ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST Court File Number:
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ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST Court File Number:
Court File Number: 32-1896275 Estate Number: 32-1896275 Estate Number: 32-1896278 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE CONSOLIDATED MATTERS OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL UNDER THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED OF XS CARGO LIMITED PARTNERSHIP & XS CARGO GP INC. FOURTH REPORT TO COURT October 6,2014 FASKEN MARTINEAU DuMOULIN LLP Barristers and Solicitors 333 Bay Street, Suite 2400 Bay Adelaide Centre, Box 20 Toronto, ON M5H2T6 Stuart Brotman (LSUC# 43430D) Dylan Chechia (LSUC# 621371) Tel: 416 366 8381 Fax: 416 364 7813 [email protected] [email protected] Lawyers for PricewaterhouseCoopers Inc. in its capacity as Trustee under the Notices of Intention to make a Proposal of XS Cargo Limited Partnership and XS Cargo GP Inc. TO: THE ATTACHED SERVICE LIST DM TOR/119878.00021/7490524.1 Court File Number: 32-1896275 Estate Number: 32-1896275 Estate Number: 32-1896278 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE CONSOLIDATED MATTERS OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL UNDER THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED OF XS CARGO LIMITED PARTNERSHIP & XS CARGO GP INC. SERVICE LIST STIKEMAN ELLIOTT LLP 1155 René-Lévesque Ouest 40£h Floor Montreal, QC H3B 3V2 mÊaÊmtwœsm Guy P. Martel Tel: (514) 397-3163 Fax: (514) 397-3493 Email: [email protected] Danny Duy Vu Tel: (514) 397-6495 Fax: (514) 397-5428 EmaiL [email protected] 5300 Commerce Court West 199 Bay Street Toronto, ON M5L1B9 Lawyers for XS Cargo GP Inc. and XS Cargo Limited Partnership #11145671 Maria Konyukhova Tel: (416) 869-5230 Fax: (416) 869-0445 Email: [email protected] 3 XS CARGO LIMITED PARTNERSHIP 7400 Bramalea Road Unit A Mississauga, ON L5S1X1 Neville Lewis Tel: (905) 362-0657 Fax: (780) 413-4297 Email: [email protected] PRICEWATERHOUSECOOPERS INC. 1250 René-Lévesque Blvd. West Suite 2800 Montréal, QC H3B 2G4 Philippe Jordan Tel: (514) 205-5232 Email: [email protected] PwC Tower 18 York Street, Suite 2600 Toronto, Ontario M5J 0B2 Gregory Prince Tel: (416) 814-5752 Email: [email protected] Trustee Tracey Weaver Email: [email protected] FASKEN MARTINEAU DUMOULIN LLP 333 Bay Street, Suite 2400 Toronto, Ontario M5H 2T6 Stuart Brotman Tel: (416) 865-5419 Fax: (416) 364-7813 Email: [email protected] Counsel to the Trustee ALRD & BERLIS LLP Brookfield Place, 181 Bay Street Suite 1800, Box 754 Toronto, ON M5J 2T9 Ken R. Rosenstein Tel: (416) 865-3427 Fax: (416) 863-1515 Email: [email protected] Lawyers for the Canadian Imperial Bank of Commerce Sam Babe Tel: (416) 865-7718 Fax: (416) 863-1515 Email: [email protected] KPMG INC. 333 Bay Street, Suite 4600 Bay Adelaide Centre Toronto, Ontario M5H 2S5 Financial advisor to the Canadian Imperial Bank of Commerce #11145671 Nicholas Brearton Tel: (416) 777-3768 Fax: (416) 777-3364 Email: [email protected] 4 GARDINER ROBERTS IXP Scotia Plaza/ 40 King West Suite 3100 Toronto, ON M5H3Y2 Jonathan H. Wigley Tel: (416) 865-6655 Fax: (416) 865-6636 Email: [email protected] Lawyers for the OSLER, HOSKIN & HARCOURT LLP 100 King Street West 1 First Canadian Place Suite 6200, P.O. Box 50 Toronto, ON M5X IBS Lawyers for the PI S \C RLDIIORS (OTFLRTHAN CIPC) "Mezzanine Lenders": Tracy Sandler Tel: (416) 862-5890 Fax: (416) 862-6666 Email: [email protected] John Valley Tel: (416) 862-5671 Fax: (416) 862-6666 Email: [email protected] TJJFE#. 1. William Gray Tel: (403) 266-7639 fax: (403) 263-6840 Email: [email protected] FAMOUS BRANDS INC. 926 5th avenue SW Suite 900 Calgary AB T2P ON7 Mike McKenna Email: [email protected] KARPREILLY CAPITAL PARTNERS, L.P. KARPREILLY GP, LLC KARPREILLY DIRECT, LLC 104 Field Point Road, Greenwich CT 06830 William Logan Email: [email protected] Chris Reilly Email: [email protected] BUTLER, MARK L., 1701 Newille Road, Carlisle Pennsylvania 17013 Mark L. Butler Email: [email protected] BACHYNSKI, GERRY 1030 Skyvalley Crescent Oakville ON L6M 3L2 Gerry Bachynski Email: [email protected] BRITAIN, SEAN 30 West 63rd Street New York, NY10023 Sean Britain Email: [email protected] #11145671 5 CBSC Capital Inc. 100-1235 North Sevice Road Oakville, ON L6M 2W2 Tel: Fax: Email: (877) 523-5515 (877) 500-5360 [email protected] Ollie's Bargain Outlet, Inc. 6295 Allentown Boulevard, Suite 1, Harrisburg PA 17112 Howard Freedman Tel: (717) 657-2300 Fax: (717) 901-3064 Email: [email protected] Integrated Distribution Systems LP o/a Wajax Equipment 26313 Township Road, 531A Acheson AB T7X 5A3 Mike Belaire Tel: (780) 948-5497 Fax: Email: [email protected] De Lage Landen Financial Services Canada Inc. 3450 Superior Court, Unit 1 Oakville ON L6L 0C4 Faseeh Ahmad Tel: (905) 901-6534 Fax: (877) 901-6460 Email: [email protected] Leggat National Leasing 2207 Fairview St., Burlington ON 17R 3Y3 JD Hooper Tel: (905) 333-3700 Fax: (905) 333-0102 Email: [email protected] Xerox Canada Ltd. 33 Bloor St. East, 3rd Floor, Toronto ON M4W 3H1 Jasdeep Girn Tel: (416) 972-7011 Fax: Email: [email protected] C. Keay Investments Ltd. (dba Ocean Trailers) 9076 River Road Delta, B.C. V4G1B5 Marianna de Ader Email: [email protected] CANADA REVENUE AGENCY c/o DEPARTMENT OF JUSTICE The Exchange Tower 130 King Street West, Suite 3400 Toronto, ON M5X1K6 Diane Winters Tel: (416) 973-3172 Fax: (416) 973-0809 Email: [email protected] Attorney General of Canada MINISTRY OF FINANCE (ONTARIO) Legal Services Branch 6th Floor, 33 King Street West Oshawa, ON L1H8H5 #11145671 Kevin O'Hara Tel: (905) 436-4510 Fax: (866) 888-3850 Email: [email protected] 6 MINISTRY OF FINANCE (BRITISH COLUMBIA) c/o MINISTRY OF JUSTICE - LEGAL SERVICES BRANCH 4th Floor, 1675 Douglas Street PO Box 9289 Stn Prov Govt Victoria, BCV8W9J7 David Hatter Email: [email protected] Heather Wellman Email: [email protected] MINISTRY OF FINANCE (ALBERTA) TREASURY BOARD AND FINANCE TAX AND REVENUE ADMINISTRATION DIVISION 2nd Fl. Sir Frederick W. Haultain Building 9811-109 Street Edmonton, AB T5k2L5 Ian Ayton Tel: (780) 427-9403 Fax: (780) 422-0899 Email: [email protected] MINISTRY OF FINANCE (SASKATCHEWAN) PROVINCIAL SALES TAX BRANCH 2350 Albert St, Regina, SKS4P4A6 Nancy Ferras Tel: (306) 787-7785 Fax: (306) 798-4035 Email: [email protected] NEWFOUNDLAND DEPARTMENT OF FINANCE P.O. Box 8700 Main Floor, East Block Confederation Building St. John's, NLA1B4J6 Donna Brewer Tel: (709) 729-2946 Email: [email protected] CANADA REVENUE AGENCY C/O DEPARTMENT OFJUSTICE The Exchange Tower 130 King Street West, Suite 3400 Toronto, ON M5X1K6 Diane Winters Tel: (416) 973-3172 Fax: (416) 973-0809 Email: [email protected] MINISTRY OF FINANCE Legal Services Branch 6th Floor, 33 King Street West Oshawa, ON L1H8H5 Kevin O'Hara Tel: (905) 436-4510 Fax: (866) 888-3850 Email: [email protected] MINISTRY OF THE ATTORNEY GENERAL (ONTARIO) McMturtry-Scott Building 720 Bay Street, 8th Floor Toronto, ON M7A 2S9 #11145671 Attorney General of Canada 7 ^aS®38!i •fÊfttf., ' "•' -i,'I~- sv:' y" ..-vv *'•> * J** <a»a^^M889iaiaiatiTO#iW»roM3ii<«MtHSB<aigMlaiaBiiia«^iBateasa«»aBgi«^^ ftiffi .• •nSlfe.r John C. Wolf BLANEY MCMURTRY LLP Tel: (416) 593-2994 1500 - 2 Queen Street East Fax: (416) 596-2044 Toronto, ON M5C 3G5 Email: [email protected] Lawyers for the Ambassador Centre Inc. and Ambassador Centre (2) Inc. Bradley Philipps Tel: (416) 593-3940 Fax: Email: [email protected] OFHCE OF THE SUPERINTENDENT OF BANKRUPTCY OF CANADA Melissa Govy Tel: Fax: Email: [email protected] #11145571 -ifii, ià 1 WI wiiB»wa» Court File Number: 32-1896275 Estate Number: 32-1896275 Estate Number: 32-1896278 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE CONSOLIDATED MATTERS OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL UNDER THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED OF XS CARGO LIMITED PARTNERSHIP & XS CARGO GP INC. INDEX TAB 1. Fourth Report to Court dated October 6,2014 DM_TOR/119878.00021/7490524.1 TAB 1 Court File No. 32-1896275 FOURTH REPORT TO COURT SUBMITTED BY PRICEWATERHOUSECOOPERS INC. IN ITS CAPACITY AS TRUSTEE UNDER THE NOTICES OF INTENTION TO MAKE A PROPOSAL OF XS CARGO GP INC., and XS CARGO LIMITED PARTNERSHIP October 6, 2014 Court File No. 32-1896275 ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE MATTER OF THE PROPOSAL OF XS CARGO GP INC., and XS CARGO LIMITED PARTNERSHIP FOURTH REPORT TO THE COURT SUBMITTED BY PRICEWATERHOUSECOOPERS INC. IN ITS CAPACITY AS TRUSTEE UNDER THE NOTICES OF INTENTION OF XS CARGO GP INC., and XS CARGO LIMITED PARTNERSHIP October 6, 2014 INTRODUCTION 1. This report ("the Fourth Report") is filed by PricewaterhouseCoopers Inc. ("PwC"), in its capacity as proposal trustee (the "Proposal Trustee") in connection with the Notices of Intention to Make a Proposal ("NOI") filed by XS Cargo GP Inc. ("GP") and XS Cargo Limited Partnership ("LP") (collectively "XS Cargo" or the "Group") on July 30, 2014 (the "Filing Date") under Section 50.4 (1) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B.-3, as amended (the "BIA")._ _ 2. ... The Proposal Trustee filed its first report with the Ontario Superior Court of Justice (Commercial List) (the "Court"), dated August 1, 2014, which, among other things, provided the Proposal Trustee's views on certain relief sought by XS Cargo in respect of a motion brought by it on August 6, 2014. 3. The Proposal Trustee filed its second report (the "Second Report") with the Court on August 27, 2014, in conjunction with XS Cargo's motion to tire Court on August 29, 2014, which resulted in the Court granting an order (the "Second Court Order"): (i) approving the extension of the time for the Group to file a proposal to October 10, 2014; and (ii) granting an order sealing the Confidential Bid Summary and the Baseline Cash Flow (both items as defined in the Second Report). The Proposal Trustee filed its third report (the "Third Report") with the Court on September 17, 2014 (the "Date of the Third Report") in conjunction with XS Cargo's motion to the Court on September 19, 2014, which resulted in the Court granting an order (the "Third Court Order"): (i) approving the transactions contemplated under an agency agreement (the "Agency Agreement") entered into between XS Cargo and Tiger Capital Group, LLC ("Tiger") on September 15, 2014; (ii) approving the transactions contemplated under an Asset Purchase Agreement (the "APA") entered into between XS Cargo and 9014454 Canada Inc. ("Newco" or the "Purchaser") on September 15, 2014; (iii) vesting in the Purchaser XS Cargo's right, title and interest, if any, in and to the purchased assets described in the APA; (iv) assigning to the Purchaser various of the Group's agreements, as described in the APA; (v) sealing the unredacted Agency Agreement and the unredacted APA; and (vi) granting an order sealing the Tiger Cash Flow This is the Proposal Trustee's fourth report (the "Fourth Report"), the purpose of which is to provide the Court with: (i) information regarding the Group's operations since the Date of the Third Report, including the conduct of the liquidation sale pursuant to the Agency Agreement; (ii) information regarding the withdrawal of the Purchaser and the termination of the APA; (iii) a summary of the Proposal Trustee's activities since the Date of the Third Report; (iv) the Proposal Trustee's views on the relief sought by the Group, as set out in the affidavit of Mr. Duncan Reith, sworn on October 3, 20x4 (the "Reith Affidavit") for an extension of time to file proposals, under section 50.4(9) of the BIA; 6. Unless otherwise stated, all monetary amounts contained herein are expressed in Canadian Dollars. DISCLAIMER AND TERMS OF REFERENCE 7. In preparing this report and conducting its analysis, the Proposal Trustee has obtained and relied upon certain unaudited, draft and/or internal financial information of the Group, the Group's books and records and discussions with various parties including the Group's employees and certain of its directors (collectively, the "Information"). 8. Except as otherwise described in this report: (i) the Proposal Trustee 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 Generally Accepted Assurance Standards pursuant to the Canadian Institute of Chartered Accountants Handbook; (ii) the Proposal Trustee 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 Canadian Institute of Chartered Accountants Handbook. 9. Future oriented financial information referred to in this report is based on estimates and assumptions. Actual results may vary from forecast, even if the assumptions materialize, and such variations may be significant. 10. Unless otherwise stated, all monetary amounts contained herein are expressed in Canadian Dollars and exclude harmonized sales tax ("HST"). defined are as defined in the Reith Affidavit. Capitalized terms not otherwise THE GROUP'S OPERATIONS AND CONDUCT OF LIQUIDATION SALE LIQUIDATION SALE u. Pursuant to the Third Court Order, the liquidation sale contemplated by the Agency Agreement commenced on September 20, 2014 with Tiger starting the liquidation sale of the Groups merchandise located within the 50 stores and 2 distribution centres. XS Cargo has undertaken the following with respect to the Agency Agreement: (i) quantified the initial estimated cost value of merchandise to determine the estimated net minimum guarantee ("NMG") payable to XS Cargo by Tiger and the portion of the NMG payable upon the commencement of the Agency Agreement (the "Initial Guarantee Payment"); (ii) established terms of trade and engaged the services of a qualified service provider to undertake an inventory taking; (iii) established a merchandise allocation schedule for the transfer of merchandise located in the Group's distribution centres ("DCs") to stores; (iv) communicated to all stores and staff the effect of the Agency Agreement; and (v) assisted Tiger to establish procedures for operations during the liquidation process including expense reimbursement and accounting. 12. In connection with the conduct of the liquidation sale, Tiger has undertaken the following initiatives: (i) advertised the liquidation sale within all 50 stores; (ii) implemented the new pricing strategy for all merchandise; (iii) assisted with the coordination of merchandise from the DCs to stores; (iv) assisted the Group in implementing strategies to manage expenses and to reconcile the reimbursement of same by Tiger to XS Cargo; and pwc (v) assisted Management in the communication to stores and XS Cargo employees of the effect of the Agency Agreement. 13. In accordance with the Agency Agreement and Third Court Order, the Group made an interim distribution on September 22, 2014 to CIBC (the "Interim Distribution") in the amount of $5,000,000. The Interim Distribution represented the indefeasible payment to CIBC payable from the Initial Guarantee Payment. TERMINATION OF THE APA 14. In addition to managing ongoing operations and working with Tiger in respect of the liquidation sale, XS Cargo, its legal counsel, XS Cargo's primary shareholder, KarpReilly LLC ("KarpReilly"), and the Proposal Trustee expended considerable time and effort continuing to work with the Purchaser to assist it in its efforts to prepare to close the transaction contemplated under the APA, by October 1, 2014, including assisting the Purchaser in soliciting consents from up to 29 landlords for the assignment of store leases the Purchaser was to assume, pursuant to the APA. Unfortunately, on September 26, 2014, the Purchaser notified KarpReilly, XS Cargo and the Proposal Trustee that it would not be able to satisfy the condition to closing by October 1, 2014 of having secured acceptable financing for the transaction. As a result, the Purchaser terminated the APA. PANALPINA 15. As noted in the Third Report, the Group and Panalpina Inc. ("Panalpina") agreed on terms to settle outstanding issues as between them and finalized a settlement agreement in this regard dated September 16, 2014 (the "Panalpina Settlement"). The Panalpina Settlement provided for a payment of $40,000, in addition to $265,000 XS Cargo already paid to Panalpina during the NOI proceedings for post-filing services, and the release by Panalpina of 23 containers it held in its possession, with a value, at cost, of approximately US$565,000 (the "Panalpina Goods"). 16. As of the date of this Fourth Report all 23 containers subject to the Panalpina Settlement have, at a minimum, arrived in the DCs. The Group has managed to have approximately US$505,000, at cost, transferred to the stores, making such goods available for sale by Tiger in XS Cargo's liquidation sale. EMPLOYEES 17. As noted in the Third Report, the Group has commenced the downsizing of operations at the head office Mississauga location to better reflect the new strategy due to the liquidation sale, including the lay-off of sixteen head office employees to date. Furthermore, the Group has received four resignations from full time employees. 18. Two of those former employees who resigned were to be participants in the Group's key employee retention program ("KERP"). As a result of their voluntary resignation, the Proposal Trustee understands that those individuals no longer qualify to participate in the KERP. SUMMARY OF TRADING RESULTS 19. Summarised below is the actual cash receipts and disbursements for XS Cargo, for the period July 28, 2014 to September 21, 2014: • r Total Receipts pwc mulative peiioiî îroin 4 to Septeeite: 21.2035 'orecnst Va tianc; f à) Va ri • * 1 Disbursements •Sales Tax Trade AP Rent Consignment Sales Freight and Clearance Salaries & Payroll Capex Other Expenses- Misc. & Taxes Deposits- Utilities Interest Payments Restructuring Fees Inventory Taking Service Total Disbursements Net Cash Inflow/fOutflow) $ 22,879,571 8 22,714,997 97.469 3,727J059 2,I97..786 3,236,745 490,313 2,186,795 10,991 26,950 26,950 900,672 1,500,397 3,195,910 4453,124 755.074 8 164,574 (657. 8O5)- - f %; 1 *ISO A,' (87%) 15^0 198 - 64,000 250,000 (186,000) (4096) (23%) (ioo9o) (6198) (7498) 123,910 133,103 822,613 ltT174a69 (9493) (351,555) (3095) 11,780,453 14,825,215 (3,089,763) 11,099,118 7,889,782 3,209,337 (599,725) (957,214) - 10,000 (10,000) 524,083 1,343,658 (8x9,575) 100,000 - (7*) - {21%} 41% The Cash Flow Forecast was prepared on a weekly basis, with each week's cash flows forecast from Monday of that week to the following Sunday. Accordingly, although the Filing Date was July 30, 2014, for purposes of analyzing the Group's actual cash flows as compared to forecast, the table above includes the foreast cash flows for the eight full-week period commencing July 28 to September 21, 2014 (the "Period"). However, as the Agency Agreement was approved by the Court on September 19, 2014, the actual cash flows reflected above do not include any receipts and disbursements for September 20th and September 21st. The favourable variance of approximately $660,000 with respect to "Sales Tax" payments is temporary in nature and represents a difference in the timing of payment for accrued sales tax of the Period. Between September 22, 2014 and September 30, 2014, the Group made paymènts totalling approximately $380,000 in respect of Sales Taxes collected subsequent to the Filing Date, to various taxing authorities. The unfavourable variance of approximately $490,000 in "Trade AP" disbursements is due to the terms of the Accommodation Agreement with CIBC providing XS Cargo the right to make additional purchases equivalent up to $0.50 for every $1 that sales exceeded forecast on a cumulative basis. Although this "uplift" was capped at $500,000 and only available until the week ended August 24, 2014, XS Cargo made approximately $490,000 in additional purchases. The favourable variance of approximately $im in the "Salaries & Payroll" disbursements line item, represents the combination of the deferral of the payment of the Group's Key Employee Retention Plan amounts (the "KERP") and the deferral of the payment of certain accrued payroll amounts originally forecast to be paid assuming the SISP resulted in a transaction for the sale or refinacing of XS Cargo's business having closed by September 12, 2014, which did not happen. It is anticipated that the variance will reverse upon the completion of the transactions contemplated under the Agency Agreement. In this respect, the Proposal Trustee understands that employees who are currently eligible to participate in the KERP were provided notice that such payments would be made on November 14, 2014, by which time it is likely that the liquidation sale being conducted by Tiger will be substantially complete. 24- As also set out in the Second Report, "Other expenses" has experienced a favourable variance of approximately $820,000, due to the fact that the Company had anticipated a higher number of deposits to vendors to provide services during the NOI. This was not the case since XS Cargo was required to pay in advance or upon shipment for most of the inventory purchases it has made since the Filing Date. Accordingly, this variance is permanent in nature. ACTIVITIES OF THE PROPOSAL TRUSTEE 25. Since the Third Report, the Proposal Trustee has undertaken the following activities: (i) maintained a website at: http://www.pwc.com/ca/en/car/xscargo/index.jhtml where all materials filed with the Court and all orders granted by the Court in connection with the NOI are being made available in electronic form; (ii) assisted in the review of operations on a daily basis with frequent communication with Management and XS Cargo staff; (iii) reviewed the cash flows of XS Cargo on a daily basis; (iv) reported to CIBC and its advisors and legal counsel; (v) communicated with the Group's creditors, including responding to a variety of enquiries received from service providers, vendors and landlords; (vi) assisted XS Cargo in handling inquiries from employees; (vii) assisted XS Cargo in managing the operational requirements of the Agency Agreement, in particular: (a) calculating the Initial Guarantee Payment for the first payment required under the Agency Agreement; (b) making payment of the interim distribution to CIBC; (c) establishing procedures and calculations for the reimbursement of expenses as per the Agency Agreement; (d) communication to staff and stores on the effect and implementation of the Agency Agreement; (viii) (e) advising service providers to assist in the reimbursement of expenses; (f) preparation for the Inventory Taking; (g) obtaining the NMG letters of credit; assisted XS Cargo in managing the operational requirements to implement the Agency Agreement; (ix) assisted Tiger in preparing to commence the liquidation sale as contemplated by the Agency Agreement; (x) assisted in negotiations with lessors to mitigate the costs associated with managing the operations; and (xi) assisted the Group with its dealings with the Purchaser. 10 pwc EXTENSION OF TIME FOR FILING A PROPOSAL 26. The time for filing a proposal currently expires on October 10, 2014. As set out in the Reith Affidavit, XS Cargo seeks the extension of time for the filing of a proposal until October 31, 2014. 27. As noted above the Agency Agreement has been approved by the Court on September 19, 2014 for the sale of XS Cargo's merchandise. The Agency Agreement states that the liquidation sale contemplated thereunder will end not later than November 30, 2014 (the "Agency Term"). As such, the Group has certain obligations under the terms of the Agency Agreement that extend past October xo, 2014. 28. The Proposal Trustee has been engaged in discussions with XS Cargo, its management team, its legal counsel and KarpReilly regarding the filing of proposals in respect of GP and LP. The Proposal Trustee also understands that the Group is working towards the filing of proposals in the near future, but that in the event that the Group is unable to submit such proposals before October 10, 2014, the Group will require an extension of the time for doing so. 29. The Proposal Trustee has considered the duration of the extension requested by the Group and has the following comments: (i) the extension requested by the Group does not extend over the entire period of the Agency Term; (ii) although there is no certainty that the Agency Agreement will remain in effect over the full Agency Term it is reasonable to assume that the liquidation sale will continue for some time, certainly beyond the current expiry of the time for making a proposal; 11 (iii) in connection with its request for the approval of the Agency Agreement and the APA on September 19, 2014, XS Cargo, with the assistance of the Proposal Trustee, ' prepared the a cash flow forecast that was filed with and sealed by the Court, pursuant to the Third Court Order (the "Tiger Cashflow") to assess the impact on the Group's cash flows if the Agency Agreement and the APA were approved by the Court and to ensure the Group could maintain sufficient liquidity to carry out the terms of the Agency Agreement and the APA. The Tiger Cashflow did not contemplate changes to the Group's cash flows in the event the APA closed. As the APA has been terminated, the Proposal Trustee remains of the view that the Tiger Cashflow remains relevant and no significant, unfavourable changes have occurred in the Group's circumstances since the date of the Third Court Order that would require modification of the Tiger Cashflow. The Tiger Cashflow indicates that the Group will have sufficient cash to support its expenditures during the requested extension period; and (iv) if the requested extension is granted, the Proposal Trustee will closely monitor the progress of sale under the Agency Agreement and its impact on the Group's actual cash flows, and will report to the Court and the creditors if it appears that the Group will encounter a material negative variance relative to the Tiger Cashflow. 30. Based upon the Proposal Trustee's .. observations- .ol the- Group's. conduct-,- -the -Propes-al Trustee is of the view that: (i) XS Cargo is acting in good faith and with due diligence; (ii) the proposed extension of the stay of proceedings and time for filing proposals will allow XS Cargo the time to finalize the terms and conditions of proposals to its creditors; and (iii) no creditor is likely to be materially prejudiced by the granting of the extension of time for XS Cargo to file proposals. 31. Therefore, the Proposal Trustee is of the view that it is appropriate in the circumstances for the Court to grant an extension of time for the Group to file proposals. 12 pwc The Proposal Trustee respectfully submits to the Court this, its Fourth Report. Dated this 6th day of October, 2014. PricewaterhouseCoopers Inc. In its capacity as Proposal Trustee of XS Cargo GP Inc., and XS Cargo Limited Partnership Greg Prince Senior Vice President pwc Court File No. 32-1896275 IN THE CONSOLIDATED MATTERS OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL UNDER THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED OF XS CARGO LIMITED PARTNERSHIP & XS CARGO GP INC. ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST Proceedings commenced in Toronto FOURTH REPORT TO COURT FASKEN MARTINEAU DuMOULIN LLP 333 Bay Street - Suite 2400 Bay Adelaide Centre, Box 20 Toronto, ON M5H 2T6 Stuart Brotman (LSUC# 43430D) Dylan Chochla (LSUC# 621371) Tel: 416 366 8381 Fax: 416 364 7813 [email protected] [email protected] Lawyers for PricewaterhouseCoopers Inc. in its capacity as Trustee under the Notices of Intention to make a Proposal of XS Cargo Limited Partnership & XS Cargo GP Inc. DM_TOR/l 19878.00021/7490524.1