Shermag announced that it will seek the Quebec Superior Court's permission Wednesday to sell the insolvent furniture maker to Bermex for $1.25 million.
Under a deal endorsed Friday by Shermag's board of directors, Bermex would provide $1.25 million in exchange for nearly 41.7 million new Shermag shares, representing about 70 per cent of the issued and outstanding shares in the company.
Bermex would also obtain up to $3 million in interim financing to fund Shermag's operations until the deal closes, in October.
"The transaction is an essential step towards the completion of Shermag's restructuring efforts and the presentation of a plan of arrangement to its creditors," the company stated Monday.
The deal would preserve about 225 jobs.
The bedroom furniture specialist has been hit hard by the recession and slumping sales in the United States and has been under the protection of the Companies' Creditors Arrangement Act since May 5, 2008.
Shermag also announced that its shares were delisted from the Toronto Stock Exchange on July 31.
Sherbrooke-based Shermag has 13 plants in Quebec and one in New Brunswick. The only one still open belongs to subsidiary Jaymar, north of Montreal.
Founded in 1983, Bermex specializes in kitchen and dining room furniture. It has 13 factories in Quebec, employing 580 people. The company reportedly had $48.5 million of sales last year, making it one of the five largest players in the sector in Quebec.
Bermex president Richard Darveau said in an interview Friday that his goal is to eventually reopen all of Shermag's plants.
Shermag has been kept afloat by funding from Geosam Investments Ltd., a private company headed by activist investor George Armoyan.
Armoyan, who resigned from the Shermag board earlier this spring, is also the chief executive of Clarke Inc. (TSX:CKI), the Halifax-based activist investment firm which owns about 20 per cent of the Sherbrooke furniture maker.
Geosam has been funding Shermag's operations and restructuring process since taking over the furniture company's credit facilities last August from Wachovia Finance Corp.