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
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<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
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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