COURT FILE AND PARTIES

COURT FILE NO.: 31-1823671

DATE: 20140210

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: IN THE MATTER OF THE PROPOSAL OF MPH GRAPHICS INC., A COMPANY INCORPORATED PURSUANT TO THE LAWS OF THE PROVINCE OF ONTARIO, WITH A HEAD OFFICE IN THE CITY OF MARKHAM, IN THE PROVINCE OF ONTARIO, Applicant

BEFORE: MORAWETZ R.S.J.

COUNSEL:
Jeffrey C. Carhart, for MPH Graphics Inc.

C. Linthwaite, for Ira Smith & Associates Inc., Proposal Trustee

R. Church, for Unifor Local 519-G

S. Mitra, for Royal Bank of Canada

S. Graff, for Thistle (Purchaser)

HEARD: January 3 and 6, 2014

HANDWRITTEN

REASONS: January 6, 2014

ENDORSEMENT

[1] As a result of concerns raised by the court, the parties, over the weekend, reached an agreement on revised terms for the Stalking Horse Agreement.

[2] As originally presented, on a transaction price of $1.765 million, the break fee was $150,000 with an overbid requirement of $250,000 with each subsequent overbid [requirement] being $250,000.

[3] I expressed the view that these requirements would jeopardize the ability of a competing bidder to make a bid. In short, I found these amounts to be excessive.

[4] The revised structure is more reasonable. The break fee has been reduced to $100,000 and the overbid has been reduced to $100,000 with subsequent overbids now being set at $5,000. These are amounts are, according to the Proposal Trustee, reasonable in the circumstances.

[5] It is somewhat surprising that the stalking horse proposal was revised only after I raised the issue. It underscores the necessity for an independent party to conduct a detailed review of proposed stalking horse arrangements before they are presented to court for approval.

[6] In this case, it appears that the detailed review conducted by the Proposal Trustee took place after the initial court hearing.

[7] It is essential, in my view, to ensure that a detailed review takes place so as to ensure that the position of all parties can be considered.

[8] In the absence of an independent party reviewing the transaction, the position of the debtor is put forward, as well as the position of the purchaser and, in this case, the Union. All were in favour of the original transaction. What was lacking was an advocate for the unsecured creditors. This deficiency has now been addressed in the Second Supplementary Report to the First Report of the Proposal Trustee.

[9] The Stalking Horse Process is approved. The D&O Charge and the Administration Charge are both approved. In making this determination, I have taken into account that secured creditors are on notice of the request. I have also considered the BIA requirements. The Stalking Horse Charge is also approved.

[10] Counsel to the Proposal Trustee requested that the Proposal Trustee’s Record be sealed. The contents of the Record consist of the Liquidation Analysis and the value of a lease. This information is commercially sensitive and its disclosure could be harmful to stakeholders. Having considered the Sierra Club principles, I am persuaded that the Record can be and is sealed pending closing.

[11] The debtor also requests an extension to March 10, 2014 to file the proposal. The extension is granted.

[12] All parties are aware that certain employees are covered by a collective agreement. For greater clarification, in approving the Stalking Horse Transaction, no determination has been made of any issues that may be raised with respect to the status of the Purchaser as a successor employer.

[13] Orders have been signed to give effect to the foregoing.

MORAWETZ R.S.J.

Date: February 10, 2014