Court File No. CV-16-11281-00CL FOURTH REPORT TO COURT

Court File No. CV-16-11281-00CL
FOURTH REPORT TO COURT
SUBMITTED BY PRICEWATERHOUSECOOPERS INC. IN ITS CAPACITY AS
MONITOR IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF GUESTLOGIX INC. AND GUESTLOGIX IRELAND
LIMITED
March 17, 2016
Court File No. CV-16-11281-ooCL
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEME1V7' ACf, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF GUESTLOGIX INC. AND GUESTLOGIX
IRELAND LIMITED (the "Applicants")
FOURTH REPORT TO COURT
SUBMITTED BY PRICEWATERHOUSECOOPERS INC.
IN ITS CAPACITY AS MONITOR OF
GUESTLOGIX INC. AND GUESTLOGIX IRELAND LIMITED
March 17, 2016
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TABLE OF CONTENTS
INTRODUCTION
4
DISCLAIMERAND TERMS OF REFERENCE
ACTIVITIES OF THE MONITOR
5
6
ACTIVITIES OF GUESTLOGIX CANADA
7
CASH RECEIPTS AND CASH DISBURSEMENTS
KEY EMPLOYEE RETENTION PLAN
9
16
KEY EMPLOYEE INCENTIVE PLAN
18
CONCLUSION
23
APPENDIX
A.
First Amended and Restated Initial Order dated February
B.
Third Report of the Monitor (without appendices) dated March 1, 2016
C.
Order (Re: Approval of the SISP) dated February 19, 2016
D.
Initial Cash Flow Forecast to May 6, 2016
E.
KEIP Illustration
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12,
2016
INTRODUCTION
1.
This report (the "Fourth Report") is filed by PricewaterhouseCoopers Inc. ("PwC"), in its
capacity as monitor (the "Monitor") in the Companies' Creditors Arrangement Act, R.S.C.
1985, c. C-36, as amended (the "CCAA") proceeding (the "CCAA Proceedings") of
GuestLogix Inc. ("GuestLogix Canada") and GuestLogix Ireland Limited ("GuestLogix
Ireland" and, collectively with GuestLogix Canada, the "Company"), which were
commenced further to the issuance on February 9, 2016 by the Ontario Superior Court of
Justice - Commercial List (the "Court") of an initial order (as amended and restated by the
first amended and restated initial order made by the Court on February 12, 2016, a copy of
which is attached as Appendix "A", the "Initial Order").
2.
The Fourth Report has been prepared in connection with the Company's motion for an Order:
(i)
approving the KERP (as hereinafter defined) and granting the KERP Charge (as
hereinafter defined);
(ii)
approving the KEIP (as hereinafter defined) and granting the KEIP Charge (as
hereinafter defined);
and to provide the Court with:
3.
(iii)
information regarding GuestLogix Canada's activities and operations since March 1,
2016, the date of the Monitor's third report to Court (the "Third Report" attached
hereto, without appendices, as Appendix "B"), including an update with respect to
the Sale and Investment Solicitation Process (the "SISP"), which was approved by the
Court on February 19, 2016 (a copy of the Order approving the SISP is attached hereto
as Appendix "C");
(iv)
information regarding GuestLogix Canada's cumulative cash receipts and cash
disbursements from the date of the Initial Order to March 6, 2016; and
(v)
an update on the Monitor's activities since the date of the Third Report.
Unless otherwise stated, all monetary amounts contained herein are expressed in United
States Dollars.
4
4.
The Monitor has set up a website at www.pwc.cornicaiguestlogix. All prescribed materials
filed by the Company and the Monitor relating to the CCAA Proceedings are available to
creditors and other interested parties in electronic format on the Monitor's website. The
Monitor will make regular updates to the website to ensure creditors and other interested
parties are kept current.
DISCLAIMER AND TERMS OF REFERENCE
5.
In preparing this Fourth Report and conducting its analysis, the Monitor has obtained and
relied upon certain unaudited, draft andjor internal financial information of the Company, its
books and records and discussions with various parties including the Company's employees
and certain of its officers and directors (collectively, the "Information").
6.
Except as otherwise described in this Fourth Report:
(i)
the Monitor has not audited, reviewed or otherwise attempted to verify the
accuracy or completeness of the Information in a manner that would wholly or
partially comply with Canadian Auditing Standards pursuant to the Chartered
Professional Accountant Canada Handbook; and
(ii)
the Monitor has not conducted an examination or review of any financial
forecast and projections in a manner that would comply with the procedures
described in the Chartered Professional Accountant Canada Handbook.
7.
Since the Initial Cash Flow Forecast (as defined below) is based on assumptions regarding
future events, actual results will vary from the information presented even if the hypothetical
assumptions occur, and variations may be material. Accordingly, the Monitor expresses no
assurance as to whether the Initial Cash Flow Forecast will be achieved. We express no
opinion or other form of assurance with respect to the accuracy of any financial information
presented in this report, or relied upon by us in preparing this report.
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ACTIVITIES OF THE MONITOR
8.
Since the date of the Third Report, the Monitor has:
(i)
assisted in the review of the Applicants' operations on a daily basis with frequent
communication with management and staff;
(ii)
reviewed the actual cash flows of GuestLogix Canada on a daily basis;
(iii)
communicated with the Company's legal counsel and independent legal counsel to
the board of directors with respect to the CCAA proceedings, including matters
related to the SISP, the Company's dealings with its creditors and customers and
pre-filing litigation in which GuestLogix Canada and / or its affiliates are involved;
(iv)
corresponded with parties who have expressed an interest in participating in the
SISP and referred interested parties to Canaccord. Genuity Corp. ("Canaccord
Genuity" or the "Financial Advisor"), GuestLogix Canada's financial advisor,
who is responsible for carrying out the SISP;
(v)
in connection with the SISP, attended various meetings and conference calls with
potentially interested parties;
(vi)
attended on various conference calls with customers, with GuestLogix Canada's
management and OpenJaw's (as hereinafter defined) management, as
appropriate;
(vii)
communicated with the Company's creditors, including responding to a variety of
enquiries received from the Interim Lender, vendors and customers;
(viii) responded to numerous enquiries received through the Monitor's website from
interested parties, creditors and suppliers; and
(ix)
prepared this Fourth Report.
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ACTIVITIES OF GUESTLOGIX CANADA
9.
Since the date of the Initial Order, GuestLogix Canada has been managing its operations in the
normal course and its main focus has been on: (i) stabilizing the business and preserving its
assets as a result of the issuance of the Initial Order; and (ii) carrying out the SISP.
io.
As set out in the Third Report, GuestLogix Ireland has no active business activities and is a
holding company whose only asset is its 100% ownership interest in OpenJaw Technologies
Limited ("OpenJaw"), an Irish-based operating subsidiary that is not an applicant in the
CCAA Proceedings. Accordingly, the Monitor's comments herein relate only to the activities of
GuestLogix Canada.
1.
Since the date of the Third Report, GuestLogix Canada has:
(1)
engaged in a number of discussions with certain of GuestLogix Canada's
customers and, with management of OpenJaw, engaged in discussions with
certain of OpenJaw's customers, all with respect to GuestLogix Canada's and
OpenJaw's ongoing operations and continued commitment to serving customers
on a "business-as-usual" basis;
(ii)
engaged with certain key vendors and suppliers and negotiated revised terms of
trade governing the payment for and provision of goods and / or services postfiling;
(iii)
finalized a Notice of Objection in response to the Canada Revenue Agency's
("CRA") re-assessment dated December
2,
2015 (described in further detail in the
Third Report and the Initial Gillberry Affidavit, as hereinafter defined) and filed
same with the CRA on March 1, 2016;
(iv)
worked with the Financial Advisor with respect to the refinement of future
business plans and forecasts for GuestLogix Canada and OpenJaw, the two
primary operating businesses within the Company's corporate group;
(v)
assisted the Financial Advisor in continuing to provide information to interested
parties in connection with the SISP, including continuing to provide the Financial
Advisor information for the data room it is maintaining (the "Data Room"); and
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(vi)
12.
attended numerous meetings and conference calls with potentially interested
parties, in connection with the SISP.
In the Monitor's view, GuestLogix Canada's day-to-day operations have been largely
unaffected by the commencement of the CCAA Proceedings. The Company has continued to
operate in the normal course and has not experienced any additional disruption to its business
activities as a result of the commencement of the CCAA Proceedings. A detailed review on the
Company's actual cash flows is set out below.
SISP UPDATE
13.
14.
Canaccord provides the Interim Lender and the Monitor with an update on the SISP every
Friday, since the commencement of the SISP. As of March 11, 2016, the date of Canacccord's
most recent update to the Interim Lender and the Monitor:
(i)
38 parties have been sent a process letter with respect to the SISP;
(ii)
38 NDAs have been sent to Known Potential Bidders, including NDAs signed by
interested parties prior to the commencement of the CCAA proceedings;
(iii)
30 NDAs have been executed. According to Canaccord, of the 3o parties who
signed NDAs, it considers 15 to be "strategic" parties and 15 to be "financial"
parties; and
(iv)
Of the 30 parties who have signed NDAs, 25 parties have accessed the Company's
Data Room.
Numerous management meetings and conference calls have taken place, with certain
interested parties having had more than one interaction with management as of the date of
this Fourth Report. The Monitor is not aware of any party who has requested a meeting with
management who has not received, or is not receiving such a meeting.
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CASH RECEIPTS AND CASH DISBURSEMENTS
15.
The affidavit of John Gillberry ("Gillberry") sworn February 8, 2016 (the "Initial Gillberry
Affidavit"), and filed in support of the Initial Order, included a cash flow forecast (the
"Initial Cash Flow Forecast") for the period February 9 to May 6, 2016 (the "Cash Flow
Period").
16.
The Initial Cash Flow Forecast has been prepared by the Company for the purpose described
in the notes to and assumptions underlying the Initial Cash Flow Forecast (the "Notes" as
detailed in Exhibit "A" to the attached Appendix "D") using the probable and hypothetical
assumptions set out therein.
17.
GuestLogix Ireland has no material cash inflows or outflows since the entity is a holding
company. As such, the actual cash flows to forecast as set out below pertain only to GuestLogix
Canada.
18.
The Company has advised the Monitor that it intends to file a revised cash flow forecast in the
near future in order to reflect the impact of the Interim Facility, which was negotiated and
secured after the Initial Cash Flow Forecast was filed. The Monitor has reviewed the Initial
Cash Flow Forecast and notes that there are no material, operational changes to the business
that would otherwise impact the Initial Cash Flow Forecast. The Company, with the Monitor's
assistance, will file a revised cash flow forecast as soon as practically possible.
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A summary of GuestLogix Canada's actual cash receipts and cash disbursements as compared
to the Initial Cash Flow Forecast for the period from and including February 9, 2016 to March
6, 2016 (the "Reporting Period") is summarized as follows:
19.
GUESAGGIX INC
,_ ,.
.
„
Statement or ea sh receipts and ,dias r$enkent$
201
february 9.,:2016 to Mar
US'000s un au dite
Forecast
Actual
Variance
Receipts
58
Sales revenue collection
694
753
Merchandise revenue collection
463
526
63
(316)
Accounts receivable collection
880
563 ,
Transfer from OpenJaw
-
226
3,772
36
(3,73 6 )
5,808
2,104
(3,704)
1,025
1,010
14
150
125
25
6
227
(221)
226
314
(88)
30
234
(204)
468
260
208
HST receivable collection
Total Receipts
226
Disbursements
Payroll and benefits
Rent and utilities
Loans and bank charges
Cost of sales
Equipment sales COGS
Merchandise expense
Sub-contractor
77
77
-
93
7
86
Leases
26
25
1
Other operating expenses
72
35
37
467
155
312
3,77 2
36
3,736
187
140
47
31
(31)
Travel
Other costs
HST Payment
Restructuring costs
DIP financing interest &fees
Total Disbursements
Cash Flow Surplus/Deficit (-)
Opening Cash Balance
DIP Financing draw/(payback)
Closing Cash Balance
6 ,597
2 ,597
3,999
295
(788)
(493)
439
447
(8)
450
(45 0 )
404
753
(349)
20.
The Initial Cash Flow Forecast was prepared on a weekly basis, with each week representing
cash flows from Monday to the following Sunday.
21.
For the Reporting Period, the variances in actual cash flows compared to the Initial Cash Flow
Forecast are a result of both temporary and permanent differences in the timing and amount
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of receipts and disbursements, summarized as follows (amounts rounded to nearest
thousand):
(i)
(ii)
a $58,000 favourable, temporary variance in sales revenue collections resulting
primarily from:
(a)
a temporary, favourable variance of $193,000 in respect of a cash
receipt from United Airlines ("United"), which was not forecast to be
received until the week ending March 25, 2016, outside of the current
Reporting Period;
(b)
a temporary, unfavourable variance of $120,000 in respect of a forecast
receipt from Southwest Airlines ("Southwest") that was not received in
the Reporting Period. This variance is expected to reverse by the week
ending March 25, 2016; and
(c)
an unfavourable variance of $15,000 in respect of the non-payment of a
number of individual, smaller cash receipts that were forecast to be
received in the Reporting Period. These variances are expected to
reverse by the week ending March 18, 2016.
a $63,000 favourable, permanent variance in merchandise revenue collections. The
Initial Cash Flow Forecast assumes that GuestLogix Canada provides merchant of
record services to Momentum Services ("Momentum") and China Southern Airlines
("China Southern"), over the forecast period, by collecting cash for sales made by
those parties on a daily basis. GuestLogix Canada typically retains between 3% and
10% of the actual gross cash receipts from these sales as revenue, and remits the
remainder to Momentum and China Southern. Payment of the sales proceeds are
reflected in the 'Merchandise expense' line item of the Initial Cash Flow Forecast.
Management has advised the Monitor that week-by-week sales fluctuate, and as such,
variances are expected for this type of revenue stream and the associated cash
receipts. However, on February 23, 2016, Momemtum cancelled its arrangement with
GuestLogix Canada. Management expects that going forward, this will result in a
permanent, negative variance in merchandise revenue collections of approximately
$110,000 per week, with an offsetting reduction to the 'Merchandise Expense' line
item of approximately $99,000 to $107,000 per week, resulting in an insignificant
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change to GuestLogix's expected future net cash flow. Management expects the
relationship with China Southern and its contribution to GuestLogix Canada's
revenue stream to continue without interruption.
(iii)
a $316,000 unfavourable variance in accounts receivable collections, primarily as a
result of:
(a)
a temporary variance due to a one-week delay in the receipt of $159,000
from KLM, which was forecast to be received during the Reporting
Period. Payment was received, in full, during the week ended March 11,
2016;
(b)
a delay in receiving $83,000 from Thomson Airways ("Thomson")
due to a lengthy internal review process undertaken by it, resulting in a
counterclaim that GuestLogix has an outstanding payable to Thomson
in the amount of $50,000, which Thomson requires be set off against
the amount it owes GuestLogix prior to settling its outstanding account.
GuestLogix has confirmed the validity of Thomson's set-off claim. The
net amount owing to GuestLogix of $33,000 is expected to be received
during the week ended March 11, 2016 and is a temporary variance. The
remainder (being the setoff amount of $50,000) represents a
permanent unfavourable variance; and
(c)
a delay in receiving $80,000 owing from Finnair due to the disputed
application of a credit on their account. The Monitor is advised that
payment is expected to be made in full during the week ended March
25, 2016.
(iv)
a $226,000 permanent, favourable variance as a result of GuestLogix Canada receiving
an inter-company transfer of funds from OpenJaw.
(v)
a $3,736,000 temporary, unfavourable variance for HST collections. The requirement
to collect this HST resulted from a re-assessment performed by the CRA dated
December 2, 2015. The CRA maintains that GuestLogix Canada was obliged to collect
HST on certain sales made to non-resident customers, for which GuestLogix Canada
did not invoice the non-resident customers at the time the sale was made. Further
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details can be found in the Initial Gillberry Affidavit. The variance is comprised of:
(a)
approximately $3.3 million was forecast to be received from United
during the week ended March 6, 2016. Management has confirmed that
United will not remit payment to GuestLogix Canada until United
receives its input tax credit ("ITC") for the balance, from CRA. The ITC
was filed on January 31, 2016 with respect to the December return, and
all backup has been provided. Once the CRA pays the ITC to United,
then United is expected to remit the amounts to the Company; and
(b)
$439,000 was forecast to be received from Alaska Airlines Inc. during
the week of February 26, 2016. This amount was subsequently received
after the end of the Reporting Period, during the week ending March fi,
2016.
Management notes that timing of receipt of HST amounts forecasted in the Initial Cash Flow
Forecast is difficult to predict and as such, significant week-by-week variations are not
unexpected. The Monitor notes that the temporary, unfavourable variance in 'HST collections'
line item is offset by a temporary, favourable variance in the amount of $3,736,000 in the
`HST payments' line item. It is the Company's policy to remit any amounts collected for HST
that has been remitted to GuestLogix Canada by respective third parties. As such, the net cash
flow impact of variances in the HST collections and payments categories is nil.
(vi)
a $221,000 permanent, unfavourable variance in the 'Loans and bank charges' line
item as a result of:
(a)
a $66,000 unfavourable variance with respect to the payment of
forbearance fees to Comerica and Vistara, pursuant to the forbearance
agreement entered into by GuestLogix Canada pre-filing. These
payments were required under the Interim Facility;
(b)
a $99,000 unfavourable variance for loan interest payments to
Comerica and Vistara for interest accrued on the initial secured credit
facilities entered into by Comerica and Vistara and GuestLogix Canada;
and
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(c)
A $56,000 unfavourable variance for legal fees associated with the
preparation of materials and negotiation of the Interim Facility.
The successful negotiation and ability to draw on the Interim Facility was conditional
on the payment of these fees, as outlined above, which were outstanding as at filing
date. At the time the Initial Cash Flow Forecast was prepared, the Interim Facility had
not yet been negotiated and therefore these fees were not included in the Initial Cash
Flow Forecast.
(vii) a $88,000 unfavourable variance in respect of 'Cost of Sales' line item resulting
primarily from:
(a)
a $105,000 permanent, unfavourable variance arising from a
payment made to Blue Pay Canada ULC ("Blue Pay", formerly
Caledon Card Services), a critical supplier, who provides payment
processing services for certain customers of the Company. This was
paid in order to facilitate the continued supply of their services. No
such payment was provided for in the Initial Cash Flow Forecast;
(b)
a $34,000 temporary, favourable variance related to work
performed by software development subcontractors for which
invoices had not yet been provided. Payment to subcontractors is
only made upon receipt of an invoice (not just when the work has
been performed), and as such, this variance is expected to reverse by
mid-March; and
(c)
a permanent, unfavourable variance of $17,000 in respect of other
smaller cash payments made to vendors to facilitate the continued
supply of goods and services required to support the ongoing
operations and revenue of GuestLogix Canada.
(viii) a $204,000 unfavourable variance with respect to the 'Equipment sales COGS' line
item, primarily as a result of a change in the payment terms with a key supplier, "IT
Well" for hand-held devices to be delivered to Southwest. Southwest submitted a new
purchase order during the Reporting Period, which had not been initially forecast.
GuestLogix Canada has agreed to pay IT Well 50% of the amount of each new purchase
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order it places with IT Well, up front, at the date it makes such new orders, with the
remainder due and payable on delivery. Southwest is one of the Company's top
customers and this agreement has helped to facilitate the ongoing service, revenue and
relationship with both Southwest and IT Well.
(ix)
a $208,000 permanent, favourable variance in respect of 'Merchandise expense'
primarily due to non-payment of pre-filing balances owing to Momentum, that had
initially been forecast to be paid. In addition, effective February 23, 2016, Momentum
cancelled their agreement with GuestLogix Canada, resulting in a permanent reduction
of future costs of approximately $99,000 to $107,000 per week, as described above.
(x)
a permanent, favourable variance of $77,000 in respect of 'Sub-contractor" costs due
to non-payment of amounts originally forecast to be paid to NTT Data ("NTT") during
the Reporting Period, for work performed after the date of the Initial Order. NTT is a
sub-contractor who was engaged to work solely on a single project for one large
customer. On Sunday, February 28th, 2016 the Company was advised by the customer
that the project would be suspended and, as such, all work performed by NTT has also
been suspended. This will result in additional, permanent, favourable variances of
$62,000 to May 6, 2016.
(xi)
a temporary, favourable variance of $86,000 with respect to the "Travel" line item is
due to a delay in the timing of the receipt of expense reports for employee travel. This
variance is expected to reverse during the week ended March 18, 2016.
(xii) a $312,000 favourable variance in 'Other costs' primarily due to:
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(a)
a permanent, favourable variance of $315,000 due to non-payment
of professional fees in respect of work that has been performed for
the Special Committee in connection with its review of the
Company's revenue recognition accounting policies (as defined and
described in the Initial Gillberry Affidavit);
(b)
a permanent, unfavourable variance of $66,000 due to the partial
payment of MNP's professional fees to conduct a review
engagement, that was not forecast; and
(c)
a temporary, favourable variance of $63,000 for delayed payments
15
to several smaller vendors. This amount is expected to reverse as
payments and deposits are made to vendors.
(xiii) a $47,000 temporary, favourable variance related to restructuring fees for the Monitor,
Norton Rose Fulbright Canada LLP ("Norton Rose"), TGF, and Canaccord. These
fees have been incurred but have not yet been paid.
(xiv) a $31,000 permanent, unfavourable variance in the TIP Financing interest & fees' line
as GuestLogix had not forecasted interest and fees payable in accordance with the
Commitment Letter as the terms of the Interim Facility had not been finalized. The
interest and fees were not payable until the conditions laid out in the Commitment
Letter were met, which was completed in the week ending February 26th.
KEY EMPLOYEE RETENTION PLAN
22.
As described in the Gillberry Affidavit sworn March 15, 2016 (the "March 15 Gillberry
Affidavit"), the Company proposes to implement a Key Employee Retention Plan ("KERP").
The employees that are the beneficiaries of the KERP (the "Key Employees") are essential to
a successful value-maximizing outcome of the SISP by ensuring the business continues to
operate productively and in the ordinary course during the SISP. These employees also
currently face an uncertain position given the potential for material changes in their
employment situation, either as a result of the completion of a transaction under the SISP or
otherwise in connection with these insolvency proceedings. A redacted copy of the KERP is
attached as Appendix A to Exhibit "A" to the March 15 Gillberry Affidavit.
23.
Factors considered by the Company when designing the KERP and selecting employees for
participation in the KERP were:
(i)
operational and legacy knowledge of the Key Employees that would be very
difficult to replace in the short term;
(ii)
relationships of certain Key Employees with customers, whose relationships
would not be replaceable or transferable in the short term;
(iii)
whether such Key Employees operated in a market where replacement of such
employees would be particularly difficult; and
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(iv)
competitive levels of compensation in the market. The Key Employees have skills
that are readily transferrable and the Company has advised that there is a strong
possibility that these Key Employees could consider alternative employment
opportunities.
24.
Salient terms of the KERP include the following:
(i)
Key Employees would receive retention bonuses between 6% and 33% of their
annual salary;
(ii)
subject to the extension provision contained in the KERP, payments would be
made on the first payroll following June 30, 2016 and subject to the completion of
a transaction arising from the SISP;
(iii)
entitlements to payment are contingent upon the Key Employees meeting
performance expectations and remaining with the Company throughout the
period of the SISP and at least until June 30, 2016 (the "Retention Period"),
unless the employment of such Key Employees was terminated at an earlier date
by the Company without cause, for example in connection with a transaction
arising from the SISP, or employment ceased as a result of disability or death of
the Key Employee; and
(iv)
25.
the aggregate cost of the KERP is projected to be $287,500 for
20
employees.
The KERP does not provide for amounts payable to Gillberry, the interim Chief Executive
Officer of GuestLogix Inc. A separate incentive plan has been designed for Gillberry, which is
described in detail below.
26.
The Monitor has reviewed the calculation of the proposed amount of the payments under the
KERP, as well as the quantum and priority of the KERP Charge, and the Monitor is of the view
that these amounts are reasonable in the circumstances. The Monitor is also of the view that
the payment triggers associated with the KERP are reasonable in the circumstances.
27.
The Company has only filed a redacted copy of the KERP, as described above. The Monitor is
of the view that it should not be necessary to publicize the individual names of the Key
Employees who are eligible to participate in the KERP, for privacy reasons.
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KEY EMPLOYEE INCENTIVE PLAN
OVERVIEW
28.
As briefly described in paragraphs 17-19 of the March 15 Gillberry Affidavit, the Company
proposes to implement a Key Employee Incentive Plan ("KEIP") for Gillberry. The proposed
KEIP is attached as Exhibit "C" to the March 15 Gillberry Affidavit, which was served on the
service list by GuestLogix Canada's legal counsel, Thornton Grout Finnigan LLP ("TGF"), on
March 15, 2016 and is attached to the motion record of the same date.
29.
The Monitor understands that the KEIP was negotiated between Gillberry and the
independent committee (the "Independent Committee") of GuestLogix Canada's board of
directors. The Independent Committee exercised business judgement in developing the plan,
which was designed to give incentive to Gillberry to achieve success in maximizing transaction
value / enterprise value, for the benefit of all creditors generally.
30.
The KEIP was approved by the Independent Committee on February 25, 2016. However,
because the KEIP is outside of the ordinary course of business, GuestLogix is seeking the
Court's approval of the KEIP.
31.
The Independent Committee's approval of the KEIP, subject to the Court's approval of same,
results in the creation of contingent obligations to Gillberry. However, those obligations
would not be secured as against the Company's assets. Accordingly, pursuant to the terms of
the KEIP, the Company is seeking an order of the Court, granting a charge on its assets (the
"KEIP Charge") to secure the payment of the KEIP, if earned, in accordance with its terms.
The proposed KEIP Charge would rank behind all valid claims of the Interim Lender,
including in respect of valid secured claims owing to them in connection with pre-filing
secured debt, but would rank ahead of all unsecured claims.
GILLBERRY'S ROLE WITH GUESTLOGIX CANADA AND RELATED CHRONOLOGY
32.
On or about September 16, 2015, the Board of Directors named Gillberry Interim Chief
Executive Officer ("Interim CEO") upon the resignation of the then CEO. The Monitor
understands that, prior to his appointment as Interim CEO, Gillberry was an independent
director of GuestLogix Canada and chair of its audit committee.
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33.
On October 15, 2015, the Company announced it was initiating a restructuring and cost
savings plan to improve operations and support future profitable growth.
34.
On November 12, 2015, in connection with the release of its third quarter financial results,
GuestLogix Canada reported on significant restructuring efforts that had occurred during its
third fiscal quarter and announced the initiation of a strategic review, including the
engagement of Canaccord as the Financial Advisor.
35.
The Monitor understands that around the time Gillberry was hired as Interim CEO, as a result
of GuestLogix Canada's ongoing restructuring, many of the other executive management roles
that existed were eliminated.
COMPENSATION CONSIDERATIONS
36.
Based on the information publically available and on the Monitor's discussions with Gillberry
and other management personnel, Gillberry's role as Interim CEO became, in many respects,
similar to that of a Chief Restructuring Officer ("CRO"). Shortly after assuming the duties and
responsibilities as Interim CEO, the Company announced restructuring, cost savings and
strategic review initiatives, all indicative of a company undergoing transformation, financial or
operational restructuring. In addition, as noted above, many other executive positions were
eliminated, increasing the scope of the CEO's responsibilities. The Monitor recognizes that
Gillberry has not been formally engaged as the Company's CRO, nor does Gillberry regularly
practice as a CRO, in the marketplace. However, for illustrative purposes, the Monitor has
considered Gillberry's compensation, including the proposed KEIP, in the context of
compensation that may be available to a CRO, to provide some context, in order to consider
the reasonableness of the KEIP proposal.
37.
The role of a CRO in the context of a restructuring straddles many aspects of a company's
operations, including but not necessarily limited to:
(i)
strategic considerations;
(ii)
options identification, analysis and assessment;
(iii)
day-to-day operations;
(iv)
customer and vendor relationship management; and
19
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(v)
financial management.
Based upon its observations, the Monitor is of the view that Gillberry's duties and
responsibilities include all of these functions and responsibilities, to varying degrees.
38.
The Monitor, along with its independent legal counsel, Norton Rose and TGF have reviewed
various examples of compensation arrangements with CROs on a number of restructurings
that each has had involvement with in order to develop a "benchmark" against which to assess
the KEIP proposed by the Company and approved by the Independent Committee.
39. . As a result of its review, the Monitor notes the following:
40.
(i)
typical CRO compensation schemes appear to include monthly work fees and, in
many instances, success fees, that are based upon outcomes, some of which may or
may not have specific, measurable or quantifiable outcomes (i.e. "the sale of assets",
or the "implementation of a restructuring plan");
(ii)
monthly work fees vary widely. Of the various arrangements the Monitor, Norton
Rose and TGF discussed, work fees ranged between Canadian $25,000 per month and
$125,000 per month;
(iii)
success fees were not always included in the arrangements reviewed. However, where
success fees were included, they were either flat fees, based on an outcome or event
occurring, or were variable, based upon quantifiable / financial outcomes; and
(iv)
given the variability in CRO compensation observed in other mandates and
differences of size, complexity, duration and other issues applicable to such mandates,
the business judgment of the Independent Committee in approving a particular
compensation arrangement is a very important factor.
Gillberry's monthly base-pay is lower than his predecessor and would be at the low-end of the
range of the observed monthly work fees for a CRO. While GuestLogix size and complexity is
not the same as some larger CCAA restructurings and, in that respect, while the Monitor
would not expect a monthly CRO work-fee to approach the high-end of the range observed, the
Monitor is of the view that the monthly amount being paid to Gillberry is low and that were it
necessary to engage an external, third-party CRO, GuestLogix would be required to pay a
significantly higher monthly work fee for such an individual.
20
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41.
The proposed KEIP has a variable component and sets a minimum transaction value threshold
of $23,000,000, under which no KEIP would be payable. At this time, the Company has not
sought the approval of a claims process in these CCAA proceedings. However, based on the
Monitor's preliminary review of GuestLogix's books and records, it appears that a
transaction(s) resulting in an enterprise value of $23,000,000 would be well in excess of the
amounts necessary to pay GuestLogix's secured claims, including the Charges ordered by the
Court, current and contemplated.
42.
The proposed KEIP is designed to increase Gillberry's compensation with increased realized
transaction value / enterprise value, which ties the compensation available pursuant to the
KEIP to the success of the outcome of these proceedings. The Monitor is of the view that this
structure is beneficial to the interests of creditors generally, as there is an increased incentive
to maximize overall enterprise value. Subject to the limitations set out herein regarding
variability in fees for mandates reviewed, the Monitor is also of the view that the transaction
based fees available under the KEIP are within the range of reasonable values.
ANALYSIS OF IMPACT ON CREDITORS
43.
The creditors who will be most directly impacted by the approval of the KEIP and the granting
of the KEIP Charge are GuestLogix's unsecured creditors. The Monitor is of the view that, on
the whole, unsecured creditors are not materially affected solely by the approval of the KEIP.
The Monitor's analysis in this respect is as follows:
(i)
based upon a review of GuestLogix Canada's books and records, the Monitor
estimates that the Company has unsecured liabilities, as at the date of the Initial
Order, of approximately Canadian$41,000,000 (approximately US$30,000,000),
which amount has not been reviewed or confirmed by the Monitor and which amount
is not the result of a formal call for claims;
(ii)
for illustrative purposes, if total transaction / enterprise value in the CCAA
Proceedings of $50,000,000 is achieved, the total amount payable under the KEIP
would be $910,000;
(iii)
secured lender claims total approximately $13,000,000, subject to verification and
review;
21
(jr)
N,
the current Charges authorized by the Court and the proposed KERP Charge would
total approximately $4,500,000;
(v)
$50,000,000 in sale proceeds or enterprise value under a restructuring (or some
combination thereof being the "Total Transaction Value") would likely result in all
claims against the Applicants being satisfied in full, based upon information currently
available from GuestLogix Canada's books and records, including the KEIP amount.
A Total Transaction Value less than $50,000,000 likely implies that unsecured
creditors will suffer a shortfall and recover only a portion of what they are owed; and
(vi)
the KEIP does not substantially increase the total "claims pool" and therefore, on its
own, the approval of the KEIP will not materially alter recoveries available to
unsecured creditors, even in the event of a shortfall to unsecured creditors.
44.
With respect to the proposed KEIP Charge, the Monitor has calculated the impact of a range of
Total Transaction Values on the KEIP amount that would result and the potential recoveries to
unsecured creditors, both with and without the KEIP Charge, which is attached hereto as
Appendix "E" (the "KEIP Illustration").
45.
The KEIP Illustration indicates that the return to unsecured creditors is only marginally
impacted by the Court granting the KEIP Charge.
46.
In addition, the KEIP Charge secures the amount payable under the KEIP, which provides
Gillberry with some certainty that the benefits accruing to others from his efforts will be
become realizable by him.
47.
Accordingly, the Monitor is of the view that the KEIP is within the range of reasonable values
and creditors are not materially impacted by its approval or by the Court granting the KEIP
Charge.
48.
The Monitor has been advised by counsel for an Ad Hoc Committee of holders of the
unsecured debentures of GuestLogix Canada, and directly by certain of the debenture holders
on that committee, that they oppose the current terms of the KEIP. The Monitor will update
the Court on any further developments in connection with this matter.
22
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CONCLUSION
49.
For the foregoing reasons, the Monitor supports the Company's request for an Order:
(i)
approving the KERP and granting the KERP Charge; and
(ii)
approving the KEIP and granting the KEIP Charge.
Dated at Toronto, Ontario this 17th day of March, 2016.
PricewaterhouseCoopers Inc.
in its capacity as Monitor of GuestLogix Inc.
and GuestLogix Ireland Limited
and not in its personal capacity
Greg Prince
President
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Appendix "A"
Court File No, CV-16-11281-00CL
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
TUESDAY, THE 9TH
THE HONOURABLE REGIONAL SENIOR
)
DAY OF FEBRUARY, 2016
JUSTICE G. MORAWETZ
)
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF GUESTLOGIX INC. and GUESTLOGIX
IRELAND LIMITED
(the "Applie
t s ')
FIRST AMENDED AND RESTATED INITIAL ORDER
THIS APPLICATION, made by the Applicants, pursuant to the Companies' Creditors
Arrangement Act, R.S.C. 1985, c. C-36, as amended (the "CCAA") was heard this day at 330
University Avenue, Toronto, Ontario.
ON READING the affidavit of John Giliberry dated February 8, 2016 (the "Giliberry
Affidavit") and the Exhibits thereto and the Affidavit of Rob Wortzman dated February 11,
2016, the Affidavit of Patrick Leung dated February 12, 2016, and on being advised that the
secured creditors who are likely to be affected by the charges created herein were given notice,
and on hearing the submissions of counsel for the Applicants, and on reading the consent of
PricewaterhouseCoopers Inc. to act as the Monitor,
SERVICE
1.
THIS COURT ORDERS that the time for service of the Notice of Application and the
Application Record is hereby abridged and validated so that this Application is properly
returnable today and hereby dispenses with further service thereof.
2.
THIS COURT ORDERS all capitalized terms not herein defined shall have the meaning
ascribed to those terms in the Gillberry Affidavit.
APPLICATION
3.
THIS COURT ORDERS AND DECLARES that the Applicants are companies to
which the CCAA applies.
PLAN OF ARRANGEMENT
4.
THIS COURT ORDERS that the Applicants shall have the authority to file and may,
subject to further order of this Court, file with this Court a plan of compromise or arrangement
(hereinafter referred to as the "Plan").
POSSESSION OF PROPERTY AND OPERATIONS
5.
THIS COURT ORDERS that the Applicants shall remain in possession and control of
its current and future assets, undertakings and properties of every nature and kind whatsoever,
and wherever situate including all proceeds thereof (the "Property"). Subject to further Order of
this Court, the Applicants shall continue to carry on business in a manner consistent with the
preservation of its business (the "Business") and Property. The Applicants are authorized and
empowered to continue to retain and employ the employees, consultants, agents, experts,
accountants, counsel and such other persons (collectively "Assistants") currently retained or
employed by it, with liberty to retain such further Assistants as it deems reasonably necessary or
desirable in the ordinary course of business or for the carrying out of the terms of this Order.
6.
THIS COURT ORDERS that the Applicants shall be entitled to continue to utilize the
central cash management system currently in place as described in the Gillbeny Affidavit or
replace it with another substantially similar central cash management system (the "Cash
Management System") and that any present or future bank providing the Cash Management
System shall not be under any obligation whatsoever to inquire into the propriety, validity or
legality of any transfer, payment, collection or other action taken under the Cash Management
System, or as to the use or application by the Applicants of funds transferred, paid, collected or
otherwise dealt with in the Cash Management System, shall be entitled to provide the Cash
Management System without any liability in respect thereof to any Person (as hereinafter
defined) other than the Applicants, pursuant to the terms of the documentation applicable to the
Cash Management System, and shall be, in its capacity as provider of the Cash Management
System, an unaffected creditor under the Plan with regard to any claims or expenses it may suffer
or incur in connection with the provision of the Cash Management System.
THIS COURT ORDERS that the Applicants shall be entitled but not required to pay the
7.
following expenses whether incurred prior to or after this Order:
(a)
all outstanding and future wages, salaries, employee and pension benefits, vacation
pay and expenses payable on or after the date of this Order, in each case incurred in
the ordinary course of business and consistent with existing compensation policies
and arrangements; and
(b)
the fees and disbursements of any Assistants retained or employed by the Applicants
in respect of these proceedings, at their standard rates and charges.
THIS COURT ORDERS that, except as otherwise provided to the contrary herein, the
8.
Applicants shall be entitled but not required to pay all reasonable expenses incurred by the
Applicants in carrying on the Business in the ordinary course after this Order, and in carrying out
the provisions of this Order, which expenses shall include, without limitation:
(a)
all expenses and capital expenditures reasonably necessary for the preservation of the
Property or the Business including, without limitation, payments on account of
insurance (including directors and officers insurance), maintenance and security
services;
(b)
payment for goods or services actually supplied to the Applicants following the date
of this Order; and
(c)
payment for goods or services actually supplied to the Applicants prior to the date of
this Order, in accordance with the terms and conditions of the Commitment Letter.
THIS COURT ORDERS that the Applicants shall remit, in accordance with legal
9.
requirements, or pay:
(a)
any statutory deemed trust amounts in favour of the Crown in right of Canada or of
any Province thereof or any other taxation authority which are required to be
deducted from employees' wages, including, without limitation, amounts in respect of
(i) employment insurance, (ii) Canada Pension Plan, (iii) Quebec Pension Plan, and
(iv) income taxes;
(b)
all goods and services or other applicable sales taxes (collectively, "Sales Taxes")
required to be remitted by the Applicants in connection with the sale of goods and
services by the Applicants, but only where such Sales Taxes are accrued or collected
after the date of this Order, or where such Sales Taxes were accrued or collected prior
to the date of this Order but not required to be remitted until on or after the date of
this Order, and
(c)
any amount payable to the Crown in right of Canada or of any Province thereof or
any political subdivision thereof or any other taxation authority in respect of
municipal realty, municipal business or other taxes, assessments or levies of any
nature or kind which are entitled at law to be paid in priority to claims of secured
creditors and which are attributable to or in respect of the carrying on of the Business
by the Applicants.
10.
THIS COURT ORDERS that until a real property lease is disclaimed in accordance
with the CCAA, the Applicants shall pay all amounts constituting rent or payable as rent under
real property leases (including, for greater certainty, common area maintenance charges, utilities
and realty taxes and any other amounts payable to the landlord under the lease) or as otherwise
may be negotiated between the Applicants and the landlord from time to time ("Rent"), for the
period commencing from and including the date of this Order, twice-monthly in equal payments
on the first and fifteenth day of each month, in advance (but not in arrears). On the date of the
first of such payments, any Rent relating to the period commencing from and including the date
of this Order shall also be paid.
THIS COURT ORDERS that, except as specifically permitted herein or in any further
11.
order of this Court, the Applicants are hereby directed, until further Order of this Court: (a) to
make no payments of principal, interest thereon or otherwise on account of amounts owing by
the Applicants to any of their creditors as of this date; (b) to grant no security interests, trust,
liens, charges or encumbrances upon or in respect of any of its Property; and (c) to not grant
credit or incur liabilities except in the ordinary course of the Business.
RESTRUCTURING
THIS COURT ORDERS that the Applicants shall, subject to such requirements as are
12.
imposed by the CCAA and such covenants as may be contained in the Definitive Documents (as
hereinafter defined), have the right to:
(a)
permanently or temporarily cease, downsize or shut down any of its business or
operations, and to dispose of redundant or non-material assets not exceeding
$1,000,000 in the aggregate;
(b)
terminate the employment of such of its employees or temporarily lay off such of its
employees as it deems appropriate; and
(c)
pursue all avenues of refinancing of its Business or Property, in whole or part, subject
to prior approval of this Court being obtained, before any material refinancing,
all of the foregoing to permit the Applicants to proceed with an orderly restructuring of the
Business (the "Restructuring").
13.
THIS COURT ORDERS that the Applicants shall provide each of the relevant landlords
with notice of the Applicants' intention to remove any fixtures from any leased premises at least
seven (7) days prior to the date of the intended removal. The relevant landlord shall be entitled
to have a representative present in the leased premises to observe such removal and, if the
landlord disputes the Applicants' entitlement, to remove any such fixture under the provisions of
the lease, such fixture shall remain on the premises and shall be dealt with as agreed between any
applicable secured creditors, such landlord and the Applicants, or by further Order of this Court
upon application by the Applicants on at least two (2) days notice to such landlord and any such
secured creditors. If any Applicant disclaims, the lease governing such leased premises in
accordance with Section 32 of the CCAA, it shall not be required to pay Rent under such lease
pending resolution of any such dispute (other than Rent payable for the notice period provided
for in Section 32(5) of the CCAA), and the disclaimer of the lease shall be without prejudice to
the Applicant's claim to the fixtures in dispute.
14.
THIS COURT ORDERS that if a notice of disclaimer is delivered pursuant to Section
32 of the CCAA, then (a) during the notice period prior to the effective time of the disclaimer,
the landlord may show the affected leased premises to prospective tenants during normal
business hours, on giving the Applicants and the Monitor 24 hours' prior written notice, and (b)
at the effective time of the disclaimer, the relevant landlord shall be entitled to take possession of
any such leased premises without waiver of or prejudice to any claims or rights such landlord
may have against the Applicants in respect of such lease or leased premises, provided that
nothing herein shall relieve such landlord, of its obligation to mitigate any damages claimed in
connection therewith.
NO PROCEEDINGS AGAINST THE APPLICANTS OR THE PROPERTY
15.
THIS COURT ORDERS that until and including March 7, 2016, or such later date as
this Court may order (the "Stay Period"), no proceeding or enforcement process in any court or
tribunal (each, a "Proceeding") shall be commenced or continued against or in respect of the
Applicants, the Integrated Affiliates (as defined in the Gillberry Affidavit) or the Monitor, or
affecting the Business or the Property, except with the written consent of the Applicants and the
Monitor, or with leave of this Court, and any and all Proceedings currently under way against or
in respect of the Applicants, the Integrated Affiliates or affecting the Business or the Property are
hereby stayed and suspended pending further Order of this Court.
NO EXERCISE OF RIGHTS OR REMEDIES
16.
THIS COURT ORDERS that during the Stay Period, all rights and remedies of any
individual, firm, corporation, governmental body or agency, or any other entities (all of the
foregoing, collectively being "Persons" and each being a "Person") against or in respect of the
Applicants, the Integrated Affiliates or the Monitor, or affecting the Business or the Property, are
hereby stayed and suspended except with the written consent of the Applicants and the Monitor,
or leave of this Court, provided that nothing in this Order shall (i) empower the Applicants to
carry on any business which the Applicants is not lawfully entitled to carry on, (ii) affect such
investigations, actions, suits or proceedings by a regulatory body as are permitted by Section
11.1 of the CCAA, (iii) prevent the filing of any registration to preserve or perfect a security
interest, or (iv) prevent the registration of a claim for lien.
NO INTERFERENCE WITH RIGHTS
17.
THIS COURT ORDERS that during the Stay Period, no Person shall discontinue, fail to
honour, alter, interfere with, repudiate, terminate or cease to perform any right, renewal right,
contract, agreement, licence or permit in favour of or held by the Applicants, except with the
written consent of the Applicants and the Monitor, or leave of this Court.
CONTINUATION OF SERVICES
18.
THIS COURT ORDERS that during the Stay Period, all Persons having oral or written
agreements with the Applicants or statutory or regulatory mandates for the supply of goods
and/or services, including without limitation all computer software, communication and other
data services, centralized banking services, payroll services, insurance, transportation services,
utility or other services to the Business or the Applicants, are hereby restrained until further
Order of this Court from discontinuing, altering, interfering with or terminating the supply of
such goods or services as may be required by the Applicants, and that the Applicants shall be
entitled to the continued use of its current premises, telephone numbers, facsimile numbers,
internet addresses and domain names, provided in each case that the normal prices or charges for
all such goods or services received after the date of this Order are paid by the Applicants in
accordance with normal payment practices of the Applicants or such other practices as may be
agreed upon by the supplier or service provider and each of the Applicants and the Monitor, or as
may be ordered by this Court.
NON-DEROGATION OF RIGHTS
THIS COURT ORDERS that notwithstanding anything else in this Order, no Person
19.
shall be prohibited from requiring immediate payment for goods, services, use of lease or
licensed property or other valuable consideration provided on or after the date of this Order, nor
shall any Person be under any obligation on or after the date of this Order to advance or readvance any monies or otherwise extend any credit to the Applicants. Nothing in this Order
shall derogate from the rights conferred and obligations imposed by the CCAA.
PROCEEDINGS AGAINST DIRECTORS AND OFFICERS
20.
THIS COURT ORDERS that during the Stay Period, and except as permitted by
subsection 11.03(2) of the CCAA, no Proceeding may be commenced or continued against any
of the former, current or future directors or officers of the Applicants with respect to any claim
against the directors or officers that arose before the date hereof and that relates to any
obligations of the Applicants whereby the directors or officers are alleged under any law to be
liable in their capacity as directors or officers for the payment or performance of such
obligations, until a compromise or arrangement in respect of the Applicants, if one is filed, is
sanctioned by this Court or is refused by the creditors of the Applicants or this Court
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND CHARGE
THIS COURT ORDERS that the Applicants shall indemnify its directors and officers
21.
against obligations and liabilities that they may incur as directors or officers of the Applicants
after the commencement of the within proceedings, except to the extent that, with respect to any
officer or director, the obligation or liability was incurred as a result of the director's or officer's
gross negligence or wilful misconduct.
THIS COURT ORDERS that the directors and officers of the Applicants shall be
entitled to the benefit of and are hereby granted a charge (the "Directors' Charge") on the
22.
Property, which charge shall not exceed an aggregate amount of $1,385,000, as security for the
indemnity provided in paragraph 21 of this Order. The Directors' Charge shall have the priority
set out in paragraphs 39 and 41 herein.
THIS COURT ORDERS that, notwithstanding any language in any applicable
23.
insurance policy to the contrary, (a) no insurer shall be entitled to be subrogated to or claim the
benefit of the Directors' Charge, and (b) the Applicants' directors and officers shall only be
entitled to the benefit of the Directors' Charge to the extent that they do not have coverage under
any directors' and officers' insurance policy, or to the extent that such coverage is insufficient to
pay amounts indemnified in accordance with paragraph 21 of this Order.
APPOINTMENT OF MONITOR
THIS COURT ORDERS that PricewaterhouseCoopers Inc. is hereby appointed
24.
pursuant to the CCAA as the Monitor, an officer of this Court, to monitor the business and
financial affairs of the Applicants with the powers and obligations set out in the CCAA or set
forth herein and that the Applicants and its shareholders, officers, directors, and Assistants shall
advise the Monitor of all material steps taken by the Applicants pursuant to this Order, and shall
co-operate fully with the Monitor in the exercise of its powers and discharge of its obligations
and provide the Monitor with the assistance that is necessary to enable the Monitor to adequately
carry out the Monitor's functions.
THIS COURT ORDERS that the Monitor, in addition to its prescribed right d
25.
obligations under the CCAA, is hereby directed and empowered to:
(a)
monitor the Applicants' receipts and disbursements;
(b)
report to this Court at such times and intervals as the Monitor may deem appropriate
with respect to matters relating to the Property, the Business, and such other matters
as may be relevant to the proceedings herein;
(c)
assist the Applicants, to the extent required by the Applicants, in its dissemination, to
the Interim Lender and its counsel on a weekly basis of financial and other
information as agreed to between the Applicant and the Interim Lender which may be
used in these proceedings including reporting on a basis to be agreed with the Interim
Lender;
(d)
advise the Applicants in its preparation of the Applicants' cash flow statements and
reporting required by the Interim Lender, which information shall be reviewed with
the Monitor and delivered to the Interim Lender and its counsel on a periodic basis,
but not less than weekly, or as otherwise agreed to by the Interim Lender;
(e)
advise the Applicants in their development of the Plan and any amendments to the
Plan;
(t)
assist the Applicants, to the extent required by the Applicants, with the holding and
administering of creditors' or shareholders' meetings for voting on the Plan;
(g)
have full and complete access to the Property, including the premises, books, records,
data, including data in electronic form, and other financial documents of the
Applicants, to the extent that is necessary to adequately assess the Applicants'
business and financial affairs or to perform its duties arising under this Order;
(h)
be at liberty to engage independent legal counsel or such other persons as the Monitor
deems necessary or advisable respecting the exercise of its powers and performance
of its obligations under this Order; and
perform such other duties as are required by this Order or by this Court from time to
time.
26.
THIS COURT ORDERS that the Monitor shall not take possession of the Property and
shall take no part whatsoever in the management or supervision of the management of the
Business and shall not, by fulfilling its obligations hereunder, be deemed to have taken or
maintained possession or control of the Business or Property, or any part thereof.
27.
THIS COURT ORDERS that nothing herein contained shall require the Monitor to
occupy or to take control, care, charge, possession or management (separately and/or
collectively, "Possession") of any of the Property that might be environmentally contaminated,
ght be a pollutant or a contaminant, or might cause or contribute to a spill, discharge, release
or deposit of a substance contrary to any federal, provincial or other law respecting the
protection, conservation, enhancement, remediation or rehabilitation of the environment or
relating to the disposal of waste or other contamination including, without limitation, the
Canadian Environmental Protection Act, the Ontario Environmental Protection Act, the Ontario
Water Resources Act, or the Ontario Occupational Health and Safety Act and regulations
thereunder (the "Environmental Legislation"), provided however that nothing herein shall
exempt the Monitor from any duty to report or make disclosure imposed by applicable
Environmental Legislation. The Monitor shall not, as a result of this Order or anything done in
pursuance of the Monitor's duties and powers under this Order, be deemed to be in Possession of
any of the Property within the meaning of any Environmental Legislation, unless it is actually in
possession.
THIS COURT ORDERS that that the Monitor shall provide any creditor of the
28.
Applicants and the Interim Lender with information provided by the Applicants in response to
reasonable requests for information made in writing by such creditor addressed to the Monitor.
The Monitor shall not have any responsibility or liability with respect to the information
disseminated by it pursuant to this paragraph. In the case of information that the Monitor has
been advised by the Applicants is confidential, the Monitor shall not provide such information to
creditors unless otherwise directed by this Court or on such terms as the Monitor and the
Applicants may agree.
29. THIS COURT ORDERS that, in addition to the rights and protections afforded the
Monitor under the CCAA or as an officer of this Court, the Monitor shall incur no liability or
obligation as a result of its appointment or the carrying out of the provisions of this Order, save
and except for any gross negligence or wilful misconduct on its part. Nothing in this Order shall
derogate from the protections afforded the Monitor by the CCAA or any applicable legislation.
30. THIS COURT ORDERS that the Monitor, counsel to the Monitor, counsel to the
Applicants, the financial advisor to the Applicants and the Independent Counsel to the board of
directors of the Applicants shall be paid their reasonable fees and disbursements, in each case at
their standard rates and charges, by the Applicants as part of the costs of these proceedings. The
Applicants are hereby authorized and directed to pay the accounts of the Monitor, counsel for the
Monitor, counsel for the Applicant, the financial advisor of the Applicant and the Independent
Counsel to the board of directors of the Applicant on a weekly basis and, in addition, the
Applicant is hereby authorized to pay to the Monitor, counsel to the Monitor, counsel to the
Applicant and the Independent Counsel to the board of directors of the Applicants retainers in
the amount of $50,000, $25,000, $35,000, and $25,000, respectively, to be held by them as
security for payment of their respective fees and disbursements outstanding from time to time.
31. THIS COURT ORDERS that the Monitor and its legal counsel shall pass their accounts
from time to time, and for this purpose the accounts of the Monitor and its legal counsel are
hereby referred to a judge of the Commercial List of the Ontario Superior Court of Justice.
32.
THIS COURT ORDERS that the Monitor, counsel to the Monitor, the Applicants'
counsel, the financial advisor of the Applicants and the Independent Counsel of the board of
directors of the Applicants shall be entitled to the benefit of and are hereby granted a charge (the
"Administration Charge") on the Property, which charge shall not exceed an aggregate amount
of $250,000, as security for their professional fees and disbursements incurred at the standard
rates and charges of the Monitor and such counsel, both before and after the making of this Order
in respect of these proceedings. The Administration Charge shall have the priority set out in
paragraphs 39 and 41 hereof.
INTERIM FINANCING
33.
THIS COURT ORDERS that the Applicants are hereby authorized and empowered to
obtain and borrow under a credit facility from Vistara Capital Partners Fund I Limited
Partnership ("Vistara Capital"), by its general partner, Vistara Fund I GP Inc. ("Vistara GP"),
with Vistara GP as administrative and collateral agent for Vistara Capital and such other lenders
among Beedie Capital Partners Fund I Limited Partnership ("Beedie Capital"), by its General
Partner, Beedie Capital Partners Inc., and in such proportions, as Vistara GP may arrange
(collectively, the "Vistara Lenders") and Comerica Bank ("Comerica", and collectively with
the Vistara Lenders, the "Interim Lender") in order to finance the Applicants' working capital
requirements and other general corporate purposes and capital expenditures, provided that
borrowings under such credit facility shall not exceed the principal amount of USD $3 million
plus costs and interest unless permitted by further Order of this Court.
34.
THIS COURT ORDERS THAT such credit facility shall be on the terms and subject to
the conditions set forth in the commitment letter between the Applicant and the Interim Lender
dated as of February 11, 2016 (the "Commitment Letter"), filed.
35.
THIS COURT ORDERS that the Applicants are hereby authorized and empowered to
execute and deliver such credit agreements, mortgages, charges, hypothecs and security
documents, guarantees and other definitive documents (collectively, the "Definitive
Documents"), as are contemplated by the Commitment Letter or as may be reasonably required
by the Interim Lender pursuant to the terms thereof, and the Applicant are hereby authorized and
directed to pay and perform all of its indebtedness, interest, fees, liabilities and obli. :tions to the
Interim Lender under and pursuant to the Commitment Letter and the Definitive Documents as
and when the same become due and are to be performed, notwithstanding any other provision of
this Order.
THIS COURT ORDERS that the Interim Lender shall be entitled to the benefit of and is
36.
hereby granted a charge (the "Interim Lender's Charge") on the Property, which Interim
Lender's Charge shall not secure an obligation that exists before this Order is made. The Interim
Lender's Charge shall have the priority set out in paragraphs 39 and 41 hereof.
THIS COURT ORDERS that, notwithstanding any other provision of this Order:
37.
(a)
the Interim Lender may take such steps from time to time as it may deem necessary or
appropriate to file, register, record or perfect the Interim Lender's Charge or any of
the Definitive Documents;
(b)
upon the occurrence of an event of default under the Definitive Documents or the
Interim Lender's Charge, the Interim Lender, upon three business days notice to the
Applicant and the Monitor, may exercise any and all of its rights and remedies against
the Applicant or the Property under or pursuant to the Commitment Letter, Definitive
Documents and the Interim Lender's Charge, including without limitation, to cease
making advances to the Applicant and set off and/or consolidate any amounts owing
by the Interim Lender to the Applicant against the obligations of the Applicant to the
Interim Lender under the Commitment Letter, the Definitive Documents or the
Interim Lender's Charge, to make demand, accelerate payment and give other notices,
or to apply to this Court for the appointment of a receiver, receiver and manager or
interim receiver, or for a bankruptcy order against the Applicant and for the
appointment of a trustee in bankruptcy of the Applicant; and
(c)
the foregoing rights and remedies of the Interim Lender shall be enforceable against
any trustee in bankruptcy, interim receiver, receiver or receiver and manager of the
Applicant or the Property.
THIS COURT ORDERS AND DECLARES that the Interim Lender shall be treated as
38.
unaffected in any plan of arrangement or compromise filed by the Applicant under the CCAA, or
any proposal filed by the Applicant under the Bankruptcy and Insolvency Act of Canada (the
"BIN"), with respect to any advances made under the Definitive Documents.
VALIDITY AND PRIORITY OF CHARGES CREATED BY THIS ORDER
39.
THIS COURT ORDERS that the priorities of the Directors' Charge and the
Administration Charge, as among them, shall be as follows:
First — Administration Charge (to the maximum amount of $250,000);
Second — Directors' Charge (to the maximum amount of $1.385 million); and
Third — Interim Lender's Charge (to the maximum principal amount of $3
million).
40.
THIS COURT ORDERS that the filing, registration or perfection of the Directors'
Charge, the Administration Charge or the Interim Lender's Charge (collectively, the "Charges")
shall not be required, and that the Charges shall be valid and enforceable for all purposes,
including as against any right, title or interest filed, registered, recorded or perfected subsequent
to the Charges coming into existence, notwithstanding any such failure to file, register, record or
perfect.
41.
THIS COURT ORDERS that each of the Directors' Charge, the Administration Charge
and the Interim Lender's Charge (all as constituted and defined herein) shall constitute a charge
on the Property and such Charges shall rank in priority to all other security interests, trusts, liens,
charges and encumbrances, claims of secured creditors, statutory or otherwise (collectively,
"Encumbrances") in favour of any Person, save and except for the security interests of (i)
Hewlett-Packard Financial Services Canada Company / Compagnie de Services Financiers
Hewlett-Packard Canada with reference number 628097481, (ii) Hewlett-Packard Financial
Services Canada Company with reference number 681757866,; (iii) Dell Financial Services
Canada Limited with reference number 687708549, and (iv) Hewlett-Packard Financial Services
Canada Company / Compagnie de Services Financiers Hewlett-Packard Canada with reference
number 691169688 that are registered against the property of GuestLogix Inc.
42.
THIS COURT ORDERS that except as otherwise expressly provided for herein, or as
may be approved by this Court, the Applicants shall not grant any Encumbrances over any
Property that rank in priority to, or pari passu with, any of the Directors' Charge, the
Administration Charge or the Interim Lender's Charge, unless the Applicants also obtain the
prior written consent of the Monitor, the Interim Lender and the beneficiaries of the Directors'
Charge and the Administration Charge, or further Order of this Court.
THIS COURT ORDERS that the Directors' Charge, the Administration Charge, the
43.
Commitment Letter, the Definitive Documents and the Interim Lender's Charge shall not be
rendered invalid or unenforceable and the rights and remedies of the chargees entitled to the
benefit of the Charges (collectively, the "Chargees") and/or the Interim Lender thereunder shall
not otherwise be limited or impaired in any way by (a) the pendency of these proceedings and
the declarations of insolvency made herein; (b) any application(s) for bankruptcy order(s) issued
pursuant to BIA, or any bankruptcy order made pursuant to such applications; (c) the filing of
any assignments for the general benefit of creditors made pursuant to the BIA; (d) the provisions
of any federal or provincial statutes; or (e) any negative covenants, prohibitions or other similar
provisions with respect to borrowings, incurring debt or the creation of Encumbrances, contained
in any existing loan documents, lease, sublease, offer to lease or other agreement (collectively,
"Agreement") which binds the Applicants, and notwithstanding any provision to the contrary
in any Agreement:
(a)
neither the creation of the Charges nor the execution, delivery, perfection, registration
or performance of the Commitment Letter or the Definitive Documents shall create or
be deemed to constitute a breach by the Applicants of any Agreement to which it is a
party;
(b)
none of the Chargees shall have any liability to any Person whatsoever as a result of
any breach of any Agreement caused by or resulting from the Applicant entering into
the Commitment Letter, the creation of the Charges, or the execution, delivery or
performance of the Definitive Documents; and
(c)
the payments made by the Applicants pursuant to this Order, the Commitment Letter
or the Definitive Documents, and the granting of the Charges, do not and will not
constitute preferences, fraudulent conveyances, transfers at undervalue, oppressive
conduct, or other challengeable or voidable transactions under any applicable law.
44.
THIS COURT ORDERS that any Charge created by this Order over leases of real
property in Canada shall only be a Charge in the Applicants' interest in such real property leases.
SERVICE. AND NOTICE
45.
THIS COURT ORDERS that the Monitor shall (i) without delay, publish in the Globe
and Mail and the National Post a notice containing the information prescribed under the CCAA,
(ii) within five days after the date of this Order, (A) make this Order publicly available in the
manner prescribed under the CCAA, (B) send, in the prescribed manner, a notice to every known
creditor who has a claim against the Applicants of more than $1000, and (C) prepare a list
showing the names and addresses of those creditors and the estimated amounts of those claims,
and make it publicly available in the prescribed manner, all in accordance with Section 23(1)(a)
of the CCAA and the regulations made thereunder.
46.
THIS COURT ORDERS that the E-Service Protocol of the Commercial List (the
"Protocol") is approved and adopted by reference herein and, in this proceeding, the service of
documents made in accordance with the Protocol (which can be found on the Commercial List
website at ittp: , ;v.v, .ontari( courts.,:a ,..(11 pi „tet i ce practice-id recl ion s , tomnto, e-el ce0:0'c() 1 ) shall be valid and effective service. Subject to Rule 17.05 this Order shall constitute
an order for substituted service pursuant to Rule 16.04 of the Rules of Civil Procedure. Subject to
Rule 3.01(d) of the Rules of Civil Procedure and paragraph 21 of the Protocol, service of
documents in accordance with the Protocol will be effective on transmission. This Court further
orders that a Case Website shall be established in accordance with the Protocol with the
following URL `< www.pwc.com/ca/ estlogix
47.
THIS COURT ORDERS that if the service or distribution of documents in accordance
with the Protocol is not practicable, the Applicants and the Monitor are at liberty to serve or
distribute this Order, any other materials and orders in these proceedings, any notices or other
correspondence, by forwarding true copies thereof by prepaid ordinary mail, courier, personal
delivery or facsimile transmission to the Applicants creditors or other interested parties at their
respective addresses as last shown on the records of the Applicants and that any such service or
distribution by courier, personal delivery or facsimile transmission shall be deemed to be
received on the next business day following the date of forwarding thereof, or if sent by ordinary
mail, on the third business day after mailing.
GENERAL
48.
THIS COURT ORDERS that the Applicants or the Monitor may from time to time
apply to this Court for advice and directions in the discharge of its powers and duties hereunder.
49.
THIS COURT ORDERS that nothing in this Order shall prevent the Monitor from
acting as an interim receiver, a receiver, a receiver and manager, or a trustee in bankruptcy o f
Applicants, the Business or the Property.
50.
THIS COURT HEREBY REQUESTS the aid and recognition of any court, tribunal,
regulatory or administrative body having jurisdiction in Canada or in the United States, or
abroad, to give effect to this Order and to assist the Applicants, the Monitor and their respective
agents in carrying out the terms of this Order. All courts, tribunals, regulatory and administrative
bodies are hereby respectfully requested to make such orders and to provide such assistance to
the Applicants and to the Monitor, as an officer of this Court, as may be necessary or desirable to
give effect to this Order, to grant representative status to the Monitor in any foreign proceeding,
or to assist the Applicants and the Monitor and their respective agents in carrying out the terms
of this Order.
51.
THIS COURT ORDERS that each of the Applicants and the Monitor be at liberty and is
hereby authorized and empowered to apply to any court, tribunal, regulatory or administrative
body, wherever located, for the recognition of this Order and for assistance in carrying out the
terms of this Order, and that the Monitor is authorized and empowered to act as a representative
in respect of the within proceedings for the purpose of having these proceedings recognized in a
jurisdiction outside Canada.
52.
THIS COURT ORDERS that any interested party (including the Applicants and the
Monitor) may apply to this Court to vary or amend this Order on not less than seven (7) days
notice to any other party or parties likely to be affected by the order sought or upon such other
notice, if any, as this Court may order.
53.
THIS COURT ORDERS that this Order and all of its provisions are effective as of
12:01 a.m. Eastern Standard/Daylight Time on the date of this Order.
14TEFtE• AT INSC,Rii .
F,
L.
12 2Q16
0
g
4
No. CV- 16- 1
Appendix "B"
Court File No. CV-16-11281-ooCL
THIRD REPORT TO COURT
SUBMITTED BY PRICEWATERHOUSECOOPERS INC. IN ITS CAPACITY AS
MONITOR IN THE IVIATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF GUESTLOGIX INC. AND GUESTLOGIX IRELAND
LIMITED
March 1, 2016
Court File No. CV-16-11281-ooCL
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
IN THE MAI I ER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF GUESTLOGIX INC, AND GUESTLOGIX
IRELAND LIMITED (the "Applicants")
THIRD REPORT TO COURT
SUBMI I'l ED BY PRICEWATERHOUSECOOPERS INC.
IN ITS CAPACITY AS MONITOR OF
GUESTLOGIX INC. AND GUESTLOGIX IRELAND LIMITED
March 1, 2016
9
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TABLE OF CONTENTS
1.
INTRODUCTION
4
2.
DISCLAIMER AND TERMS OF REFERENCE
5
3. ACTIVITIES OF THE MONITOR
5
6
4. ACTIVITIES OF GUESTLOGIX CANADA
5. CASH RECEIPTS AND CASH DISBURSEMENTS
6. STAY EXTENSION
9
14
CONCLUSION
14
7.
APPENDIX
A.
First Amended and Restated Initial Order dated February
B.
Order (Re: Approval of the SISP) dated February 19, 2016
C.. Initial Cash Flow Forecast to May 6, 2016
3
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12,
2016
INTRODUCTION
1.
This report (the "Third Report") is filed by PricewaterhouseCoopers Inc. ("PwC"), in its
capacity as monitor (the "Monitor") in the Companies' Creditors Arrangement Act, R.S.C.
1985, c. C-36, as amended (the "CCAA") proceeding (the "CCAA Proceedings") of
GuestLogix Inc. ("GuestLogix Canada") and GuestLogix Ireland Limited ("GuestLogix
Ireland" and collectively with GuestLogix Canada, the "Company"), which were commenced
further to the issuance by the Ontario Superior Court of Justice - Commercial List (the
"Court") on February 9, 2016, of an initial order (as amended and restated by the first
amended and restated initial order made by the Court on February 12, 2016, a copy of which is
attached as Appendix "A", the "Initial Order").
2.
The Third Report has been prepared in connection with the Company's motion for an Order
extending the Stay Period (as defined in the Initial Order) to May 6, 2016 and provides the
Court with:
(i)
information regarding GuestLogix Canada's operations since February 17, 2016, the
date of the Second Report of the Monitor (the "Second Report");
(ii)
information regarding the Company's cash flows since the date of the Initial Order;
(iii)
an update on the Monitor's activities since the date of the Second Report; and
(iv)
the Monitor's views and recommendation on the requested extension of the Stay
Period.
3.
Unless otherwise stated, all monetary amounts contained herein are expressed in United
States Dollars.
4.
The Monitor has set up a website at www.,pke,oprnicalguestloziN. All prescribed materials
filed by the Company and the Monitor relating to the CCAA Proceedings are available to
creditors and other interested parties in electronic format on the Monitor's website. The
Monitor will make regular updates to the website to ensure creditors and other interested
parties are kept current.
4
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DISCLAIMER AND TERMS OF REFERENCE
5.
In preparing this report and conducting its analysis, the Monitor has obtained and relied upon
certain unaudited, draft and/or internal financial information of the Company, its books and
records and discussions with various parties including the Company's employees and certain
of its officers and directors (collectively, the "Information").
6.
Except as otherwise described in this report:
(i)
the Monitor has not audited, reviewed or otherwise attempted to verify the
accuracy or completeness of the Information in a manner that would wholly or
partially comply with Canadian Auditing Standards pursuant to the Chartered
Professional Accountant Canada Handbook; and
(ii)
the Monitor has not conducted an examination or review of any financial forecast
and projections in a manner that would comply with the procedures described in
the Chartered Professional Accountant Canada Handbook.
Since the Initial Cash Flow Forecast (as defined below) is based on assumptions regarding
future events, actual results will vary from the information presented even if the hypothetical
assumptions occur, and variations may be material. Accordingly, the Monitor expresses no
assurance as to whether the Initial Cash Flow Forecast will be achieved. We express no
opinion or other form of assurance with respect to the accuracy of any financial information
presented in this report, or relied upon by us in preparing this report.
ACTIVITIES OF THE MONITOR
Since the date of the Second Report, the Monitor has:
(i)
assisted in the review of the Applicants' operations on a daily basis with frequent
communication with management and staff;
(ii)
reviewed the actual cash flows of GuestLogix Canada on a daily basis;
(iii)
corresponded with parties who have expressed an interest in participating in the
SISP;
5
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(iv)
attended, with GuestLogix Canada's management and OpenJaw's management, as
appropriate, on various conference calls with customers;
(v)
attended to preliminary steps in connection with the SISP as noted laterin this
Third Report; and
(vi)
communicated with the Company's creditors, including responding to a variety of
enquiries received from the Interim Lender, vendors and customers.
ACTIVITIES OF GUESTLOGIX CANADA
Since the date of the Initial Order, GuestLogix Canada has been managing its operations in the
9,
normal course and its main focus has been on: (i) the stabilization of the business and the
preservation of its assets as a result of the issuance of the Initial Order; and (ii) commencing
the steps required under the Sale and Investment Solicitation Process approved by the Court
on February 19, 2016 (the "SISP").
10.
GuestLogix Ireland has no active business activities and is a holding company whose only
asset is its 100% ownership interest in OpenJaw Technologies Limited ("OpenJaw"), an
Irish-based operating subsidiary that is not an applicant in the CCAA Proceedings.
Accordingly, the Monitor's comments herein relate only to the activities of GuestLogix Canada.
11.
Since the date of the Initial Order, GuestLogix Canada has:
(i)
with the assistance of the Monitor:
(a)
notified the Company's employees and the employees of OpenJaw of
the Company's CCAA Proceedings;
(b)
(ii)
notified the Company's creditors of the CCAA Proceedings;
engaged in initial discussions with representatives of the TSX with respect to
GuestLogix Canada's stock exchange listing;
engaged in a number of discussions with certain of GuestLogix Canada's customers
and, with management of OpenJaw, engaged in preliminary discussions with
certain of OpenJaw's customers;
6
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(iv)
engaged with certain key vendors and suppliers and negotiated revised terms of
trade governing the payment for and provision of goods and / or services postfiling;
(v)
worked with KPMG LLP, its tax advisor, to formulate a response to Canada
Revenue Agency's ("CRA") re-assessment dated December
2, 2015
with respect to
CRA's position that GuestLogix Canada was obliged to collect Goods and Services
Tax / Harmonized Sales Tax ("GST/HST") on certain sales made to non-resident
customers. The Monitor understands that GuestLogix Canada is in the process of
finalizing a notice of objection, which will be filed with CRA shortly.
(vi)
worked with its financial advisor, Canaccord Genuity Corp.
("Canaccord
Genuity" or the "Financial Advisor") with respect to the refinement of future
business plans and forecasts for GuestLogix Canada and OpenJaw, the two primary
operating businesses within the Company's corporate group;
(vii)
completed negotiation of the Interim Facility pursuant to a Commitment Letter
(attached as Appendix "B" to the Supplement to the First Report of the Monitor
dated February
12,
2016) entered into on February
12, 2016
between the Company
and the Interim Lender; and
(viii)
worked with the Financial Advisor and the Monitor on the development of the
SISP, which was approved by the Court on February 19, 2016 (a copy of the Order
of the Court approving the SISP is attached hereto as Appendix "B").
12.
In the Monitor's view, GuestLogix Canada's day-to-day operations have been largely
unaffected by the commencement of the CCAA Proceedings. The Company has continued to
operate in the normal course and has not experienced any additional disruption to its business
activities as a result of the commencement of the CCAA Proceedings. A detailed review on the
Company's actual cash flows is set out below.
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SISP UPDATE
1 3.
As of the date of this Third Report, the Company, with the assistance of the Financial Advisor
and the Monitor, as appropriate:
(i)
prepared a list of potential bidders including parties that have approached the
Company, the Financial Advisor or the Monitor indicating an interest in this
opportunity and local and international strategic and financial parties who the
Company and the Financial Advisor believed, in consultation with the Monitor,
may be interested in this opportunity;
arranged for a notice of the SISP (and such other relevant information which the
Company, in consultation with the Financial Advisor and the Monitor considered
appropriate) to be published in The Globe and Mail (National Edition) (the
"Notice");
(iii)
issued a press release outlining the SISP;
(iv)
prepared a Teaser Letter (as defined in the SISP) and a non-disclosure agreement
in form and substance satisfactory to the Company, the Financial Advisor and the
Monitor and their respective counsel consistent with the form and substance of the
non-disclosure agreement previously executed by interested parties under the
Review of Strategic Alternatives (as defined in the SISP) (the "NDA").
14.
The Financial Advisor has advised the Monitor that parties who request a copy of the Teaser
Letter and NDA, or who are identified by the Company, the Monitor or the Financial Advisor
as a potential bidder, are being provided with the Teaser Letter and the NDA as soon as
reasonably practicable after such request or identification. In total, as of the date of this Third
Report:
(i)
27 parties have been sent the Teaser Letter;
(ii)
30 NDAs have been sent to Known Potential Bidders, including NDAs signed by
interested parties prior to the commencement of the CCAA proceedings;
(i
21 NDAs have been executed;
8
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(iv)
16 parties have been invited to access the Company's Data Room;
(v)
14 parties have accessed the Company's Data Room; and
(vi)
2 parties have had meetings with management. In this respect, the Monitor notes
that the meetings that have occurred were exploratory in nature and were not indepth due diligence meetings.
CASH RECEIPTS AND CASH DISBURSEMENTS
15.
The affidavit of John Gil'berry sworn February 8, 2016, and filed in support of the Initial
Order, included a cash flow forecast (the "Initial Cash Flow Forecast") for the period
February 9 to May 6, 2016 (the "Cash Flow Period").
16.
The Initial Cash Flow Forecast has been prepared by the Company for the purpose described
in the notes to and assumptions underlying the Initial Cash Flow Forecast (the "Notes" as
detailed in Exhibit "A" to the attached Appendix "C") using the probable and hypothetical
assumptions set out therein.
17.
GuestLogix Ireland has no material cash inflows or outflows since the entity is a holding
company. As such, the actual cash flows to forecast as set out below pertain only to GuestLogix
Canada.
18.
The Initial Cash Flow Forecast extends for the duration of the proposed extension of the Stay
Period. The Company has advised that it does not intend to prepare a revised cash flow
forecast in connection with the current motion. In the Monitor's view, the Company's reliance
on the Initial Cash Flow Forecast in connection with this Motion is reasonable considering:
( 1)
the absence of material changes to the business that would have required the Initial
Cash Flow Forecast be substantially revised; and
(ii)
the duration of the proposed extension of the Stay Period.
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19. A summary of GuestLogix Canada's actual cash receipts and cash disbursements as
compared to the Initial Cash Flow Forecast for the period from and including February 9,
2016 to February 21, 2016 (the
"Reporting Period")
is summarized as follows:
GUESTLOGIX INC.
Statement of cash receipts and cash disbursements
February 9, 2016 to FebrUary 21, 203.6
$USo0O's (unaudited)
Variance
Forecast
- Actual
275
467
192
109
Receipts
Sales revenue collection
Merchandise revenue collection
232
341
Accounts receivable collection
429
218
201
(227)
,
226
8
36
36
o
1,189
1,271
82
436
330
107
61
40
21
1
1
81
77
5
176
4
(170)
249
76
173
Travel
17
7
10
Leases
12
Other operating expenses
13
8
278
6o
4
218
36
36
-
Restructuring costs
54
18
DIP financing interest & fees
6o
Transfer from Open,law
HST receivable collection
Total Receipts
Disbursements
Payroll and benefits
Rent and utilities
Loans and bank charges
Cost of sales
Equipment sales COGS
Merchandise expense
Other costs
HST Payment
36
6o
828
474
(114)
443
556
Opening Cash Balance
447
447
-
Proposed DIP Financing draw/(payback)
300
-
(300)
Closing Cash Balance
633
890
256
1,302
Total Disbursements
Cash Flow Surplus/Deficit (-)
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12
-
20.
The Initial Cash Flow Forecast was prepared on a weekly basis, with each week representing
cash flows from Monday to the following Sunday. For the purposes of this report, the Monitor
has reviewed GuestLogix Canada's actual cash flows to forecast for the Reporting Period.
21.
The variances in actual cash flows compared to the Initial Cash Flow Forecast are a result of
both temporary and permanent differences in the timing and amount of receipts and
disbursements, summarized as follows (amounts rounded to nearest thousand):
(i)
a $192,000 favourable, temporary variance in sales revenue collections resulting
primarily from:
(a)
a favourable variance of $244,000 in respect of a cash receipt from
United Airlines, which amount was originally forecasted to be
received in the week ending February 28, 2016;
(b)
an unfavourable variance of $120,000 in respect of a forecast receipt
from Southwest Airlines ("Southwest") that was not received in the
Reporting Period; and
(c)
a favourable variance of $68,000 in respect of a number of
individually smaller cash receipts that were forecast to be received in
subsequent weeks;
(ii)
a $109,000 favourable, permanent variance in merchandise revenue collections.
GuestLogix Canada provides merchant of record services to Momentum Services
("Momentum") and China Southern Airlines ("China Southern") and collects
all of the cash for all of the sales made by those parties each day, under this
arrangement. GuestLogix Canada retains between 3% and 10% of the actual gross
cash receipts as revenue and is to remit the remainder to Momentum and China
Southern, which is reflected in the 'Merchandise expense' line item in the Initial
Cash Flow Forecast. Week-over-week merchant sales are expected to fluctuate and
management has advised the Monitor that it is normal to have variances for this
revenue stream and the cash receipts associated therewith;
11
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(iii)
a $227,000 unfavourable, temporary variance in accounts receivable collections,
primarily as a result of Southwest not paying GuestLogix Canada $181,000 of
forecasted cash receipts in the Reporting Period. According to GuestLogix Canada,
Southwest experienced delays in their internal payment approval process, which
caused the delay. As of the date of this Third Report, approximately $140,000 of
this amount has been collected, with the remaining balance expected to be
collected by mid-March;
(
iv)
a $107,000 favourable variance in respect of payroll and benefits resulting
primarily from:
(a)
a $60,000 permanent, favourable variance as the payment of salary
continuance for 7 former employees was discontinued as a result of
the Stay of Proceedings; and
(b)
a $47,000 temporary, favourable variance related to invoices that
had not been received from subcontractors for work that has been
performed. GuestLogix only pays subcontractors upon receipt of an
invoice. The amount is expected to reverse by mid-March;
(v)
a $21,000 temporary, favourable variance with respect to rent and utilities
primarily due to the late payment of rent at a GuestLogix Canada affiliate
company's Hong Kong offices;
(vi)
a $170,000 permanent, unfavourable variance with respect to the 'Equipment sales
COGS' line item, primarily as a result of a change in the payment terms with a key
supplier, "IT Well" for hand-held devices to be delivered to Southwest. Southwest
submitted a new purchase order during the Reporting Period, which was not
initially forecasted. GuestLogix Canada has agreed to pay IT Well 50% of the
amount of each new purchase order it places with IT Well, up front, at the date it
makes such new orders, with the remainder due and payable on delivery.
Southwest is one of the Company's top customers and this agreement has helped to
facilitate the ongoing service and relationship with the customer and IT Well;
12
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(vii)
a $173,000 permanent, favourable variance in respect of 'Merchandise expense' as
some amounts that were forecasted to be remitted to Momentum were not paid, as
GuestLogix Canada has determined that such amounts relate to the period prior to
the Initial Order;
(viii)
a $218,000 permanent, favourable variance in 'Other costs' primarily due to nonpayment of $203,000 in professional fees in respect of work performed for the
Special Committee in connection with its review of the Company's revenue
recognition accounting policies (as defined and described in the affidavit of Mr.
John Gillberry, sworn February 8, 2016). The Monitor is advised that the review by
the Special Committee is substantially complete;
(ix)
a $36,000 temporary, favourable variance in 'Restructuring costs' as professional
fees incurred had not yet been invoiced during the Reporting Period and, therefore
were not capable of being paid;
(x)
a $60,000 temporary, favourable variance in the TIP Financing interest & fees'
line item arose as GuestLogix Canada had not met all of the conditions to funding
under its Commitment Letter with its Interim Lenders (which also resulted in the
deferral of the forecast $300,000 draw on the Interim Facility during the
Reporting Period) and, accordingly, the S6o,000 commitment fee was not payable
until such conditions were met. This variance reversed, as the conditions to
funding were subsequently met and GuestLogix . Canada made a draw on the
Interim Facility during the week ending February 28, 2016.
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STAY EXTENSION
92,
23.
The Company is seeking an extension of the Stay Period until May 6, 2016. The Monitor notes
that the proposed extension of the Stay Period corresponds with the milestones set for
completion of a transaction under the SISP, which is the primary focus of this proceeding. The
continuation of the stay of proceedings during this period is essential to maintaining stability
and maximizing value from the SISP.
The Monitor is of the view that:
(i)
the Company has acted, and is acting, in good faith and with due diligence,
including in connection with the progress of the SISP;
(ii)
circumstances exist to make an extension of the Stay Period to May 6, 2016
appropriate; and
(iii)
creditors would not be materially prejudiced by an extension of the Stay Period to
May 6, 2016.
CONCLUSION
24.
For the foregoing reasons, the Monitor supports the Company's request for an Order
extending the Stay Period to May 6, 2016.
Dated at Toronto, Ontario this 1st day of March, 2016.
PricewaterhouseCoopers Inc.
in its capacity as Monitor of GuestLogix Inc.
and GuestLogix Ireland Limited
and not in its personal capacity
Greg Prince
President
14
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Appendix "C"
Court File No, CV-16-11281-00CL
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE HONOURABLE REGIONAL SENIOR
FRIDAY, THE 19th
DAY OF FEBRUARY, 2016
JUSTICE 0..MORAWETZ
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF GUESTLOGIX INC. and GUESTLOGIX
IRELAND LimiTED
(the "Applicants")
ORDER
(Re: Approval of the SISP)
THIS MOTION, made by the Applicants seeking, among other relief, an
er
approving the sale and investment solicitation procedure was heard this day at 330 University
Avenue, Toronto, Ontario.
ON READING the Notice of Motion, the Affidavit of John Gillberry dated February 16,
2016 (the "Gillberry Affidavit") and the Exhibits thereto and the Second Report of the Monitor
dated February 17, 2016, and on hearing the submissions of counsel for the Applicant, the
Monitor, and all other counsel listed on the counsel slip, no one appearing for any other person
on the service list, although properly served as appears from the Affidavit of Service of Mitchell
Grossell sworn February 17, 2016, tiled:
Service
1.
THIS COURT ORDERS that the time for service of the Notice of Motion and the
Motion Record is hereby validated such that this .Motion Record is hereby validated such
that this Motion is properly returnable today and hereby dispenses with further service
thereof.
Approval of the Sale and Investment Solicitation Process
THIS COURT ORDERS that the Applicants are authorized and directed to commence
immediately the sale and investment solicitation process attached hereto as Schedule "A"
(the "SISP") for the purpose of soliciting interest in and opportunities for a sale of or
investment in the assets and business operations of the Applicant. Capitalized terms used
in this Order and not otherwise defined have the meanings given to them in the. SISP.
THIS COURT ORDERS that the SISP is hereby approved and the Applicants, the
Monitor and the 'Financial Advisor are hereby authorized and directed to perform their
respective obligations thereunder and to do all things reasonably necessary to perform
their obligations thereunder.
4,
THIS COURT OR
that each of the Monitor and the Financial Advisor, and their
respective affiliates, partners, directors, employees, agents and controlling persons shall
have no liability with respect to any and all losses, claims, damages or liabilities, of any
nature or kind, to any person in connection with or as a result of the SISP, except to the
extent such losses, claims, damages or liabilities result from the gross negligence or
wilful misconduct of the Monitor or the Financial Advisor, as applicable, in performin g
its obligations under the SISP (as determined by this Court).
1..010
Schedule -A"
Sale and Investment Solicitation Process
Introduction
On February 9, 2016, GuestLogix Inc, ("GuestLogix") was granted an Initial Order (as amended
or amended and restated from time to time, the "Initial Order") under the Companies 'Creelitors
Arrem,fenient Act (the "CCAA" and the "CCAA Proceedings") before the Ontario Superior
Court of Justice (the "Court"). On February 12, 2016, the Initial Order was amended and
restated to add GuestLogix -Ireland Limited ("GL Ireland", together with GuestLogix, the
"Debtors") as an Applicant in the CCAA Proceedings and the Court approved the Interim
Financing Commitment Letter (the "Commitment Letter") among the Debtors and Vistara.
Capital Partners Fund I Limited Partnership ("Vistara Capital"), by its general partner., Vistara
Fund I OP Inc. ("Vistara C P"), with Vistara OP as administrative and. collateral agent for
Vistara Capital and such other lenders among Beedie Capital Partners Fund I Limited
Partnership ("Beedie Capital"), by its General Partner, Beedie Capital Partners Inc„ and in such
proportions, as Vistara OP may arrange (collectively, the "Vistara Lenders") and Cot erica
Bank ("Cow erica", and collectively with the Vistara Lenders, the "interim Lender"),
Pursuant to the Initial Order, PricewaterhouseCoopers Inc. was appointed by the Court as the
monitor of GuestLogix and GI_ Ireland (the "Monitor").
Pursuant to the initial Order, the Debtors were authorized to pursue all avenues of sale or
refinancing or their business or property, in whole or in part, subject to prior approval of he
Court belbre any material sale or refinancing.
in this regard, the Debtors, with their tinancial advisor, Canaccord Genuity Corp. (the
Financial Advisor"), will conduct the sale and investment solicitation process ("SISP")
described herein, under the supervision of the Monitor with the approval of the Court pursuant to
a Court order dated February 19, 201.6 (the "SNP Order"). Under the SISP, all qualified
interested parties kill be provided with all opportunity to participate in the SISP. The SISP is
intended to continue the pre-filing efforts of the Debtors and the Financial Advisor in soliciting
interest in an acquisition or refinancing: of the. business or a sale of the assets and/or the business
or the Debtors.
-
This document (the "SISP Procedure") outlines the SISP, comprised of two phases ("Phase
and "Phase 2, respectively).
Opportunity
The SISP is intended to solicit interest in, and opportunities for, a sale of or investment
in, all or part of the Debtors' assets and business operations (the "Opportunity"). The
Opportunity may include one or more of a restructuring, recapitalization Of other form of
reorganization of the business and affairs of the Debtors as a going concern or a sale of
all, substantially all or one or more components of the Debtors' assets (the "Property")
and business operations (the "Business") as a going, concern or otherwise.
_
2.
Prior to the date of the Initial Order, the Debtors, with the assistance of the Financial
Advisor, had been conducting a review of strategic alternatives, including a sale and
investment solicitation process, that was approved by the board of directors of
GuestLogix and was publicly announced on November 12, 2015 (the "Review of
Strategic Alternatives"). From and after the date of the S1SP Order, the Review of
Strategic Alternatives will be continued under and be governed by this SISP Procedure.
Any non-disclosure agreement delivered to the Financial Advisor in relation to the
Review of Strategic Alternatives that has not expired will continue to remain in effect in
this SISP. Further, and for greater certainty, any party that submitted a non-binding letter
of interest must deliver a L.01 (as defined below) and a binding offer in accordance with
this SISP Procedure in order to participate in the SISP as a bidder,
3.
Except to the extent otherwise set forth in a definitive sale or investment, agreement with
a successful bidder, any sale of the Property or investment, in the Business will he on an
as is, where is basis and without surviving, representations or warranties of any kind,
nature, or description by the Monitor, the Debtors, the Financial Advisor, or any of their
respective agents, advisors or estates, and, in the event of a sale, all of the right, title and
interest of the Debtors in and. to the Property to be acquired will be sold free and clear of
all pledges, liens, security interests, encumbrances, claims, charges, options, and interests
therein and thereon pursuant to Court orders, except as otherwise provided in such Court
orders,
Timeline
4.
The following table sets out the -ey milestones uncer the S1SP:
Deadline
Milestone
Phase 1 Bid Deadline
March 18, 2016
Phase 2 Bid Deadline
arch 31, 2016
Closing Date Deadline
May 6, 2016
Subject to the terms of the Commitment Letter and the dates contained therein and any
order of the Court, the dates set out in the SISP may be extended by the Applicants, with
the consent of the Interim Lender and the approval of the Monitor.
Solicitation of interest: Notice of the SISP
5.
As soon as reasonably practicable, but in any event by no later than February 24, 2016;
(a)
the Debtors and the Financial Advisor, in consultation with the Monitor, will
prepare a list of potential bidders, including (i) parties that have approached the
Debtors. the Financial Advisor or the Monitor indicating an interest in the
Opportunity, and (ii) local and international strategic and financial parties who the
Debtors and the Financial Advisor, in consultation with the Monitor, believe may
be interested in purchasing all or part of the Business and Property or investing. in
the Debtors pursuant to the SISP, in each case whether or not such party has
submitted a letter of intent or similar document in the Review of Strategic
Alternatives (collectively, "Known Potential Bidders");
6.
(1))
the Debtors will arrange for a notice of the SISP (and such other relevant
inlormation which the Debtors, in consultation with the Financial Advisor and
Monitor, considers appropriate) (the "Notice") to be published in The Globe and
Mail (National Edition), and any other newspaper or journals as the Debtors and
the Financial Advisor, in consultation with the Monitor, consider appropriate. if
any;
(c)
the Debtors will issue a press release with Canada Newswire setting out the
information contained in the Notice and such other relevant information which the
Debtors and the Financial Advisor, in consultation with the Monitor ; consider
appropriate designating dissemination in Canada and major financial centres in
the United States; and
(d)
the Financial Advisor and the Debtors, in consultation with the Monitor, will
prepare: (I) a process summary (the 'Teaser Letter") describing the Opportunity,
outlining the process under the SISP and inviting recipients of the Teaser Letter to
express their interest pursuant to the SISP; and (ii) a non-disclosure agreement in
form and substance satisfactory to the Debtors, the Financial Advisor and the
Monitor, and their respective counsel, and consistent with the form and substance
of the non-disclosure agreement previously executed by interested parties under
the Review of Strategic Alternatives (an "NDA").
The Financial Advisor, with the assistance of the Debtors and the Monitor, will send the
Teaser Letter and •N DA to all Known Potential Bidders by no later than February 24,
2016 and to any other .party who requests a copy of the Teaser I...etter and NDA or who is
identified to the Debtors, the Monitor or the Financial Advisor as a potential bidder as
soon as reasonably practicable after such request or identification, as applicable.
PHASE 1: NON BINDING LOIs
Qualified Bidders and Delivery of Confidential infrrnzafiou Package
7.
Any party who wishes to participate in the SISP (a "Potential Bidder") must provide to
the Financial Advisor, unless the Financial Advisor confirms to such Potential Bidder
that the below documents were already provided to the satisfaction of or are already
available to the Debtors, Financial Advisor and Monitor:
(a)
an NDA executed by it, and which shall inure to the benefit of any purchaser of
the Assets, or any portion thereof, and a letter setting forth the identity of the
Potential Bidder, the contact information for such Potential Bidder and full
disclosure of the direct and indirect principals of the Potential Bidder. If a
Potential Bidder has previously delivered an NDA and letter of this nature to the
Financial Advisor and the NDA remains in effect, the Potential Bidder is not
-4required to deliver a new NDA or letter to the Financial Advisor unless oth erwise
requested by the Debtors or the monitor; and
such form of financial disclosure and credit quality support or enhancement that
allows the Debtors, Financial Advisor and Monitor, to make a reasonable
determination as to the Potential Bidder's financial and other capabilities to
consummate a Sale Proposal, or Investment Proposal, as applicable.
8.
If it is determined by the Debtors and the Financial Advisor in their reasonable business
judgement, in consultation with and with the approval of the Monitor, that a Potential
Bidder (I) has delivered the documents contemplated in paragraph 7 above: and (ii) and
has the financial capability based on the availability of financing, experience and other
considerations, to be able to consummate a sale or investment pursuant to the SISP, then.
such Potential Bidder will be deemed to be a 'Phase 1. Qualified Bidder"; provided that
no Potential Bidder shall be deemed not to be a Phase I Qualified Bidder without the
approval of the Monitor.
9.
At any time during Phase 1 of the SISP, the Debtors and the Financial Advisor may, in
their reasonable business judgment and after consultation with and the consent of the
Monitor, eliminate a Phase I Qualified Bidder from the SISP, in which case such bidder
will be eliminated from the SISP and will no longer be a Phase 1 Qualified Bidder for the
purposes of the SISP.
10.
The Financial Advisor, with the assistance of the Debtors and the Monitor, will prepare
and send to each Phase I Qualified Bidder and the Interim Lender a confidential
information package providing additional information considered relevant to the
Opportunity (the "Confidential information Package"). The Financial Advisor, the
Debtors, the Monitor and their respective advisors make no representation or warranty as
to the information contained in the Confidential information Package or otherwise made
available pursuant to the SISP or otherwise, except to the extent expressly contemplated
in any definitive sale or investment agreement with a successful bidder ultimately
executed and delivered by the Debtors.
I1.
Potential Bidders must rely solely on their own independent review, investigation and/or
inspection of all information and of the Property and Business in connection with their
participation in the SISP and any transaction they enter into with the Debtors.
Due Diligence
12,
The Debtors and the Financial Advisor, in consultation with the Monitor, shall in their
reasonable business judgment and subject to competitive and other business
considerations, afford each Phase I Qualified Bidder such access to due diligence
materials and information relating to the Property and Business as they or the Monitor
deem appropriate. Due diligence access may include manite.ement presentations, access
to electronic data rooms, on-site inspections, and other matters which a Phase 1 Qualified
Bidder may reasonably request and as to which the Debtors and the Financial AdN isor, in
their reasonable business judgment and after consulting with the Monitor, may agree. The
Financial Advisor and the Monitor will designate a representative to coordinate all
reasonable requests for additional information and due diligence access from Phase 1
Qualified Bidders and the manner in which such requests must be communicated. None
of the Debtors, the Financial Advisor and the Monitor will be obligated to furnish any
information relating to the Property or Business to any person other than to Phase 1
Qualified Bidders. Further and for the avoidance of doubt, selected due diligence
materials may be withheld from certain :Phase I Qualified Bidders if the Debtors and the
Financial Advisor, in consultation with and with the approval of the Monitor, determine
such information to represent proprietary or sensitive competitive information.
Non-Binding Letters of intent from Phase I Qualified Bidders
13.
A Phase I Qualified Bidder that wishes to pursue the Opportunity further must deliver a
non-binding letter of interest (an "L01") to the Financial Advisor and the Monitor at the
addresses specified in Schedule "1" hereto (including by email or fax transmission), so as
to be received by them not later than 5:00 PM (Eastern Time) on or before March 18.
2016 (the "Phase I. Bid Deadline"),
14.
Subject to paragraph 15, an L,01 so submitted will be considered a qualified LOI. (a
"Qualified LOI) only if:
Bid Deadline by a Phase I Qualified
(a)
it is submitted on or before the
Bidder;
(b)
it contains an indication of whether the Phase I Qualified Bidder is offering to:
acquire all, substantially all or a portion of the Property (a "Sale
Proposal"), or
(ii)
(c)
make an investment in, restructure. reorganize or refinance the
Business/the Debtors an ''Investment Proposal");
in the case of a Sale Proposal, it identifies or contains the following:
(i)
the purchase price or price range in United States dollars, including details
.of any liabilities to be assumed by the Phase 1 Qualified Bidder and key
assumptions supporting the valuation;
a description of the Property that is expected to be subject to the
transaction and any of the Property expected to be excluded;
(iii))
specific indication of the financial capability of the Phase 1 Qualified
Bidder and the expected structure and financing of the transaction;
(iv)
a description of the conditions and approvals required for a Final and
binding offer;
6
(d)
(v)
an outline of any additional due diligence required to be conducted in
order to submit a final and binding offer; and
(vi)
any other C1.111S or conditions of the Sale Proposal that the Phase I
Qualified Bidder believes are material to the transaction;
in the case of an Investment Proposal, it identifies the f011owing:
(i)
a description of how the Phase I QuaJilied Bidder proposes to structure
the proposed investment;
(ii)
the aggregate amount of the equity and/or debt investment to be made in
the Business/the Debtors in United States dollars;
(iii)
the underlying assumptions regarding the pro forma capital structure:
(iv)
a specific indication of the sources of capital for the. Phase 1 Qualified
Bidder and the structure and financing al the transaction;
(v)
a description of the conditions and approvals required for a final and
binding offer:
(vi)
an outline of any additional due diligence required to be conducted in
order to submit a final and binding offer;
(vii)
all conditions to closing that the Phase I Qualified Bidder may wish to
impose; and
(vii) any other terms or conditions of the Investment. Proposal that the Phase I
Qualified Bidder believes are material to the transaction;
(e)
I 5.
in the case of either a Sale Proposal or an Investment Proposal, it contains such
other information as reasonably requested by the Debtors and/or the Financial
Advisor in consultation with the Monitor.
The Debtors and the Financial Advisor, with the approval of the Monitor, may \valve
compliance with any one or more of the requirements specified above and deem such
non-compliant bids to be a Qualified L01. For the avoidance of doubt, the completion of
any Sale Proposal or Investment Proposal shall be subject to the approval of the Court
and the requirement of approval of the Court may not be waived.
Preliminag ...Assessment of Phase J Bids and Subsequent Process
16.
Following the Phase 1 Bid Deadline, the Debtors and the Financial Advisor, in
consultation with the Monitor and the Interim Lender, will assess the Qualified 1„.01s. If it
is determined by the Debtors and the Financial Advisor, in consultation \\jilt the Monitor
and the Interim Lender, that a Phase I Qualified Bidder that has submitted a Qualified
1.,01 (i) has a boiio fide interest in completing a Sale Proposal or Investment Proposal (as
7
the case may be); and (ii) has the financial capability (based on availability of financing,
experience and other considerations) to consummate such a transaction based on the
financial information provided, then such Phase I Qualified Bidder will be deemed a
"Phase 2 Qualified Bidder", provided that the Debtors and the Financial Advisor may,
in their reasonable business judgment and after consultation with and with the approval
of the Monitor and the Interim Lender, limit the number of Phase 2 Qualified Bidders
(and thereby eliminate some bidders from the process) taking into account the factors
identified in paragraph 17 below and any material adverse impact on the operations and
performance of the Debtors. Only Phase 2 Qualified Bidders shall be permitted to
proceed to Phase 2 of the SISP. No Phase I Qualified Bidder that has submitted a
Qualified LOI shall be deemed not to be a Phase 2 Qualified Bidder without the approval
of the Monitor.
17,
As part of the assessment of Qualified LOIs and the determination of the process
subsequent thereto, the Debtors and the Financial Advisor, in consultation with and with
the approval of the Monitor and after consultation with the Interim Lender, shall
determine the process and timing to be followed in pursuing Qualified 1,01s based on
such factors and circumstances as they consider appropriate in the circumstances
including, but not limited to: (i) the number of Qualified LOIs received, (ii) the extent to
which the Qualified LOIs relate to the same Property or Business or involve Investment
Proposals predicated on certain Property or Business, (iii) the scope of the Property or
Business to which any Qualified LOIs may relate, and (iv) whether to proceed by way of
scaled bid or auction (with or without a stalking horse bidder) with respect to some or all
of the Property.
18.
Upon the determination by the Debtors and the Financial Advisor, in consultation with
the Interim Lender and with the approval of the Monitor, of the manner in which to
proceed to Phase 2 of the SISP, the Debtors and the Financial Advisor, in consultation
with and with the approval of the Monitor, will prepare a bid process letter for Phase 2
(the "Bid Process Letter"), and the Bid Process Letter will be (i) sent by the Financial
Advisor to all Phase 2 Qualified Bidders who are invited to participate in Phase 2 by
March 22, 2016. and (ii) posted by the Monitor on the N,vebsite the Monitor maintains in
respect of this CCAA proceeding.
19.
Notwithstanding the process and deadlines outlined above with respect to Phase I of the
SISP and the process to supplement Phase 2 by way of the Bid Process Letter, the
Debtors may. in consultation with the Financial Advisor and with the consent of the
Monitor, at any time bring a motion to seek approval of a stalking horse asset purchase
agreement in respect of some or all of the Property and related bid procedures in respect
of such Property or to establish further or other procedures for Phase 2.
PHASE 2: FORMAL OFFERS AND SELECTION OF SUCCESSFUL BIDDER
20.
Paragraphs 21 to 31 below and the conduct of Phase 2 are subject to paragraphs 16 to 19,
above, and any adjustments made to Phase 2. in accordance with the Bid Process Letter
and any further Court order regarding the S1SP,
1o,',naf Binding Offers
21.
Phase 2 Qualified Bidders that wish to make a formal oiler to purchase or make an
investment in the Debtors or its Property and Business shall submit a binding offer that
complies with all of the following requirements to the Financial Advisor and the Monitor
at the addresses specified in Schedule "I" hereto (including by email or fax transmission),
so as to be received by them not later than 5:00 PM (Eastern Time) on March 31, 2016 or
as may be modified in the Bid Process Letter, in consultation with and with the approval
of the Monitor and the Interim Lender (the "Phase 2 Bid Deadline"):
(a)
the hid shall comply with all of the requirements set forth in respect of Phase I
Qualified LOIs;
(b)
the bid (either individually or in combination with other bids that make up one
bid) is an offer to purchase or make an investment in some or all of the Property
or Business on terms and conditions reasonably acceptable to the Debtors and the
Monitor
(c)
the bid includes a letter stating that the Phase 2 Qualified Bidder's offer is
irrevocable until the selection of the. Successful Bidder (as defined below),
provided that if such Phase 2 Qualified .Bidder is selected as the Successful
Bidder, its offer shall remain irrevocable until the closing of the transaction with
the Successful Bidder;
(d)
the bid includes duly authorized and executed transaction agreements, including
the purchase price, investment amount and any other key economic terms
expressed in United States dollars (the "Purchase Price"). together with all
exhibits and schedules thereto;
(e)
the bid includes written evidence of a firm, irrevocable commitment for financing
or other evidence of ability to consummate the proposed transaction, that will
allow the Debtors, with the assistance of the Financial Advisor, and the Monitor
to make a determination as to the Phase 2 Qualified Bidder's financial and other
capabilities to consummate the proposed transaction;
(f)
the bid is not conditioned on (i) the outcome of unperformed due diligence by the
Phase 2 Qualified Bidder, apart from, to the extent applicable, to the disclosure of
due diligence materials that represent proprietary or sensitive competitive
information which was withheld in Phase 1 from the Phase I Qualified Bidder
and/or Oh obtaining, financing:
(g)
the bid Cully discloses the identity of each entity that will be entering into t he
transaction or the financing, or that is participating or benefiting from such bid;
(h)
for a Sales Proposal, the bid includes a commitment by the Phase 2 Qualified
Bidder to provide a non-relondable deposit in the amount of not less than 10% of
the purchase price offered upon the Phase 2 Qualified Bidder being selected as the
Successful Bidder;
9
(i)
for an Investment Proposal, the bid includes a commitment by the Phase 2
Qualified Bidder to provide a non-refundable deposit in the amount of not less
than 10% of the total new investment contemplated in the bid upon the Phase 2
Qualified Bidder being selected as the Successful Bidder;
the bid includes acknowledgments and representations of the Phase 2 Q ualified
Bidder that: (i) has had an opportunity to conduct any and all due diligence
regarding the Property, Business and the Debtors prior to making its offer (apart
from, to the extent applicable, the disclosure of due diligence materials that
represent proprietary or sensitive competitive information which were withheld in
Phase 2 from the Phase 2 Qualified Bidder); (ii) it has relied solely upon its own
independent review, investigation and/or inspection of any documents and/or the
Property in making its bid; and (iii) it did not rely upon any written or oral
statements, representations, warranties, or guarantees whatsoever, whether
express, implied, statutory or otherwise, regarding the Business, Property, or the
Debtors or the completeness of any in frmation provided in connection there ■ vith,
except as expressly stated in the definitive transaction agreement(s) signed by the
Debtors;
(k)
the bid is received by the Phase 2 Bid Deadline; and
(I)
the bid contemplates closing the transaction set out therein on or before May 6,
2016 (the "Closing Date"),
Following the Phase 2 Bid Deadline, the Debtors and the Financial Advisor, in
consultation with the Monitor and the Interim Lender. will assess the Phase 2 bids
received. 'Fhe Debtors and the Financial Advisor, in consultation with the Monitor and
the Interim Lender and with the approval of the Monitor, will designate the most
competitive bids that comply with the foregoing requirements to be - Qualified 13ids". No
Phase 2 bids received shall be deemed not to be Qualified Bids without the approval of
the Monitor. Only Phase 2 Qualified Bidders whose bids have been designated as
Qualified Bids are eligible to become the Successful Bidder(s).
23.
The Debtors and the Financial Advisor, in consultation with the Interim Lender and with
the approval of the Monitor, may waive strict compliance with any one or more ol' the
requirements specified above and deem such non-compliant bids to be a Qualified Bid.
24.
The Financial Advisor shall notify each Phase 2 Qualified Bidder in writing as to whether
its bid constituted a Qualified Bid within ten (10) business days of the Phase 2 Bid
Deadline, or at such later time as the Debtors and the Financial Advisor, in consultation
with and with the approval of the Monitor, deem appropriate.
25.
If the Debtors and the Financial Advisor, in consultation with the Monitor, are not
satisfied with the number or terms of the Qualified Bids, the Debtors and the Financial
Advisor may, in consultation with the Interim Lender and with the approval of the
Monitor and the Interim Lender, extend the Phase 2 Bid Deadline, or the Debtors may
seek Court approval of an amendment to the SISP.
10 T)6.
The Debtors and the Financial Advisor, may, in consultation with the Monitor and the
interim Lender and with the approval of the Monitor, aggregate separate bids from
unaffiliated Phase 2 Qualified Bidders to create one "Qualified Bid".
Evaluation of Competing Bids
77,
A Qualified Bid will be evaluated based upon several factors, including, without
limitation, items such as the Purchase Price and the net value provided by such bid, the
identity, circumstances and ability of the Phase 2 Qualified Bidder to successfully
complete such transactions, the proposed transaction documents, factors alti!cting the
speed, certainty and value of the transaction, the assets included or excluded from the bid,
any related restructuring costs, and the likelihood and timing of consummating such
transactions, each as determined by the Debtors, with the assistance of the Financial
Advisor, and the Monitor, in consultation with the interim Lender.
Selection of -Successfal Bid
28,
The Debtors and the Financial Advisor, in consultation with the Interim Lender, and with
the approval of the Monitor, (a) will review and evaluate each Qualified Bid, provided
that each Qualified Bid may be negotiated among the Debtors, in consultation with the
Financial Advisor and the Monitor, and the applicable Phase 2 Qualified Bidder, and may
be amended, modified or varied to improve such Phase 2 Qualified Bid as a result of such
negotiations, and (b) identify the highest or otherwise best bid (the "Successful Bid", and
the Phase 2 Qualified Bidder making such Successful Bid, the "Successful Bidder") for
any particular Property or the Business in whole or part. The determination of any
Successful Bid by the Debtors, with the as:.;istane of the Financial Advisor, and the
Monitor, in consultation with the Interim Lender, shall be subject to approval by the
Court.
29.
The Debtor:=., shall have, no obligation to enter into a Successful Bid, and it reserves the
right, after consultation with the Monitor, the Interim Lender and the Financial Advisor,
to reject any or all Phase 2 Qualified Bids.
Sale Approval Motion Hearing
30.
At the hearing (..)1' the motion to approve any transaction with a Successful Bidder (the
"Sale Approval Motion"). the Debtors shall seek, among other things, approval from the
Court to consummate any Successful Bid. All the Phase 2 Qualified Bids other than the
Successful Bid, if any, shall be deemed rejected by the Debtors on and as of the date of
approval of the Successful Bid by the Court.
Confidentiality and Access to Information
31.
All discussions regarding a Sale Proposal, Investment Proposal, LOt or Phase 2 bid
should be directed through the Financial Advisor. Under no circumstances should the
management of the Debtors be contacted directly without the prior consent of the
Financial Advisor. Any such unauthorized contact or communication could result in
exclusion of the interested party from the SISP process.
32.
Participants and prospective participants in the SISP shall not be permitted to receive any
information that is not made generally available to all participants relating to the number
or identity of Potential Bidders. Phase 1 Qualified Bidders, Phase 2 Qualified Bidders,
Phase 2 Qualified Bids, the details of any bids submitted or the details of any confidential
discussions or correspondence between the Debtors. the Financial Advisor, the Monitor
and such other bidders or Potential Bidders in connection with the SISP, except to the
extent the Debtors and the Financial Advisor, with the approval of the Monitor and
consent of the applicable participants, are seeking to combine separate bids from Phase
Qualified Bidders or Phase 2 Qualified Bidders.
13.
The Financial Advisor and the N .lonitor may consult with any other parties with a material
interest in the CCAA proceedings, including the Interim Lender, regarding We status and
material information and developments relating to the SISP to the extent considered
appropriate by the Monitor in consultation with the Financial Advisor (subject to
paragraph 32 and taking into account, among other things, whether an particular party is
a Potential Bidder, Phase Qualified Bidder, Phase 2 Qualified Bidder or other participant
or prospective participant in the SISP or involved in a bid) and as required by the
Commitment Letter. provided that such parties shall have entered into confidentiality
arrangements satisfactory to the Debtors and the Monitor.
Supervision oldie SISP
34.
The Monitor will oversee, in all respects, the conduct of the SISP by the Debtors and the
Financial Advisor and, without limitation to that supervisory role, the Monitor will
participate in the SISP in the manner set out in this SISP Procedure and the initial Order
and is entitled to receive all information in relation to the SNP.
35.
This SISP does not, and will not be interpreted to create any contractual or other legal
relationship between the Debtors, the Financial Advisor or the Monitor and any Phase I
Qualified Bidder, any Phase 2 Qualified Bidder or any other party, other than as
specifically set forth in a definitive agreement that may be signed with the Debtors.
36.
Without limiting the preceding paragraph, the Monitor and the Financial Advisor shall
not have any liability whatsoever to any person or party, including without limitation any
Potential Bidder, Phase I Qualified Bidder, Phase 2 Qualified Bidder, the Successful
Bidder, the Debtors, the Interim Lender or any other creditor or other stakeholder of the
Debtors, for any act or omission related to the process contemplated by this S1SP
Procedure, except to the extent such act or omission is the result from gross negligence or
wilful misconduct of the Monitor or the Financial Advisor. By submitting a bid, each
Phase I Qualified Bidder, Phase 2 Qualified Bidder, or Successful Bidder shall be
deemed to have agreed that it has no claim against the Monitor or the Financial Advisor
for any reason v,halsoever, except to the such claim is the result from gross negligence or
wilful misconduct of the Monitor or the Financial Advisor.
37.
Participants in the SISP are responsible for all costs, expenses and liabilities incurred by
them in connection with the submission of any 1.01, Phase 2 bid, due diligence activities,
- 12 and any further negotiations or other actions whether or not they lead to the
consummation of a transaction.
38.
Subject to the terms of the Commitment Letter, the Debtors and the Financial Advisor
shall have the right to modify the SISP (including, without limitation, pursuant to the Bid
Process 1..,etter) in consultation with the Interim Lender and with the prior written
approval of the Monitor if, in their reasonable 'business judgment, such modification will
enhance the process or better achieve the objectives of the SISP; provided that the
Service List in this CCAA proceeding shall be advised of any substantive modification to
the procedures set forth herein.
Schedule -A
Schedule "1"
Addresses of Monitorand Financial Advisor
To the Monitor:
PricewaterhouseCoopers inc.
18 York Street. Suite 2600
Toronto, ON N15.1 082
Attention:
Greg Prince
Facsimile:
+1 (416) 814-3210
acory.n.princc ,?ca,pwc.corn
To the Financial Advisor:
Canaccorcl Genuity Corp.
161 Buy Street, Suite 3100
Toronto, ON Mil 2S1
Attention:
Brent A. Lay-ton
Facsimile:
F-inai I:
+1 (416) 869-3876
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