SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: 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 TO TBS ACQUIRECO INC., THE BARGAIN! SHOP HOLDINGS INC. and TBS STORES INC.

BEFORE: D. M. Brown J.

COUNSEL: M. Forter, V. Gauthier and D. Pearlman, for the Applicants, TBS Acquireco Inc., The Bargain! Shop Holdings Inc. and TBS Stores Inc.

M. Laugesen, for Wells Fargo Capital Finance Corporation Canada

J. Sirivar, for BlackRock Kelso Capital Corporation

L. Galessiere and G. Camelino, for Loblaw Properties Ltd., OPB Realty Inc. and Highland Park Shopping Centre Inc.

E. Lamek and J. Szumski, for the Monitor

H. Chaiton, for the Board of Directors of the Applicants

S. Kukulowicz, for Merchant Trading and GBRP, Inc., the proposed Agent

HEARD: March 27, 2013

REASONS FOR DECISION

I. Motion to approve a liquidation transaction in CCAA proceedings

[1] On February 26, 2013, this Court made an order granting the application of TBS Acquireco Inc. (“TBS”) and certain of its direct Canadian subsidiaries, The Bargain! Shop Holdings Inc. (“TBSHI”) and TBS Stores Inc. (“TBSI”), for relief under the Companies’ Creditors Arrangement Act (“CCAA”) (the “Initial Order”). The Initial Order appointed Ernst & Young Inc. as monitor. On March 25, 2013, Mesbur J. extended the stay of proceedings until April 25, 2013.

[2] Prior to the commencement of the CCAA proceedings the Applicants had identified a need to close 64 non-performing store locations and commenced a process seeking to liquidate the inventory at those locations. The Applicants moved for approval of a liquidation transaction in respect of 62 of the 64 store locations which they have decided to divest as part of their restructuring under the CCAA process.

[3] This morning I granted the order sought. These are my reasons for so doing.

II. The liquidation solicitation process

[4] Prior to the commencement of this CCAA proceeding, TBSHI had identified a number of store locations which generated modest to negative store level profits and consumed a significant amount of working capital. With the assistance of Ernst & Young Inc., TBSHI concluded that the divestiture of 64 locations would improve its profitability, reduce its working capital requirements and lower its operating debt levels. The leases for two of the Underperforming Locations were expiring imminently. Accordingly, TBSHI began a self-liquidation process for these locations. For the remaining 62 locations (the “Liquidating Locations”), TBSHI, with the assistance of the Monitor, began a solicitation process to select a liquidator to liquidate and close the Liquidating Locations through an inventory liquidation process (the “Liquidation Process”).

[5] TBSHI, with the assistance of Ernst & Young Inc., initially approached four liquidators that, in the Monitor’s opinion, had both the expertise and the financial wherewithal to efficiently conduct the Liquidation Process. After the date of the Initial Order several other liquidators with similar qualifications expressed a desire to submit proposals to conduct the Liquidation Process and executed non-disclosure agreements.

[6] The Applicants, with the assistance of the Monitor, established a virtual data room with information about the Liquidating Locations, including the inventory held at each location, the costs and expenses associated with each location, and historical sales figures at each location. All liquidators who had executed non-disclosure agreements were given access to a virtual data room.

[7] The solicitation process prepared by the Applicants contemplated that all liquidators would submit bids on or before 3 p.m. on March 13, 2013. All bidders were subsequently given the option of extending the deadline to 5 p.m.

[8] By the revised deadline the Applicants had received a total of four competitive bids. Bids were submitted on an individual basis as well through joint ventures. Six of the seven parties that participated in the diligence process submitted bids directly or as part of a joint venture.

[9] On March 14, 2013, after reviewing and analyzing the bids with their counsel and the Monitor, the Applicants selected the two bids which offered the best economic terms and invited those liquidators to submit improved bids by no later than 2 p.m. on March 15, 2013. Both groups did so.

[10] Following further review and analysis of the improved bids, the Applicants, with the assistance and input of counsel and the Monitor, concluded that the bid submitted by Merchant Trading Services ULC and GBRP, Inc. (collectively, the “Agent”) offered the best economic terms in any likely scenario. On that basis, the Applicants began negotiations with the Agent to complete a liquidation agreement.

III. The Liquidation Agreement

[11] Beginning on March 15, 2013, the Applicants, with the assistance of counsel and the Monitor, and with input from Wells Fargo Capital Finance Corporation Canada, the senior secured creditor, negotiated with the Agent the form and substance of the agency agreement that would govern the Liquidation Process (the “Liquidation Agreement”).

[12] As negotiations appeared to be drawing to a close, on March 21, 2013, the Applicants provided Wells Fargo and BlackRock Kelso Capital Corporation, the other secured creditor, with a copy of the near-final draft of the Liquidation Agreement for comment. The Liquidation Agreement was subsequently executed on March 22, 2013.

[13] As reported by the Monitor, the key commercial terms of the Liquidation Agreement are as follows:

a) The Liquidation Process will begin on April 1, 2013 (the “Sale Commencement Date”) and will terminate on May 31, 2013 unless extended by the Agent, on notice to the Applicants, at specific Liquidating Locations;

b) The Applicants will receive a net minimum guarantee (the “NMG”) equal to 43.25% of the retail value of the inventory (subject to certain adjustments) (the “Merchandise”) at the Liquidating Locations on the Sale Commencement Date. The amount of the NMG will be reduced automatically if the retail value of the inventory at the Liquidating Locations on the Sale Commencement Date is less than $19.6 million;

c) The Agent will pay 75% of the NMG to the Applicants immediately following court approval of the Liquidation Agreement. The balance of the NMG will be paid following a full inventory taking and reconciliation process which is expected to take several weeks. As security for payment of the balance of the NMG and certain expenses, the Agent will provide the Applicants with a letter of credit immediately following court approval of the Liquidation Agreement;

d) The Agent will have the ability to augment the inventory at the Liquidating Locations with other similar merchandise (“Augmented Inventory”). The Applicants will receive a 4% commission on the proceeds of any such inventory, with the balance of the proceeds going to the Agent;

e) The Agent will have the ability to sell certain of the furnishing, removable fixtures and equipment at the Liquidating Locations (“FF&E”). The Applicants will receive 80% of the proceeds of any such FF&E, with the balance of the proceeds going to the Agent;

f) The Agent will, at the request of the Applicants, sell certain other goods located at the Liquidating Locations but not included in Merchandise (“Company Consignment Goods”). The Applicants will receive 80% of the proceeds of any such Company Consignment Goods, with the balance of the proceeds going to the Agent;

g) During the Liquidation Process, the Agent will reimburse the Applicants on a weekly basis for a substantial portion of the expenses associated with operating each of the Liquidating Locations (the “Expenses”);

h) Following payment of all proceeds in respect of Augmented Inventory, FF&E and Company Consignment Goods, and following payment by and reimbursement to the Agent of all Expenses and the NMG, the Agent will receive an amount equivalent to 1.5% of the retail value of the Merchandise (the “Agent’s Fee”). Any remaining proceeds will be split with 30% going to the Agent and 70% going to the Applicants;

i) All proceeds from the Liquidation Process, including sales taxes, will first be deposited through the Applicants’ existing cash management system into the Applicants’ accounts and then transferred into a trust account controlled by the Monitor (the “Trust Account”). The Monitor will administer distributions out of the Trust Account to each of the Agent and the Applicants in accordance with the following waterfall, and subject to the prior consent of each party:

i. The Applicants will be reimbursed for any sales taxes which they remit in respect of sales completed during Liquidation Process;

ii. The Applicants will receive their share of the proceeds from any Augmented Inventory, FF&E or Company Consignment Goods;

iii. The Agent will receive its share of the proceeds from any Augmented Inventory, FF&E or Company Consignment Goods;

iv. The Applicants shall have received all outstanding reimbursements for Expenses;

v. The Agent will be reimbursed for all Expenses;

vi. The Agent will receive an amount equivalent to the NMG actually paid to the Applicants;

vii. The Agent will receive the Agent’s Fee; and

viii. The Applicants and the Agent will split any remaining proceeds, with 70% being paid to the Applicants and 30% being paid to the Agent.

[14] Pursuant to the Liquidation Agreement, on this motion the Applicants sought certain relief in respect of the administration of the Liquidation Agreement, including: (i) authorizing and directing the Monitor to administer the Trust Account in accordance with the Liquidation Agreement; (ii) granting the Agent a first-ranking charge over the inventory at the Liquidating Locations; (iii) requiring the Applicants and Wells Fargo to disgorge any overfunded amounts that might be paid by the Agent to the Applicants throughout the Liquidation Process; and, (iv) relief in the nature of vesting orders.

IV. Positions of the parties

[15] Both Wells Fargo and BlackRock supported the Applicants’ motion. Certain landlords appeared on the motion – Loblaw Properties, OPB Realty Inc. and Highland Park Shopping Centre Inc. As a result of discussions between the landlords and the Applicants certain changes were made to the Sale Guidelines concerning the sale of any Merchandise and FF&E. On the basis of those changes, the landlords did not oppose the order sought.

[16] In paragraphs 31 and 32 of its Third Report dated March 25, 2013, the Monitor reported:

31/ The Monitor is of the view that the Applicants have implemented an orderly process to solicit a liquidator to conduct the Liquidation Process, consistent with the provisions of the Initial Order and the CCAA:

a/ The canvassing of the market for interested purchasers was professionally conducted with sufficient time for potentially interested persons to obtain the information required to consider the opportunity;

b/ The Applicants and the Monitor have treated all potentially interested persons fairly and afforded them equal access to information and equal opportunity to participate;

c/ The Applicants have kept the Monitor and Wells Fargo fully apprised throughout the solicitation process, and provided Wells Fargo and BlackRock with an opportunity to review and comment on the Liquidation Agreement prior to execution; and

d/ The Agent chosen by the Applicants offered financial terms that were clearly superior to the other bids that were received in any likely scenario, and the Monitor is satisfied that the consideration to be received for the assets is fair and reasonable in the circumstances.

32/ The Monitor notes that a member of the Agent, Merchant Trading Services ULC, is related to certain minority shareholders of the Applicants. In addition, affiliates of both members of the Agent hold approximately 37% of the Applicants’ 2006 Vender Take Back Notes. During the solicitation process, the Monitor did not disclose any information regarding the bids received in the solicitation process to the shareholders. Furthermore, the Monitor has received assurances from Management that other than an update on the status and timing of the solicitation process, delivered on March 16, 2013 after all final bids had been received, no information regarding the bids was provided by Management to any shareholders.

[17] In paragraphs 34 and 35 of its Third Report the Monitor stated:

34/ It is not clear whether the Agent would be considered a related party for the purposes of the CCAA, given that does not hold a controlling interest in any of the Applicants and given that Merchant Trading Services ULC is only one member of the Agent, but the Monitor is of the view that the additional factors in section 36(4) would be met by the Agent’s bid in any event. As noted above, there were 6 participants in the solicitation process, each of which were given equal access to information and equal opportunity to participate in the process. In the Monitor’s view, good faith efforts were made to locate the best possible liquidator through the solicitation process, including liquidators who are not related to the debtor company. Furthermore, based on a review of the bids received, the Applicants and the Monitor are of the view that the consideration that will be received under the Agent’s bid is clearly superior to the consideration that would be received under the other bids received through the solicitation process in any likely scenario.

35/ Based on the foregoing, the Monitor recommends that the Court approve the Applicant’s request for an order approving the Liquidation Agreement.

V. Analysis

[18] The proposed Liquidation Process would see the applicants dispose of some of their assets outside the ordinary course of business, so the Applicants’ proposal must be assessed in light of the criteria set out in section 36 of the CCAA.

[19] The Applicants gave notice to the secured creditors who are likely to be affected by the Liquidation Process: CCAA, s. 36(2). Both Wells Fargo and BlackRock supported the motion.

[20] In terms of the factors enumerated in CCAA s. 36(3), the evidence disclosed that the process leading up to the proposed disposition, including the solicitation of potential liquidators, which I described above, was reasonable in the circumstances. As to the consideration to be received by the Applicants under the Liquidation Agreement, in their materials neither the Applicants nor the Monitor filed a chart comparing the various bids they had received and considered from potential liquidators. Such a comparison chart should be filed as a matter of course on CCAA s. 36 motions so that the Court has before it direct evidence to enable an assessment of whether the consideration to be received is reasonable and fair. At the hearing of the motion the Applicants filed a comparison chart and, based on a review of it, I am satisfied that the bid of the Agent offered the most favourable consideration for the Applicants’ assets.

[21] The comparison chart was filed on a confidential basis, and it shall be sealed: Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, [2002] 2 S.C.R. 522.

[22] As mentioned, the Applicants consulted the two secured creditors, both of which supported the approval motion.

[23] Finally, the Monitor, in its Third Report, supported the approval of the Liquidation Agreement.

[24] The Monitor reported that a member of the Agent, Merchant Trading Services ULC, is related to certain minority shareholders of the Applicants. As well, affiliates of both members of the Agent hold approximately 37% of the Applicants’ 2006 Vendor Take Back Notes. Those facts would not make the Agent a person related to the Applicants for the purposes of CCAA s. 36(4). In any event, the evidence disclosed that good faith efforts were made to dispose of the assets to person who were not related to the company and the consideration to be received from the Agent is superior to the consideration that would be received under any other bid from a potential liquidator.

[25] For those reasons, I granted the approval motion and approved the Monitor’s Third Report.

[26] I will remain seized of this proceeding unless my calendar prevents the hearing of an urgent matter.

D. M. Brown J.

Date: March 27, 2013