Dear Members,
Thank you for all the feedback we’ve received concerning the proposed licencing of the Christmas Market. There were some common threads to many of the questions, which we have answered below. As well, we will allow plenty of time for a Q&A session during the Special General Meeting. If you don’t see your questions answered below, you will be able to pose them at the meeting. In order to accommodate everyone, we will be providing two minutes per question or comment for each speaker, so if possible, please have your questions prepared ahead of time so that we can conduct the Q&A efficiently.
You’ll also find at the bottom of this message the RSVP link for those who would like to attend but haven’t yet notified us.
Q: Can I vote by proxy?
A: Yes, definitely. To do so, you’ll need to fill out the proxy form attached as Schedule C in the Special Resolution Circular emailed to members on August 11. Please send the completed form to membership@circlecraft.net by end of day on Sunday, August 23. During the meeting there will be five minutes allotted after the Q&A for proxy voters to confer with their principals before casting their votes.
Q: Why is the board not allowing voting by secret ballot?
A: Voting on Zoom will be by secret ballot. It will be secure, anonymous and confidential. Zoom also provides us with immediate results.
Our legal counsel advises us that, during COVID-19, best legal practices for holding member’s meetings is to conduct a poll of members attending an online meeting (Zoom), and for those members who are unable to attend online, to offer voting by proxy. This chosen practice is in accordance with the Rules of the Association and has been widely employed by corporations and associations throughout Canada.
Q: Why is there no financial information provided regarding Signatures Shows?
A: The source of Circle Craft’s future income rests principally on the revenue derived from the future markets and not necessarily upon the financial condition of Signatures. Royalties to be paid to Circle Craft from the licensing transaction stem primarily from the financial performance of future Circle Craft markets. Proceeds from future Markets, both Christmas and New Markets, will first be paid to Circle Craft as royalties. To ensure prompt payment to Circle Craft of its royalties, Signatures has agreed to post a performance bond of $125,000, to be held in trust, to cover against the possibility of delay or default of payment. If drawing on the performance bond is still insufficient to meet Signatures’ payment obligations to Circle Craft, then the license can be terminated and operation of the markets reverts back to Circle Craft.
Q: Did the Board only approach Signatures regarding licensing?
A: No. The Board contacted and/or issued a Request for Proposals (RFP) to a number of experienced Canadian craft show managers, including Signatures Shows, Informa Canada (operator of One-Of-A-Kind shows), Salons Metiers d’Art (Montreal) as well as Enchanted Christmas (N. Vancouver). After multiple discussions and a comprehensive review of candidate responses, Signatures was selected as the party best able to meet the requirements as outlined in the RFP.
Q: Why is the $150,000 royalty set so low?
A: The royalties due to Circle Craft under the licensing agreement consist of several components, of which the $150,000 fixed annual payment constitutes just one. Circle Craft also receives an additional 5% royalty of gross sales from the Christmas Market and, beginning in Year 3, will also receive a 10% royalty from gross sales derived from 3 New Markets. Circle Craft realized a profit of roughly $165,000 operating the 2019 market. Had the licensing agreement been in place during 2019, Circle Craft would have received royalties exceeding $200,000.
The reason why Signatures is willing to pay Circle Craft a higher level of royalties is because they, being a much larger organization operating multiple markets nationally, are more efficient and profitable than Circle Craft. They stand to make more money by operating the Vancouver market and we also stand to make more money under the license terms if the Christmas show performs as previously. It’s a Win-Win partnership. Additionally, Signatures will further grow our royalty stream by adding New Markets in B.C., something that Circle Craft had been constrained in undertaking in the past due to our limited profitability and lack of staffing resources
Q: Why is there such a rush towards licensing, given the low possibility that the 2020 market will be held?
A: The idea for licensing Circle Craft’s market actually originated among the Board in the beginning of the year ahead of the impact of COVID-19. As only a quarter of Circle Craft members actually participated in the 2019 Christmas Market, the question was raised at the Board as to whether Circle Craft should devote more time and effort towards enhancing the nature of services provided by the Association to a larger proportion of our members, while still being able to derive the equivalent or greater financial benefit from the “intellectual property” resident in Circle Craft’s reputation and brand name.
Since the arrival of COVID-19, the licensing transaction has taken on a much more time-sensitive demeanour. The transaction fits in with our overall restructuring of the organisation given the financial hemorrhaging that we are now encountering with reduced gallery sales and the very distinct possibility that the 2020 Christmas Market will not take place, thereby depriving the Association of a significant and essential source of income. The upfront royalties to be paid by Signatures upon the signing of the license agreement to obtain the right to operate Circle Craft markets beginning in 2021 will keep our finances in good stead. Without this transaction, we will need to undertake far more drastic restructuring measures.
Q: How we will know that the high quality of the Circle Craft Market can be maintained?
A: One of the terms of the agreement specifies that Circle Craft will have a veto on the Market jury, thus ensuring that new exhibitors who do not meet the current Circle Craft selection criteria will not be accepted. As well, the agreement specifies that Signatures offer employment to at least one of our two Show Producers for a minimum of one year, thus providing further control over the quality of the show.
The Board would like to assure the membership that the proposal we are putting before you has received enormous internal scrutiny. We have questioned and examined every aspect of it amongst ourselves and have been guided throughout the final stages by a legal team at Clark Wilson LLP. We truly believe that this is the best option for long-term viability of the Co-op, particularly under the almost impossible financial challenges that COVID-19 has thrust upon us.
We look forward to meeting with you on the 25th.
Regards,
Circle Craft Board
