First Report of the Information Officer
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Court File No. CV-20-00647463-00CL 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 BROOKS BROTHERS GROUP, INC., BROOKS BROTHERS FAR EAST LIMITED, BBD HOLDING 1, LLC, BBD HOLDING 2, LLC, BBDI, LLC, BROOKS BROTHERS INTERNATIONAL, LLC, BROOKS BROTHERS RESTAURANT, LLC, DECONIC GROUP LLC, GOLDEN FLEECE MANUFACTURING GROUP, LLC, RBA WHOLESALE, LLC, RETAIL BRAND ALLIANCE GIFT CARD SERVICES, LLC, RETAIL BRAND ALLIANCE OF PUERTO RICO, INC., 696 WHITE PLAINS ROAD, LLC, AND BROOKS BROTHERS CANADA LTD. APPLICATION OF BROOKS BROTHERS GROUP, INC. UNDER SECTION 46 OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 19850 c. C-36, AS AMENDED FIRST REPORT OF THE INFORMATION OFFICER ALVAREZ & MARSAL CANADA INC. September 23, 2020 TABLE OF CONTENTS 1.0 INTRODUCTION ........................................................................................................................ 1 2.0 TERMS OF REFERENCE AND DISCLAIMER ....................................................................... 4 3.0 PURPOSE OF THIS REPORT ................................................................................................... 6 4.0 BACKGROUND ............................................................................................................................ 7 5.0 ALL ORDERS ORDER .............................................................................................................. 15 6.0 THE SALE TRANSACTION ..................................................................................................... 21 7.0 LEASE REJECTION NOTICES ................................................................................................ 27 8.0 ACTIVITIES OF THE INFORMATION OFFICER ............................................................... 28 9.0 A&M CANADA’S QUALIFICATIONS TO ACT AS INFORMATION OFFICER.............. 29 10.0 RECOMMENDATIONS ............................................................................................................ 30 LIST OF APPENDICES APPENDIX “A” BB GROUP ORGANIZATIONAL CHART APPENDIX “B” DESCRIPTIONS OF OTHER ORDERS 1.0 INTRODUCTION Brooks Brothers’ Chapter 11 Cases 1.1 On July 8, 2020 (the “Initial Petition Date”), Brooks Brothers Group, Inc. (“BBGI”), Brooks Brothers Far East Limited (“BB Far East”), BBD Holding 1, LLC, BBD Holding 2, LLC, Brooks Brothers Restaurant, LLC, Deconic Group LLC, Golden Fleece Manufacturing Group, LLC (“Golden Fleece”), RBA Wholesale, LLC (“RBA”), Retail Brand Alliance Gift Card Services, LLC, Retail Brand Alliance of Puerto Rico, Inc., and 696 White Plains Road, LLC (collectively, the “Initial Chapter 11 Debtors”, and together with Brooks Brothers Canada Ltd. (“BB Canada”), the “Chapter 11 Debtors” or the “BB Group”), commenced voluntary cases (including BB Canada’s case, the “Chapter 11 Cases”) pursuant to Chapter 11 (“Chapter 11”) of the U.S. Bankruptcy Code (the “U.S. Bankruptcy Code”) with the United States Bankruptcy Court for the District of Delaware (the “U.S. Court”).1 BB Canada did not file a petition on the Initial Petition Date. 1.2 Since the commencement of the Chapter 11 Cases, the U.S. Court has granted a number of orders to permit the Initial Chapter 11 Debtors to continue to operate their business and advance the Chapter 11 Cases, including, most significantly, the approval of an asset purchase agreement (as amended, the “APA”) between the Initial Chapter 11 Debtors and BB Canada (the “Sellers”) and SPARC Group LLC (the “Buyer”) for the sale of substantially all of the assets of the Chapter 11 Debtors, including substantially all of the 1 Depending on the context in which they appear, references to the Chapter 11 Debtors and the Chapter 11 Cases may or may not include BB Canada and BB Canada’s Chapter 11 case, respectively. 1 assets of BB Canada (the “Canadian Assets”), for aggregate proceeds totaling $325 million (such order, the “Sale Order”, and such transaction, the “Sale Transaction”).2 1.3 The Sale Transaction closed on August 31, 2020 (the “Closing Date”), with the exception of the sale of the Canadian Assets (which consists principally of inventory) subject to subsequent conveyance pending approval of the sale of the Canadian Assets free and clear of all claims and encumbrances by the Canadian Court (as defined below). The conveyance and approval of the sale of the Canadian Assets are to be facilitated by these CCAA Recognition Proceedings (as defined below), as set forth in the second amendment to the APA dated August 31, 2020 (the “Second Amendment”) and a U.S. Court-approved Stipulation (as defined below) that is described in greater detail below. Addition of BB Canada as a Chapter 11 Debtor 1.4 In order to achieve these objectives, on September 10, 2020, BB Canada filed: (i) a voluntary petition for relief pursuant to Chapter 11 of the U.S. Bankruptcy Code with the U.S. Court; and (ii) a motion to obtain an order to apply all previous orders in the Chapter 11 Cases, including the Sale Order, to BB Canada (the “All Orders Order”). 1.5 On September 11, 2020, the U.S. Court entered an order (the “Foreign Representative Order”) authorizing BBGI to act as foreign representative (the “Foreign Representative”) on behalf of the estates of the Chapter 11 Debtors. The U.S. Court also entered an order (the “Second Joint Administration Order”) directing the joint administration of BB Canada’s and the Initial Chapter 11 Debtors’ Chapter 11 Cases. 2 The initial purchase price was $305 million. The first amendment to the APA dated August 11, 2020 (the “First Amendment”) increased the purchase price to $325 million. The purchase price is subject to adjustments. 2 1.6 On September 14, 2020, the Foreign Representative brought an application before this Court (the “Canadian Court”) pursuant to Part IV of the Companies’ Creditors Arrangement Act (“CCAA”) (the “CCAA Recognition Proceedings”, and together with the Chapter 11 Cases, the “Restructuring Proceedings”) for an initial recognition order (the “Initial Recognition Order”), among other things: (a) declaring that BBGI is a foreign representative as defined in section 45 of the CCAA; (b) declaring that the Chapter 11 Cases are recognized as a “foreign main proceeding” under the CCAA; and (c) granting a stay of proceedings against the Chapter 11 Debtors. 1.7 Additionally, on September 14, 2020, BBGI brought an application before the Canadian Court for a supplemental order (the “Supplemental Order”), among other things: (a) recognizing and enforcing the Foreign Representative Order and the Second Joint Administration Order in Canada; (b) appointing Alvarez & Marsal Canada Inc. (“A&M Canada”) as the information officer in respect of the CCAA Recognition Proceedings (in such capacity, the “Information Officer”); (c) further granting a stay of proceedings in respect of the Chapter 11 Debtors; (d) granting a super-priority charge up to a maximum of CDN$350,000 (the “Administration Charge”) over the Chapter 11 Debtors’ property in Canada in favour of Canadian counsel to the Chapter 11 Debtors, the Information Officer and 3 counsel to the Information Officer as security for their professional fees and disbursements in respect of these CCAA Recognition Proceedings; and (e) granting a second ranking charge, ranking only behind the Administration Charge up to a maximum of CDN$200,000 (the “Directors’ Charge”) over the Chapter 11 Debtors’ property in Canada for the benefit of the directors and officers of the Chapter 11 Debtors (the “D&Os”) as security for an indemnity provided by the Chapter 11 Debtors in favour of the D&Os pursuant to the Supplemental Order. 1.8 On September 14, 2020, the Canadian Court issued the Initial Recognition Order and the Supplemental Order. 1.9 On September 18, 2020, the U.S. Court entered the All Orders Order without the need for a hearing as no objections had been filed by the corresponding objection filing deadline. 1.10 Further information regarding these CCAA Recognition Proceedings can be found on the Information Officer’s website at https://alvarezandmarsal.com/brooksbrotherscanada (the “Case Website”). 2.0 TERMS OF REFERENCE AND DISCLAIMER 2.1 In preparing this Report of the Information Officer (the “First Report”), A&M Canada has relied solely on information and documents provided by the Foreign Representative, the other Chapter 11 Debtors, their U.S.-based advisors, and their Canadian legal counsel (collectively, the “Information”). 2.2 Except as otherwise described in this First Report: 4 (a) the Information Officer has reviewed the Information for reasonableness, internal consistency and use in the context in which it was provided. However, the Information Officer has not audited 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 (“CASs”) pursuant to the Chartered Professional Accountants Canada Handbook (the “Handbook”), and accordingly, the Information Officer expresses no opinion or other form of assurance contemplated under CASs in respect of the Information; and (b) some of the information referred to in this First Report consists of forecasts and projections. An examination or review of the financial forecasts and projections, as outlined in the Handbook, has not been performed. 2.3 Future-oriented financial information referred to in this First Report was prepared based on estimates and assumptions made by the Chapter 11 Debtors’ management.