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Application Record.Pdf Court File No. CV-18-604759-00CL ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST 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 KRAUS BRANDS INC., KRAUS CANADA LTD., KRAUS CARPET INC., KRAUS PROPERTIES INC., KRAUS USA INC., and STRUDEX INC. Applicants APPLICATION RECORD September 10, 2018 CASSELS BROCK & BLACKWELL LLP 2100 Scotia Plaza 40 King Street West Toronto, ON M5H 3C2 David S. Ward LSUC#: 33541W Tel: 416.869.5960 Fax: 416.640.3154 [email protected] Larry Ellis LSUC#: 49313K Tel: 416.869.5406 Fax: 416.640.3004 [email protected] Erin Craddock LSUC#: 62828J Tel: 416.860.6480 Fax: 416.644.9324 [email protected] Lawyers for the Applicants TO: SERVICE LIST LEGAL*46520831.1 INDEX LEGAL*46521064.1 INDEX TAB DOCUMENT 1 Notice of Application returnable September 11, 2018 A Schedule “A” – List of Kraus Group Partnerships B Schedule “B” – Draft Initial Order 2 Comparison of Form of Initial Order to Model Initial Order 3 Affidavit of Christopher Emmott sworn September 10, 2018 Exhibit “A” - List of Kraus Group Partnerships Exhibit “B” - Corporation Organization Chart for the Kraus Group Exhibit “C” - PPSA Search Summary for the Kraus Group Exhibit "D" - Uniform Commercial Code registration system search results Exhibit “E” - Financial Statements for the Kraus Group Exhibit "F" - Forbearance Agreement Exhibit “G” - Written Consent of Deloitte Restructuring Inc. to act as Monitor Exhibit “H” - Thirteen-Week Cash Flow Forecast Exhibit “I” - Purchase Agreement (redacted), dated September, 2018 Confidential Appendix "A" – Purchase Agreement 4 Pre-Filing Report of the Proposed Monitor Appendix “A” - List of Kraus Group Partnerships Appendix “B” - Receivership Order Appendix “C” - Affidavit of Susan Mingie sworn September 10, 2018 (excluding Confidential Exhibits "C" and "E") Confidential Appendix “D” - Proposed Monitor’s Liquidation Analysis Appendix “E” – Cash Flow Statement LEGAL*46520831.1 TAB 1 LEGAL*46521064.1 Court File No. CV-18-, TSRPONMIGEDCA ONTARIO yvutsrponmlkihgfedcbaXWUTSRPONMLKJIHGFEDCBA SUPERIOR COURT OF JUSTICE COMMERCIAL LIST 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 KRAUS BRANDS INC., KRAUS CANADA LTD., KRAUS CARPET INC., "RAUS PROPERTIES INC., KRAUS USA INC., and STRUDEX INC. Applicants NOTICE OF APPLICATION IU fHE RESPONDENTS A LEGAL PROCEEDING HAS BEEN COMMENCED by the Applicants. The claim made by the Applicants appears on the following page. THIS APPLICATION will come on for a hearing before a Judge presiding over the Commercial List on Tuesday, September 11, 2018, at 9:00 a.m. at the Court House, 361 University Avenue, Toronto, Ontario, M5GV 1T3. IF YOU WISH TO OPPOSE THIS APPLICATION, to receive notice of any step in the application or to be served with any documents in the application you or an Ontario lawyer acting for you must forthwith prepare a notice of appearance in Form 38A prescribed by the RulesvutsrponmligfedcbaRPCA of Civil Procedure, serve it on the Applicants' lawyer or, where the Applicants do not have a lawyer, serve it on the Applicants, and file it, with proof of service, in this court office, and you or your lawyer must appear at the hearing. IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER DOCUMENTARY EVIDENCE TO THE COURT OR TO EXAMINE OR CROSS-EXAMINE WITNESSES ON THE APPLICATION, you or your lawyer must, in addition to serving your notice of appearance, serve a copy of the evidence on the Applicants' lawyer or, where the Applicants do not have a lawyer, serve it on the Applicants, and file it, with proof of service, in the court office where the application is to be heard as soon as possible, but at least four days before the hearing. IF YOU FAIL TO APPEAR AT THE HEARING, JUDGMENT MAY BE GIVEN IN YOUR ABSENCE AND WITHOUT FURTHER NOTICE TO YOU. IF YOU WISH TO OPPOSE THIS APPLICATION BUT ARE UNABLE TO PAY LEGAL FEES, LEGAL AID MAY BE AVAILABLE TO YOU BY CONTACTING A LOCAL LEGAL AID OFFICE. LEGALM6204006.8 -2- Brown Date September 10,2018 Issued by Address of 330 court office: Toront TO: SERVICE LIST LEGALM6204006.8 APPLICATION zyxwvutsrqponmlkjihgfedcbaYXWVUTSRQPONMLKJIHGFEDCBA 1. The Applicants make this application for: (a) an Order substantially in the form attached as Schedule "B" hereto, vutsrponmligfedcbaRPCAinter alia: (i) abridging the time for and validating service of this notice of application and the application record and dispensing with service on any person other than those served; (ii) declaring that the Applicants are parties to which the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended ("CCAA") applies; (iii) declaring that the partnerships listed on Schedule "A" hereto ("Partnerships") shall enjoy the benefits of the protections provided to the Applicants under the Initial Order; (iv) appointing Deloitte Restructuring Inc. ("Deloitte") to act as the monitor of the Applicants and the Partnerships (collectively, the "Kraus Group") (in such capacity, the "Monitor") in these CCAA proceedings; (v) authorizing the Kraus Group to continue to use its existing cash management system; LEGALM6204006.8 -4- (vi) authorizing Kraus Carpet Inc. to act as the foreign representative of the Kraus Group and of the within proceedings, and to apply for foreign recognition of the within proceedings, as necessary, in the United States of America yvutsrponmlkihgfedcbaXWUTSRPONMLKJIHGFEDCBA("United States") pursuant to Chapter 15 of Title 11 of the U.S. Code, and to take such actions as may be necessary or appropriate in furtherance of the recognition of these proceedings in any such jurisdiction; (vii) granting a stay of proceedings in favour of the Kraus Group and its directors and officers; (viii) declaring that the directors and officers of the Kraus Group shall be indemnified against obligations and liabilities that they may incur in their capacity as directors and officers of the Kraus Group after the commencement of these proceedings ("Directors' Indemnity"); (ix) granting the following charges over the property of the Kraus Group, listed in order of priority: (1) a charge in favour of counsel to the Kraus Group, the Monitor, and counsel to the Monitor to the maximum amount of $1 million ("Administration Charge"); and (2) a charge in favour of the directors and officers of the Kraus Group to the maximum amount of $1 million as security for the Directors' Indemnity ("Directors' Charge"); LEGALM6204006.8 -5- (b) an Order, sought by way of a separate notice of motion returnable September 18, 2018 ("SeptemberyvutsrponmlkihgfedcbaXWUTSRPONMLKJIHGFEDCBA 18 Motion"): (i) approving the transaction ("TPS Transaction") contemplated by the asset purchase agreement between Kraus Canada LP, Kraus Properties LP and Kraus USA Inc. (collectively, the "Kraus Sellers") and Q.E.P. Co., Inc. and Roberts Company Canada Ltd. (collectively, the "Purchasers") dated September 10, 2018, as amended from time to time, and as may be further supplemented or amended ("Purchase Agreement"); (ii) vesting all of the Kraus Sellers' rights, title and interest in and to the Purchased Assets, as set out and described in the Purchase Agreement, in the Purchasers, free and clear of and from all claims, except for permitted encumbrances, easements and restrictive covenants; and (iii) approving a certain transition services agreement made between the Kraus Sellers and the Purchasers for the provision of services to ensure the orderly transition of the sale of the TPS Business (defined below) to the Purchasers ("Transition Services Agreement"); (c) an Order sealing from the public record certain commercially-sensitive information and documents that are appended to the evidence filed on this application and the September 18 Motion; and LEGALM6204006.8 (d) such further and other relief as to this Honourable Court may deem just. 2. The grounds for the application are: yvutsrponmlkihgfedcbaXWUTSRPONMLKJIHGFEDCBA Background (a) The Kraus Group is a vertically-integrated manufacturer of premium carpet for the commercial and residential market. It is also a distributor in North America of flooring products produced by other manufacturers. (b) The operations of the Kraus Group extend across Canada and the United States. However, control of operations is centered in Waterloo, Ontario, where main production occurs and where the management of the Kraus Group occurs. (c) The Partnerships are the operating entities of the Kraus Group and the Applicants are the general partners of the Partnerships. As such, the Partnerships' operations are integral and closely related to the business of the Applicants. (d) The Kraus Group is facing a looming liquidity crisis such that it will be unable to operate its business as a going concern within a matter of weeks. (e) The Applicants are insolvent as a result of, among other things, a continuing decline in the commercial broadloom carpet industry, lower than expected sales and high fixed overhead and distribution costs. LEGAL*46204006.8 -7-yvutsrponmlkihgfedcbaXWUTSRPONMLKJIHGFEDCBA Secured Creditors (f) The Kraus Group's senior secured creditor is Wells Fargo Capital Finance Corporation Canada ("Wells Fargo"). Pursuant to a credit agreement dated August 6, 2013, as amended, ("Wells Credit Agreement"), Wells Fargo provided three credit facilities to Kraus Canada LP, Strudex LP, Kraus Carpet LP and Kraus USA Inc. (collectively, the "Kraus Operating Entities"). The credit facilities consist most significantly of a term loan in the principal amount of $4,650,000 and an operating facility in the maximum principal amount of $45,350,000 to be used for, among other purposes, working capital requirements. (g) As of July 31, 2018, the total indebtedness outstanding under the Wells Credit Agreement, as amended, was approximately $48,229,000. (h) The indebtedness under the Wells Credit Agreement is secured by a first-ranking charge against all assets and undertaking of the Kraus Group. (i) The Kraus Group's junior secured creditor is Red Ash Capital Partners II Limited Partnership ("Red Ash").
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