ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

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1 Court File No. CV CL ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE MATTER OF Section 243(1) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3, as amended, and Section 101 of the Courts of Justice Act, R.S.O c.c-43, as amended HSBC BANK CANADA Applicant - and - CANADIAN DAIRY MANUFACTURING INC. and MAPLE DAIRY INC. Respondent FIRST REPORT OF BDO CANADA LIMITED, IN ITS CAPACITY AS COURT APPOINTED INTERIM RECEIVER March 5, 2015

2 -2- TABLE OF CONTENTS INTRODUCTION AND PURPOSE OF THIS REPORT... 3 BACKGROUND... 3 INITIAL ACTIVITIES OF THE INTERIM RECEIVER AND ITS FINDINGS... 4 EXHIBITS A B C D E F Interim Receivership Order Photographs of Exterior of the Buildings Photographs of the Main Office Building Photographs of the Manufacturing Plant & Drying Silo/Tower Photographs of the Small Southern Building Photographs of Equipment

3 -3- INTRODUCTION AND PURPOSE OF THIS REPORT 1. BDO Canada Limited ( BDO ) was appointed by order of the Superior Court of Justice as Interim Receiver without security, of all of the assets, undertaking and properties of Canadian Dairy Manufacturing Inc. ( Canadian Dairy ) and Maple Dairy Inc. ( Maple Dairy ) (collectively, the Debtors ) on March 2, A copy of the interim receivership order (the IR Order ) is included hereto as Appendix A. 2. The purpose of this Report is to: (a) inform this Honourable Court of the activities of the Interim Receiver taken to date and to report the Interim Receiver s findings. BACKGROUND 3. On February 25, 2015 the HSBC Bank Canada (the Bank ) served an Application Record returnable March 6, 2015 seeking an Order appointing BDO as Receiver over the property, assets and undertaking of the Debtors (the Receivership Application ). 4. Background facts on the business of Canadian Dairy and Maple Dairy, the credit facility granted by the Bank to Canadian Dairy and guaranteed by Maple Dairy, the Debtors current outstanding indebtedness owing to the Bank, the Bank s security over the Debtors property and the Bank s enforcement steps taken thus far are contained in the Affidavit of Stephen Wayland sworn February 23, 2015 in support of the Receivership Application (the First Wayland Affidavit ).

4 -4-5. In addition, the salient facts leading to the granting of the IR Order are contained in the Supplementary Affidavit of Stephen Wayland sworn in support of the IR Order on March 2, 2015 (the Supplementary Wayland Affidavit ). INITIAL ACTIVITIES OF THE INTERIM RECEIVER AND ITS FINDINGS 6. BDO representatives, Gary Cerrato, Vice President, and Joshua Jackson, Senior Administrator, together with representatives from National Recovery & Management Inc. ( NRM ), gained access to the Debtors manufacturing facility located at Coronation Drive, Toronto ON (the Property ) on March 2, The Interim Receiver had NRM change the locks to the main office building and pad lock the eastern and western sliding gates for the purpose of preserving and protecting the Debtors assets. The Property is entirely enclosed with a perimeter fence with barb wire. 7. Photographs of the exterior of the four buildings located at the Property are included hereto as Appendix B. State of the Main Office Building 8. The main office building had electricity, however, there was no heat in the building. The Interim Receiver has been advised by Enbridge Gas that the gas meter at the Property has been locked since September It appears that the entire Property has not had gas for heating for over 4 years. The Interim Receiver has not seen any evidence of alternative sources for heating the buildings located at the Property other than gas boilers and other units requiring gas.

5 -5-9. Attempts to enter the main office building by its front doors were not possible due to the accumulation of thick ice which had frozen to the doors. The Interim Receiver surmises that the ice was caused by flooding from burst water pipes due to the severe cold winter weather. 10. There was significant water damage to the ceiling, walls and floors throughout the office building on the Property. In some areas the ceiling had collapsed and piping had detached and fallen to the floor. There was a significant amount of ice which had formed in several areas of the building and was several inches thick. 11. The building alarm had been triggered upon entering the facility and was ringing for a significant amount of time (approximately an hour), before it was disabled by NRM. No security, police, or alarm service personnel had dispatched to the Property and thus the Interim Receiver concludes that the alarm is not currently monitored. 12. There appears to be very few physical books and records on the Property. There were four computers located in the Property and one computer server located in a secured room. All computers appear to be functioning, including the server. The computer operating systems appear to be communicating in Mandarin or Cantonese. There appeared to be shredded documents in the President s office. 13. Other assets located in the main office building on the Property include two large boardroom tables with chairs, some office furniture and workstations, a printer and fax machine.

6 Photographs of the main office building are included hereto as Appendix C. Manufacturing Plant & Partially Constructed Drying Silo/Tower 15. The manufacturing plant on the Property, located behind the main office building, had electricity and no heat. There was evidence that the water pipes were fully drained. The sprinkler heads in the manufacturing plant were removed and had not been replaced. 16. The manufacturing plant was undergoing construction which remains incomplete. The manufacturing plant has numerous excavated holes and pits and the building is in a general state of disrepair. Paneling, ducting, and tiles are present in the manufacturing plant. 17. A newly constructed drying silo/tower built behind the manufacturing plant is incomplete and appears from our review of the Order to Comply issued by the City of Toronto Building Division (the City ), to have exceeded building permit guidelines. The Interim Receiver is advised by a former employee of Canadian Dairy that the drying silo s footprint exceeds the City-approved dimension by 3 feet, however, a manager of the City would only comment that the building exceeds the permit dimensions and that other numerous code violations exist at the Property. 18. The City of Toronto Building Division sent a copy of the IR Order to its legal department to determine if they could disclose any site information to the Interim Receiver. The Interim Receiver has requested all building permit, permit violations and any other pertinent communication between the City of Toronto and the Debtors

7 -7- with regard to the construction at the Property. We are advised that such information will be released by the City of Toronto to the Interim Receiver within 30 days. 19. The manufacturing plant included a small machine shop with various tools, tooling and very old machine shop equipment. The Interim Receiver has not determined whether the machine shop equipment is functional. 20. Photographs of the manufacturing plant and drying silo/tower are included hereto as Appendix D. Small Southern Building 21. The smallest of the 4 buildings on the Property was located behind the manufacturing plant. This building appears abandoned and was simply used to house construction materials, garbage and other construction debris. The building is also exposed to the elements: there is a missing door and holes in the roof. Photographs of the small southern building are included hereto as Appendix E. Miscellaneous Heavy/Light Equipment & Vehicles 22. There are several pieces of heavy machinery (cranes) and trucks to which the ownership status is unknown. Other smaller vehicles and a portable home were noted to be on the Property. Ownership interest of these aforementioned items is currently being investigated.

8 A former employee on site on March 3, 2015, claimed that numerous pieces of equipment were owned by either himself or by a related company, CDM Real Estate Development Inc. Again, further investigation into the ownership interest of certain equipment and vehicles is required. 24. Photographs of the machine shop equipment, heavy machinery and trucks are included hereto as Appendix F. Activities of the Interim Receiver 25. The Interim Receiver has contacted its insurance broker, Firstbrook, Cassie & Anderson Ltd. to arrange insurance for the Property and the Debtors assets. Given the current state of the Property, further information has been requested by the insurer before it will confirm insurance coverage. 26. The Interim Receiver contacted the City of Toronto Water Department to arrange to have them shut the water off at the street because the Interim Receiver discovered that the main city water line is currently being heated by a small electrical heater under a tarp located in the manufacturing plant. The Interim Receiver is concerned of the potential for significant water and ice damage if the pipe bursts.

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22 Appendix B

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26 Appendix C

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31 Appendix D

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38 Appendix E

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40 Appendix F

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