No. S087215 Vancouver Registry IN THE SUPREME COURT OF BRITISH COLUMBIA

No. S087215
Vancouver Registry
IN THE SUPREME COURT OF BRITISH COLUMBIA
IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT
R.S.C. 1985, c. C-36
AND
IN THE MATTER OF THE BRITISH COLUMBIA
BUSINESS CORPORATIONS ACT, S.B.C. 2002, c.57
AND
IN THE MATTER OF JUNG DEVELOPMENTS INC.
(Referred to as “JDI” or the “Company”)
MONITOR’S FIRST REPORT TO COURT
(Prepared for the November 12, 2008 Court Hearing)
NOVEMBER 9, 2008
JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
TABLE OF CONTENTS
1
INTRODUCTION....................................................................................................................1
2
BACKGROUND AND CAUSES OF FINANCIAL DIFFICULTY....................................2
3
SUMMARY OF THE CURRENT FINANCIAL POSITION .............................................6
4
POST FILING OPERATIONS ..............................................................................................9
5
ACTIVITIES OF THE MONITOR .......................................................................................9
6
DEBTOR IN POSSESSION (“DIP”) FINANCING...........................................................10
7
ACTUAL AND FORECASTED CASH-FLOWS TO DECEMBER 26, 2008.................12
8
RESTRUCTURING AND REFINANCING OF THE INFINITY DEVELOPMENT ...12
9
PRE-FILING PAYMENT TO FASKENS...........................................................................20
10
EXTENSION OF THE STAY ..............................................................................................21
APPENDICES
A.
Cash-flow Statement – Actual and forecast for the period October 15, 2008 to
December 26, 2008
B.
Debtor In Possession Loan Agreement
C.
Listing of unsecured creditors as at October 15, 2008
D.
Fasken Martineau DuMoulin LLP – Amounts Owing as at October 15, 2008
JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
1
INTRODUCTION
1.1
Details relating to Jung Developments Inc. (referred to as “JDI” or the
“Company”) and the filing are set out in the Petition filed on October 15, 2008.
The Initial Order under the Companies’ Creditors Arrangement Act (“CCAA”)
was made on October 15, 2008. Under the Initial Order, PricewaterhouseCoopers
Inc. (“PwC” or the “Monitor”) was appointed Monitor.
1.2
The Initial Order also allowed JDI to retain the services of
PricewaterhouseCoopers Corporate Finance Inc. (“PwCCF”), a division of PwC,
to assist it in finding another party to invest in the Company or to identify new
sources of financing required to complete its construction project known as the
Infinity Development.
1.3
Pursuant to the Initial Order, the comeback hearing was set for
November 12, 2008 and the stay of proceedings was extended until that date.
1.4
This represents the Monitor’s First Report to the Court with respect to the CCAA
filing of the Company. The purpose of this report is to inform the Court of the
following:
1.4.1
Background of the Company and the causes of its financial difficulty;
1.4.2
The Company’s current financial position;
1.4.3
The Company’s post-filing operations;
1.4.4
The activities of the Monitor;
1.4.5
The results of the restructuring and re-financing process undertaken by
PwCCF, together with the Monitor’s recommendations thereon;
1.4.6
The Company’s actual cash-flows for the period of October 15, 2008 to
October 31, 2008 together with a cash-flow forecast to
December 26, 2008; and
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
1.4.7
2
The Monitor’s recommendation on an extension of the stay of
proceedings.
BACKGROUND AND CAUSES OF FINANCIAL DIFFICULTY
2.1
Background
2.1.1
JDI is a British Columbia company, incorporated on September 1, 2004.
JDI was incorporated for the purposes of developing the Infinity Project at
Central City (the “Infinity Development”), a real estate development
project located in Surrey adjacent to the King George sky train station.
The Infinity Development was designed to consist of five 36-storey
residential towers and commercial space, totalling 1.2 million square feet.
The Company’s assets consist primarily of those related to the
development project.
2.1.2
JDI is controlled by Hee Yong Yang. Mr. Yang owns 45% of JDI’s shares
and also controls Yuksung Korea Co., Ltd which holds a further 10% of
JDI’s shares. Other shareholders are Myung Soo Jung (35%) and Jung
Development Co Ltd. (10%). Documents transferring Jung Development
Co Ltd’s shares to Byron Lee, a representative of Mr. Yang, were signed
by JDI; however, the share certificates and register have not been updated
to reflect this. Accordingly, Mr. Yang directly and indirectly controls
65% of the shares of JDI.
2.1.3
Mr. Yang is the sole director of JDI.
2.1.4
The Company conducts its operations from rented office space in
downtown Vancouver.
2.1.5
At the date of filing, the Company had five full time employees.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
2.1.6
The Infinity Development consists of the following Phases and buildings:
Phase
1
2
3
2.2
Buildings
Status
Tower 1 – Residential Completed and turned over to
strata council in the April of
2008. Six unsold units remain
owned by JDI.
Tower 2 & 3 –
Under construction – tower 2
Residential
has 25 floors of concrete
poured (of 36) and windows
installed to floor 17; tower 3
has 20 floors of concrete
poured (of 36) and windows
installed to floor 13. Phase 2
is approximately one-third
complete.
Commercial building Underground parking lot has
been excavated. No concrete
and underground
poured, therefore large open
parking lot
pit exists.
Tower 4 & 5 –
Vacant land – future
Residential
development.
Ownership
Strata
JDI
JDI
JDI
Summary of Phase 1
2.2.1
Phase 1 is virtually completed although the final building occupancy
permit has not been issued by the City of Surrey. It will be issued once all
deficiencies have been corrected. The remaining deficiencies are minor in
nature.
2.2.2
The strata council took possession of Tower 1 in April 2008. JDI still
owns six unsold units with an estimated market value in the range of $1.4
million.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
2.2.3
2.3
Even though occupation of Tower 1 has occurred there remains some
minor uncompleted work related to the landscaping and off-site work.
The uncompleted landscaping includes guardrails and artwork (estimated
to be $0.2 million to complete). The off-site work relates to work to be
done on City of Surrey property around the development and relates to
Phases 1 & 2 (e.g. roadwork and sidewalks) which is estimated to be $1.5
million to complete). There are letters of credit in place with the City of
Surrey to cover these commitments of JDI.
Summary of Phase 2
2.3.1
Phase 2 of the Infinity Development includes the development of two
nearly identical 36-storey residential towers each with 349 residential
units, three levels of underground parking and commercial space that joins
the two structures.
2.3.2
Phase 2 construction began in July 2007 with ITC Construction Inc.
(“ITC”) as the general contractor under a fixed price contract. When ITC
ceased construction activities on Phase 2 around October 8, 2008, the
construction work was approximately one-third complete.
2.3.3
As of October 15, 2008, Tower 2 & 3 had concrete forms poured up to
floor 25 and 20, respectively. Drywall, bathtubs and cabinets have been
installed to varying degrees on the first few floors in each tower.
2.3.4
The unit pre-sales for Tower 2 & 3 were very strong. The towers were
nearly sold out in 1 day of selling during October 2005. However, given
the current circumstances, certain pre-sale contracts have been rescinded
over the past few months. As of November 4, 2008, 599 of the 698
residential units (86%) have been sold for a total sales value of $143.5
million. The current financial situation of JDI, precludes any sales process
for the remaining 99 unsold units. For the week of October 28 to
November 4, 2008, there were 9 rescissions with a sales value of $1.9
million.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
2.4
2.3.5
The 599 pre-sale purchasers have provided $21.1 million (approximately
15% of sales value) in deposits which are held in trust with Fasken
Martineau DuMoulin LLP (“Fasken”).
2.3.6
Based on discussions with the quantity surveyor, JDI, and ITC, as at
October 2008, construction was on time and on budget.
Financing for Phase 2
2.4.1
The total funding budgeted for the construction and development of Phase
2 was $180 million. The funding for Phase 2 was by a combination of
equity investment by JDI (i.e. $30 million); mezzanine financing from
Lehman Brothers Holdings Inc. (“Lehmans”) (i.e. $50 million); and the
remaining $100 million from a group of senior secured lenders that
consisted of CIBC, RBC Royal Bank, and Woori Bank (“Senior
Lenders”).
2.4.2
By the middle of the Summer of 2008, the equity and mezzanine funds
had been advanced and JDI was looking to the Senior Lenders to begin
advancing. A change of ownership of JDI and certain administrative City
permit crises gave rise for the need to issue a disclosure statement to the
pre-sale purchasers and the Senior Lenders would not advance until the
level of pre-sales was validated post-disclosure statement.
2.4.3
During the period that the Senior Lenders refused to advance, Lehmans
advanced 3 payments to JDI which were referred to as protective
disbursements. These protective disbursements totalled approximately $9
million and are set out below:
•
On August 18, 2008, Lehmans advanced $1.6 million;
•
On August 20, 2008, Lehmans advanced $2.6 million; and
•
On September 5, 2008, Lehmans advanced $4.8 million.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
3
2.4.4
The September 15, 2008 bankruptcy of Lehmans prevented any further
advances, but in any event, Lehmans had advanced approximately $59.0
million against its commitment of only $50.0 million.
2.4.5
The Senior Lenders have not advanced any amounts to date. It appears
that the substantive aspects of the loan agreements have been met by JDI,
although clearly the current circumstances of JDI’s insolvency will
prevent any funding.
2.4.6
On September 22, 2008, ITC was owed its August construction draw
request of $2.2 million and on October 10, 2008, ITC was owed its
September construction draw request of $2.8 million. JDI neither had the
funding nor the ability to source funding to pay these construction draw
payments.
2.4.7
This led to the CCAA filing on October 15, 2008.
SUMMARY OF THE CURRENT FINANCIAL POSITION
3.1
As at October 15, 2008, JDI’s assets consisted of the following:
3.1.1
Cash on hand – $193,000.
3.1.2
Phase 1 of the Infinity Development
3.1.3
•
Unsold units in Tower 1 – six units with an aggregate current
asking price of $1.4 million; and
•
Construction holdback funds related to Phase 1 in the amount of
$231,000.
Phase 2 of the Infinity Development
•
Construction in process of approximately $42 million;
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
3.2
•
Construction holdback funds related to Phase 2 in the amount of
$3.0 million; and
•
Pre-sale contracts with a value of $143.5 million (as of
November 4, 2008).
3.1.4
Phase 3 of the Infinity development – approximately, one-third of the
Infinity developed site is vacant land.
3.1.5
Miscellaneous head office furniture and computer equipment – book value
of $20,000.
3.1.6
Tax losses in the range of $30 million to $70 million, before any impact of
debt forgiveness.
JDI’s liabilities consist of the following:
3.2.1
CIBC has a registered first place mortgage over Phase 2 and 3 to support
its anticipated senior secured construction advances that were
contemplated in the project financing. Since no advances were made,
CIBC is not owed anything in respect of this security.
3.2.2
Lehmans has a registered second place mortgage over Phase 2 and 3
supporting amounts owed to it. It is owed $59 million of principal plus
approximately $10 million of accrued interest.
3.2.3
Hee Yong Yang advanced $18 million to JDI under a loan facility secured
by a third mortgage over Phase 2 and 3.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
3.2.4
ITC is owed amounts in respect of construction work that was unpaid at
the time of filing. This consists of unpaid work performed in an
undetermined amount. ITC filed a builder’s lien of $16.8 million;
however, the Monitor has been unable to support this amount and ITC has
not provided the Monitor with support for this lien claim. Based on
information available to the Monitor, ITC appears to be owed $9.5 million
as follows:
•
$5.5 million related to unpaid construction draws for the months of
August, September and October; and
•
$4.0 million in respect of holdbacks from Phase 1 and 2 of the
Infinity development.
3.2.5
Syber Concrete Forming Ltd. is owed amounts in respect of construction
work under its contract with ITC; however, it has filed a builder’s lien
directly against Phase 2 of the Infinity Project. The amount of the lien is
$2.5 million. The Monitor believes that this is a part of the lien that was
filed by ITC and accordingly, is duplicated therein.
3.2.6
General unsecured creditors – Based on the books and records of the
Company, JDI has 28 general trade creditors who are owed a total of $3.6
million. This excludes any amounts owed to ITC in addition to its lienable
construction work. The listing of unsecured creditors is attached as
Appendix C.
3.2.7
Myung Soo Jung has loaned approximately $700,000 to the Company.
3.2.8
Shareholder disputes – There exists some unresolved litigation amongst
the shareholders or former shareholders of JDI. The Monitor has not
expended any effort in reviewing these actions. The Monitor notes that
these actions total approximately $16.8 million.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
4
5
POST FILING OPERATIONS
4.1
On or about October 8, 2008, ITC ceased active construction work on the Infinity
Development. Therefore, work done by ITC after this date was intended to
preserve the project only.
4.2
Subsequent to the CCAA filing, ITC ceased all activities at the site, including
preservation activities.
4.3
On October 20, 2008, ITC began to remove some of their equipment and
materials from the Phase 2 site. The major equipment (i.e. cranes, man-hoists,
and concrete forms) has been left on the site until the comeback hearing pending
determination of whether ITC will re-commence construction. ITC has advised
the Monitor that it will begin dismantling and removing the remaining equipment
on November 13th if a clear determination has not been made that ITC will remain
the general contractor of the project.
4.4
After ITC advised it would not continue with the site preservation and security
activities, the Monitor worked with JDI to put in place arrangements for these
activities to be performed. The critical activities consist of site physical security,
dewatering of excavated areas, and heating of the concrete structures. Each of
these is being performed.
4.5
Other than the site preservation, no construction activity is taking place.
ACTIVITIES OF THE MONITOR
5.1
To date, the Company has fully co-operated with the Monitor and has provided
unrestricted access to its premises, books and records. The Monitor has
implemented procedures for the regular monitoring of cash receipts and
disbursements.
5.2
In accordance with paragraph 51 of the Initial Order, the Monitor oversaw the
mailing to the creditors by the Company on October 28 and October 30, 2008.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
6
5.3
An advertisement was placed in the Vancouver Sun and in the Globe and Mail on
Saturday, October 18, 2008 and on Saturday, October 25, 2008.
5.4
The Monitor continues to maintain a web-site at www.pwc.com/carjungdevelopments at which it is intended that all materials filed in this Court by
the Company or the Monitor related to the filing will be made available to
creditors and other interest parties in an electronic format.
DEBTOR IN POSSESSION (“DIP”) FINANCING
6.1
As part of the Initial Order, DIP financing in the amount of $1.5 million was
authorized.
6.2
Subsequently, JDI entered into the DIP credit agreement with Tallinn Capital
Corp. (“Tallinn”), a copy of which is attached as Appendix B.
6.3
Tallinn has provided DIP financing to JDI in the amount of $1.5 million. Tallinn
advanced its first of two advances on October 27, 2008 in the amount of
$750,000. No further advances have been requested, although the funding to date
is not sufficient to satisfy all post-filing accrued liabilities. Accordingly, it is
anticipated that a further draw against the DIP financing will be made within the
next week. The stay of proceedings under the CCAA will need to be extended for
Tallinn to make a further advance.
6.4
The DIP Agreement has been summarized below:
6.4.1
6.4.2
The proceeds of the DIP Loans are to be used for:
•
Financing the day to day operating requirements of JDI; and
•
Financing expenses associated with the CCAA Proceedings.
Includes an acknowledgement that there will be subordinated priority
charges:
•
An Administrative Charge which shall not exceed $750,000; and
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
•
6.4.3
Tallinn has the right of first refusal to advance any additional loans which
may be required by JDI.
6.4.4
The DIP Loan shall be repaid in full on the earliest of the following:
6.4.5
6.5
A Directors and Officers Charge, which shall not exceed $250,000.
•
Four months following the date of the initial advance (i.e. by
February 27, 2009);
•
The date on which JDI completes all requirements of a Plan of
Arrangement that has been accepted by its creditors and approved
by the Court; and
•
The date on which the stay of proceedings ordered in the CCAA
Proceedings is terminated or lifted.
Management and security of the Infinity Phase 2 site shall be in place at
all times.
The DIP Credit Agreement provides for payments of:
6.5.1
A set-up fee of $15,000.
6.5.2
A monthly monitoring and administration fee of $5,000.
6.5.3
Interest at a rate of 12% per annum.
6.5.4
Other related fees and expenses. To-date, these fees have totalled
$18,000, consisting of Tallinn’s legal fees associated with the transaction.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
7
8
ACTUAL AND FORECASTED CASH-FLOWS TO DECEMBER 26, 2008
7.1
The actual and forecasted cash-flow for the period of October 15, 2008 to
December 26, 2008 is attached as Appendix A. Actuals from October 15 to 31
are set out in the Appendix. The period from November 1 to December 26, 2008
are projected.
7.2
We make the following comments on the cash-flow:
7.2.1
The first draw on the DIP credit facility in the amount of $750,000 was
made in the week ending of October 31, 2008.
7.2.2
As at October 31, 2008, JDI had cash in the bank of $293,000.
7.2.3
As set out in the projections, JDI anticipates making a further draw on the
DIP credit facility in the amount of $500,000 during the week ending
November 14, 2008 and in the amount of $250,000 during the week
ending December 12, 2008.
7.2.4
By December 26, 2008, JDI projects that it would have drawn the full
amount of the DIP facility (i.e. $1.5 million) and will be short cash
totalling $184,000. Accordingly, JDI will need to modify its planned
expenditures over the next 6 weeks or raise additional funding. If the stay
of proceedings is extended, the Monitor will work with the Company to
resolve this issue and report to the Court thereon at each application.
RESTRUCTURING AND REFINANCING OF THE INFINITY DEVELOPMENT
8.1
General
8.1.1
As reported to the Court at the initial application on October 15, JDI
retained PwCCF to find replacement financing in the amount of
approximately $100 million to allow JDI to complete Phase 2 of the
project or alternatively (and the more likely scenario), find another
developer who possessed the financial ability to make available the
financing and to finish the project.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
8.1.2
The parties who would be most impacted by the outcome of this
restructuring/refinancing process are set out below:
•
Lehmans as the first secured creditor;
•
ITC as the general contractor with the fixed price contract and all
the risk to the sub-trades if the project is terminated or they are
replaced as general contractor; and
•
JDI who was hopeful to generate a residual economic interest in
the project, and wanted the moral satisfaction of having the project
completed.
8.1.3
PwCCF met extensively with both ITC and JDI throughout the process to
obtain input and seek direction where appropriate.
8.1.4
In terms of input and direction from Lehmans, PwCCF dealt with their
advisors as follows:
8.1.5
•
TriMont Real Estate Advisors (“TriMont”) - Asset advisors based
in Atlanta, Georgia; and
•
Blake Cassels & Graydon (“Blakes”) – Legal counsel in
Vancouver.
PwCCF explicitly requested that principals from Lehmans partake in these
discussions, but were advised that all reporting should go through their
advisors. PwCCF respected this direction from each of TriMont and
Blakes; and accordingly, no further attempts were made to contact
Lehmans directly.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
8.2
Summary of Input from ITC
8.2.1
8.3
Summary of Input from JDI
8.3.1
8.4
ITC advised PwCCF that its primary interest is to continue as the general
contractor given the contract arrangements with JDI. ITC is owed for
unpaid work done pre-filing; however, it also has significant financial and
business arrangements in place related to the Infinity development and
these would be negatively impacted if construction on the project were to
be significantly delayed or if ITC were replaced as the general contractor.
Examples of such impact consist of the 2 tower crane rentals which will
remain an ongoing material cost to ITC.
JDI advised PwCCF that it is flexible on the solution reached, but it would
like to secure some level of economic return for its ongoing cooperation.
Depending on the structure of choice for new parties, the benefit of what
JDI is able to deliver will differ. The benefits may include assisting with
preserving the pre-sale contracts, minimizing the construction time delays,
delivering a turnkey solution, and monetizing the tax losses.
Summary of Input from Lehmans
8.4.1
PwCCF was cognizant of the challenges for Lehmans given its own
bankruptcy proceedings in the US and accordingly, consciously delivered
regular updates to each of TriMont and Blakes. These updates included
regular telephone conversations on the proposed process and requests for
feedback. In addition, two detailed reports were prepared for the benefit of
Lehmans, dated October 28, 2008 and November 4, 2008, respectively.
8.4.2
These reports contain sensitive and confidential information that would
not typically be provided to outside parties in a CCAA proceeding. The
Monitor believes that these reports are helpful to the Court in
understanding the full particulars and accordingly; these reports have
recently been sent to the Court for its review, but with the request that they
be sealed.
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
8.5
8.4.3
As part of the ongoing communication and reporting to Lehmans’
advisors, PwCCF specifically requested guidance and input on the
proposed process, the timelines being suggested, and in particular the
parties to whom the efforts were being directed. Furthermore, PwCCF
advised TriMont and Blakes that certain parties may approach Lehmans
directly and the benefits of the restructuring/refinancing process would be
maximized if those parties were included in a combined and coordinated
process.
8.4.4
The November 4th report to Lehmans contained a full analysis of the sale
process that PwCCF undertook and the outcome of those efforts. In
advance of advising prospective bidders of the timelines of the process,
PwCCF coordinated with TriMont for its participation in the review and
assessment of the anticipated bids. In this regard, a deadline for bids of
November 3rd was communicated to parties. PwCCF then prepared the
November 4th report, which was reviewed with JDI mid-day on November
4th. TriMont travelled to Vancouver from Atlanta to meet with JDI and
PwCCF to review the results of the process, which meetings took place on
November 4th in the afternoon.
Urgency of the Timelines
8.5.1
Based on discussions with TriMont, JDI, ITC and each of the active
participants in the process, a short time period was determined to be
necessary to complete a restructuring or refinancing. The following is a
summary of the factors raised which necessitated the tight timelines:
•
The project is currently idle and if this situation is maintained
without a solution, the negative stigma will increase quickly;
•
The purchasers of the pre-sale contracts are currently in a position
to rescind their contracts given the lack of committed financing. At
this time, rescissions are occurring weekly and therefore, the value
of the pre-sale contracts (in the range of $145 million) is eroding as
time lapses without a clear path forward that can be communicated
to purchasers; and
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JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
•
8.5.2
8.6
ITC has to date taken no steps to remove the major equipment
from the site, including the 2 tower cranes, the crane man-hoists,
and the concrete forms. ITC has indicated that it will begin
demobilizing this equipment on November 13th if there is no clear
direction provided to it that gives assurances that it will continue to
be the general contractor and that construction will resume in the
near future.
For these reasons, it was communicated to all parties that the desire was to
have a process that allowed a party to be selected and approved by the
Court at the November 12th comeback hearing. PwCCF received no
objections or push-back from any of the parties involved to this timeline.
Overview of the Restructuring / Refinancing Process
8.6.1
The process details were communicated to Lehmans’ advisors through
verbal communication and the two reports of October 28th and
November 4th. As noted above, the Court has been provided with copies of
these reports. The following is a summary of the process and results
achieved:
•
Over 100 parties were identified and provided with a summary of
the opportunity. The parties included financial parties, residential
and commercial property developers in Vancouver, Calgary,
Toronto, and selected parts of the US. Given the short timelines,
the list was very targeted.
•
Parties were provided an executive summary document which
outlined the nature of the Infinity Project and the opportunity
available.
•
An electronic data room was set up to make due diligence easy and
efficient. All information was posted to the data room. Parties who
executed confidentiality agreements were granted access to the
data room. No party was refused access to the data room by virtue
of their reluctance to execute the confidentiality agreement.
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MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
8.7
•
PwCCF and the Monitor together met with all reasonably
interested parties to ensure that the insolvency proceedings and the
process being administered were each well understood. Based on
these meetings and the follow-on due diligence that was
performed, PwCCF anticipated that several parties would submit
letters of intent ("LOI’s").
•
By the bid submission deadline of November 3rd, 7 LOI’s were
received. These LOI’s ranged in approach from those who wished
to simply make a payment and take over the project, to those who
wished to work with Lehmans and JDI to finish the development.
All of the parties performed significant due diligence; however,
PwCCF was of the view that certain parties had clearly performed
extensive due diligence and such views were communicated to
Lehmans’ advisors and JDI.
Recommendation of PwCCF
8.7.1
PwCCF determined that one of the LOI’s was the superior bid. This party
was recommended to both JDI and Lehmans as the party to seek Court
approval and work with to complete a definitive agreement. This party is
referred to as the Preferred Bidder.
8.7.2
The LOI from the Preferred Bidder expressed its intention to work with
ITC as the general contractor. In this regard, the Monitor was satisfied that
this bid provided the best return in total, was acceptable to JDI, and would
become acceptable to ITC once it learnt of the party’s identity and its
intentions.
8.7.3
Following the meeting of November 4th with TriMont, a reply to the
recommendation was requested from Lehmans as soon as practical, but no
later than the end of day on Thursday, November 6th. Several of the LOI’s
expired on November 7th, including the LOI from the Preferred Bidder.
17
JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
8.8
Response from Lehman’s
8.8.1
By late afternoon on November 6th, no reply had been received from
Lehmans. The Monitor attempted to reach TriMont and Blakes to discuss
the direction. The Monitor was successful in reaching Blakes and was
advised that Lehmans had received an offer directly from another party,
which was potentially more favourable to Lehmans given its inherent
structure. The Monitor requested a meeting with each of JDI and Lehmans
to discuss this situation.
8.8.2
Late on Friday, November 7th, the Monitor met with its counsel, counsel
for JDI, and counsel for Lehmans to attempt to get common direction.
Based on this meeting, the Monitor concluded that common direction
might not be forthcoming.
8.8.3
While formal direction from Lehmans had not been provided at the time of
writing this report (i.e. Sunday evening November 9th), Blakes advised at
the November 7th meeting it anticipated Lehmans would conclude that it
wished to pursue a foreclosure type solution, rather than support a
restructuring under the CCAA. Blakes further advised that there may be
some interest by Lehmans in the offer from the Preferred Bidder.
8.8.4
At the November 7th meeting, Blakes further advised the Monitor and JDI
that based on the results of the restructuring process undertaken by
PwCCF, in the view of Lehmans the economic interest in the Infinity
project was entirely that of Lehmans. Therefore, there was no justification
to provide any economic return to JDI and the foreclosure would best
accomplish this.
18
JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
8.9
8.10
Subsequent Steps Taken by JDI
8.9.1
JDI was faced with a conflicting situation in that the LOI from the
Preferred Bidder expired on November 7th, yet Lehmans had not formally
responded. Furthermore, under the course of action being pursued by
PwCCF and JDI, time was of the essence. Therefore, JDI requested
PwCCF to work over the weekend with the Preferred Bidder on an
exclusive basis to move forward the LOI as much as possible for
presentation to the Court at the comeback hearing on November 12th.
8.9.2
PwCCF communicated with the Preferred Bidder and advised that it had
been selected as the exclusive party by JDI; however, there was another
party that Lehmans might view as more favourable. The Preferred Bidder
advised that its current LOI was based on a restructuring through the
CCAA, which in its view was a materially more favourable vehicle to
preserve the value of the pre-sale contracts and the tax efficiency of the
transaction.
8.9.3
The Preferred Bidder; therefore, undertook to meet with ITC as the
general contractor over the course of the weekend and attempt to revise its
LOI based on a collaborative effort. PwCCF anticipates receiving a
revised and more defined LOI from the Preferred Bidder prior to the
November 12th Court application. Should this occur, the Monitor will
provide this information to all parties and will submit a supplementary
report to the Court.
Recommendation of the Monitor
8.10.1 The Monitor has been verbally advised of the intensions of Lehmans,
however; it has not been provided with the details of the other offer nor
does it know that such an offer is bona fide. If there is another offer that
Lehmans believes is superior, then subject to its review, the Monitor may
well support that view. In this regard, the Monitor has requested that a
copy of the offer be provided to it for its review. This request has been
declined.
19
JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
8.10.2 The Monitor notes that combining the two processes would in all
likelihood improve the overall results
8.10.3 In the absence of reviewing the other offer provided to Lehmans, the
Monitor concludes that the offer from the Preferred Bidder is the best
option available to all stakeholders and recommends that this offer be
pursued with vigour. In this regard, a revised LOI may be forthcoming
from the Preferred Bidder over the next day and such offer may materially
impact on the views of Lehmans. Accordingly, the Monitor recommends
that such a revised offer be given full opportunity.
9
PRE-FILING PAYMENT TO FASKENS
9.1
Fasken Marinteau DuMoulin (“Faskens”) has been the long time counsel for JDI.
Faskens is representing JDI in the CCAA Proceedings and prior to that, Faskens
provided legal services to JDI in relation to the Infinity development project.
9.2
At the October 15th hearing, Faskens disclosed that it had received $240,000 from
JDI on October 14th (i.e. the previous day) to cover a portion of the amounts
owing to Faskens by JDI.
9.3
The Monitor has reviewed the particulars of this payment and sets out its findings
as follows:
9.3.1
As at September 30, 2008, Fasken was owed $728,244 for corporate legal
work related to the Infinity development (see Appendix D for a listing of
the individual invoices aggregating to this amount).
9.3.2
The $728,244 owing to Faskens as at September 30, 2008 consists of
invoices covering legal services dating from March 2008 to
September 30, 2008.
9.3.3
On October 14, 2008, JDI issued a lump sum payment in the amount of
$240,000 to Faskens to cover a portion of the amounts outstanding for the
work performed prior to October 1, 2008.
20
JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
9.4
10
9.3.4
On October 27, 2008, with the execution of the DIP loan agreement,
Fasken was provided with a $250,000 retainer to cover its professional
fees for the period beginning from October 1, 2008 related to the CCAA
proceedings and the general corporate work necessary to advance the
restructuring efforts.
9.3.5
Fasken has not yet prepared an invoice for the period October 1 to
October 31, 2008 and the retainer has; therefore, not yet been applied.
At this stage, the Monitor has not reviewed this payment with its counsel to
ascertain the legal appropriateness of same given the solvency of JDI at the time
and the circumstances that it faced. Should the Court direct the Monitor to
perform such a review and make its recommendation to the Court, then the
Monitor will be pleased to do so.
EXTENSION OF THE STAY
10.1
The Monitor understands that the Company has requested an extension of the
CCAA stay of proceedings for an additional 90 days. The Monitor cannot support
such a lengthy extension under the circumstances.
10.2
If the Preferred Bidder submits a revised and more definitive LOI prior to
November 12th as noted earlier in this report, and the Court determines that
further efforts should be pursued to attempt to reach a definitive agreement with
that party, then the Monitor supports a short extension of no more than 10 days to
accomplish same and report back to the Court. As noted earlier in this report, time
is of the essence and the Monitor believes that JDI, Lehmans, and the Preferred
Bidder ought to be motivated to either reach a definitive agreement in that time
frame or acknowledge that such an agreement is unlikely to be reached.
21
JUNG DEVELOPMENTS INC.
MONITOR’S FIRST REPORT TO COURT
NOVEMBER 9, 2008
This report is respectfully submitted this 10th day of November 2008.
PricewaterhouseCoopers Inc.
Court Appointed Monitor of
Jung Developments Inc.
Michael J. Vermette
Senior Vice President
Michael D. Armstrong
Vice President
G:\BRS Power\Jung Developments\Reports\1st Report\Monitor's First Report.doc
22
APPENDIX A
Cash-flow Statement – Actual and forecast
for the period October 15, 2008 to December 26, 2008
Appendix A
Jung Developments Inc.
Weekly Cash-flow Forecast - Actual and forecast for the period October 15, 2008 to December 26, 2008
For the week ended
10/15/08 to
10/17/08
Actual
10/24/08
Actual
10/31/08
Actual
11/7/08
Projected
11/14/08
Projected
11/21/08
Projected
11/28/08
Projected
Cash Inflows
DIP financing
-
-
750,000
-
500,000
-
-
Total Cash Inflows
-
-
750,000
-
500,000
-
-
Cash Outflows
Payroll and related costs
Head office costs
Ongoing project costs
Project site security costs
Project site preservation costs
Real estate marketing fees
Monitor and financial advisor fees
Legal fees
DIP interest and administration fees
Contingency
10,866
12,939
27,360
-
5,825
312
16,541
-
411
35,000
250,000
268,000
21,973
-
37,636
1,960
1,142
41,200
141,300
9,000
5,500
-
338
146
26,250
15,600
16,000
150,000
75,000
-
-
Total Cash Outflows
51,165
22,678
575,384
237,737
Net Inflow (Outflow)
(51,165)
(22,678)
174,616
Opening bank account balance
192,636
141,472
Closing bank account balance
141,472
118,794
12/5/08
Projected
12/12/08
Projected
12/19/08
Projected
12/26/08
Projected
Total
250,000
-
-
1,500,000
-
250,000
-
-
1,500,000
15,600
16,000
12,647
-
10,055
26,250
15,600
16,000
-
-
15,600
16,000
-
25,418
12,535
1,700
15,600
16,000
100,000
283,334
31,670
171,253
44,247
(237,737)
216,666
(31,670)
(171,253)
118,794
293,410
55,673
272,339
293,410
55,673
272,339
240,669
70
15,600
16,000
100,000
50,000
-
25,600
1,046
1,700
15,600
16,000
150,000
115,738
29,489
100,943
150,400
253,300
44,000
500,000
393,000
40,120
250,000
67,905
181,670
209,946
1,876,989
(44,247)
182,095
(181,670)
(209,946)
(376,989)
240,669
69,416
25,168
207,263
25,593
192,636
69,416
25,168
207,263
25,593
(184,353)
(184,353)
70
Note
1) JDI has two joint term deposit accounts with ITC in relation to 10% holdback amounts. As of October 15, 2008, the holdback accounts held $230,656 and $3,024,457 for phase I and phase II
respectively. These amounts are not included in the bank account balance on this cash-flow.
Page 1 of 1
APPENDIX B
Debtor In Possession Loan Agreement
APPENDIX C
Listing of unsecured creditors as at October 15, 2008
Appendix C
Jung Developments Inc - Unsecured trade creditors as of October 15, 2008
Outstanding balance as
of October 15, 2008
Name
Altus Helyar
The Grosvenor Building
B&B Contracting Ltd
#100-19429-54th Ave
Surrey, BC
V3S 7X2
$187,778.18
Chalet Kitchens Inc.
201-1437 Kingsway
Vancouver, BC
V5N 2R6
$27,220.00
Cobalt Engineering
#305-625 Howe Street
Vancouver BC.
V6C 2T6
$18,552.51
Davidson Yuen Simpson
260-1770 Burrard Street
Vancouver, BC
V6J 3G7
$260,150.05
Dynamex Canada Corp
P.O. box 243 Malton CSC
Mississauga, ON
L4T 3B6
$43.94
Fasken Martineau DuMoulin LLP
2900-550 Burrard Street
Vancouver BC
V6C 0A3
$488,224.68
Fraser & Company LLP
1200-999 West Hasting St
Vancouver BC
V6C 2W2
$35,415.95
Geopacific Consultants Ltd
#215 - 1200 West 73rd Avenue
Vancouver, BC
V6P 6G5
$625.52
Graphic Zoo
Suite 101-480 Smithe St
Vancouver BC
V6B 5E4
$6,759.20
Insta Space Storage Ltd.
9658 River Road,
Delta, BC,
V4G 1B5
$212.80
Lasso Data Systems Inc.
#2258-13353 Commerce Parkway
Richmond Richmond, BC
V6V 3A1
$974.40
LMDG Building Code Consultants Ltd
4th floor, 780 Beatty St
Vancouver BC
V6B 2M1
$24,465.00
MAC Real Estate Corp.
1280 Homer St.
Vancouver BC
V6B 2Y5
$310,897.79
Matcon Excavation & Shoring Ltd
2208 Hartley Avenue
Coquitlam BC
V3K 6X3
$1,867,973.62
Metro Testing Laboratories (Surrey) Ltd
#104-12882 85th Ave.
Surrey BC
V3W 0K8
$17,593.80
Morrison Hershfield
Suite 610-3585 Graveley St
Vancouver BC
V5K 5J5
$30,556.64
NEFS CO., LTD., Korea
Duk-Young Bldg. 423-5, Dogok-Dong
Kangnam-Gu, Seoul
135-270, Korea
Nemetz (S/A) & Associates Ltd.
2009 West 4th Ave.
Vancouver, BC
V6J 1N3
$11,468.08
New East Consulting Services Ltd
#203-12877-76th Ave.
Surrey BC
V3W 1E6
$45,221.72
Perry + Associates
Suite 200 - 1558 W 6th Ave.
Vancouver BC
V6J 1R2
$7,203.28
Read Jones Christoffersen
Suite 300-1285 West Broadway
Vancouver . BC
V6H 3X8
$53,558.73
Ricoh Canada Inc
5520 Explorer Dr, 3rd Floor
Mississauga, ON
L4W 5L1
$303.53
Rockingham Pool Consulting Inc
PO Box 414
Squamish,BC
V8B 0A4
$2,100.00
Target Land Surveying
201-8484 162nd Street,
Surrey, BC
V4N 1B4
$6,657.00
Trimont Real Estate Advisors,Inc
Monarch Tower
3424 Peachtree Road N.E., Suite 2200
Atlanta, Georgia, USA
Columbia Cabinets
2221 Townline Road, R.R.#1
Abbotsford, BC
V2T 6H1
Total
630-1040 west Georgia Street
Vancouver, BC
V6E 4H1
$22,745.36
$127,697.00
30326
$18,911.75
$1,272.67
$3,574,583.20
Page 1 of 1
APPENDIX D
Fasken Martineau DuMoulin LLP –
Amounts Owing as at October 15, 2008
Appendix D
Jung Developments Inc.
Amounts Owing to Fasken Martineau as at October 15, 2008
Invoice Date (Note 1)
Invoice Number
October 14, 2008
October 14, 2008
October 14, 2008
October 14, 2008
October 14, 2008
October 14, 2008
October 14, 2008
September 24, 2008
September 24, 2008
September 24, 2008
September 24, 2008
September 24, 2008
September 24, 2008
September 24, 2008
August 14, 2008
August 14, 2008
August 14, 2008
August 14, 2008
August 14, 2008
August 14, 2008
July 24, 2008
July 24, 2008
July 24, 2008
July 24, 2008
July 24, 2008
July 24, 2008
July 24, 2008
June 25, 2008
June 25, 2008
June 25, 2008
June 25, 2008
June 25, 2008
June 25, 2008
June 25, 2008
June 5, 2008
June 5, 2008
June 5, 2008
June 5, 2008
June 5, 2008
June 5, 2008
June 5, 2008
May 14, 2008
May 14, 2008
May 14, 2008
May 14, 2008
May 14, 2008
May 14, 2008
April 3, 2008
April 7, 2008
352288
352289
352290
352291
352273
352274
352292
348539
348540
348541
348542
348543
348544
348545
339379
338911
338912
338914
338915
338916
335211
335213
335214
335215
335216
335208
335209
328437
328438
328440
328441
328442
328443
328444
322552
322553
322554
322555
322556
322560
322561
317302
317303
317304
317305
317306
317307
306345
306716
Sub-total
Amount
$
Application of October
14, 2008 Payment
$
Balance
Owing
$
1,266.30
7,810.34
6,896.53
41,580.00
16,347.98
3,213.04
1,424.75
122.97
3,335.35
775.27
23,031.26
21,546.56
10,999.20
9,643.58
4,455.44
6,374.69
36,090.19
6,818.66
7,487.24
2,647.19
9,577.86
3,525.01
3,857.28
358.37
17,391.40
14,582.13
11,337.46
6,430.88
33,906.27
1,624.00
5,487.56
417.28
158.24
3,852.98
3,525.66
321.44
551.04
1,292.72
4,141.16
2,131.58
563.43
9,225.40
293,753.25
206.76
11,856.61
14,426.10
5,160.35
44,523.21
113,752.71
1,266.30
7,810.34
6,896.53
41,580.00
16,347.98
3,213.04
1,424.75
122.97
3,335.35
775.27
23,031.26
21,546.56
10,999.20
9,643.58
4,455.44
6,374.69
36,090.19
6,818.66
7,487.24
2,647.19
3,001.40
3,525.01
3,857.28
358.37
17,391.40
-
6,576.46
14,582.13
11,337.46
6,430.88
33,906.27
1,624.00
5,487.56
417.28
158.24
3,852.98
3,525.66
321.44
551.04
1,292.72
4,141.16
2,131.58
563.43
9,225.40
293,753.25
206.76
11,856.61
14,426.10
5,160.35
44,523.21
113,752.71
829,804.68
240,000.00
589,804.68
Amounts paid by JDI prior to October 2008 for amounts owing
101,580.00
Total amount owing as at October 15, 2008
488,224.68
Note 1 - The invoice is usually issued 3 weeks after the period of work is performed (e.g. Invoice 335209 is dated July
24, 2008 and it is for the period ending June 30, 2008.
Page 1 of 1