tax laws, and other economic factors could materially adversely affect the demand for K -Bro's services. Increases in labo ur costs, including healthcare and insurance costs, labour and/or skilled labour shortages , higher material costs for items such as fabrics and textiles, higher interest rates, inflation, foreign exchange rate fluctuations, higher tax rates and other changes in tax laws , and other economic factors could increase our costs and selling and administrative expenses . If any or all of these conditions arise, the business, financial condition, liquidity and results of operations of the Corporation could be materially adversely affected. Inflationary pressure, higher interest rates, and other adverse economic conditions in the general economy may also cause our suppliers and distributors to suffer financial and operational difficulties that they cannot overcome, preventing them from providing us with the materials and services we need, in which case the business, financial condition, liquidity and results of operations of the Corporation could be materially adversely affected. Reliance on Key Personnel We believe that a key component of our success is our corporate culture, which has been imparted by Management throughout our organization. Our corporate culture, along with our entire business, depends on the abilities, experience and personal efforts of Management, including their ability to retain and attract skilled employees and local managers. The loss of the services of such key personnel could have a material adverse effect on the business, financial condition, future prospects and results of operations of the Corporation. Competitive pressures within and outside our industry may make it more difficult and expensive for us to attract and retain key employees which could materially adversely affect our business, financial condition, liquidity and results of operations. Increased Competition K-Bro operates in a competitive industry and competes with national, regional and local providers. Service, price, quality, and convenience to the customer are the primary competitive elements in this industry . If existing or future competitors seek to gain or retain market share by reducing prices, K-Bro may be required to lower prices, which may materially adversely affect its business, financial condition, liquidity and results of operations . If existing or future competitors seek to gain or retain market share by increasing service, quality, or convenience, K-Bro may be required to increase its service, quality, or convenience, as applicable, and in turn increase its costs, which may materially adversely affect its business, financial condition, liquidity and results of operations. The Corporation's competitors may also compete with K-Bro for acquisition candidates, which can increase the price for acquisitions and reduce the number of available acquisition candidates. In addition, our customers and prospects may decide to perform certain services in -house instead of outsourcing these services to us . These competitive pressures could materially adversely affect our business, financial condition, liquidity and results of operations. In addition to competition provided by its laundry processor competitors, K-Bro also competes against suppliers of single-use disposable linens, particularly in its K -Bro Operating Room business, which provides reusable surgical packs to healthcare providers . Management estimates that suppliers of disposable packs currently control approximately 80% of the overall operating room linen market in Canada.
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26 120904825 v3 These risks are managed primarily by entering into long-term contacts where possible, providing a comprehensive program of services, adhering to the highest possible quality and service standards, and providing a cost-effective service through the economies of large -scale processing plants and purchasing . However, given the competitive environment faced by the Corporation, there can be no assurance that these risks will not materialize and materially adversely affect the Corporation’s business, financial condition, liquidity and results of operations. Increased Fuel and Energy Costs The price of fuel and energy required to operate our delivery vehicles and processing equipment is unpredictable and fluctuates based on events outside the Corporation's control, including geopolitical developments, supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries (OPEC) and other oil and gas producers, war and unrest in oil producing countries, regional production patterns, limits on refining capacities, natural disasters , and environmental concerns. Increases in fuel and energy costs could materially adversely affect our business, financial condition, liquidity and results of operations. If K-Bro engages in activities to manage its commodity price exposure, it may forego the benefits it would otherwise experience if commodity prices were to decrease. No alternatives are presently available to K -Bro to manage its exposure to changes in the price of water. In addition, commodity derivative contract activities could expose K-Bro to losses. To the extent that K -Bro engages in risk management activities related to commodity prices, it will be subject to credit risks associated with the counterparties with which it contracts. The Corporation may be subject to increased risk pertaining to fuel and energy costs due to current geopolitical instability that could have an impact on key input prices, such as natural gas. This uncertainty has become more pronounced with the conflict in Ukraine which began in late February 2022 and has resulted in significant volatility in fuel and energy supply rates and supply chains, the impact of which may be material to the Corporation. Imported Goods, including Textiles The Corporation is a significant buyer of linens, the majority of which are constructed from cotton or cotton-blended textiles. Variations in global demand could result in an increase to cotton futures pricing, and consequently the cost of linens to K-Bro. Significant increases in the price of cotton and other materials could result in higher linen costs and, consequently, have a material adverse effect on K -Bro's business, financial condition, liquidity and results of operations. The reusable linen products we use are sourced from a wide variety of suppliers, each of which have international exposure. We require all of our suppliers to comply with applicable laws, including labour and environmental laws, and to otherwise commit to our required supplier standards of conduct. Our ability to find qualified suppliers who meet our standards, and to access products in a timely and efficient manner, is a significant challenge, especially with respect to suppliers located and goods sourced from outside of Canada. The political and economic stability of the countries in which foreign suppliers are located, financial stability of suppliers, suppliers' ability to meet our supplier standards, cost and availability of raw materials to suppliers, and cost and availability of transportation for goods are each beyond K-Bro’s control. Canadian and U.K. foreign trade policies, tariffs, and other impositions on imported goods, and trade sanctions imposed on certain countries, are also beyond K-Bro’s control. These and other factors affecting our suppliers and our access to products could materially adversely affect the business, financial condition, liquidity and results of operations of the Corporation. If Management fails to maintain its good relationships with suppliers or if suppliers’ product costs increase as a result of, for example, prolonged or repeated increases in the prices of certain raw materials, foreign exchange rate fluctuations, or changes in the economic, geopolitical or regulatory landscape of the country of origin, the Corporation may not be able to obtain attractive pricing. In addition, if the Corporation is unable to receive goods from suppliers on a timely basis or at an effective cost because of interruptions in production or shipping or for other reasons that are beyond its control, the Corporation could experience shortages which could lead to decreased revenue and increased costs if alternative sources must be used, and the Corporation’s business, financial condition, liquidity and results of operations could be materially adversely affected as a result.
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27 120904825 v3 Customer Concentration A large portion of K -Bro's revenues are concentrated in a relatively small number of customers. Revenues from customers that have accounted for significant sales in the past, either individually or as a group, may not reach or exceed historical levels in any future period. Custome r concentration increases credit risk and other risks associated with particular customers and particular products, including risks related to market demand for our services and regulatory and other operating risks. Dependence on the Public Sector for Revenue A significant portion of K-Bro's revenue is derived from contracts with various hospital and healthcare institutions which are government owned and funded. The current trend in healthcare is to outsource certain services and redeploy internal capital and resources towards core healthcare initiatives , however, individual institutions and regional authorities continually assess and review their outsourcing strategy. Any reduction in demand for K-Bro's services by the public sector, whether due to funding cons traints, decreased capital spending plans, or decreased willingness to outsource, would likely have a material adverse effect on K-Bro’s business, financial condition, liquidity and results of operations. In addition, certain contracts contain "no-fault" termination rights in favour of the hospital or health authority. In the event that any hospital or health authority exercises this termination right, such hospital or health authority would be obligated to pay the Corporation certain contractual termination payments, but these payments may not fully offset the decreased revenues resulting from the termination of the contract. Changes in Laws Changes to any of the laws, rules, regulations or policies to which K -Bro is subject could have a significant impact on K-Bro's business. There can be no assurance that K -Bro will be able to comply with any such changes. Failure by K-Bro to comply with any of the laws, rules, regulations and policies to which it is subject may subject K-Bro to civil or regulatory proceedings, including fines or injunctions. In addition, compliance with any future laws, rules, regulations or policies to which K-Bro is subject could be costly and negatively impact K-Bro's profitability. If any of the foregoing should occur, K -Bro's business, financial condition, liquidity and results of operations may be materially adversely affected. Environmental Matters K-Bro's facilities are subject to stringent federal, provincial and municipal laws and regulations relating to the protection of the environment and health and safety matters, including laws and regulations governing wastewater discharge, management, recycling and disposal of hazardous materials and waste, clean -up of contamination, and worker exposure to hazardous materials. The operation of our business entails risks under environmental laws and regulations. We could incur significant costs, including, without limitation, clean-up costs, fines, sanctions, and claims by regulators or third parties for property damage and personal injury as a result of violations or liabilities under these laws and regulations. As a result of violations of these laws and regulations, among other things, we could be required to reduce or cease our usage of certain equipment and/or limit or stop production at certain facilities. These consequences could disrupt customer relationships and have a material adverse effect on our business, financial condition, liquidity and results of operations. Under environmental laws and regulations, an owner or operator of real estate may be required to pay the costs of removing or remediating hazardous materials located on or emanating from the property, whether or not the owner or operator knew of or was responsible for the presence of such hazardous materials. While we regularly engage in environmental due diligence in connection with acquisitions, there can be no assurance that locations that we have acquired or leased have been operated in compliance with environmental laws and regulations during prior periods or that future uses or conditions will not make us liable under these laws or expose us to regulator or third- party legal action. Additionally, we must maintain compliance with various permits and licenses issued to us in connection with our operations. Any failure on our part to maintain such compliance or to apply for and receive such permits and licenses could have a material adverse effect on our ability to continue operations at a particular location.
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28 120904825 v3 Employee Relations and Collective Agreements Significant portions of our labour force (approximately 30%) are unionized and subject to collective bargaining agreements. While we believe that our employee relations are satisfactory, any work stoppage resulting from a strike or lockout could have a material adverse effect on K-Bro’s business, financial condition, liquidity and results of operations, including increased labour costs and service disruptions. In addition, significant union representation would require us to negotiate with many of our employees collectively and could adversely affect our results by restricting our ability to maximize the efficiency of our operations. K-Bro's Regina facility has approximately 205 employees who are covered by a collective agreement with the UFCW which expired in March 2024 and for which negotiations are ongoing . K-Bro's original Québec City plant employees are covered by a collective bargaining agreement with the UFCW, which represents approximately 55 employees, that expires on December 31, 2025. K- Bro’s second Québec City plant employees are covered by a collective b argaining agreement with the United Steelworkers, which represents approximately 70 employees , that expires on October 31, 2025. K-Bro's original Vancouver plant employees are covered by a collective bargaining agreement with Teamsters Canada, which represents approximately 390 employees, that expires on December 31, 2025. There can be no assurance that any of the Corporation's collective agreements will be successfully renegotiated upon their expiration. Furthermore, there may be a significant effect on the operations of K -Bro in the event that the negotiations are unsuccessful. Unionization campaigns could be materially disruptive to our business and could materially adversely affect our business, financial condition, liquidity and results of operations. In addition, K-Bro's clients employ workers governed under collective agreements. Any work stoppage or labour disruption experienced by K-Bro's clients could affect the amount and timing of services they require from K-Bro. Labour Shortages and Increased Labour Costs Our success depends in part on our ability to attract employees with needed skills in the regions in which we operate. Our ability to meet labour needs while controlling associated costs is subject to a number of external factors, including employment levels, employee-turnover rates, changing demographics, prevailing wage rates, minimum wage legislation, health and other insurance costs, governmental labour and employment requirements , and increased competition for employees. If we are not able to attract skilled employees or face increased labour costs as a result of any of the foregoing factors, it may impact our operational capacity and associated costs and have a material adverse effect on our business, financial condition, liquidity and results of operations. Catastrophic or Unexpected Events and Public Health Emergencies Catastrophic or unexpected events, including, without limitation, fires at K-Bro facilities or elsewhere, natural disasters, wars and other geopolitical conflicts, political instability, unplanned utility outages, supply disruptions, failure of equipment or systems, and changes in laws and/or regulations impacting our business, could materially adversely our business, financial condition, liquidity and results of operations. These events could result in disruption of customer service, physical damage or temporary closure of one or more key operating facilities, or the temporary disruption of information systems. An outbreak of disease, epidemic, or pandemic, such as the recent global COVID-19 pandemic, and the related actions by governments to attempt to contain the outbreak , could have a material adverse effect on K -Bro’s business, financial condition, liquidity and results of operations, as it could decrease the number of available hotel rooms across Canada and associated hotel room occupancy rates, disrupt our supply chain, availability of labour, operations, and logistics. These disruptions, or our failure to effectively respond to them, are likely to increase costs and cause delays. There is no guarantee that K-Bro’s actions to mitigate the effects of pandemics which may occur in the future will be effective.
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29 120904825 v3 Credit Facility and Debt Service Adverse c hanges in the economy or market conditions, deterioration in our business performance or future prospects, and factors outside K-Bro’s control could limit K-Bro’s access to capital markets. Financial markets often experience disruptions, including, among other things, volatility in security prices, diminished liquidity and credit availability, rating downgrades , and decreased valuations of certain investments. There can be no assurance that financial markets will not experience disruptions in the future, or that future disruptions will not be more severe than those previously experienced. These disruptions could lead to challenges in our business and have a material adverse effect on our business, financial condition, liquidity and results of operations. These disruptions could also adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations and could result in a decreased spending for our services. K-Bro (through its subsidiary, K-Bro Linen Systems Inc. (“K-Bro Systems”) currently has a syndicated $175 million financial covenant-based credit facility (the "Credit Facility") with a group of Canadian chartered banks (the "Banks") which expires on March 26, 2027. In the event that the Credit Facility is not renewed or extended, indebtedness under the Credit Facility will become repayable. There is also a risk that the Credit Facility will not be renewed for the same amount or on the same terms. Any of these events could affect K-Bro's ability to fund ongoing operations and make future dividend payments. The Credit Facility is subject to floating interest rates and, therefore, is subject to fluctuations in interest rates. Interest rate fluctuations are beyond the Corporation 's control and there can be no assurance that interest rate fluctuations will not have a material adverse effect on K-Bro’s business, financial condition, liquidity and results of operations, and in turn reduce cash available for future cash dividends to Shareholders. Covenants in the Credit Facility include, among others, covenants that limit the ability of K-Bro to incur additional debt, make liens, dispose of assets, consolidate, merge or acquire other businesses, pay dividends or make other distributions, and amend material contracts. These covenants restrict numerous aspects of the business of K-Bro. K-Bro is required to comply with covenants under the Credit Facility. K-Bro's ability to satisfy the restrictive covenants under the Credit Facility may be affected by events beyond K-Bro’s control. The failure to comply with the terms of the Credit Facility would, after the expiration of available cure periods, entitle the Banks to accelerate all amounts outstanding under the Credit Facility, and, upon such acceleration, the Banks would be entitled to begin enforcement procedures against the assets of the Corporation. K-Bro routinely reviews such covenants based on actual and forecasted results and has the ability to make changes to its development plans and/or dividend policy to comply with the covenants under the C redit Facility. If K -Bro becomes unable to pay its debt service charges or otherwise commits an event of default such as bankruptcy, the Banks may foreclose on the assets of K-Bro or sell working interests in K-Bro. K-Bro has not incurred any events of default under the terms of the Credit Facility as of the date hereof. Transaction Processing Systems K-Bro relies on computer systems to provide customer information, process customer transactions , and provide other general information necessary to manage our businesses. We have an active disaster recovery plan in place that is frequently reviewed and tested. However, our computer systems may be damaged or interrupted by system conversions, power outages, computer or telecommunication failures, computer viruses, security breaches, catastrophic events, or usage errors by our employees. If our computer systems ar e damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may experience interruptions in our ability to service our customers. This disruption caused by the unavailability of our computer systems could materially adversely affect our business, financial condition, liquidity and results of operations.
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30 120904825 v3 Information Security The efficient operation of K -Bro's business is dependent on computer hardware and software systems. In the ordinary course of K-Bro's business, K -Bro collects and stores sensitive data, including intellectual property, proprietary business information, and identifiable personal information regarding its employees and customers. The Corporation's information technology and infrastructure may be vulnerable to attacks by computer hackers, cyber terrorists and others. Any such attack or breach could compromise K-Bro's networks, and the information that K-Bro stores could be accessed, publicly disclosed, lost, stolen or compromised. Any such attack, breach, access, disclosure, or loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruptions to K -Bro's operations, decreased performance, increased costs, and damage to K-Bro's reputation, which could have a material adverse effect on K-Bro’s business, financial condition, liquidity and results of operations. To mitigate this risk, K -Bro has implemented security measures, including employee training, monitoring and testing, maintenance of protective systems, and contingency plans, to protect and prevent unauthorized access of its network and reduce the likelihood of disruptions to its information technology systems. The Corporation also has security processes, protocols and standards that are applicable to its third-party service providers. Despite these measures, all of the Corporation 's information systems, including its back-up systems and any third party service provider systems that it employs, are vulnerable to damage, interruption, disability, and failure for a variety of reasons, including, but not limited to, physical theft, electronic theft, employee error or malfeasance, fire, power loss, computer and telecommunication failures or other catastrophic events, internal and external security breaches, denial of service attacks, viruses, worms and other known or unknown disruptive events. The Corporation or its third-party service providers may be unable to anticipate, timely identify or appropriately respond to one or more of the rapidly evolving and increasingly sophisticated means by which computer hackers, cyber terrorists and others may attempt to breach the networks of the Corporation or its third-party service providers. Foreign Exchange Risk Currency fluctuations may affect the Corporation 's financial performance. The Corporation 's primary functional currency is the Canadian dollar. The Corporation's currency exposure primarily relates to purchases of equipment incurred in connection with the commissioning of new facilities, the costs of which are typically denominated in U.S. dollars. Additionally, a portion of the Corporation's business is conducted and denominated in British pounds sterling. Any fluctuations in the value of the U.S. dollar o r British pound sterling relative to the Canadian dollar may result in variations in the comprehensive income of the Corporation. From time to time, the Corporation may use a limited number of derivative financial instruments to manage its foreign currency exposure. Risks Relating to the U.K. Business The risk factors set forth in this AIF and in documents incorporated herein by reference relating to the Corporation's Canadian operations apply equally in respect of the Corporation's U.K. operations. Seasonality of the Hospitality Industry The Corporation's U.K. operations are highly dependent on the hospitality industry . The hospitality industry is seasonal in nature, which can cause fluctuations in revenues, operating expenses and cash flows. The Corporation's earnings may be adversely affected by factors outside the Corporation's control, including weather conditions and poor economic conditions in certain markets in which the U.K. Subsidiaries operate. The Corporation can provide no assurances that cash flows will be sufficient to offset any shortfalls that occur as a result of these seasonal fluctuations. Possibility of Scottish Independence A large majority of the population of Scotland wanted to remain in the EU, and one of the key arguments for Scotland remaining in the U.K. in its 2014 independence referendum was EU membership. Given the U.K.'s withdrawal from the EU, this factor supporting Scotland remaining in the U.K. no longer applies.
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31 120904825 v3 Should Scotland vote to leave the U.K., the details of any changes are impossible to predict with certainty and will depend on post -referendum negotiations and agreements between the Scottish government and other organizations in the U.K. and the EU. Independence could result in, inter alia, changes in Scotland 's monetary system, currency, taxation, regulatory and legal framework, and membership in the EU. Scottish independence could have a material adverse effect on the Corporation 's business, financial condition, liquidity and results of operations Potential Increase in National Minimum Wage The Corporation's U.K. operations are subject to legislation governing such matters as wage rates, overtime, working conditions and citizenship requirements. There are proposals under consideration in the U.K. from time to time to increase the national living wage, including an increase from £11.44 to £12.21 that is pla nned to take effect in April 2025 along with planned changes to the national insurance program. Increases in the national living wage and national insurance program could have a material adverse effect on the Corporation's business, financial condition, liquidity and results of operations, as labour constitutes a signific ant portion of the U.K. Subsidiaries’ cost structure and portions of the Corporation's U.K. operations are reliant upon minimum wage labour. Competition Risk The Corporation's U.K. operations are subject to legislation of the U.K. Competition Authority. Therefore, the Corporation's U.K. operations future acquisitions could be impacted by U .K. competition rules and the approach taken by the U.K .Competition Authority. Risks Inherent in an Investment in Common Shares Unpredictability and Volatility of Market Price Shares of a publicly traded company do not necessarily trade at values determined by reference to the underlying value of its business. The prices at which the Common Shares will trade cannot be predicted. The market price of the Common Shares could be sub ject to significant fluctuations in response to variations in quarterly operating results, distributions and other factors. The market price of the Common Shares may be adversely affected by changes in general market conditions, fluctuations in the market for equity or debt securities and numerous other factors beyond the control of the Corporation. The annual yield on the Common Shares, as compared to the annual yield on other financial instruments , may also influence the price of the Common Shares in the public trading markets. In addition, the securities markets have experienced significant price and volume fluctuations from time to time, that have often been unrelated or disproportionate to the operating performance of particular issuers. These broad fluctuations may adversely affect the market price of the Common Shares. Payment of Dividends K-Bro's dividend policy is at the discretion of the Board, and is subject to the covenants in the Credit Facility. Future dividends, if any, will depend on results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law , and other factors that the Board may deem relevant. Accordingly, the payment of dividends by K-Bro and the amount thereof is uncertain. Dilution and Sale of Common Shares Pursuant to its articles of incorporation, the Corporation is authorized to issue an unlimited number of Common Shares on terms and conditions established by the Board without the approval of any Shareholder s. Any further issuance of Common Shares, including any issuance under the provisions of K-Bro's long-term incentive plan, may dilute the interests of existing Shareholders. Furthermore, the Corporation may make future acquisitions or enter into financing contracts or other transactions involving the issuance of securities of the Corporation which may be dilutive to existing Shareholders.
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32 120904825 v3 Sales of a substantial number of Common Shares by a significant Shareholder in the public market or otherwise could adversely affect the prevailing market prices of the Common Shares and could impair the Corporation 's ability to raise additional capital through an offering of Common Shares. The possible perception among the public that these sales will occur could also produce the same effect. Dividends Depend on the Performance of Subsidiaries Although the Corporation intends to pay dividends on its Common Shares, there can be no assurance regarding the amounts of income to be generated by the operating subsidiaries of the Corporation or ultimately distributed to the Corporation from these opera ting subsidiaries. The ability of the Corporation to make dividend payments, and the actual amount paid, is dependent on the operations and assets of its subsidiaries, and is subject to various factors including the subsidiaries’ respective financial perfo rmances, obligations under the Credit Facility , fluctuations in working capital, the sustainability of K-Bro's profit margin, and K-Bro’s capital expenditure requirements. Dividends are not guaranteed and may fluctuate with the performance of K -Bro's subsidiaries. There can be no assurance regarding the actual amount of dividends that will be paid by the Corporation in the future. The market value of the Common Shares may deteriorate if the Corporation is unable to meet its dividend targets in the future, and such deterioration may be material. Capital Investment The timing and amount of capital expenditures by the Corporation and its subsidiaries will affect the amount of cash available for distribution by the subsidiaries to the Corporation. Dividends may be reduced, or even eliminated, at times when the Board deems it necessary to make significant capital or other expenditures. Tax-Related Risks The income of the Corporation and its related entities must be comp uted in accordance with jurisdictional tax laws, all of which may be changed in a manner that could adversely affect the amount of cash available for distribution to Shareholders. There can be no assurance that Canadian or U.K. income tax laws and administrative policies respecting the treatment of corporations will not be changed in a manner that adversely affects the Corporation and Shareholders. There can be no assurance that taxation authorities will not seek to challenge certain tax positions taken by the Corporation or related entities. Such a challenge, if successful, could adversely affect the amount of free cash available for distribution. In the future, income tax laws or other laws may be changed or interpreted in a manner that adversely affects K-Bro and/or its Shareholders. Tax authorities having jurisdiction over K-Bro or its Shareholders may disagree with how K-Bro calculates its income for tax purposes to the detriment of K-Bro and/or its Shareholders. Effective Internal Controls Effective internal controls are necessary for us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonab le assurance with respect to financial statement preparation and presentation. While we continue to evaluate our internal controls, we cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. If we fail to maintain the adequacy of our internal c ontrols, or if we or our auditor were to discover material weaknesses in our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that our financial reports are reliable. Failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial reports or prevent fraud. This may cause investors to lose confidence in our reporte d financial information, which could have a material adverse effect on the market price of the Common Shares, and in turn the business, financial condition, liquidity and results of operations of the Corporation.
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33 120904825 v3 LEGAL PROCEEDINGS To the knowledge of the Corporation , there are no legal proceedings which the Corporation or any of its subsidiaries are party to or of which any of their property is subject to which would be material to the Corporation or any of its subsidiaries , nor is the Corporation aware of any proceedings that would be material to the Corporation or any of its subsidiaries which are contemplated or pending. REGULATORY ACTIONS K-Bro has not been the subject of: (a) any penalties or sanctions imposed against the Corporation by a court relating to securities legislation or by a securities regulatory authority during its most recently completed financial year; (b) any other penalties or sanctions imposed by a court or regulatory body against the Corporation that would likely be considered important to a reasonable investor in making an investment decision during its most recently completed financial year; or (c) settlement agreements which the Corporation entered into before a court relating to securities legislation or with a securities regulatory authority during its most recently completed financial year. CONFLICTS OF INTEREST As at the date hereof, the Corporation is not aware of any existing or potential material conflicts of interest between the Corporation or its subsidiaries and K-Bro's directors or executive officers.
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34 120904825 v3 INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS To the knowledge of the Co rporation, as of the date hereof, there were no directors or executive officers of the Corporation or persons that beneficially own, or control or direct, directly or indirectly, more than 10% of the Common Shares, or any associate or affiliate of the foregoing, with any material interest, direct or indirect, in any transaction within the three most recently completed financial years or during the current financial year that has materially affected or is reasonably expected to materially affect the Corporation. K-Bro has incurred expenses in the normal course of business for advisory consulting services , primarily relating to acquisitions, provided by Mr. Matthew Hills, a director . The amounts charged are recorded at their exchange amounts and are subject to normal trade terms. For the year ended December 31, 2024, the Corporation incurred such fees totalling $nil (December 31, 2023 – $72,000). AUDITORS, TRANSFER AGENT AND REGISTRAR The Corporation's auditors are PricewaterhouseCoopers LLP, Stantec Tower, 10220 103 Avenue NW , Edmonton, Alberta, T5J 0K4. TSX Trust Company (Canada) acts as both transfer agent and registrar for the Corporation . Registers of transfers of securities are maintained in Calgary, Alberta.
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35 120904825 v3 MATERIAL CONTRACTS Except for those contracts entered into in the ordinary course of business, K -Bro has entered into t he following material contracts: Credit Facility K-Bro Systems entered into a syndicated credit agreement with a group of Canadian chartered banks for the provision of a revolving credit facility to accommodate the Corporation's working capital requirements and for general corporate purposes including ongoing asset acquisitions. The Credit Facility is a senior secured revolving credit facility in the principal amount of $175 million. The amount drawn and outstanding at December 31, 20 24 was $128.8 million, including outstanding letters of credit. Loans under the Credit Facility are repayable without any prepayment penalties, and bear interest at a floating rate based on the Canadian dollar prime rate or on the applicable Canadian Overnight Repo Rate Average (CORRA) rates plus, in each case, an applicable margin to those rates. Pursuant to the Credit Facility, the Bank s maintain their security over substantially all of the assets of K -Bro and its subsidiaries. In addition, the Corporation has provided an unlimited guarantee in respect of all obligations of K-Bro Systems to the Bank s, secured by, among other things, a general security interest over all of the Corporation's assets. Covenants in the Credit Facility include, among others, covenants that limit the ability of the Corporation to incur additional debt, make liens, dispose of assets, consolidate, merge or acquire other businesses, pay dividends or make other distributions, and amend material contracts. These covenants restrict numerous aspects of the business of the Corporation. Moreover, financial performance covenants require K-Bro, among other things, to maintain up to a maximum total debt- to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio and up to a maximum total fixed charge coverage ratio. The failure by K-Bro to rectify any non- compliance with any of its covenants or obligations within an appropriate cure period would constitute an event of default and would entitle the Banks to accelerate all amounts outstanding under the Credit Facility, and upon such acceleration, the Banks would be entitled to begin enforcement procedures against the assets of K-Bro, including accounts receivable, inventory and equipment. The Bank s would then be repaid from the pro ceeds of such enforcement proceedings, using all available assets. Only after such repayment and the payment of any other secured and unsecured creditors would the Shareholders of the Corporation receive any proceeds from the liquidation of K-Bro's assets. The Credit Facility could in certain circumstances restrict K -Bro's ability to make payments in respect of the Common S hares, including limiting distributions unless sufficient funds are available for the repayment of indebtedness and the payment of interest expenses and taxes. A copy of the Credit Facility can be accessed through K-Bro's profile on the SEDAR+ website at www.sedarplus.ca.
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36 120904825 v3 INTERESTS OF EXPERTS To the knowledge of the Corporation, there is no person or company whose profession or business gives authority to a report, valuation, statement or opinion made by the person or company and who is named as having prepared or certified a report, valuation, statement or opinion described or included in a filing, or referred to in a filing, made under National Instrument 51-102 Continuous Disclosure Obligations by K-Bro during, or relating to, K-Bro’s most recently completed financial year. PricewaterhouseCoopers LLP are the auditors of the Corporation and have confirmed with respect to the Corporation that they are independent within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations , and also that they are independent accountants with respect to the Corporation under all relevant U .K. professional and regulatory standards. ADDITIONAL INFORMATION Additional information relating to K-Bro can be found at www.sedarplus.ca or our website at www.k-brolinen.com. Additional information, including directors' and officers' remuneration and indebtedness, principal holders of the Corporation's securities , and securities authorized for issuance under equity compensation plans, will be contained in the Corporation's management information circular related to the annual meeting of Shareholders to be held on June 3, 2025. Additional financial information is contained in the Corporation 's audited consolidated financial statements for the years ended December 31, 202 4 and 2023, and the annual management 's discussion and analysis of financial condition and results of operations for fiscal 2024. Vous pouvez obtenir des renseignements supplémentaires sur la Société, y compris les documents déposés auprès des autorités de réglementation, sur notre site Web, au www.k-brolinen.com et sur le site Web des autorités canadiennes en valeurs mobilières au, le site Web du Système électronique de données, d'analyse et de recherche (« SEDAR+ »).
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120904825 v3 APPENDIX A K-BRO LINEN INC. AUDIT COMMITTEE CHARTER This charter (the “ Charter”) sets forth the purpose, reports to the Board of Directors (the “ Board”), composition, duties and responsibilities, meetings, resources and authority, and annual evaluation of the Audit Committee (the “Committee”) of the Board of K-Bro Linen Inc. (the “Corporation”). 1. Purpose The main objective of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to: • the quality and integrity of the Corporation’s financial statements and related disclosures; • the Corporation’s internal controls systems, including its internal control over financial reporting systems; • compliance by the Corporation with legal and regulatory requirements including, among other things, in respect of financial disclosure; • the qualification, independence and performance of the Corporation’s independent auditor; • the performance of the Corporation’s Chief Financial Officer (the “ CFO”); • the Corporation’s financial risk management systems; and • any additional duties set out in this Charter or otherwise delegated to the Committee by the Board. In addition, the Committee provides an avenue for communication between the independent auditor, management, other employees and the Board concerning accounting and auditing matters. The Committee is directly responsible for the appointment, compensation, retention, termination and oversight of the independent auditor and its work, including oversight of the resolution of any disagreements between management and the independent auditor regarding financial reporting. The Committee is not responsible for: • planning or conducting audits, • certifying or determining the completeness or accuracy of the Corporation’s financial statements or that those financial statements are in accordance with generally accepted accounting principles, or • guaranteeing the report of the Corporation’s independent auditor. The fundamental responsibility for the Corporation’s financial statements and disclosure rests with management, and the independent auditor is responsible for auditing those financial statements. It is not the duty of the Committee to conduct investigation s, resolve disagreements (if any) between management and the independent auditor or ensure compliance with applicable legal and regulatory requirements.
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A-2 120904825 v3 2. Reports to the Board The Committee shall report to the Board on a regular basis and, in any event, before the public disclosure by the Corporation of its quarterly and annual financial results. The reports of the Committee shall include any issues of which the Committee is aware with respect to: • the quality and integrity of the Corporation’s financial statements and related disclosures; • the compliance by the Corporation with legal and regulatory requirements including, among other things, in respect of financial matters and disclosure; • the performance and independence of the Corporation’s independent auditor; • the effectiveness of systems of control (including risk management) established by management to safeguard the assets (real and intangible) of the Corporation; and • the proper maintenance of accounting and other records. The Committee shall also prepare, as required by applicable law, any audit committee report required for inclusion in the Corporation’s publicly filed documents. 3. Composition The Committee shall consist of three or more directors of the Corporation who are appointed (and may be replaced) by the Board. Each of the members of the Committee shall meet the independence, experience and other requirements under applicable regulatory, stock exchange and securities law requirements and, without limitation, shall be financially literate or become financially literate within a reasonable period of time following his or her appointment. This shall, at a minimum, include the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation’s financial statements. The members of the Committee will be appointed to hold office until the next annual general meeting of shareholders of the Corporation or until their successors are appointed. The Board may remove a member of the Committee at any time and may fill any vacancy occurring on the Committee by appointment from among qualified directors of the Corporation. A member of the Committee may resign at any time, and a member will automatically cease to be part of the Committee upon ceasing to be a director of the Corpor ation. No member of the Committee shall (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the Corporation, other than remuneration for acting in his or her capacity as a member of the Board or any Board committee, or (ii) be an “affiliated person” of the Corporation (for this purpose, an “affiliate” of a person is a person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the first person). With out the approval of the Board, no member of the Committee shall concurrently serve on the audit committee of a competitor or client. 4. Duties and Responsibilities It is recognized that, in fulfilling their responsibilities, members of the Committee are not full -time employees of the Corporation. As such, it is not the duty or responsibility of the Committee or its members to conduct “field work” or other types of au diting or accounting reviews or procedures, or to determine that the Corporation’s financial statements are complete and accurate. Each member of the Committee shall be entitled to rely on (i) the integrity of those persons and organizations within and outside the Corporation from which he or she receives information, and (ii) the accuracy of the financial and other information provided to the Committee by such persons or organizations, absent actual knowledge to the contrary (which shall be promptly report ed to the Board).
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A-3 120904825 v3 The duties and responsibilities of the Committee as they relate to the following specific matters are as follows: 4.1. Relationship with the Independent Auditor The Committee shall: • Recommend the independent auditor to be appointed for the purpose of preparing and issuing an auditor’s report or performing other audit, review or attestation services. • Establish and maintain a direct line of communication with the independent auditor. • Establish the compensation of the independent auditor. • Advise the independent auditor that it will report directly to the Committee, and not management of the Corporation or the wider Board. • Oversee the work of the independent auditor in preparing and issuing an auditor’s report or performing other audit, review or attestation services for the Corporation, including any disagreement between management and the independent auditor regarding financial reporting and the resolution of each such disagreement. • Adopt policies and procedures for the pre -approval of all non -audit services to be provided by the independent auditor, subject to any restrictions on such services imposed by applicable legislation, including procedures for the delegation of authority to provide such approval to one or more members of the Committee. • At least annually, review the qualifications, performance and independence of the independent auditor. In doing so, the Committee should, among other things, undertake the measures set forth in Appendix “A” to this Charter. • Periodically review with the independent auditor: o internal controls and other steps that management has taken to control financial reporting risk; o the quality and acceptability of the accounting principles that have been applied; o the integrity of the Corporation’s internal and external financial reporting processes; o any changes to the Corporation’s significant accounting principles and practices suggested by the independent auditor and/or members of management; o any problems or difficulties the independent auditor may have encountered during the provision of its audit- related services, including any restrictions on the scope of activities or access to requested information and any significant disagreements with management; o any management letter or other material communication provided by the independent auditor to management, and management’s response to that letter or communication; and o any significant risks or exposures facing the Corporation. • Review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Corporation.
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A-4 120904825 v3 4.2. Financial and Related Disclosures • The Committee shall, with management and the independent auditor: o before public disclosure, review the Corporation’s annual audited financial statements and quarterly unaudited financial statements, the accompanying management’s discussion and analysis (“MD&A”) and annual and interim earnings press releases, and make recommendations to the Board as to the approval and dissemination of those statements and disclosure; o review the adequacy of procedures in place for the review of the Corporation’s public disclosure of financial information extracted or derived from the Corporation’s financial statements, other than the public disclosure referred to in the immediately prec eding paragraph, and periodically assess the adequacy of those procedures and consider whether they are complete and consistent with the information known to Committee members; o review any disclosures concerning any weaknesses or deficiencies in the design or operation of internal controls or disclosure controls made to the Committee by the Chief Executive Officer (the “CEO”) or CFO during their certification process in documents filed with applicable securities regulators; and o review financial information and any earnings guidance provided to analysts and rating agencies, recognizing that this review and discussion may be done generally (consisting of a discussion of the types of information to be disclosed and the types of presentations to be made) and need not take place in advance of the disclosure of each release or provision of guidance. 4.3. Oversight of the Audit Process The Committee shall: • Review with management and the independent auditor: o the proposed audit plan and scope of review by the independent auditor before the commencement of any audit, including the external auditor’s engagement letter, post- audit management letter, if any, and the form of the audit report; o any significant financial reporting issues and judgments made in connection with the preparation of the Corporation’s financial statements, including any significant changes in the selection or application of accounting principles, any major issues regarding auditing principles and practices, and the adequacy of internal controls that could significantly affect the Corporation’s financial statements; o all critical accounting policies and practices used; o the effect of regulatory and accounting initiatives, as well as any off -balance sheet structures, transactions, arrangements and obligations (contingent or otherwise), on the Corporation’s financial statements; o all alternative disclosures and treatments of financial information within International Financial Reporting Standards (“ IFRS”) that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the disclosure and treatment preferred by the independent auditor; o the use of “pro forma” or “adjusted” non-IFRS information; and
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A-5 120904825 v3 o the adequacy of the Corporation’s (i) internal accounting controls and management information systems and (ii) financial, auditing and accounting organizations and personnel, and any special steps adopted in light of any material control deficiencies. • Review with management: o the Corporation’s guidelines and policies with respect to risk assessment, the Corporation’s major financial and business risk exposures, and the steps management has taken to monitor and control such exposures; and o the disclosure of all related -party transactions and the development of policies and procedures related to these transactions. • Following completion of the annual audit, review with each of management and the independent auditor any significant issues, concerns or difficulties encountered during the course of the audit, including: o restrictions on the scope of work or on access to required or requested information; o issues or concerns that arose during the course of the audit concerning the Corporation’s internal accounting controls or fair presentation, completeness or accuracy of the financial statements; and o analyses prepared by management or the independent auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements (including analysis of the effects of alternative treatments u nder generally accepted accounting principles). • Receive and review reports from other Board committees with regard to matters that could affect the audit or results of operations. • Oversee appropriate disclosure of the Charter, and other information required to be disclosed by applicable legislation in the Corporation’s public disclosure documents, including any management information circular distributed in connection with the solicitation of proxies from the Corporation’s securityholders. 4.4. Compliance The Committee shall, as it determines appropriate: • Review with the CFO, other members of management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports which raise material issues regarding the Corporation’s financial stat ements or accounting policies. • Review with the Corporation’s external legal counsel legal matters that may have a material impact on the financial statements or accounting policies. • Establish whistle-blowing procedures, including procedures for: o the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters; and o the confidential, anonymous submission by employees of the Corporation of concerns regarding any accounting or auditing matters.
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A-6 120904825 v3 • Periodically review reports on the Corporation’s information technology systems that support the financial reporting process. • Review independent financial analyst commentary concerning the Corporation and its financial reporting. 4.5. Delegation To avoid any confusion, the Committee responsibilities identified above are the sole responsibility of the Committee and may not be delegated to a different committee. The Committee may delegate any or all of its functions to any of its members or any sub-set thereof from time to time as it sees fit. 5. Meetings The chair of the Committee (the “ Chair”) shall be selected by the Board. If the Chair is present, the Chair will act as chair of the meeting of the Committee. If the Chair is not present, the members of the Committee may designate a chair for the meeting by majority vote of the members of the Committee present. Minutes shall be maintained for all meetings of the Committee and copies of the minutes shall be made available to all members of the Board. The Committee shall meet not less than once per quarter, in accordance with a schedule established each year by the Committee, and at other times that the Committee may determine. At the discretion of the Committee, members of management and others may attend Committee meetings, other than the separate sessions with the independent auditor, the CFO and the external legal counsel. The Committee shall meet periodically with the CFO, the independent auditor and external legal counsel in separate sessions. Quorum for all meetings shall be a majority of the Committee members. Each member of the Committee will have one vote and decisions of the Committee will be made by an affirmative vote of the majority. The Chair will not have a deciding or casting vote in the case of an equality of votes. A member may participate in a Committee meeting by means of telephone, electronic communication facilities, or such other communication facilities which permit all persons participating in the meeting to communicate with each other, and a member participating in such a meeting by such means is deemed to be present at the meeting. Powers of the Committee may also be exercised by written resolutions signed (physically or electronically) by all Committee members. Meeting agendas shall be developed by the Chair in consultation with management and the independent auditor. Committee members may propose agenda items through communication with the Chair or the CFO. Agendas, together with appropriate briefing materials, shall be circulated to Committee members prior to meetings. Between meetings, the Chair or any member of the Committee designated for such purpose by the Committee may, if required under the circumstances, exercise any power delegated by the Committee on an interim basis. The Chair or other designated member of the Committee will promptly report to the other members in any case in which this interim power is exercised. 6. Resources and Authority The Committee shall have the resources and authority appropriate to discharge its responsibilities, including the authority to engage and establish the compensation of, at the expense of the Corporation, outside advisors including experts in particular are as of accounting, legal counsel and other experts or consultants as it determines necessary to carry out its duties, without seeking approval of the Board or management. The Committee will advise the Board of any such action taken.
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A-7 120904825 v3 The Committee has the authority to conduct any investigation that is necessary or desirable to fulfill its responsibilities, and has direct access to the independent auditor as well as anyone in the Corporation, including any internal auditors. Nothing in this Charter is intended or may be construed as imposing on any member of the Committee or the Board a standard of care or diligence that is in any way more onerous or extensive than the standard to which directors are subject under applicable law. 7. Annual Evaluation The Committee shall, in a manner it determines to be appropriate: • At least annually, review and evaluate the performance of the Committee and its members, including the compliance of the Committee and its members with this Charter. • Periodically, review and assess the adequacy of this Charter (including with respect to the procedures regarding the review of the Corporation’s public disclosure of financial information extracted or derived from the Corporation’s financial statements) an d recommend to the Board any changes to this Charter that the Committee determines to be appropriate. APPROVED by the Board of Directors and Audit Committee of K-Bro Linen Inc. on November 13, 2024.
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A-8 120904825 v3 Appendix “A” Qualifications, Performance and Independence of Independent Auditor • Review the experience and qualifications of the senior members of the independent auditor’s team. • Confirm with the independent auditor that it is in compliance with applicable legal, regulatory and professional standards relating to auditor independence. • Review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Corporation. • Review annual reports from the independent auditor regarding its independence, consider whether there are any non-audit services or relationships that may affect the objectivity and independence of the independent auditor and, if so, recommend that the Boa rd take appropriate action to satisfy itself of the independence of the independent auditor. • Obtain and review such report(s) from the independent auditor as may be required by applicable legal and regulatory requirements. • Conduct an evaluation (taking into account the opinions of management) of the independent auditor’s qualifications, performance and independence and present to the Board the Committee’s conclusion in such regard. • Review, as required, the independent auditor’s plans with respect to partner rotation.