court file no. cv-12-9732-00cl ontario (commercial list) · court file no. cv-12-9732-00cl ontario...

Court File No. CV-12-9732-00CL

ONTARIOSUPERIOR COURT OF JUSTICE(COMMERCIAL LIST)

BETWEEN:

KEITH ALEXANDER, ARTHUR BARKIN, MARSHALL BARKIN,HARVEY FRISCH, ERIC GROSSMAN,

ROBERT GROSSMAN, STANLEY GROSSMAN, TOM KOFFLER,AVI RITTER, MARK SIMON, JUDITH SPORN, STEPHEN STARK,

MICHAEL STEINBERG, JOHN USTER,STEVEN WARSH and DAVID YARMUS

- and -

2025610 ONTARIO LIMITED, KAPTOR FINANCIAL INC.,and INSIGNIA TRADING INC.

Applicants

Respondents

APPLICATION under subsection 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. 1990, C. C.43, as

amended

MOTION RECORD(Returnable July 12, 2017)

BORDEN LADNER GERVAIS LLPBay Adelaide Centre, East Tower22 Adelaide Street West, Suite 3400Toronto ON M5H 4E3

Alex MacFarlane (LSUC No. 28133Q)Tel: [email protected]

Evita Ferreira (LSUC No. 69967K)Tel: 416.367.6708eferreira@blg. corn

Lawyers for Crowe Soberman Inc.



BETWEEN:




- and -


Applicants

Respondents


amended

INDEX

TAB DOCUMENT

1. Notice of Motion returnable July 12, 2017

2. Draft Order

3. Blackline to Model Receiver Discharge Order

4. Sixth Report of the Receiver dated July 5, 2017

Appendix A: Receivership Order of Justice D.M. Brown — June 18, 2012

2

Appendix B: First Report dated November 27, 2012 (without appendices)

Appendix C: Second Report dated October 21, 2013 (without appendices)

Appendix D: Order of Justice McEwen dated August 19, 2014 (BankruptcyOrder)

Appendix E: Order of Justice McEwen dated August 19, 2014 (Section 38Order)

Appendix F: Third Report dated January 13, 2015 (without appendices)

Appendix G: Fourth Report dated March 16, 2015 (without appendices)

Appendix H: Fifth Report dated September 9, 2015 (without appendices)

Appendix I: Order and Endorsement of Justice Wilton-Siegel dated September15, 2015

Appendix J: Order and Endorsement of Justice Newbould dated August 30, 2016

Appendix K: Final Statement of Receipts and Disbursements

5. Affidavit of Hans Rizarri sworn July 5, 2017

6. Affidavit of Terrance Moffatt sworn July 5, 2017

7. Affidavit of Douglas Smith sworn July 5, 2017



BETWEEN:




- and -


Applicants

Respondents


amended

NOTICE OF MOTION(Returnable July 12, 2017)

CROWE SOBERMAN INC. ("Crowe Soberman"), in its capacity as the Court-

appointed Receiver (the "Receiver") of Kaptor Financial Inc. ("Kaptor"), Insignia Trading Inc.

("Insignia") and 2025610 Ontario Limited ("202"), (collectively referred to as the "Companies"

or "Kaptor Group") will make a motion to Justice Wilton-Siegel of the Ontario Superior Court

of Justice (Commercial List) on July 12, 2017 at 10:00 a.m. or as soon after that time as the motion

can be heard, at 330 University Avenue, Toronto, Ontario.

THE PROPOSED METHOD OF HEARING: The motion is to be heard orally.

2

THE MOTION IS FOR:

1. An Order substantially in the form attached as Schedule "A" to this Notice of Motion (the

"Fee Approval and Discharge Order"):

(a) if required, abridging the time for service of the Notice of Motion and the Motion

Record and validating service so that the Motion is properly returnable on the

proposed date and dispensing with the requirement for any further service thereof;

(b) approving the Sixth Report of the Receiver dated July 5, 2017 (the "Sixth Report")

and the activities of the Receiver as set out in the Sixth Report;

(c) approving the receipts and disbursements of the Receiver for the period from June

18, 2012 to July 4, 2017;

(d) approving the fees in the amount of $851,203.75 (plus applicable HST totalling

$110,656.49 on the foregoing amount) of the Receiver for the period from June 7,

2012 to July 4, 2017;

(e) approving the fees in the amount of $447,331.50 and the disbursements in the

amount of $15,793.61 (plus applicable HST totalling $58,153.11 on the foregoing

amounts) of Gowling WLG (Canada) LLP ("Gowling") as foimer counsel for the

Receiver for the period from June 21, 2012 to December 31, 2015;

(f)

(g)

approving the fees in the amount of $28,762.50 and the disbursements in the

amount of $499.90 (plus applicable HST totalling $3,804.12 on the foregoing

amounts) of Borden Ladner Gervais LLP ("BLG") as counsel for the Receiver for

the period from December 6, 2016 to May 31, 2017;

discharging Crowe Soberman as the Receiver of the undertaking, property and

assets of the Kaptor Group;

(h) releasing Crowe Soberman and the Receiver from any and all liability; and

such other relief as counsel may advise and this Court may permit.

3

THE GROUNDS FOR THE MOTION ARE:

Background

1. Capitalized terms not otherwise defined herein have the meanings ascribed to them in the

Sixth Report.

2. On June 18, 2012 (the "Appointment Date") Justice David Brown (as he then was)

granted an Order (the "Receivership Order") appointing Crowe Soberman as the Receiver

of the Kaptor Group.

3. As at the Appointment Date, investors in the Kaptor Group and other related corporate

entities claimed losses in excess of $48 million which, at the time remain unaccounted for.

Settlement of Derivative Action

4. Shortly after the Receivership Order was granted, certain investors obtained leave to

commence a proceeding against the Companies' accountants, certain directors and certain

employees of the Companies (the "Derivative Action").

5. On August 19, 2014, Justice McEwen granted an order pursuant to section 38 of the

Bankruptcy and Insolvency Act (the "Section 38 Order"). The Section 38 Order required

that Crowe Soberman in its capacity as trustee in bankruptcy of the Kaptor Group (the

"Trustee") execute an assignment in respect of the Derivative Action pursuant to which

the Trustee transferred all its right, title and interest in and to the Derivative Action to the

applicants in that action, for the benefit of themselves and any other creditors that wished

to join in funding the Derivative Action (subject to the existing Prior Charges granted by

the Court in these receivership proceedings, the fees and expenses of the Trustee, and

without prejudice to the rights and remedies of certain creditors).

6. After the granting of the Section 38 Order, the parties to the Derivative Action were

involved in a series of mediation sessions and settlement discussions. The Receiver was

advised that the plaintiffs and certain of the defendants to the Derivative Action reached a

settlement in April 2015, and subsequently executed settlement documentation in order to

4

formalize the settlement (the "Executed Settlement"). The remaining defendants to the

Derivative Action, the former accountants and auditors of the Companies, reached a

settlement in January 2016 (the "Accounting Settlement").

7. The Trustee had been asked to execute certain releases, on behalf of the Companies, as part

of the Executed Settlement and the Accounting Settlement. On account of all of those

inspectors appointed in the bankruptcy proceedings for each of the Companies being

conflicted, the Trustee brought two motions before this Court for orders authorizing the

Trustee to execute the releases, which were ultimately granted.

Motion by Litigation Committee and Cross-Motion by Inspektor

8. On June 12, 2016, Erik Inspektor ("Inspektor") filed a cross-motion with the Court

requesting an order of the Court requiring that the Receiver and the Trustee attend on cross-

examinations in order to answer questions relating to, inter alia, the administration of the

receivership and bankruptcy of the Kaptor Group. The cross-motion was in response to a

motion brought by the litigation committee for the plaintiffs in the Derivative Action (the

"Litigation Committee") in which the Litigation Committee sought an order declaring

that the claim assigned to and asserted by Trendi Dezign Incorporated was barred as it had

been fully and finally released by the terms of the Executed Settlement.

9. The Receiver and the Trustee opposed the cross-motion brought by Inspektor.

10. The motion of the Litigation Committee and the Cross-Motion was heard by Justice

Newbould on August 29, 2016. Justice Newbould granted the motion of the Litigation

Committee and dismissed the Cross-motion of Inspektor. Costs were awarded in favour of

the Litigation Committee and the Receiver/Trustee.

1 1. Inspektor appealed the decision of Justice Newbould. Inspektor entered into separate

settlements with the Litigation Committee and the Receiver, which resulted, inter alia, in

the appeal being abandoned and the Litigation Committee and the Receiver/Trustee

agreeing not to pursue the costs awards.

12. Such further and other grounds as counsel may advise and this Court may permit.

5

THE FOLLOWING DOCUMENTARY EVIDENCE will be used at the hearing of the motion:

1. The Sixth Report;

2. The Affidavit of Hans Rizarri sworn July 5, 2017;

3. The Affidavit of Douglas Smith sworn July 5, 2017;

4. The Affidavit of Terrance Moffatt sworn July 5, 2017; and

5. Such further and other documentary evidence as counsel may advise and the Court may

accept.

July 6, 2017

TO: SERVICE LIST

BORDEN LADNER GERVAIS LLPBay Adelaide Centre, East Tower22 Adelaide Street West, Suite 3400Toronto ON M5H 4E3

Alex MacFarlane (LSUC No. 28133Q)Tel: [email protected]

Evita Ferreira (LSUC No. 69967K)Tel: [email protected]


SERVICE LIST

AND TO: Eric Inspektor70 Glendorra AvenueToronto, Ontario M2N OH2

Email: [email protected]

AND TO: Paliare Roland Rosenberg Rothstein LLP501-250 University AvenueToronto, Ontario M5H 3E5

AND TO:

Jeffrey LarryTel: 416-646-4330Fax: 416-646-4301Email: j eff. larry@paliareroland. com

Lawyers for the Applicants

Solmon Rothbart Goodman701-375 University AvenueToronto, Ontario MSG 2JS

Melvyn SolmonCameron WetmoreTel: 416-947-1093Fax: 416-947-0079Email: [email protected]

[email protected]

Lawyers for the Defendants in the Derivative Action —Eric Inspektor, Lynette Inspektor, Darren Inspektor andRussel Inspektor

AND TO: McCarthy Tetrault LLPBox 48, Suite 5300Toronto Dominion Bank TowerToronto, Ontario M5K 1E6

Geoff HallTel: 416-601-7856Fax: 416-868-0673Email: [email protected]

Lawyers for the Toronto Dominion Bank

AND TO:

AND TO:

AND TO:

Bersenas Jacobsen201-33 Yonge StreetToronto, Ontario M5E 1G4

James ThompsonFax: 416-863-1515Email: [email protected]

Lawyers for Alan Birmbaum, Chartered Accountant

Danson & Zucker701-375 University AvenueToronto, Ontario MSG 2J5

Symon ZuckerTel: 416-863-9955 (Ext. 245)Fax: 416-863-4896Email: [email protected]

Lipman Zener & Waxman LLP1220 Eglinton Avenue WestToronto, Ontario M6C 2E3

Anthony J. O'BrienTel: 416-789-0652Fax: 416-789-9015Email: ([email protected])

Lawyers for the Respondents, 2025610Ontario Limited, Kaptor Financial Inc. andInsignia Trading Inc.

AND TO: Shibley Righton LLPBanisters & Solicitors700-250 University AvenueToronto, Ontario M5H 3E5

Sandra DaweTel: 877-214-5200Fax: 416-214-5400Email• ([email protected])

Lawyers for Shore Newman & Rose LLP

- 3 -

AND TO: Dentons Canada LLPBanisters & Solicitors 400-77 King Street WestToronto, Ontario M5K 0A1

Frank BowmanMuriel MoscovichTel: 416-863-4511Fax: 416-863-4592Email: ([email protected])

([email protected])

Lawyers for SF Partners, LLP

AND TO: Ellyn Law LLP3000-20 Queen Street WestToronto, Ontario M5H 3R3

Igor EllynTel: 416-365-3700Fax: 416-368-2982Email: [email protected]

Lawyers for the Defendant Eric Inspektor as Plaintiff inthe Third Party claim against Stanley Grossman

Court File No. CV-12-9732-00CLBETWEEN:KEITH ALEXANDER, ARTHUR BARKIN et al. — and — 2025610 ONTARIO LIMITED, KAPTOR FINANCIAL INC., and

INSIGNIA TRADING INC.— Applicants — — Respondents —


PROCEEDING COMMENCED AT TORONTO

NOTICE OF MOTION(Returnable July 12, 2017)

BORDEN LADNER GERVAIS LLPBay Adelaide Centre, East Tower22 Adelaide Street West, Suite 3400

Toronto ON M5H 4E3

Alex MacFarlane (LSUC No. 28133Q)Tel: 416.367.6305

[email protected]



TOR01: 6779717: v8

THE HONOURABLE

JUSTICE WILTON-SIEGEL

BETWEEN:



)))

WEDNESDAY, THE 12TH

DAY OF JULY, 2017




- and -


Applicants

Respondents


amended

FEE APPROVAL AND DISCHARGE ORDER

THIS MOTION, made by Crowe Soberman Inc. ("Crowe Soberman"), in its capacity

as the Court-appointed Receiver (the "Receiver") of Kaptor Financial Inc. ("Kaptor"), Insignia

Trading Inc. ("Insignia") and 2025610 Ontario Limited ("202"), (collectively referred to as the

"Companies" or "Kaptor Group") for an order:

(a) abridging the time for service of the Notice of Motion and the Motion Record,

herein, if required, and validating service so that the Motion is properly returnable

on the proposed date and dispensing with the requirement for any further service

thereof;

(b) approving the Sixth Report of the Receiver dated July 5, 2017 (the "Sixth

Report") and the activities of the Receiver as set out in the Sixth Report;

(c) approving the Receipts and Disbursements ("R&D") of the Receiver for the

period from June 18, 2012 to July 4, 2017;



2012 to July 4, 2017;



amounts) of Gowling WLG (Canada) LLP ("Gowling") as former counsel for the

Receiver for the period from June 21, 2012 to December 31, 2015;

(f) approving the fees in the amount of $28,762.50 and the disbursements in the




(g) discharging Crowe Soberman as the Receiver of the undertaking, property and

assets of the Kaptor Group;

(h) releasing Crowe Soberman and the Receiver from any and all liability, as set out

in paragraph 9 of this Order; and,

(0 such further relief as may be required in the circumstances and which this Court

deems as just and equitable,

was heard this day at 330 University Avenue, Toronto, Ontario.

ON READING the Sixth Report, the affidavit of Hans Rizarri sworn July 5, 2017, the

affidavit of Douglas Smith sworn July 5, 2017 and the affidavit of Terrance Moffatt sworn July

5, 2017, filed, and on hearing the submissions of counsel for the Receiver, and such other parties

who were in attendance and no one else appearing although served as evidenced by the Affidavit

of Service of Evita Ferreira sworn July 6, 2017, filed,

Service / Approval of the Activities of Receiver

1. THIS COURT ORDERS that all defined terms used herein, not otherwise defined shall

have the meaning attributed to them in the Sixth Report.

2. THIS COURT ORDERS that the time for service of the Notice of Motion and Motion

Record is validated so that the Motion is properly returnable today and hereby dispenses with

further service thereof.

3. THIS COURT ORDERS that the Sixth Report and the activities of the Receiver as set

out in the Sixth Report be and are hereby approved.

Approval of the Receiver's R&D

4. THIS COURT ORDERS that the R&D of the Receiver for the period from June 18,

2012 to July 4, 2017 be and is hereby approved.

Approval of Professional Fees

5. THIS COURT ORDERS that the fees in the amount of $851,203.75 (plus applicable

HST totalling $110,656.49 on the foregoing amount) of the Receiver for the period from June 7,

2012 to July 4, 2017 are hereby approved.

6. THIS COURT ORDERS that the fees in the amount of $447,331.50 and the

disbursements in the amount of $15,793.61 (plus applicable HST totalling $58,153.11 on the

foregoing amounts) of Gowling as former counsel for the Receiver for the period from June 21,

2012 to December 31, 2015 are hereby approved.


disbursements in the amount of $499.90 (plus applicable HST totalling $3,804.12 on the

foregoing amounts) of BLG as counsel for the Receiver for the period from December 6, 2016 to

May 31, 2017 are hereby approved.

Discharge and Release of the Receiver

8. THIS COURT ORDERS that Crowe Sobemian be and is hereby discharged as the

Receiver of the undertaking, property and assets of the Kaptor Group, provided however that

notwithstanding its discharge herein (a) Crowe Sobennan shall remain Receiver for the

perfolinance of such incidental duties as may be required to complete the administration of the

receivership herein, and (b) Crowe Soberman shall continue to have the benefit of the provisions

of all Orders made in this proceeding, including all approvals, protections and stays of

proceedings in favour of Crowe Soberman in its capacity as Receiver.

9. THIS COURT ORDERS AND DECLARES that Crowe Soberman and the Receiver

are hereby released and discharged from any and all liability that Crowe Soberman and the

Receiver now have or may hereafter have by reason of, or in any way arising out of, the acts or

omissions of Crowe Soberman while acting in its capacity as Receiver herein, save and except

for any gross negligence or wilful misconduct on the Receiver's part. Without limiting the

generality of the foregoing, Crowe Sobeiman and the Receiver are hereby forever released and

discharged from any and all liability relating to matters that were raised, or which could have

been raised, in the within receivership proceedings, save and except for any gross negligence or

wilful misconduct on the Receiver's part.

Court File No.: CV-12-9732-00CL

BETWEEN:KEITH ALEXANDER, ARTHUR BARKIN et al. — and — 2025610 ONTARIO LIMITED, KAPTOR FINANCIAL INC., and

INSIGNIA TRADING INC.— Applicants — — Respondents —

ONTARIOSUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST)




Toronto ON M5H 4E3

Alex MacFarlane (LSUC No. 28133Q)Tel: 416.367.6305

[email protected]


Lawyers for Crowe Sobeiinan Inc.TOR01: 6779701: v6

Revised: May 11, 2010


ONTARIOSUPERIOR COURT OF JUSTICE(COMMERCIAL LIST )

THE HONOURABLE

JUSTICE

, THE

DAY OF , 20

THE HONOURABLE

JUSTICE WILTON-SIEGEL

WEDNESDAY, THE 12TH

DAY OF JULY, 2017

BETWEEN:

—and—

Plaintiff

Defendant

KEITH ALEXANDER, ARTHUR BARKIN, MARSHALL BARKIN, HARVEY FRISCH, ERIC GROSSMAN,

ROBERT GROSSMAN, STANLEY GROSSMAN, TOM KOFFLER, AVI RITTER, MARK SIMON, JUDITH SPORN, STEPHEN STARK,

MICHAEL STEINBERG, JOHN USTER, STEVEN WARSH and DAVID YARMUS

- and -


Applicants

Respondents

APPLICATION under subsection 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. 1990. C. C.43 as

amended


THIS MOTION, made by {}Crowe Soberman Inc. ("Crowe Soberman"), in its capacity

as the Court-appointed receiverReceiver (the ""Receivee") of the undertaking, property and

assets of [] (the "Debtor"),Kaptor Financial Inc. ("Kaptor"), Insignia Trading Inc. ("Insignia")

and 2025610 Ontario Limited ("202"), (collectively referred to as the "Companies" or "Kaptor

Group") for an order:

(a) abrid • ing the time for service of the Notice of Motion and the Motion Record,

herein, if required, and validating service so that the Motion is properly returnable

on the proposed date and dispensing with the requirement for any further service

thereof;

4—approving the Sixth Report of the Receiver dated July 5, 2017 (the "Sixth

Report") and the activities of the Receiver as set out in the report of the Receiver

dated [] (the "Report"); Sixth Report;

2. approving the fees and disbursements of the Receiver and its counsel;

3. approving the distribution of the remaining proceeds available in the estate of the Debtor;

fandj—

(c) approving the Receipts and Disbursements ("R&D") of the Receiver for the

period from June 18, 2012 to July 4, 2017;



2012 to July 4, 2017;

DOCSTOR: 1201925\8



amounts) of Gowling WLG (Canada) LLP ("Gowling") as foiiiier counsel for the

Receiver for the period from June 21, 2012 to December 31, 2015:

(f) approving the fees in the amount of $28,762.50 and the disbursements in the




4,-discharging f]Crowe Soberman as the Receiver of the undertaking, property

and assets of the Delatedi-andKaptor Group;

releasing fl-Crowe Sobel' Ian and the Receiver from any and all liability, as set

out in paragraph 59 of this Order}}; and,

(i) such further relief as may be required in the circumstances and which this Court

deems as just and equitable,


ON READING the Sixth Report, the affidavits of the Recei-ver-anEI-4ts-eeunsel-as-te-fees

(t-fie.---aFee--Affidavits")affidavit of Hans Rizarri sworn July 5, 2017, the affidavit of Douglas

Smith sworn July and on

hearing the submissions of counsel for the Receiver, and such other parties who were in

attendance and no one else appearing although served as evidenced by the Affidavit of fi-Service

of Evita Ferreira sworn [],July 6, 2017, filed

Service / Approval of the Activities of Receiver

-1-4-f-this--relief-i-s--heing-seught-stakehekiers--sheu44-4e-speeific-a*advisedand-given-amp4e-netic-e,--See-alse-Nete

'1, below.

This model order assumes that the time for service does not need to be abridged.

DOCSTOR: 12019254

1. THIS COURT ORDERS that all defined terms used herein, not otherwise defined shall

have the meaning attributed to them in the Sixth Report.

2. THIS COURT ORDERS that the time for service of the Notice of Motion and Motion

Record is validated so that the Motion is properly returnable today and hereby dispenses with

further service thereof

3. 1--THIS COURT ORDERS that the Sixth Report and the activities of the Receivers as

set out in the Sixth Reports be and are hereby approved.

Approval of the Receiver's R&D

4. THIS COURT ORDERS that the R&D of the Receiver for the period from June 18,

2012 to July 4, 2017 be and is hereby approved.

Approval of Professional Fees

5. 2. THIS COURT ORDERS that the fees and disbursements of the Receiver and its

counsel, as set out in the Report and the Fee Affidavits,in the amount of $851,203.75 (plus

applicable HST 110,656 on the foregoing amount) of the Receiver for the period

from June 7, 2012 to July 4, 2017 are hereby approved.

3.

6. THIS COURT ORDERS thatT--after—payment—af—the—fees—and—elisbufsements—her-ein

approv • , the Receiver--shall-pay411e-inenies-r-emaining in its hands to [43. the fees in the amountof $447,331.50 and the disbursements in the amount of $15,793.61 plus an slicable HST

totalling $58,153.11 on the foregoing amounts) of Gowling as former counsel for the Receiver

for the period from June 21, 2012 to December 31, 2015 are hereby approved.


disbursements in the amount of $499.90 (plus applicable HST totalling $3,804.12 on the

This model order assumes that the material filed supports-a-dist ion4o-a-specific secured creditor or other

DOCSTOR: 1201925\8

foregoing amounts) of BLG as counsel for the Receiver for the period from December 6, 2016 to

May 31, 2017 are hereby approved.

Discharge and Release of the Receiver

8. 4—THIS COURT ORDERS that upon payment of the amounts set out in paragraph 3

hereof [and upon the Receiver filing a certificate certifying that it has completed the other

activities described in the Report], the Receiver shall be discharged as Crowe Sobeinian be and

is hereby discharged as the Receiver of the undertaking, property and assets of the

DebtorKaptor Group, provided however that notwithstanding its discharge herein (a) the

Rec-e-iAT-etCrowe Soberman shall remain Receiver for the performance of such incidental duties as

may be required to complete the administration of the receivership herein, and (b) the-

ReceiverCrowe Soberman shall continue to have the benefit of the provisions of all Orders made

in this proceeding, including all approvals, protections and stays of proceedings in favour of

{}Crowe Soberman in its capacity as Receiver.

9. 5. [THIS COURT ORDERS AND DECLARES that 11 isCrowe Soberman and the

Receiver are hereby released and discharged from any and all liability that {1-Crowe Soberman

and the Receiver now hashave or may hereafter have by reason of, or in any way arising out of,

the acts or omissions of {]Crowe Soberman while acting in its capacity as Receiver herein, save

and except for any gross negligence or wilful misconduct on the Receiver's part. Without

limiting the generality of the foregoing, [] isCrowe Sobeinian and the Receiver are hereby

forever released and discharged from any and all liability relating to matters that were raised, or

which could have been raised, in the within receivership proceedings, save and except for any

gross negligence or wilful misconduct on the Receiver's part.14

4 The model order subcommittee was divided as-to-whether--a-general-r€l€ase-might-be appropriate. On t -one

the Receiver. These factors tend to indicate that a general release of the Reeeiver-is-not-meessary,—On-the-e-ther

subcommittee felt that, absent a general release, Receivers might hold bac c funds and/or wish to conduct a claims

bee„ ad ed to the form of m

ease.—See-alse-Net-e-l abev

DOCSTOR: 1201925\8

DOCSTOR: 120192518

BETWEEN: KEITH ALEXANDER, ARTHUR BARKIN et al.

— Applicants —Respondents —


— and — 2025610 ONTARIO LIMITED, KAPTOR FINANCIAL INC., and INSIGNIA TRADING INC.


(COMMERCIAL LIST)




Toronto ON M5H 4E3

Alex MacFarlane (LSUC No. 28133Q) Tel: 416.367.6305

amacfarlanegblg.com

Evita Ferreira (LSUC No. 69967K)Tel: 416.367.6708 [email protected]

Lawyers for Crowe Soberman Inc. TOR01: 6779701: v6

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COMMERCIAL LIST

BETWEEN:

• File No. CV-12-9732-00CL




- and -


Applicant

Respondent

APPLICATION UNDER 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. 1990, c. C-43, as amended

SIXTH REPORT OF THE RECEIVERDATED JULY 5, 2017

CROWE SOBERMANLicensed Insolvency Trustee2 St Clair Avenue East, Suite 1200Toronto, Ontario, M4T 2T5

Telephone: 416.929.2500Fax: 416.929.2555

File No. CV12-9732-00CL


COMMERCIAL LIST

BETWEEN:




- and -


Applicant

Respondent

APPLICATION UNDER SECTION 243 OF THE BANKRUPTCY AND INSOLVENCYACT AND SECTION 101 OF THE COURTS OF JUSTICE ACT

SIXTH REPORT OF THE RECEIVER DATED JULY 5 2017

INDEX

1 Sixth Report of the Receiver dated July 5, 2017

A Receivership Order of Justice D.M. Brown — June 18, 2012

B First Report dated November 27, 2012 (without appendices)

C Second Report dated October 21. 2013 (without appendices)

D Order of Justice McEwen dated August 19, 2014 (Bankruptcy Order)

E Order of Justice McEwen dated August 19, 2014 (Section 38 Order)

F Third Report dated January 13, 2015 (without appendices)

G Fourth Report dated March 16. 2015 (without appendices)

H Fifth Report dated September 9. 2015 (without appendices)

1 Order and Endorsement of Justice Wilton-Siegel dated September 15, 2015

J Order and Endorsement of Justice Newbould dated August 30, 2016

K Final Statement of Receipts and Disbursements

ONTA RIOSUPERIOR COURT OF JUSTICE

COMMERCIAL LIST

BETWEEN:

File No. CV12-9732-00CL


ROBERT GROSSMAN, STANLEY GROSSMAN, TOM KOFFLER,AVI RITTER, MARK SIMON, JUDITH SPORN,

STEPHEN STARK, MICHAEL STEINBERG, JOHN USTER,STEVEN WARSH and DAVID YARMUS

- and -


Applicant

Respondent

APPLICATION UNDER SECTION 243 OF THE BANKRUPTCY AND INSOLVENCYACT AND SECTION 101 OF THE COURTS OF JUSTICE ACT

SIXTH REPORT OF THE RECEIVER

JULY 5, 2017

INTRODUCTION

I. This report is filed by Crowe Soberman Inc.' ("Crowe Soberman") in its capacity as court

appointed receiver ("Receiver") of Kaptor Financial Inc. ("Kaptor"), Insignia Trading

Inc., ("Insignia"), 2025610 Ontario Ltd. (-202"), (collectively referred to as the

"Companies" or "Kaptor Group") pursuant to the order (the "Receivership Order") of

Justice D.M. Brown of the Ontario Superior Court of Justice [Commercial List] made on

On September 5, 2012, as a result of an affiliation with an international professional services group, Soberman Inc.changed its name to Crowe Soberman

June 18, 2012 (the "Appointment Date"). A copy of the Receivership Order is attached

hereto as Appendix "A".

The mandate of the Receiver was as follows:

O to take steps to identify, preserve, and realize upon the assets and property of the

Companies;

• to obtain the books and records to investigate the affairs of the Companies;

o to determine the viability of continuing the operations of the Kaptor Group; and

O to review the circumstances that gave rise to substantial losses incurred by the

investors of the Kaptor Group.

On November 27, 2012, the Receiver filed with the Court the Receiver's First Report (the

"First Report") a copy of which (without appendices) is attached hereto as Appendix

"B". in which the Receiver provided information in respect of (inter alia):

• the Companies' background and operations;

* the results of the Receiver's activities and preliminary findings from the

Appointment Date to the date of the First Report;

O possession and control of the property of the Companies;

® the status of the books and records of the Companies:

• the potential assets of the Companies as of the Appointment Date;

• a Statement of Claim filed by certain investors (the "Derivative Claimants")

against the Companies accountants, and directors and officers (the "Derivative

Action"): and

an investigation commenced by the Ontario Securities Commission ("OSC") with

respect to investments made with the Companies.

Shortly after the commencement of the Receivership proceedings, the Receiver attended at

the head office of the Companies to meet with their employees, to take possession of all

available books and records, and to identify all known and potential assets of the

Companies. During the summer of 2012. the Receiver had meetings with management of

the Companies in order to assess the viability of continuing certain operations of the

Companies. Once it was determined that management was not willing to continue the

operations under the supervision of the Receiver, the Receiver proceeded to exit the rented

premises and to coordinate a sales process of the remaining inventory.

Once the operational status of the Companies was determined, the Receiver conducted an

investigation-into the affairs of the Companies as it related to the substantial losses incurred

by investors. An extensive review of the Companies accounting records, banking records,

and investor folios was conducted. The Receiver coordinated the reproduction of certain

banking records not located by the Receiver at the bead office of the Companies. The

investigations led to a review of the affairs of numerous corporations that appeared to be

related to the Companies and/or had significant dealings with the Companies.

The Receiver reviewed the contents of the Companies' compUters, which involved tens of

thousands of emails and documents. The Receiver turned over the electronic records, and

other books and records of the Kaptor Group, to ATD Legal Services PC, the law firm

managing the production of documents for the parties in the Derivative Action. The

Receiver finalized its investigation into the affairs of the Companies and reported on its

key findings in the Receiver's Second Report (defined below);

7. On October 21, 2013, the Receiver filed Viith the Court the Receiver's Second Report (the

"Second Report") a copy of which (without appendices) is attached hereto as Appendix

"C". in which the Receiver providedthe following information (inter alia):

an update on the Receiver's activities since the First Report including an update on

the Receiver's investigation concerning the affairs of the Companies;

• an update on the protocol with respect to. the production of documents in the

possession of the Receiver (the -Document Production Protocol") which was

agreed upon by the various parties to the Derivative Action;

B an update on the status of the realization on the Kaptor Group's known assets;

• an update on the Receiver's dealings with Eric Inspektor ("Inspektor"); and

• a copy of the Receiver's Interim Statement of Receipts and Disbursements for the

period June 18, 2012 to September 30, 2013.

Following the filing of the Second Report, Inspektor raised a series of issues in respect of

the accuracy of the Receiver's First Report and Second Report. The Receiver held

numerous meetings with Inspektor, on a without prejudice basis, in order to review and

address the issues raised by Inspektor in an attempt to resolve or narrow the differences

between the conclusions drawn from the Receiver's review of the records of the Companies

and Inspektor's review of same.

The Derivative Claimants filed a motion record returnable July 8, 2014 where they sought

an order adjudging the Companies as bankrupt and appointing Crowe Soberman as the

Licensed Insolvency Trustee (the "Trustee") of each of the Companies. In addition, the

Derivative Claimants sought an order under Section 38 of the Bankruptcy and Insolvency

Act ("MA") directing the Trustee to execute an assignment to transfer the benefits of the

Derivative Action to the Derivative Claimants and other creditors of the Kaptor Group who

elected to participate.

1 0. By Order of the Honourable Justice McEwen granted on August 19, 2014, a copy of which

is attached hereto as Appendix ".D" (the "Bankruptcy Order"):

® each of the Companies were adjudged a bankrupt; and

• Crowe Soberman was appointed as the Trustee for each of the Companies.

By Order of the Honourable Justice McEwen granted on August 19.2014, a copy of which

is attached hereto as Appendix "E" (the "Section 38 Order"), the Trustee was directed to

execute an assignment to transfer the benefits of the Derivative Action to the Derivative

Claimants and any other creditors of the Kaptor Group who elected to participate in

accordance of the Section 38 Order.

12. On January 13, 2015, the Receiver filed with the Court the Receiver's Third Report (the

"Third Report") a copy of which (without appendices) is attached hereto as Appendix

"F", in which the Receiver provided information in respect of (inter alict):

• the issues that were raised by Inspektor in respect of the accuracy of the Receiver's

First Report and Second Report; and

• the outcome of several meetings held between the Receiver and Inspektor in order

to review and address the issues raised by Inspektor in an attempt to resolve or

narrow the differences between the conclusions drawn from the Receiver's review

of the records of the Companies and Inspektor's review of same.

13. On March 16, 2015 the Receiver filed with the Court the Fourth Report of the Receiver

(the "Fourth Report"), a copy of which (without appendices) is attached as Appendix

"C1%

14. On September 9, 2015, the Receiver filed with the Court the Receiver's Fifth Report (the

"Fifth Report") a copy of which (without appendices) is attached hereto as Appendix

"H", in which the Receiver provided the following information (inter cilia):

• that prior to the attendance by the Receiver at Court to report on the activities of

the Receiver (as described in the Fourth Report ). Inspektor and the OSC had

entered into a settlement agreement dated March 31, 2015;

• an update on the mediation and settlement process in the Derivative Claim and the

agreed upon final settlement dated April 17, 2015; and

• an update on an asset previously identified by the Receiver in the Second Report

and an update on settlement negotiations involving the owners of a residential

property in Barrie, Ontario. Mr. and Mrs. Koldewey (the "Koldewey's").

15. By Order of the Honourable Justice Wilton-Siegel dated September 15, 2015, a copy of

which is attached hereto as Appendix "I", the First Report, Supplement to the First Report,

the Second Report, the Third Report, the Fourth Report, and the Fifth Report (the

"Reports"), and the activities and conduct of the Receiver were approved.

16. The endorsement of Justice Wilton-Siegel dated September 15, 2015, also attached hereto

as Appendix "1", provides as follows:

"It is noted that, while Inspektor has stated that he does not take issue with the fact that the

Receiver undertook the work as described in the Reports, he does take issue with certain

of the findings and conclusions of the Receiver as they relate to certain of the financial

affairs of the Companies and the amounts. as reported by the Receiver, as being owed to,

or by, entities related to the Companies, other creditors, or the Inspektor's."

1 7. On June 12, 2016, Inspektor filed a cross-motion with the Court requesting an order of the

Court requiring that the Receiver and the Trustee attend on cross-examinations in order to

answer questions relating to, inter alia. the administration of the receivership and

bankruptcy of the Kaptor Group. The cross-motion was in response to a motion brought by

the litigation committee for the plaintiffs in the Derivative Action (the "Litigation

Committee") in which the Litigation Committee sought an order declaring that the claim

assigned to and asserted by Trendi Dezign Incorporated was barred as it had been fully and

finally released by the terms of the Executed Settlement. The Receiver and the Trustee

opposed the cross-motion brought by Inspektor.

18. The motion of the Litigation Committee and the Cross-Motion was heard by Justice

Newbould on August 29. 2016. Justice Newbould granted the motion of the Litigation

Committee and dismissed the Cross-motion of Inspektor. Costs were awarded in favour of

the Litigation Committee and the Receiver/Trustee. The Order and Endorsement of Justice

Newbould dated August 30, 2016 is attached hereto as Appendix "J".

19. Inspektor appealed the decision of Justice Newbould. Inspektor entered into separate

settlements with the Litigation Committee and the Receiver, which resulted, inter cilia, in

the appeal being abandoned and the Litigation Committee and the Receiver/Trustee

agreeing not to pursue the costs awards.

20. Additional background information concerning the Companies and these proceedings, as

well as copies of materials provided by the Receiver, is available on the Receiver's website.

at: http://crowesoberman.com/insolveney/engagements/

PURPOSES OF THIS REPORT

The purpose of this report (the "Sixth Report") is to provide an update to the Court with

regard to the following:

a) the activities of the Receiver since the date of the Fifth Report;

b) the Receiver's cumulative statement of receipts and disbursements from the

Appointment date to the date of the Sixth Report;

c) set out the Receiver's recommendations regarding the distribution of funds in the

receivership account (the "Distributions");

d) provide an overview of the Receiver's activities since the commencement of the

receivership;

e) recommend that the Receiver be discharged of its duties and obligations as the

Receiver; and

f) recommend that the Court issue orders:

i. approving the Distributions;

ii. approving the Receiver's final statement of receipts and disbursements for the

period June 18, 2012 to July 4, 2017 ("R&D");

iii, approving the fees and disbursements of the Receiver for the period from June 7,

2012 to July 4, 2017 and the fees and disbursements of the Receiver's counsel,

Cowling WLG (Canada) LLP ("Gowlings"), for the period from June 21, 2012 to

December 31, 2015, and Borden Ladner Gervais LLP ("BLG") for the period from

December 6, 2016 to May 31, 2017;

iv. approving this Sixth Report and the Receiver's conduct and activities described

herein; and

v. discharging the Receiver once the Receiver completes the administration of the

receivership. as discussed herein.

TERMS OF REFERENCE

27, In preparing this Report, the Receiver relied upon unaudited financial information prepared

by the Companies management. and the Companies books and records. The Receiver has

not performed an audit or other verification of such information. The Receiver expresses

no opinion or other form of assurance with respect to the accuracy of any financial

information presented in this Report, or relied upon by the Receiver in preparing this

Report.

23. Unless otherwise noted, currency references in this Report are to Canadian dollars.

ASSETS UNDER ADMINISTRATION

24. The Receiver has realized upon all of the known assets of the Companies. As at the date of

this Report, there is approximately $25,177.83 in the receivership account. The final R&D

is attached hereto as Appendix "K".

PROPOSED DISTRIBUTION

25. Insufficient funds were ultimately recovered by the Receiver to pay in full its own fees and

those of its legal counsel.

26. While there are no funds remaining for distribution to investors/creditors in the

Receivership estate, it is noted that the investors/creditors who elected to participate in the

Section 38 action did ultimately share in a recovery of funds from the settlement proceeds

of the Derivative Claim.

27. The balance of funds remaining in the receivership estate will be used to pay the following:

a) the unbilled fees and disbursements of the Receiver's legal counsel, BLG. from June 1

2017 to the date of the Receiver's discharge which is estimated to be $25,000.00.

28. The Receiver recommends that it be authorized to make the above Distribution.

RECEIVER'S DISCHARGE

29. Prior to being discharged, the Receiver intends to:

6 pay the Distribution;

pay outstanding post-filing expenses;

6 file the Receiver's final report with the Office of the Superintendent of Bankruptcy

(Canada) in accordance with Section 246 of the BTA; and

® attend to any other matters not specifically set out above.

30. The Receiver is not aware of any party who objects to the discharge.

31. This Report will be served on the service list, and a copy will be filed with the

Superintendent of Bankruptcy, in conjunction with the -Receiver's motion for the relief

described herein.

PROFESSIONAL FEES

32. The Receiver and its legal counsel, Gowlings and BLG, have maintained detailed records

of their professional time and costs since the date of the Receivership Order.

33. Pursuant to paragraph 19 of the Receivership Order, any expenditure or liability which

shall be properly made or incurred by the Receiver, including the fees of the Receiver and

the fees and disbursements of its legal counsel, shall be allowed to it in passing its accounts

and shall form a first charge on the Companies' property in priority to all security interests,

liens. charges, and encumbrances, statutory or otherwise. in favour of any person.

34. The Section 38 Order also granted the Receiver a priority in the proceeds generated from

the Derivative Action. Pursuant to paragraph 6(a) of the Section 38 Order:

(a) the Benefit of the Proceedings shall be used:

(i) first to pay all reasonable fees and expenses of the Receiver and its counsel incurred and

outstanding pursuant to the charge granted by Justice D. A. Brown on June 18. 2012 to

Crowe Soberman Inc. in its capacity as receiver of each of the Raptor Group Companies.

(ii) second to pay all reasonable fees and expenses of the Trustee and its counsel

Fees of the Receiver

35. The total fees of the Receiver during the period from June 7, 2012 to July 4, 2017 amount

to $851.203.75 plus applicable harmonized sales tax in the amount of $110,656.49. The

total number of hours incurred was 2970.60 resulting in an average hourly rate of $286.54.

36. Throughout these proceedings the Receiver has kept the Litigation Committee apprised of

its time charges including those of its legal counsel (Gowlings). Following the settlement

and resolution of the Derivative action, the Litigation Committee and the Receiver held

discussions to arrive at a resolution regarding its fees.

37. Following these discussions, the Receiver and Gowlings agreed to a proposed 20%

discount on their respective gross fees up to April 1.. 2016.

38. The Receiver has applied $631,415.93 plus applicable harmonized sales tax in the amount

of $82,084.07 towards its fees to date, in accordance with the Appointment Order.

39. The details of the time spent and services provided by the Receiver are more particularly

described in the Affidavit of Hans Rizarri. President of Crowe Soberman, sworn July 5,

2017 and includes a summary of the Receiver's detailed statement of account from June 7.

2012 to July 4, 2017.

40. The rates charged throughout the proceedings are comparable to the rates charged by other

mid-sized accounting firms for the provision of similar services during the relevant time

periods.

Fees of Gowlings

10

41. From June 21, 2012. to December 31, 2015, the total fees billed by Gowlings were

$447,331.50, disbursements of $15,793.61 plus harmonized sales tax in the amount of

$58,153.11. A total of 714 hours was expended by Gowlings during that period.

42. Attached separately as part of the Receiver's motion materials is the affidavit of Terrance

Moffatt, which includes a summary of time charges and applicable hourly rates related to

GoWlings' detailed statements of account for the period June 21, 2012 to December 31,

2015.

43. Gowlings has been paid approximately $437,220.05 towards its fees and disbursements,

including harmonized sales tax to date by the Receiver in accordance with the Appointment

Order.

• 44, The Receiver submits that the fees and disbursements of Gowlings are fair and reasonable

and justified in the circumstances and accurately reflect the work done on behalf of the

Receiver by legal counsel in connection with the receivership and administration of the

Companies during the relevant periods. The Receiver recommends approval of Gowlings'

account by the Court.

Fees of BLG

45. From December 6, 2016 to May 31, 2017, the total fees billed by BLG were $28.762.50,

disbursements of $499.90 plus harmonized sales tax in the amount of $3,804.12. A total of

54.9 hours was expended by BLG during that period.

46. Attached separately as part of the Receiver's motion materials is the affidavit of Douglas

Smith, which includes copies of BLG's detailed statements of account for the period

December 6, 2016 to May 31, 2017 together with a summary of time charges and applicable

hourly rates.

47. BLG has been paid approximately $33,066.52 towards its fees and disbursements,

including harmonized sales tax to date by the Receiver in accordance with the Appointment

Order.

48. The Receiver submits that the fees and disbursements of BLG are fair and reasonable and

justified in the circumstances and accurately reflect the work done on behalf of the Receiver

by legal counsel in connection with the receivership and administration of the Companies

during the relevant periods. The Receiver recommends approval of BLG's account by the

Court.

CONCLUSION AND RECOMMENDATION

49. Based on the foregoing, the Receiver respectfully recommends that the Court make an

order granting the relief detailed at Paragraph 21(f) of this Report.

All of which is respectfully submitted this 5th day of July 2017

Crowe Soberman Inc.in its capacity as Court-appointedReceiver of 2025610 Ontario Limited,Kaptor Financial Inc nd Insignia Trading Inc.,and not in it erso capacity

Per: Hans

12

Appendix A


ONTARIO

SUPERIOR COURT OF JUSTICE

COMMERCIAL LIST

OLE U R

THE HONOURABLE

tiR. JUSTICE BROWN

'igTH DAY OF JUNE, 2012

C-10/V.0)/FRI:DAY, THE

KEITH ALEXANDER, ARTHUR BARKIN,MARSHALL BARKIN,HARVEY FRISCH, ERIC GROSSMAN,


STEPHEN STARK, MICHAEL STEINBERG, JOHN USTERSTEVEN WARSH and DAVID YARMUS

Applicants

- and -


Respondents

ORDER

THIS MOTION made by the Applicants for an Order pursuant to section 243(1) of

the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended (the "BIA") and

section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended (the "CJA")

appointing Soberman Inc. as receiver (the "Receiver") without security, of all of the

assets, undertakings and properties of each of 2025610 Ontario Limited, Kaptor

Financial Inc. and Insignia Trading Inc. (the "Debtors") acquired for, or used in relation

to a business carried on by the Debtors, was heard this day at 330 University Avenue,

Toronto, Ontario.

ON READING the affidavits of Robert Grossman sworn April 2 ,2012 and May

24, 2012 and the exhibits thereto and on hearing the submissions of counsel for the

1771742v3

2

Applicants and the Respondents, no one appearing although duly served and on

reading the consent of Soberman Inc. ("Soberman") to act as the Receiver,

SERVICE

1. THIS COURT ORDERS that the time for service of the Notice of Motion and the

Motion is hereby abridged and validated so that this motion is properly returnable today

and hereby dispenses with further service thereof.

APPOINTMENT

2. THIS COURT ORDERS that pursuant to section 243(1) of the BIA and section

101 of the CJA, in the case of 2025610 Ontario Limited ("202") and Kaptor Financial Inc.

("Kaptor"), and section 101 of the CJA in the case of Insignia Trading Inc. ("Insignia"),

Soberman is hereby appointed Receiver, without security, of all of the assets,

undertakings and properties of acquired for, or used in relation to a business carried on

by the Debtors, including all proceeds thereof (the "Property").

RECEIVER'S POWERS

3. THIS COURT ORDERS that the Receiver is hereby empowered and authorized,

but not obligated, to act at once in respect of the Property and, without in any way

limiting the generality of the foregoing, the Receiver is hereby expressly empowered

and authorized to do any of the following where the Receiver considers it necessary or

desirable:

(a) to take possession of and exercise control over the Property and

any and all proceeds, receipts and disbursements arising out of or

from the Property;

(b) to receive, preserve, and protect of the Property, or any part or

parts thereof, including, but not limited to, the changing of locks and

security codes, the relocating of Property to safeguard it, the

engaging of independent security personnel, the taking of physical

inventories and the placement of such insurance coverage as may

be necessary or desirable;

(c) to manage, operate, and carry on the business of the Debtors,

including the powers to enter into any agreements, incur any

obligations in the ordinary course of business, cease to carry on all

or any part of the business, or cease to perform any contracts of

the Debtors;

(d) to engage consultants, appraisers, agents, experts, auditors,

accountants, managers, counsel and such other persons from time

to time and on whatever basis, including on a temporary basis, to

assist with the exercise of the Receiver's powers and duties,

including without limitation those conferred by this Order;

(e) to purchase or lease such machinery, equipment, inventories,

supplies, premises or other assets to continue the business of the

Debtors or any part or parts thereof;

(f) to receive and collect all monies and accounts now owed or

hereafter owing to the Debtors and to exercise all remedies of the

Debtors in collecting such monies, including, without limitation, to

enforce any security held by the Debtors;

(g) to settle, extend or compromise any indebtedness owing to the

Debtors;

(h) to execute, assign, issue and endorse documents of whatever

nature in respect of any of the Property, whether in the Receiver's

name or in the name and on behalf of the Debtors, for any purpose

pursuant to this Order;

(i) to undertake environmental or workers' health and safety

assessments of the Property and operations of the Debtors;

(j) to initiate, prosecute and continue the prosecution of any and all

proceedings and to defend all proceedings now pending or

hereafter instituted with respect to the Debtors, the Property or the

Receiver, and to settle or compromise any such proceedings. The

authority hereby conveyed shall extend to such appeals or

applications for judicial review in respect of any order or judgment

pronounced in any such proceeding;

(k) to market any or all of the Property, including advertising and

soliciting offers in respect of the Property or any part or parts

thereof and negotiating such terms and conditions of sale as the

Receiver in its discretion may deem appropriate;

(I) to sell, convey, transfer, lease or assign the Property or any part or

parts thereof out of the ordinary course of business,

(m)

(i) without the approval of this Court in respect of any

transaction not exceeding $100,000, provided that the

aggregate consideration for all such transactions does not

exceed $100,000; and

(ii) with the approval of this Court in respect of any transaction

in which the purchase price or the aggregate purchase price

exceeds the applicable amount set out in the preceding

clause;

and in each such case notice under subsection 63(4) of the Ontario

Personal Property Security Act, shall not be required, and in each

case the Ontario Bulk Sales Act shall not apply.

to apply for any vesting order or other orders necessary to convey

the Property or any part or parts thereof to a purchaser or

purchasers thereof, free and clear of any liens or encumbrances

affecting such Property;

(n)

-5

to report to, meet with and discuss with such affected Persons (as

defined below) as the Receiver deems appropriate on all matters

relating to the Property and the receivership, and to share

information, subject to such terms as to confidentiality as the

Receiver deems advisable;

(o) to register a copy of this Order and any other Orders in respect of

the Property against title to any of the Property;

(p)

(q)

(r)

to apply for any permits, licences, approvals or permissions as may

be required by any governmental authority and any renewals

thereof for and on behalf of and, if thought desirable by the

Receiver, in the name of the Debtors or any of them;

to make any filings or take any steps as may be necessary under

the BIA to file an assignment in bankruptcy on behalf of the Debtors

or any of them;

to enter into agreements with any trustee in bankruptcy appointed

in respect of the Debtors, including, without limiting the generality of

the foregoing, the ability to enter into occupation agreements for

any property owned or leased by the Debtors;

(s) to exercise any shareholder, partnership, joint venture or other

rights which the Debtors, or any of them, may have; and

(t)

and in each case

exclusively authoriz

(as defined below)

Person.

to take any steps reasonably incidental to the exercise of these

powers or the performance of any statutory obligations.

where the Receiver takes any such actions or steps, it shall be

ed and empowered to do so, to the exclusion of all other Persons

, including the Debtors, and without interference from any other

6

DUTY TO PROVIDE ACCESS AND CO-OPERATION TO THE RECEIVER

4. THIS COURT ORDERS that (i) the Debtors, (ii) all of their respective current and

former directors, officers, employees, agents, accountants, legal counsel and

shareholders, and all other persons acting on its instructions or behalf, and (iii) all other

individuals, firms, corporations, governmental bodies or agencies, or other entities

having notice of this Order (all of the foregoing, collectively, being "Persons" and each

being a "Person") shall forthwith advise the Receiver of the existence of any Property in

such Person's possession or control, shall grant immediate and continued access to the

Property to the Receiver, and shall deliver all such Property to the Receiver upon the

Receiver's request.

5. THIS COURT ORDERS that all Persons shall forthwith advise the Receiver of

the existence of any books, documents, securities, contracts, orders, corporate and

accounting records, and any other papers, records and information of any kind related

to the business or affairs of the Debtors, and any computer programs, computer tapes,

computer disks, or other data storage media containing any such information (the

foregoing, collectively, the "Records") in that Person's possession or control, and shall

provide to the Receiver or permit the Receiver to make, retain and take away copies

thereof and grant to the Receiver unfettered access to and use of accounting, computer,

software and physical facilities relating thereto, provided however that nothing in this

paragraph 5 or in paragraph 7 of this Order shall require the delivery of Records, or the

granting of access to Records, which may not be disclosed or provided to the Receiver

due to the privilege attaching to solicitor-client communication or due to statutory

provisions prohibiting such disclosure. vtp 'f•Clof 64;4 ktt-e of

P-42-CIL NW/ "A) If_ cs).—c Ce. M,41-434cS

6. THIS COURT ORDERS that SF Partnership LP, the auditors for Kaptor, shall a

forthwith provide to the Receiver copies of prepared by Qdfi4,a,1%'

SF in connection with any and all of their work for and audit of Kaptor. This Order is ,g

without prejudice to the Receiver's position that any and all other documentation in SF's (4064

possession relating to its work for and audit of Kaptor shall be provided forthwith by SF

to the Receiver.

7

7. THIS COURT ORDERS that if any Records are stored or otherwise contained on

a computer or other electronic system of information storage, whether by independent

service provider or otherwise, all Persons in possession or control of such Records shall

forthwith give unfettered access to the Receiver for the purpose of allowing the Receiver

to recover and fully copy all of the information contained therein whether by way of

printing the information onto paper or making copies of computer disks or such other

manner of retrieving and copying the information as the Receiver in its discretion deems

expedient, and shall not alter, erase or destroy any Records without the prior written

consent of the Receiver. Further, for the purposes of this paragraph, all Persons shall

provide the Receiver with all such assistance in gaining immediate access to the

information in the Records as the Receiver may in its discretion require including

providing the Receiver with instructions on the use of any computer or other system and

providing the Receiver with any and all access codes, account names and account

numbers that may be required to gain access to the information.

8. NO PROCEEDINGS AGAINST THE RECEIVER

9. THIS COURT ORDERS that no proceeding or enforcement process in any court

or tribunal (each, a "Proceeding"), shall be commenced or continued against the

Receiver except with the written consent of the Receiver or with leave of this Court.

NO PROCEEDINGS AGAINST THE DEBTORS OR THE PROPERTY

10. THIS COURT ORDERS that no Proceeding against or in respect of the Debtors,

or any of them, or the Property shall be commenced or continued except with the written

consent of the Receiver or with leave of this Court and any and all Proceedings

currently under way against or in respect of the Debtors or the Property are hereby

stayed and suspended pending further Order of this Court save and except for any

proceeding undertaken by Bibby International Trade Finance, Inc. or Bibby Financial

Services (Canada) Inc. (together "Bibby") with respect to the collection of the accounts

receivable of Insignia (the "Accounts Receivable"),

8

NO EXERCISE OF RIGHTS OR REMEDIES

11. THIS COURT ORDERS that all rights and remedies against the Debtors, the

Receiver, or affecting the Property, are hereby stayed and suspended except with the

written consent of the Receiver or leave of this Court, provided however that this stay

and suspension does not apply in respect of any "eligible financial contract" as defined

in the BIA, and further provided that nothing in this paragraph shall (i) empower the

Receiver or the Debtors to carry on any business which the Debtors are not lawfully

entitled to carry on, (ii) exempt the Receiver or the Debtors from compliance with

statutory or regulatory provisions relating to health, safety or the environment, (iii)

prevent the filing of any registration to preserve or perfect a security interest, (iv)

prevent the registration of a claim for lien, or (v) prevent Bibby from collecting the

Accounts Receivable.,

R . •

NO INTERFERENCE WITH THE RECEIVER

12. THIS COURT ORDERS that no Person shall discontinue, fail to honour, alter,

interfere with, repudiate, terminate or cease to perform any right, renewal right, contract,

agreement, licence or permit in favour of or held by the Debtors, without written consent

of the Receiver or leave of this Court.

CONTINUATION OF SERVICES

13. THIS COURT ORDERS that all Persons having oral or written agreements with

the Debtors or statutory or regulatory mandates for the supply of goods and/or services,

including without limitation, all computer software, communication and other data

services, centralized banking services, payroll services, insurance, transportation

services, utility or other services to the Debtors are hereby restrained until further Order

of this Court from discontinuing, altering, interfering with or terminating the supply of

such goods or services as may be required by the Receiver, and that the Receiver shall

be entitled to the continued use of the Debtors' respective current telephone numbers,

facsimile numbers, internet addresses and domain names, provided in each case that

the normal prices or charges for all such goods or services received after the date of

9

this Order are paid by the Receiver in accordance with normal payment practices of the

Debtors or such other practices as may be agreed upon by the supplier or service

provider and the Receiver, or as may be ordered by this Court.

RECEIVER TO HOLD FUNDS

14. THIS COURT ORDERS that all funds, monies, cheques, instruments, and other

forms of payments received or collected by the Receiver from and after the making of

this Order from any source whatsoever, including without limitation the sale of all or any

of the Property and the collection of any accounts receivable in whole or in part,

whether in existence on the date of this Order or hereafter coming into existence, shall

be deposited into one or more new accounts to be opened by the Receiver (the "Post

Receivership Accounts") and the monies standing to the credit of such Post

Receivership Accountsfret time to time, net of any disbursements provided for herein,

shall be held by the Receiver to be paid in accordance with the terms of this Order or

any further Order of this Court save and except for monies received by Bibby in the

course of collecting the Accounts Receivable which shall be retained by Bibby up to the

amount owed by Insignia to Bibby.

EMPLOYEES

15. THIS COURT ORDERS that all employees of the Debtors shall remain the

employees of the respective Debtor until such time as the Receiver, on the respective

Debtor's behalf, may terminate the employment of such employees. The Receiver shall

not be liable for any employee-related liabilities, including any successor employer

liabilities as provided for in section 14.06(1.2) of the BIA, other than such amounts as

the Receiver may specifically agree in writing to pay, or in respect of its obligations

under sections 81.4(5) or 81.6(3) of the BIA or under the Wage Earner Protection

Program Act.

PIPEDA

16. THIS COURT ORDERS that, pursuant to clause 7(3)(c) of the Canada Personal

Information Protection and Electronic Documents Act, the Receiver shall disclose

personal information of identifiable individuals to prospective purchasers or bidders for

- 10 -

the Property and to their advisors, but only to the extent desirable or required to

negotiate and attempt to complete one or more sales of the Property (each, a "Sale").

Each prospective purchaser or bidder to whom such personal information is disclosed

shall maintain and protect the privacy of such information and limit the use of such

information to its evaluation of the Sale, and if it does not complete a Sale, shall return

all such information to the Receiver, or in the alternative destroy all such information.

The purchaser of any Property shall be entitled to continue to use the personal

information provided to it, and related to the Property purchased, in a manner which is

in all material respects identical to the prior use of such information by the Debtors, and

shall return all other personal information to the Receiver, or ensure that all other

personal information is destroyed.

LIMITATION ON ENVIRONMENTAL LIABILITIES

17. THIS COURT ORDERS that nothing herein contained shall require the Receiver

to occupy or to take control, care, charge, possession or management (separately

and/or collectively, "Possession") of any of the Property that might be environmentally

contaminated, might be a pollutant or a contaminant, or might cause or contribute to a

spill, discharge, release or deposit of a substance contrary to any federal, provincial or

other law respecting the protection, conservation, enhancement, remediation or

rehabilitation of the environment or relating to the disposal of waste or other

contamination including, without limitation, the Canadian Environmental Protection Act,

the Ontario Environmental Protection Act, the Ontario Water Resources Act, or the

Ontario Occupational Health and Safety Act and regulations thereunder (the

"Environmental Legislation"), provided however that nothing herein shall exempt the

Receiver from any duty to report or make disclosure imposed by applicable

Environmental Legislation. The Receiver shall not, as a result of this Order or anything

done in pursuance of the Receiver's duties and powers under this Order, be deemed to

be in Possession of any of the Property within the meaning of any Environmental

Legislation, unless it is actually in possession.

LIMITATION ON THE RECEIVER'S LIABILITY

18. THIS COURT ORDERS that the Receiver shall incur no liability or obligation as a

result of its appointment or the carrying out the provisions of this Order, save and

except for any gross negligence or wilful misconduct on its part, or in respect of its

obligations under sections 81.4(5) or 81.6(3) of the BIA or under the Wage Earner

Protection Program Act. Nothing in this Order shall derogate from the protections

afforded the Receiver by section 14.06 of the BIA or by any other applicable legislation.

RECEIVER'S ACCOUNTS

19. THIS COURT ORDERS that the Receiver and counsel to the Receiver shall be

paid their reasonable fees and disbursements, in each case at their standard rates and

charges, and that the Receiver and counsel to the Receiver shall be entitled to and are

hereby granted a charge (the "Receiver's Charge") on all of the Debtors Property, as

security for such fees and disbursements incurred against all three Debtors, both before

and after the making of this Order in respect of these proceedings, and that the

Receiver's Charge shall form a first charge on the Property in priority to all security

interests, trusts, liens, charges and encumbrances, statutory or otherwise, in favour of

any Person, but subject to sections 14.06(7), 81.4(4), and 81.6(2) of the BIA save and

except for any security interest of Bibby or any security interest assigned to Bibby.

20. THIS COURT ORDERS that the Receiver and its legal counsel shall pass its

accounts from time to time, and for this purpose the accounts of the Receiver and its

legal counsel are hereby referred to a judge of the Commercial List of the Ontario

Superior Court of Justice.

21. THIS COURT ORDERS that prior to the passing of its accounts, the Receiver

shall be at liberty from time to time to apply reasonable amounts, out of the monies in its

hands, against its fees and disbursements, including legal fees and disbursements,

incurred at the normal rates and charges of the Receiver or its counsel, and such

amounts shall constitute advances against its remuneration and disbursements when

and as approved by this Court.

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FUNDING OF THE RECEIVERSHIP

22. THIS COURT ORDERS that the Receiver be at liberty and it is hereby

empowered to bOrrow by way of a revolving credit or otherwise, such monies from time

to time as it may consider necessary or desirable, provided that the outstanding

principal amount does not exceed $1,000,000 (or such greater amount as this Court

may by further Order authorize) at any time, at such rate or rates of interest as it deems

advisable for such period or periods of time as it may arrange, for the purpose of

funding the exercise of the powers and duties conferred upon the Receiver by this

Order, including interim expenditures. The whole of the Property shall be and is hereby

charged by way of a fixed and specific charge (the "Receiver's Borrowings Charge") as

security for the payment of the monies borrowed, together with interest and charges

thereon, in priority to all security interests, trusts, liens, charges and encumbrances,

statutory or otherwise, in favour of any Person, but subordinate in priority to the

Receiver's Charge and the charges as set out in sections 14.06(7), 81.4(4), and 81.6(2)

of the BIA save and except for any security interest of Bibby or any security interest

assigned to Bibby provided that the Receiver and, as necessary, the court is satisfied as

to the quantum of the funds owed to Bibby and the validity of Bibby's security.

23. THIS COURT ORDERS that neither the Receiver's Borrowings Charge nor any

other security granted by the Receiver in connection with its borrowings under this

Order shall be enforced without leave of this Court.

24. THIS COURT ORDERS that the Receiver is at liberty and authorized to issue

certificates substantially in the form annexed as Schedule "A" hereto (the "Receiver's

Certificates") for any amount borrowed by it pursuant to this Order.

25. THIS COURT ORDERS that the monies from time to time borrowed by the

Receiver pursuant to this Order or any further order of this Court and any and all

Receiver's Certificates evidencing the same or any part thereof shall rank on a par/

passu basis, unless otherwise agreed to by the holders of any prior issued Receiver's

Certificates.

- 13 -

GENERAL

26. THIS COURT ORDERS that nothing in this Order will be construed to deny Bibby

any rights with respect to the Accounts Receivable or otherwise which Bibby would

otherwise have.

27. THIS COURT ORDERS that the Receiver may from time to time apply to this

Court for advice and directions in the discharge of its powers and duties hereunder.

28. THIS COURT ORDERS that nothing in this Order shall prevent the Receiver

from acting as a trustee in bankruptcy of any of the Debtors.

29. THIS COURT HEREBY REQUESTS the aid and recognition of any court,

tribunal, regulatory or administrative body having jurisdiction in Canada or in the United

States to give effect to this Order and to assist the Receiver and its agents in carrying

out the terms of this Order. All courts, tribunals, regulatory and administrative bodies

are hereby respectfully requested to make such orders and to provide such assistance

to the Receiver, as an officer of this Court, as may be necessary or desirable to give

effect to this Order or to assist the Receiver and its agents in carrying out the terms of

this Order.

30. THIS COURT ORDERS that the Receiver be at liberty and is hereby authorized

and empowered to apply to any court, tribunal, regulatory or administrative body,

wherever located, for the recognition of this Order and for assistance in carrying out the

terms of this Order, and that the Receiver is authorized and empowered to act as a

representative in respect of the within proceedings for the purpose of having these

proceedings recognized in a jurisdiction outside Canada.

31. THIS COURT ORDERS that the Applicants shall have their costs of this motion,

up to and including entry and service of this Order, provided for by the terms of the

Applicants' security or, if not so provided by the Applicants' security, then on a

substantial indemnity basis to be paid by the Receiver from the Debtors' estate with

such priority and at such time as this Court may determine.

-14-

32. THIS COURT ORDERS that any interested party may apply to this Court to vary

or amend this Order on not less than seven (7) days' notice to the Receiver and to any

other party likely to be affected by the order sought or upon such other notice, if any, as

this Court may order.

ENTERED AT / INSCRIT A TORONTOON / BOOK NO:LE / DANS LE REGISTRE NO.:

JUN 1 8 2012

SCHEDULE "A"

RECEIVER CERTIFICATE

CERTIFICATE NO.

AMOUNT $

33. THIS IS TO CERTIFY that SOBERMAN INC., the receiver (the "Receiver") of the

assets, undertakings and properties 2025610 Ontario Limited, Kaptor Financial Inc. and

Insignia Trading Inc. (collectively, the "Debtors") acquired for, or used in relation to a

business carried on by the Debtors, including all proceeds thereof (collectively, the

"Property") appointed by Order of the Ontario Superior Court of Justice (Commercial

List) (the "Court") dated the of June, 2012 (the "Order") made in an action having

Court file number -CL- , has received as such Receiver from the holder of this

certificate (the "Lender") the principal sum of $_, being part of the total principal sum

of $ which the Receiver is authorized to borrow under and pursuant to the Order.

34. The principal sum evidenced by this certificate is payable on demand by the

Lender with interest thereon calculated and compounded [daily][monthly not in advance

on the day of each month] after the date hereof at a notional rate per annum equal

to the rate of per cent above the prime commercial lending rate of Bank of from

time to time.

35. Such principal sum with interest thereon is, by the terms of the Order, together

with the principal sums and interest thereon of all other certificates issued by the

Receiver pursuant to the Order or to any further order of the Court, a charge upon the

whole of the Property, in priority to the security interests of any other person save and

except for any security interest of Bibby or any security interest assigned to Bibby, but

subject to the priority of the charges set out in the Order and in the Bankruptcy and

Insolvency Act, and the right of the Receiver to indemnify itself out of such Property in

respect of its remuneration and expenses.

36. All sums payable in respect of principal and interest under this certificate are

payable at the main office of the Lender at Toronto, Ontario.

819124_1.DOC

2

37. Until all liability in respect of this certificate has been terminated, no certificates

creating charges ranking or purporting to rank in priority to this certificate shall be issued

by the Receiver to any person other than the holder of this certificate without the prior

written consent of the holder of this certificate.

38. The charge securing this certificate shall operate so as to permit the Receiver to

deal with the Property as authorized by the Order and as authorized by any further or

other order of the Court.

39. The Receiver does not undertake, and it is not under any personal liability, to pay

any sum in respect of which it may issue certificates under the terms of the Order.

DATED the day of MONTH, 20

Soberman Inc., solely in its capacityas Receiver of the Property, and not in its

personal capacity

Per:

Name:

Title:


KEITH ALEXANDER, ARTHUR BARKIN et al. — and - 2025610 ONTARIO LIMITED, KAPTOR FINANCIALINC., and INSIGNIA TRADING INC.

Applicants Respondents


Commercial ListProceeding commenced at TORONTO

ORDER

PALIARE ROLAND ROSENBERGROTHSTEIN LLPBarristers250 University Ave., Suite 501Toronto, On M5H 3E5

Kenneth T. Rosenberg (LSUC #21102H)Tel.: (416) 646-4304Email: [email protected]

Jeffrey Larry (LSUC# 44608D)Tel.: (416) 646-4330Email: [email protected]: (416) 646-4301

Lawyers for the Applicants

Appendix B



COMMERCIAL LISTBETWEEN:




— and


Applicants

Respondents

APPLICATION UNDER 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. 1990, C. C-43, as amended.

FIRST REPORT OF THE RECEIVERDATED NOVEMBER 27, 2012

CROWE SOBERMAN INC.Trustees and Receivers2 St Clair Avenue East, Suite 1200Toronto, Ontario, M4T 2T5

Telephone: 416.929.2500Fax: 416.929.2555

TABLE OF CONTENTS

Introduction 4

Purposes of this Report 4

Restrictions 5

Background and Operations 6

Receivers Initial Activities 11

Preliminary Findings 15

Statement of Claim filed by Certain Investors & Investigation by the OSC 23

Other Activities of the Receiver 24

Conclusions & Recommendations 25

APPENDICES

A. Receivership Order dated June 18, 2012

B. Common Shareholder Registry of Kaptor Financial Inc.

C. Corporate Profile for Elkap Financial Ltd.

D. Sample Employee Letter

E. 202 Laurentian Bank of Canada Bank Statements & Analysis of Transactions

F. Summary of Transactions Made by E. Inspektor

G. Summary of Transactions Made by InspektorFamily Members

H. Corporate Profile for 1312126 Ontario Inc.

I. Corporate Profile for Food Nutrition Inc.

J. Corporate Profile for 2102510 Ontario Corp.

K. Summary of Investments made with Kaptor Financial Inc.

L. Summary of Investments made with 2025610 Ontario Ltd.

M. Order of Justice Campbell dated September 7, 2012

N. Statement of Claim dated September 11, 2012

-3



COMMERCIAL LIST

BETWEEN:



STEPHEN STARK, MICHAEL STEINBERG, JOHN LISTER,STEVEN WARSH and DAVID YARMUS

— and —


Applicants

Respondents

APPLICATION UNDER section 243(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985.c.B-3, as amended and section 101 of the Courts oPustice Act,

R.S.O. 1990, c. C-43, as amended.

FIRST REPORT OF THE RECEIVERDATED NOVEMBER 27, 2012

INTRODUCTION

I.

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This report (the "Report") is filed by Crowe Soberman Inc.1("Crowe

Soberman") in its capacity as receiver ("Receiver") of Kaptor Financial Inc. ("Kaptor"),

Insignia Trading Inc., ("Insignia"), 2025610 Ontario Ltd., ("202"), (collectively referred

to as the "Companies" or "Kaptor Group") pursuant to an order (the "Receivership

Order") of the Ontario Superior Court of Justice made on June 18, 2012 (the

"Appointment Date"). A copy of the Receivership Order is attached hereto as Appendixt6A9,.


2. The purposes of this Report are to:

a) Provide background information concerning the Kaptor Group;

b) Summarize the results of the Receiver's activities and preliminary findings in

these proceedings;

c) Advise the Court that:

A Statement of Claim was filed against the Companies' accountants and

directors by certain investors who had loaned monies to the Companies;

and

ii. The Ontario Securities Commission ("OSC") has commenced an

investigation into the affairs of the Kaptor Group and Erik Inspektor

("Erik"), who had care and control, and managed the affairs of the Kaptor

Group at the material times;

Recommend that this Honourable Court issue an Order:

1 On September 5, 2012, as a result of an affiliation with an international professional services group, Soberman Inc.changed its name to Crowe SobermanInc.

- 5 -

Requiring the Companies' Management, employees, and members of theInspektor Family as defined herein, to attend on examination under oathconducted by the Receiver or other authorized person, to answer questionsconcerning the Companies' affairs and to produce and deliver to theReceiver any books, documents, correspondence, or papers in theirpossession or power which relate in any way to the affairs or property ofthe Companies;

ii. Requiring Erik and any other person having knowledge or possession toprovide the Receiver with co-operation and access to all the books andrecords including bank statements, of 1312126 Ontario Ltd., FoodNutrition Inc., and the Portfolio Corporations2which appear to be entitiescontrolled/owned by Erik and had significant dealings with the Companiesincluding inter-company transfers of funds as detailed herein;

i i i . Authorizing the Receiver to assign any or all of the Companies intobankruptcy in the Receiver's discretion; and

iv. Approving this Report and the Receiver's activities since the date of itsAppointment as set out in this Report.

Restrictions

3. In preparing this report, the Receiver has relied upon certain unaudited financial

information and books and records of the Companies, as well as certain information

provided by staff and management of the Companies and various financial institutions

and other parties. The Receiver has not performed an audit or other verification of the

documents and the information it has received, and expresses no opinion with respect to

the accuracy of any information presented in and/or discussed in this Report.

4. As discussed further in paragraphs 29 and 35, management and certain employees

of the Companies, who would have firsthand knowledge of the Companies' business and

affairs, have been less than co-operative in providing information to the Receiver. In

addition, it appears that pertinent information concerning the Companies' affairs,

including e-mail communications and books and records had been purged prior to the

issuance of the Receivership Order. As a result, the Receiver has been required to

conduct part of its investigation by reviewing records obtained from third parties and/or

2 As defined in paragraph 39 below.

- 6 -

other information in an attempt to understand the Companies' dealings. Accordingly, the

subject matter of this Report may be subject to change based upon new findings which

may or may not be material.

5. The Receiver assumes no responsibility or liability for loss or damage occasioned

by any party as a result of the circulation, publication, re-production or use of this First

Report. Any use which any party, other than the Court, makes of this Report or any

reliance on or decision made based on this report is the responsibility of such party.

BACKGROUND AND OPERATIONS

6. The Companies were controlled and managed by Erik. Of the Companies, Kaptor was a

corporate finance company that was incorporated in 1987, which, in or about 2003,

commenced borrowing funds primarily from a number of private individuals (the

"Investors").These were structured as short and long term debentures, convertible term

debentures, and promissory notes made to Kaptor, Insignia, and 202 (the "Investments").

While most investments were made in Kaptor, as time progressed, the Investors started

investing through other entities within the Kaptor Group. Notwithstanding the above, itappears that the Investors and Erik did not differentiate between the entities within the

Kaptor Group, particularly between Kaptor and 202. Based on information provided to

the Receiver, and notwithstanding Erik's children were actively involved in Insignia as

discussed herein, all major decision-making at the Companies was conducted by Erik. In

addition, the following is a list of other key individuals comprising the management

structure of the Kaptor Group ("Management"):3

'The majority of the individuals listed in the table below, were no longer employees of the Kaptor Group byresignation or otherwise as of the Appointment Date.

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Name Role/ Position at Kaptor Group

Shalom RommRick AmoneBarbara ShusterElan SteinbergRobin LeVoninves torAlan BirnbaumMomirDejanovic

Vice- President, DirectorChief Operating Officer, DirectorDirector of Operations, DirectorComptrollerRelationsAccountant, DirectorDirector of Risk Management, Director

7. The Investors believed that through the Kaptor Group, Erik was investing in various

business activities which would generate substantial rates of return and would yield the

Investors high rates of returns on their investments - many between 15% to 36%,

annually. The Receiver has been advised that for the most part, until approximately

September 2011, the Kaptor Group was making interest payments to Investors.

8. The Applicants have advised that as at April 2, 2012, in total the Investors are owed in

excess of $48 million. As discussed in paragraph 39, it appears that certain Investors

loaned funds to several other non-operating entities which are not in receivership

proceedings (defined in paragraph 39 as the "Portfolio Corporations"). In addition, it

appears certain Investors have converted their debt into equity. It is unclear whether the

$48 million is inclusive of outstanding interest and if it includes the amounts that were

converted into equity.

9. The most substantial active business that Erik and/or the Kaptor Group was involved in

was CarCap Inc. and Car Equity Loans Corp. (operating as Cashland Financial)

(collectively referred to as the "CarCap Companies"). The CarCap Companies' business

consisted of providing sub-prime car lease financing and sub-prime equity loans. The

CarCap Companies, either directly or indirectly, were owned by Kaptor.

10, Notwithstanding the substantial loans to the Kaptor Group from the Investors, the CarCap

Companies were also funded by other secured lenders, Callidus Capital Corporation

("Callidus") and Toronto-Dominion Bank ("TD"). Based primarily on many financial

and other irregularities which occurred in August 2011, which were extensively detailed

in the initial application materials, the CarCap Companies were placed into

- 8 -

receivership on December 14, 2011 and their assets were subsequently sold by order of

this Court on March 13, 2012. The proceeds from the sale of the CarCap Companies'

assets were applied to repay Callidus in full and TD in part. As a result, there were no

monies left to repay the Kaptor Group nor, as a result, the Investors.

1 1, Subsequent to the receivership of the CarCap Companies, given concerns of the Investors

regarding their advances, Crowe Soberman4 was appointed as a private monitor (the

"Monitor") of the Companies on April 17, 2012 pursuant to a monitorship agreement.

The purpose of the Monitor was to, inter alit-4 review the books and records of the Kaptor

Group, review daily banking activities and weekly budgets, provide forensic accounting

services, and become a second signatory for the bank accounts of the Companies. The

monitorship agreement stipulated that any default would trigger an application to appoint

a Receiver. In the Monitor's report to Court dated May 25, 2012, which was part of the

initial application materials, the Monitor reported that defaults had occurred under the

monitorship agreement and the Applicants brought a motion for the appointment of

Crowe Soberman as Receiver of the Kaptor Group. The motion was granted.

12. Below is a summary of the Kaptor Group's organizational chart and brief

discussion of each of the entities:

4Formerly Soberman

40%

202

-9-

E.Inspektor

2025610 Ontario Ltd

13. 202 was incorporated in April 2003. It is a holding company that holds approximately

48% of the common shares of Kaptor. Erik owns 100% of the shares of 202 and is the

sole director. Certain Investors directly loaned funds to 202.

Kaptor

14. As noted above, Kaptor was incorporated in 1987. Forty-eight percent (48%) of Kaptor's

shares are held by 202; the remaining 52% are owned by certain Investors. The Receiver

has been advised that certain Investors became shareholders of Kaptor as a result of a

conversion of their loans (which were structured as convertible debentures) to common

shares. The investment documents reviewed by the Trustee confirm the same. In addition

to E. Inspektor, several Investors were also directors of Kaptor. Attached as Appendix

"B" is a summary of the shareholders of Kaptor as of March 31, 2011.

Elkap Financial Ltd. ("Elkap")

15.

10 -

Elkap was incorporated in 2010, and appears to have provided financing to small

and medium sized businesses. Based on a corporate profile search dated October 25,

2012 attached as Appendix "C", the directors are listed as Erik and Steven Uster. Kaptor

owns 50% of Elkap's shares. Presently, the Receiver is determining the status and value

of the shares, although the company does not appear operational and does not appear to

hold any assets.

Insignia

16. Of the Kaptor Group, Insignia was the only active business as at the date of the

Receivership Order. Incorporated in 2001, Insignia operated as a distributor of branded

household merchandise such as plastic lunch bags and tupperware with printed or

embossed characters/charicatures under license from the Walt Disney® Corporation and

Nickelodeon®. Based on available information, Insignia's sales for the 10 month period

ended September 30, 2011 were reported as being approximately $2.7 million. It is

unclear whether any of these sales were to related parties.

17. Erik has advised that he was employed as a consultant at Insignia and was not a

director of Insignia. However, members of Erik's family (collectively, the "Inspektor

Family") were involved in Insignia as follows:

NameDarren lnspektor ("Darrell")

Russel lnspektor ("Russel")

Lisa Inspektor ("Lisa")

Relation toE. InspektorSon

Son

Daughter

Role/Position at Insignia Sales and Product Development;also a Corporate DirectorOperations Manager; also aCorporate DirectorLogistics Manager

-11-

18. In addition to the Inspektor Family, as of the Appointment Date, Insigniaemployed three additional full time employees (collectively referred to as the "InsigniaEmployees") summarized below:

Name Role/Position at InsigniaMichael Bertrand Warehouse ManagerDevin Wilson Warehouse StaffMonique Mederios Accountant

19. Additional background information concerning these receivership proceedings isprovided in the initial application materials. These documents are available on theReceiver's website at 1,vww.crowesoberman.com.

RECEIVER'S INITIAL ACTIVITIES

(i) Possession and Control of the Property

20. Following its appointment, on June 19, 2012, the Receiver and a licensed Bailiffattended at the head offices of the Companies located at 81 Granton Dr., Unit 2, inRichmond Hill, Ontario (the "Head Office") to secure the Companies' assets, includingits book and records, computers, servers, etc. and to review the current operations ofInsignia, including whether continuing its operations appeared viable, The Receiver wasadvised that the Companies' moved to the current Head Office in April 2012.

21. At the time of the Receiver's attendance, Russel and Darren were the onlyapparent management present, in addition to the Insignia Employees. In total, there were

7 individuals on site.

22. Immediately upon the Receiver's attendance, Russel and Darren instructed theInsignia Employees not to turn on their computers, not to provide passwords ordocuments, and to refuse to answer any questions from the Receiver. They also advised

the Receiver that no one would co-operate until the Receiver guaranteed all of thempayment for outstanding expenses and payroll arrears. Following negotiation, and afterRussel and Darren had left the Head Office premises, the Insignia Employees and Ms.

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LeVon agreed to co-operate with the Receiver by remuneration on a per diem basis. Thescope and extent of their assistance was limited to providing assistance with securingsome books and records and other administrative matters.

23. With the exception of Ms. LeVon and Ms. Medeiros, both of whom appeared towork very closely with Erik, it was apparent that the remaining Insignia Employees were

likely not going to able to provide the Receiver with extensive information regarding the

affairs of the Companies, as they do not appear to have been privy to management

activities of the Companies. On June 20, 2012, Ms. Medeiros resigned and left the Head

Office.

(ii) Status of Books and Records

24. It was apparent to the Receiver that the Companies either did not maintain complete

books and records or, at a minimum, certain significant books and records were missing -

including, inter alia, bank statements for 2012 and 2011, all bank statements for 2010 for

certain companies, and certain documentation concerning transactions with related

parties. One of the Insignia Employees advised the Receiver that they had witnessed Erik

and the Inspektor Family removing contents from the Head Office prior to the

Appointment Date.

25. The Receiver also took possession of all computers located at the Head Office,

including a server, The Receiver also hired a computer services firm, 3G Touch

Solutions, to mirror all hard drives found on site. Notwithstanding the mirroring, there

have been challenges in retrieving valuable information from the computers and server.

For example, it appears that the e-mail accounts for Erik and Rick Amone have been

deleted in their entirety. In addition, it appears that certain e-mails and documents stored

on computers used by Ms. Levon, Ms, Medeiros and the Inspektor Family have also been

deleted.

26. In addition to the above, employees of Insignia also informed the Receiver that

financial information and statements generated using Insignia's accounting software may

be unreliable as in early 2010, Insignia's accounting system crashed. The Receiver was

- 13 -

informed that as a result of issues related to the conversion to a new system, theinformation generated after 2010 may or may not be accurate,

27. The Receiver has engaged its forensic technology departments, which specializesin data retrieval, to attempt to retrieve apparently deleted and erased infoixuation.

(ii) Operations of Insignia

28. On the second day of attendance, the Receiver met separately with both Darrenand Russel regarding Insignia. Prior to the receivership, Erik had provided the Monitorwith a cash flow projection for Insignia's operations which indicated that Insignia wouldrequire a cash injection of $32,000 for the week ending May 18, 2012.

29. The Receiver requested Darren and Russel's assistance to update and expand thiscash flow projection for up to 6 months in order to determine the viability of maintainingInsignia's operations. Both Darren and Russel refused to co-operate and informed theReceiver that they had no interest in working with the Receiver.

30. On June 22, 2012, Erik attended at the Head Office to discuss the possibility ofworking with the Receiver to maintain the operations of Insignia. Erik stated that hewould require no involvement from the Receiver and would report the business activitieson a quarterly basis to maintain the operations. Notwithstanding that this arrangementdid not appear feasible, the Receiver requested Erik to put forward a proposal in writing;to date, no written proposal has been received.

31. The Receiver's review indicated that Insignia's most recent sales came from the sale ofDisney® and Nickelodeon® branded product, which to the Receiver's knowledge werethe only two active licensing agreements in place. The sale of Disney® branded productwas subject to a license agreement with Disney Consumer Products Inc. ("Disney"). Thislicense expired on June 30, 2012, and Disney did not to renew the license with Insignia.Disney provided the Receiver with confirmation of its position that prior to the

5This department is operated by Crowe Horvath LLP, a US firm.

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Appointment Date, Insignia had failed to comply with the licensing agreement, includingInsignia's failure to maintain a letter of credit in favour of Disney and failure to remitroyalty payments in a timely manner. The Receiver reviewed the possibility of enteringinto a new licensing agreement with Disney and submitted a formal proposal, which wasultimately denied by Disney. The Receiver was also aware that Insignia had futurepurchase orders totaling approximately $200,000 from one customer; however, in orderto fulfill the purchase orders the Receiver would be required to source new inventory andobtain consent from Disney for the sale. Disney refrained from providing its consent forthis sale.

32. The sale of Nickelodeon@ branded product was subject to a licensing agreementwith MTV Networks, a division of Viacom International Inc. ("Viacom"). The Receiverwas advised by Viacom that prior to the Appointment Date, Insignia had been in default

of its licensing agreement with Viacom due to unremitted royalty payments totaling$74,499.

33. Based on Insignia's default upon and/or non-renewal of its licensing agreements,which were key to Insignia's continued operations, the absence of co-operation from

Insignia's management, and previous cash flow projections which indicated Insignia

would require a materially significant cash injection in order to operate, the Receiver was

unable to continue Insignia's operations.

(iii) Interviews with Management and Insignia Employees

34. Subsequent to its appointment, the Receiver attempted to conduct interviews with

Management and the Insignia Employees. While certain individuals have assisted the

Receiver on routine administrative type issues (for example, assisting to prepare records

of employment, administering WEPPA calculations, and finalizing a list of creditors)

none have attended with the Receiver to discuss questions the Receiver has posed

regarding the affairs of the Companies following its review of the Companies' available

records.

-15-

35. On October 4, 2012, the Receiver sent a formal letter to each individual

comprising Management and Insignia Employees, to attend at the Receiver's office to

answer questions regarding the Companies' affairs_ A sample copy of the letter sent to

these individual is attached as Appendix "D". While the Receiver has not received

responses from all individuals, those who have responded (either verbally or

electronically) have taken the position that they are not obligated to attend.

36. With respect to Erik's and the Inspektor Family's lack of co-operation and apparent

resistance to the Receiver's activities, the Receiver has requested that all communications

occur through legal counsel.

PRELIMINARY FINDINGS

(i) Review of Bank Statements

37. Given many of the Kaptor Group's bank statements were missing, the Receiver wrote to

all known financial institutions and has requested details of the accounts including all

bank statements, deposits, cancelled cheques, and wire transfer details.

38. As of the date of this Report, the Receiver has obtained the majority of the bank

statements for 2011 and 2012 and has performed a preliminary review of the banking

records for the Companies from January 2011 up to the Appointment Date6 (the "Review

Period). A summary of the key preliminary findings are as follows:

• During the Review Period, the Companies utilized 4 separate financialinstitutions and 18 different bank accounts, which included 9 US dollaraccounts.

• On almost a daily basis, there were numerous inter-company wire transfersand written cheques both in the form of deposits and withdrawals. Forexample, there were approximately 250 banking transactions in one 202Canadian dollar account during the period January to February 2011, with acombined dollar value of over CDN$150 million. The need for this largevolume of inter-company transfers is unknown. This is highly unusual for

6Excludes the banks statements from TD Bank for Insignia for the period August and September 2011 and Kaptorfor May 2011 as these statements were not available as at the date of the writing of this Report.

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companies of equivalent size to the Kaptor Group. Attached as Appendix"E"are the January and February 2011 bank statements and the accompanyinganalysis of the transactions.

• There appears to be little distinction between Erik and the Kaptor Group -Erik frequently moved monies back and forth between his personal accountsand the accounts of the Companies. For the Review Period, it appears thatErik had net withdrawals (withdrawals in excess of deposits) totaling $2million. Attached as Appendix "F" is a summary of the identifiedtransactions involving Erik for the Review Period.

• There were also numerous transactions involving the Inspektor Family. Forthe Review Period, it appears that the Family Members had net deposits(deposits in excess of withdrawals) totaling $230,000. Attached as Appendix"G" is a summary of the known transactions involving the Inspektor Family.

• The total net withdrawals (withdrawals in excess of deposits) for the ReviewPeriod by Erik and the Inspektor Family totals $1.8 million.

• For the Review Period, the Receiver has also identified numerous transactionsbetween the Companies and the Portfolio Corporations. This is discussed ingreater detail in paragraphs 39 and 42.

(ii) Portfolio Corporations

39. The Companies' bank accounts indicate numerous transactions between the

Companies and 18 corporate entities referred to in certain documents as investor silos or

CarCap Portfolios (the "Portfolio Corporations"). It appears that certain Investments were

made directly into the Portfolio Corporations by specific individuals as well as by 202 on

behalf of the Investors. As such, the Portfolio Corporations are not in receivership

proceedings. Based on a review of the Companies' books and records,. it appears that

there were numerous and significant transfers of funds (both to and from) between the

Portfolio Corporations and the Companies. It also appears that each Portfolio Corporation

had separate bank accounts.

40. Based on information obtained, the Receiver understands that Erik is the sole

director of each of the Portfolio Corporations.

41. The Receiver has not been able to review significant documents related to the

Portfolio Corporations (such as bank statements), to determine whether they are still

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active, or whether or not they have any have funds, given the Receiver's appointmentdoes not include the Portfolio Corporations at this time.

(iii) Assets at the Date of the Receivership

42. The Companies did not have any audited financial statements for 2011 or 2012.As such, the Receiver has had to rely solely upon internally prepared financial

statements, the reliability of which is questionable. Based on these statements, whichwere run as at June 18, 2012, the following is a summary of the Kaptor Group's assets asat the date of the Receivership:

KAPTOR

(i) Advances Owing

0 As at June 18, 2012, there appears to be amounts owed to Kaptor by the followingparties:

Amount Owed toKaptor7

1312126 Ontario Inc. ("131") $ 4,900,000Food Nutrition Inc. ("FM") $ 4,100,000CarCap Portfolio 12 Corp $ 1,114,000CarCap Portfolio 14 Corp $ 1,007,000CarCap Portfolio 16 Corp $ 964,000Jetco Manufacturing ("Jetco") $ 600,0002102510 Ontario Corp ("210)" $ 381,000CarCap Portfolio 6 Corp $ 154,000CarCap Portfolio 8 Corp $ 75,000CarCap Portfolio 2 Corp $ 29,000Total $13,324,000

0 Collection notices have been sent to the above. The "CarCap" entities listedabove form part of the Portfolio Corporations and are discussed at the end of thissection. A discussion of each of the above amounts is provided below:

7 Rounded to the nearest $1,000.

- 18 -

Amount owing from 131- $4, 9 million

o The Receiver has not been able to locate any source documentsregarding the amount owed by 131 and the reason for this outstandingamount. However, based on a corporate search performed by theReceiver (attached as Appendix "H"), Erik is listed as a director ofthis company. No response has been received from 131 as at the dateof the writing of this Report.

Amount owing from FN1- $4.1 million

o The Receiver has not been able to locate any source documentsregarding the amount owed by FNI and the reason for this outstandingamount. However, based on a corporate search performed by theReceiver (attached as Appendix "I"), Erik, Alan Birnbaum, and Dr.Jack Barkin are listed as directors of FNI. Dr. Barkin and AlanBirnbaum are also an Investor and director of Kaptor. No response hasbeen received from FNI as at the date of the writing of this report.

Amount owing from Jetco- $600,000

o Jetco is owned by Mr. Keith Alexander, who is one of the Applicantsand an Investor. Legal counsel for Jetco, has advised that the advancewas meant to act as a set off for another investment Mr. Alexander hadwith Kaptor. The Receiver has been provided with evidence whichconfirms same.

Amount owing from 210- $381,000.

o The Receiver has not been able to locate any source documentsregarding the amount owed by 210 and the reason for this outstandingamount. Based on a corporate search performed by the Receiver(attached as Appendix "J"), Shalom Rornin is listed as a director ofthe company. Mr. Romm, who is deceased, was a director of Kaptor,and was employed as the chief business development officer.

Amount owing from Portfolio Corporations- $3.34 million

o The Receiver has not been able to locate any source documentsregarding the amounts owed by the Portfolio Corporations and thereason for these outstanding amounts. Collection notices have beensent to the director, Erik. No response has been received as at the dateof writing this report.

In addition to the amounts discussed above, the statement also indicated anamount owing from CarCap Inc. in the amount of approximately $el

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202

(i) Advances Owing

fa As at June 18, 2012, there appear to be amounts owed to 202 by the following:

Amount Owed to 202

Erik Inspektor $ 1,290,000

Lynette Inspektor $ 553,000CarCap Portfolio 10 Corp $ 732,000CarCap Portfolio 7 Corp $ 248,000CarCap Portfolio 11 Corp $ 227,000CarCap Rolling Fund 1 Corp $ 220,000CarCap Portfolio 17 Corp $ 108,000CarCap Portfolio 8 Corp $ 46,000CarCap Portfolio 2 Corp $ 26,000CarCap Portfolio 18 Corp $ 25,000CarCap Portfolio 5 Corp $ 15,000Total $ 3,490,000

Collection notices have been sent to the above. The "CarCap" entities listed aboveform part of the Portfolio Corporations and are discussed at the end of thissection. A discussion of each of the above amounts is provided below:

Amount owingfrom Erik Inspektor - $1.29 million

o The Receiver has not been able to locate any source documentsregarding the amounts owed by Erik and the reason for the outstandingamount. A collection notice has been sent to Erik, No response hasbeen received as of the date of this report.

Amount owing from Lynette Inspektor- $553, 000

o The Receiver has not been able to locate any source documentsregarding the amounts owed by Lynette Inspektor ("Lynette") and thereason for the outstanding amount. A collection notice has been sentto Lynette. No response has been received as of the date of this report.

Amount owing from Portfolio Corporations- $1.64 million

8 Rounded to the nearest $1,000.

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o The Receiver has not been able to locate any source documentsregarding the amounts owed by the Portfolio Corporations and thereason for these outstanding amounts. Collection notices have beensent to the director, Erik. No response has been received as at the dateof writing this report.

• In addition to the amounts discussed above, the statement also indicated anamount owing from the CarCap Inc. in the amount of approximately $2.3million.

INSIGNIA

(i) Trade Accounts Receivable

• The Receiver was advised that as of December 21, 2011, all of Insignia'sreceivables had been factored to Bibby International Trade Finance ("Bibby").TheReceiver confirmed same with Bibby and requested a statement of account.Bibby provided a statement of account which indicated that as at the AppointmentDate, Insignia was owed approximately $215,000 from a combination of amountsalready collected by Bibby but not yet remitted and outstanding amounts owed byInsignia's customers (net of Bibby's fees);

a Since the date of the receivership, Bibby has remitted $215,121 to the Receiverand closed the accounts.

• It should be noted that internal financial statements dated September 30, 2011balance sheet indicated Insignia had uncollected accounts receivable ofapproximately $1,100,000, which is significantly higher than the balance as at thedate of the Receivership.

• A review of the banking statements from October 2011 to June 18, 2012 indicatesthat the majority of Insignia's collections during this period appear to have beenused to fund Insignia's operations, and to repay alleged advances made by Erikduring the same period.

(ii) Inventory

Within a short time following the Appointment Date, the Receiver recoveredapproximately 55 pallets of Disney branded inventory and 16 pallets ofNickelodeon branded inventory. The inventory was recovered at the Head Officeand at a storage facility maintained by Insignia9. Based on an inventory list dated

9 The storage facility was at 50 East Beaver Creek Drive, Richmond Hill, Ontario.

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May 9, 2012 obtained by the Receiver, there appeared to be unaccounted forinventory upon attendance;

With respect to the Disney Inventory, as noted previously, Insignia's licensingagreement with Disney expired on June 30, 2012. The Receiver was able tonegotiate a three month sell-off period agreement with Disney in order to realizeupon the Disney Inventory. The Receiver subsequently sold the realizablerecovered inventory following the obtaining of fair market appraisals.

• With respect to the Nickelodeon Inventory, the Receiver was advised by legalcounsel for Viacom, that it would not consent to any sale and Viacom requiredthat the inventory be destroyed. The Receiver has disposed of the inventory;

® It should be noted that a review of internal financial statements dated September30, 2011, stated that Insignia had approximately $3.5 million in inventory (atcost).

Although there is significant information missing which may impact theReceiver's findings, there is a significant discrepancy between the inventoryrecorded on Insignia's financial statements dated September 30, 2011 and theinventory located by the Receiver to date. The Receiver is continuing toinvestigate an accounting concerning inventory.

OTHER FINDINGS

43. The Receiver has identified other transactions/activity which were not readily apparent

from a review of the financial statements or bank statements. These are discussed below.

(i) Real Estate Investment

44. The Receiver determined that 202 had made a $100,000 investment in a retail building

located in Windsor, Ontario. The Receiver issued a notice to the registered owner of the

building requesting information on the investment and was advised that 202 owned two

separate limited partnership units (the "Units") at a cost of $50,000 each.

45. Upon review of the Partnership Agreement, the general partner has the power and

authority to sell, and must grant consent to any transfer or sale. The general partner has

advised that units have been sold only to other current investors in the past, and

traditionally have sold for approximately 50 per cent of the cost. The Receiver is looking

into options to realize upon the Units.

- 29 -

(ii) Other Entities which Erik Inspektor May Be Involved In

46. The Receiver has been advised by certain Investors that subsequent to the Appointment

Date, Erik has been operating a different investment company, Cor Financial, and is

actively soliciting new investors. The Receiver has been advised of the same from the

OSC, which has requested certain documents from the Receiver for its own investigation

into the affairs of the Companies. The Receiver advised that it is not in possession of any

documents relating to Cor Financial. It is also apparent that some former employees of

the Kaptor Group may be working with Erik at Car Financial.

(iii)Additional Inventory

47. Subsequent to the Appointment Date, the Receiver discovered approximately 150 pallets

of prior undisclosed inventory of Insignia. This occurred at an unknown warehouse not

prior disclosed to the Receiver. The Receiver has realized upon this additional inventory.

(iv) Investors

48. The Receiver has completed an initial review of the amounts owing to the Investors,

based on the documents it secured from the Head Office. The investment dates range

from 2003 to 2011. The books and records relating to the Investments appear intact,

showing the original executed investment documents, proof of investor funds forwarded,

and details of the monthly interest payments advanced. The majority of the monthly

interest payments to Investors ended in September 2011, due to the events outlined in the

Initial Application materials.

49. The Receiver has reviewed the records for the Investments, which indicate that Kaptor

and 202 owe the Investors approximately $25 million. It should be noted that the records

do not take into account any unpaid interest payments owing as at the date of the

receivership. Attached as Appendix "K" is a redacted summary of all the known

amounts owed to the investors of Kaptor. Attached as Appendix "L" is a redacted

summary of all the known amounts owed to the investors of 202.

50. In addition to Investments made with the Companies, beginning in 2009, it appears that

certain Investors also invested in the Portfolio Corporations. The Receiver is seeking

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further information and detail concerning the Investments made through the Portfolio

Corporations.

51. As previously noted, the Applicants have advised that approximately $48 million is

owing to the Investors. It is unclear if this amount is inclusive of amounts owed by the

Portfolio Corporations to the Kaptor Group, and also if the amount may be reduced to

account for those convertible debentures which have been converted to equity by certain

Investors.

52. Erik has advised the Receiver that he and Lynette also invested in the Companies. The

Receiver continues to investigate and review available information concerning this

assertion.

53. In due course, and subject to recoveries in the receivership, the Receiver may conduct a

claims process concerning the claims of the Companies' creditors and the Investors.

STATEMENT OF CLAIM FILED BY CERTAIN INVESTORS AND INVESTIGATIONBY OSC

54. Certain investors through counsel approached the Receiver and requested that the

Receiver commence an action on behalf of the Companies against Erik, the Inspektor

Family, and directors of the Companies in respect of substantial funds lost and

unaccounted for. The Receiver declined to commence such an action, and was served

with an ex parte motion by these investors seeking a Court Order permitting the

commencement of a derivative action. These investors obtained leave to commence a

derivative action by Order of Justice Campbell dated September 7, 2012. Attached as

Appendix "M" is the September 7, 2012 Order.

55. On September 11, 2012 the Receiver was served with a statement of claim filed by the

Companies through these investors ("the Derivative Claimants") against the Companies

accountants, certain directors and certain employees ("the Derivative Claim"). A copy of

the claim is attached as Appendix "N".

56. The Receiver was also contacted by a representative of the OSC in connection with an

investigation the OSC has commenced with respect to investments made with the

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Companies.

OTHER ACTIVITIES OF THE RECEIVER

57. The Receiver has reviewed the potential priority claims pursuant to section 81.4 of the

BIA which are estimated to range between $5,000 to $10,000, primarily with respect to

outstanding wages. In addition, the Receiver has made the necessary filings for all

employee claims under the Wage Earner Protection Program. The website of Service

Canada was experiencing technical difficulties to accommodate the mandatory online

filing of the Trustee Information Form, which delayed the immediate filings of the

applications. The technical error was corrected and employee claims were filed on July

16th, 2012.

58. The Receiver placed a request for Record of Employment forms from Service Canada, as

there were no copies at the former Head Office. They were received on July 16th, 2012

and sent to all employees.

59. The Receiver issued Section 245(1) notices for the Companies to all known creditors.

The Receiver was advised by Eric that the creditor list for 202 contained errors with

respect to the amounts owed to certain creditors. The Receiver relied on assistance from

an employee in compiling the list. The Receiver has further reviewed indebtedness owed

to creditors and will be posting an amended creditor list for 202.

60. The Receiver made arrangements with members of the Inspektor Family to retrieve

personal belongings.

61. In addition to the activities detailed above, the Receiver's activities have included:

• Hiring a Bailiff to conduct an inventory listing and appraisal of the Companies'

fixed assets and inventory;

® Coordinating a Canada Revenue Agency trust exam and issuance of T4's; and

• Extending directors' and officers' insurance maintained by Kaptor;

- 25 -

CONCLUSION AND RECOMMENDATIONS

62. The Receiver's investigation is proceeding, As evidenced in this Report, there remain

questions and areas identified for further investigation. The Receiver requires expanded

powers in order to further investigate the Companies' affairs and to review and determine

if any additional assets may be realized upon to effect recovery for the Companies'

creditors. The Receiver further requires the examination of key individuals together with

further co-operation and access in respect of the books and records of the Companies and

related entities.

63. Based on the foregoing, the Receiver respectfully requests an Order of this Honourable

Court:

i) Requiring the Companies' Management, employees, and members of theInspektor Family as defined herein, to attend on examination under oath

conducted by the Receiver or other authorized person, to answer questionsconcerning the Companies' affairs and to produce and deliver to theReceiver any books, documents, correspondence, or papers in theirpossession or power which relate in any way to the affairs or property ofthe Companies;

Requiring Erik and any other person having knowledge or possession to

provide the Receiver with co-operation and access to all the books and

records including bank statements, of 1312126 Ontario Ltd., Food

Nutrition Inc., and the Portfolio Corporations10which appear to be entities

controlled/owned by Erik and had significant dealings with the Companies

including inter-company transfers of funds as detailed herein;

iii) Authorizing the Receiver to assign any or all of the Companies into

bankruptcy in the Receiver's discretion;

iv) Approving the activities of the Receiver to date as described in this report;

I° As defined in paragraph 39.

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v) Approving the interim Statement of Receipts and Disbursements of the

Receiver, as well as the fees of the Receiver and its counsel; and

vi) Such other relief as may be requested.

All of which is respectfully submitted this 27th day of November, 2012.

CROWE SOBERMAN INC.,

Court Appointed Receiver of

2025610 Ontari aptor

Finan ne., and signia

Trading I


KEITH ALEXANDER, ARTHUR BARKIN et al - and - 2025610 ONTARIO LIMITED et al

-Applicants- - Respondents-


(Commercial List)

(PROCEEDING COMMENCED AT TORONTO)

FIRST REPORT OF THE RECEIVER DATEDNOVEMBER 27, 2012

GOWLING LAFLEUR HENDERSON LLPBarristers and Solicitors1 First Canadian Place

100 King Street West, Suite 1600Toronto ON MSX 1G5

Calvin J. Ho (LSUC No. 4087513)Tel: (416) 862-5788Fax: (416) 862-7661

Solicitors for Crowe Soberman, Receiver

Appendix C



COMMERCIAL LIST

BETWEEN:




- and -


Applicants

Respondents

APPLICATION UNDER 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. 1990, c. C-43, as amended.

SECOND REPORT OF THE RECEIVERDATED OCTOBER 21, 2013


Telephone: 416.929.2500Fax: 416.929.2555

TABLE OF CONTENTS

Introduction ...2

Purposes of this Report 2

Restrictions .3

Background .3

Receiver's Activities Since the First Report ...5

Key Findings ...7

Derivative Action and Court Approved Document Production Protocol 16

Realization on Previously Reported Assets 18

Other Assets 20

The Receiver's Dealings with Inspektor .21

Conclusion .23

APPENDICES

A. Receivership Order — June 18, 2012

B. Receiver's First Report — November 30, 2012 (without appendices)

C. Order of Justice Patillo — December 14, 2012

D. Order of Justice Morawetz — January 4, 2013

E. List of Transactions pertaining to Eric Inspektor — Period of January 1, 2011 to June18, 2012

F. List of Transactions pertaining to Inspektor Family Members — Period of January 1,2011 to June 18, 2012

G. List of Transactions pertaining to Eric Inspektor — Period January 1, 2003 toDecember 31, 2010

H. List of Transactions pertaining to Inspektor Family Members — Period of January 1,2003 to December 31, 2010

I. Inspektor Response Email — April 15, 2013

J. Tracey Bean Affidavit — sworn Dec 8, 2011 (without appendices)

K. Kaptor Financial Inc. and 2025610 Ontario Limited — summary of intercompanytransactions from October 2010 to February 2011

L. Various Emails from Laurentian Bank Management to Inspektor - January 26 &February 17, 2010

M. Email Laurentian Senior Vice President - July 2, 2010

N. Inspektor Memo to Laurentian Management- January 27, 2010

0. Inspektor Email to 'ID Bank Management- August 18, 2011

P. August 10, 2011 intercompany transfers

Q. Email from Rick Arnone to Inspektor - April 7, 2011

R. Email from Inspektor to Robin Levon- January 4, 2011

S. Co-Tenancy Agreement - August 24, 2011

T. Derivative Claim Statement of Claim September 11, 2012

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U. Statement of Defence and Counterclaim filed by Inspektor - November 30, 2012 &Statement of Defence and Counterclaim filed by Lynette, Darren, and. Russel-November 1, 2012

V. Document Production Protocol and Order of Justice Wilton Siegel — July 31, 2013

W. Collateral mortgage on 50 Cathedral Pines, Barrie Ontario —November 29, 2005

X. Koldeway Seafoods Limited statement of affairs- September 29, 2007

Y. Inspektor Memo on Alleged Inaccuracies in First Report- February 14, 2013

Z. Receiver Response to Inspektor Memo- February 14, 2013

AA. Inspektor email to Gowlings - February 14, 2013

BB. Inspektor memo to Investors — March 14, 2013

CC, Inspektor Letter to Gowlings- August 23, 2013

DD. Gowlings Response to Inspektor- August 24, 2013

EE. Correspondence from Mr. Solmon of Solmon Rothbart Goodman LLP- August 26,2013

FF. Endorsement of Justice Brown — October 2, 2013

GG. Interim Statement of Receipts of Disbursements



COMMERCIAL LIST

BETWEEN:




— and —


Respondents

Applicants



SECOND REPORT OF THE RECEIVERDATED OCTOBER 21, 2013

- 2 -

INTRODUCTION

1. This report is filed by Crowe Soberman Inc.I ("Crowe Soberman") in its capacity as

Court Appointed Receiver ("Receiver") of Kaptor Financial Inc. ("Kaptor"), Insignia

Trading Inc. ("Insignia") and 2025610 Ontario Ltd. ("202"), (collectively referred to as

the "Companies" or "Kaptor Group") pursuant to an order (the "Receivership Order") of

the Ontario Superior Court of Justice made on June 18, 2012 (the "Appointment Date").

A copy of the Receivership Order is attached hereto as Appendix "A".

2. On November 30, 2012 the Receiver filed with the Court the Receiver's First Report

(the "First Report"). A copy of the First Report, without appendices, is attached hereto

as Appendix "B".


3. The purposes of this report (the "Second Report") is to:

a) Provide an update on the Receiver's activities since the First Report, includingan update on the Receiver's investigation concerning the affairs of the KaptorGroup;

b) Provide an update on the protocol with respect to the production of documents inthe possession of the Receiver (the "Document Production Protocol") which wasagreed upon by the various parties to a derivative action (the "DerivativeAction") commenced by certain shareholders of the Companies;

c) Provide an update on the status of the realization of the Kaptor Group's knownassets;

d) Provide an update on the Receiver's dealings with Eric Inspektor ("Inspektor")and

e) Recommend that this Honourable Court issue an Order:

i. Approving the activities of the Receiver to date as described in thisSecond Report;

ii. Approving the activities of the Receiver as described in its First Report;

On September 5, 2012, as a result of an affiliation with an international professional services group, Soberman

Inc. changed its name to Crowe Soberman Inc.

-3-

iii. Approving the interim Statement of Receipts and Disbursements of theReceiver; and

iv. Such other relief as may be requested.

RESTRICTIONS

4. In preparing this report, the Receiver has relied upon certain unaudited financial

information and books and records of the Companies, as well as certain information

provided by staff and management of the Companies and various financial institutions

and other parties. The Receiver has not performed an audit or other verification of the

documents and the information it has received.

5. As discussed in the First Report, certain records of the Companies were not accessible to

the Receiver. As a result, the Receiver has been required to conduct part of its

investigation by reviewing records obtained from third parties and/or other information

in an attempt to understand the Companies' dealings. Accordingly, the subject matter of

this Report may be subject to change based upon new findings which may or may not be

material.

BACKGROUND

Business Operations

6. As noted in the First Report, Kaptor was a corporate finance company, which in or about

2003, commenced borrowing funds primarily from a number of private individuals (the

"Investors"). These were structured as short and long term debentures, convertible term

debentures, co-tenancy agreements, share purchases, and promissory notes made to

Kaptor, 202 and to a lesser extent Insignia (the "Investments"). Kaptor and 202 were

controlled and managed by Inspektor. The Receiver understands that Insignia was

managed by Inspektor's two sons, Russel Inspektor ("Russel") and Darren Inspektor

("Darren") with supervision and oversight from Inspektor.

- 4 -

CarCap Companies Receivership

7. The Applicants have advised that as at April 2, 2012, the Investors are owed in excess of

$48 million. The Investors believed that through the Kaptor Group, Inspektor was

investing in various business activities which would generate substantial rates of return

and would yield the Investors high rates of returns on their investments - many from

between 15% to 36%, annually.

8. The most substantial active business that lnspektor and/or the Kaptor Group appear to

have been involved in was CarCap Inc. and Car Equity Loans Corp. (operating as

Cashland Financial) (collectively referred to as the "CarCap Companies"). The CarCap

Companies' business consisted of providing sub-prime car lease financing and sub-

prime equity loans. The CarCap Companies, either directly or indirectly, were owned by

Kaptor.

9. In addition to the substantial loans to the Kaptor Group from the Investors, the CarCap

Companies were also funded by other secured lenders, Callidus Capital Corporation

("Callidus") and The Toronto-Dominion Bank ("TD Bank"). Due to financial and other

irregularities which occurred in August 2011, which were extensively detailed in the

initial application materials, the CarCap Companies were placed into receivership on

December 14, 2011 and their assets were subsequently sold by Order of this Court dated

March 13, 2012. The proceeds from the sale of the CarCap Companies' assets were

applied to repay Callidus, in full, and TD Bank, in part. As a result, there were no

monies left to repay the Kaptor Group nor, as a result, the Investors.

10. There have been no substantial assets identified to date which may be realized upon to

satisfy the Kaptor Group creditors, primarily being the Investors. As such, the Receiver

has been focused on reviewing the Companies' affairs based on available books mid

records.

11. Further background information concerning the Kaptor Group is available in the First

Report.

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RECEIVER'S ACTIVITIES SINCE THE DATE OF THE FIRST REPORT

Update on Books and Records Recovery

12. As described in the Receiver's First Report, upon an initial review of the books and

records recovered by the Receiver at the time of the commencement of the receivership,

including electronic documents, it appeared that certain items had either been purged or

were missing. The Receiver also previously reported that based on its initial review of

the hard drives which the Receiver was able to take possession of, it appeared that the

email accounts for Inspektor and the Kaptor Group's Chief Operating Officer, Rick

Arnone, may have been deleted in their entirety.

13. The Receiver engaged its forensic technology department, which specializes in data

retrieval, to analyze the recovered hard drives of certain employees. The forensic

technology department has extensive experience in digital forensics, data mining, and

eDiscovery with respect to electronically stored information2. In addition, the

department has provided expert testimony in court cases in the United States.

14. With the assistance of the forensic technology department, the Receiver has gained

access to over 145,000 emails and over 31,000 electronic documents, including

approximately 19,000 emails of Inspektor. The Receiver was also advised that there

were emails deleted from computers, including for example, approximately 6,600 emails

deleted on June 7, 20123 from the email account of Ms. Robin Levon, who was the head

of investor relations, and who also appeared to work very closely with Inspektor. In

addition, the forensic technology department was only able to retrieve approximately

400 emails for Mr. Amone, the Chief Operating Officer, and has advised that while it

does not appear that Mr. Arnone's emails were deleted from his computer, it is possible

that Mr. Arnone's emails may have been run/stored on some other external device. The

2 The analysis was conducted by Crowe Horwath LLP, whose office is located in Sacremento, California.

3 June 7, 2012 was prior to the Appointment Date, but closely followed the date on which an application was made

to appoint a Receiver over the Companies (May 28, 2012).

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Receiver has been unable to locate amongst the assets which the Receiver took

possession of any other possible hard drive which might contain Mr. Arnone's emails.

15. The Receiver also noted in the First Report that certain bank statements of the Kaptor

Group were not included amongst the books and records which the Receiver took

possession of. Accordingly, the Receiver contacted various banking institutions,

including TD Bank, for additional bank statements, which the Receiver has now

received and reviewed. The result of the Receiver's review of the various books and

records is subsequently discussed in this Second Report.

16. As discussed in the First Report, the Receiver noted that it did not have certain books

and records, including bank statements, for entities that appeared to be related to the

Kaptor Group, which were controlled/owned by Inspektor and had significant dealings

with the Kaptor Group, being 1312126 Ontario Ltd. ("131"), 2102510 Ontario Inc.

("210"), Food Nutrition Inc. ("FNI"), as well as the Car Cap Portfolio Corporations

numbered 1-12 and 14-18, Kap Car Capital Corporation, and Kaptor Investment Fund

Number Two Corp. (collectively, the "Portfolio Corporations"). 131, 210, FNI and the

Portfolio Corporations collectively appear to owe approximately $14.3 million to the

Kaptor Group.

17. On December 14, 2012, the Honourable Justice Patillo issued an Order on consent (the

"December Order"), a copy of which is attached as Appendix "C". The December

Order required that Inspektor produce to the Receiver all books and records, including

bank statements, for 131, FNI, and the Portfolio Corporations, which were in his

possession or control, by no later than December 31, 2012. The December Order also

gave the Receiver the ability to contact any persons in order to provide access to the

books and records for 131, FM, and the Portfolio Corporations. Inspektor advised the

Receiver that he was not in possession of any of the books and records for 131, FNI and

the Portfolio Companies, and therefore did not provide any documents by December 31,

2012. On January 4th, 2013, the Honourable Justice Morawetz issued an Order (the

"January Order"), on consent, a copy of which is attached as Appendix "D". The

January Order required, inter alia, that Inspektor (a) provide consents in order for the

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Receiver to obtain the bank records and statements for 131, FNI, and the Portfolio

Corporations (b) provide his consent, should it be required, for the Receiver to obtain the

bank records and statements for the Car Cap Inc. - AJM Leasing account; and (c) meet

with the Receiver to in order to provide access to the QuickBooks accounting records for

131, FNI, and the Portfolio Corporations.

18. Since the date of the January Order, Inspektor has provided the necessary consents to

enable the Receiver to obtain the records for the 131, FNI and the Portfolio Companies,

and has also provided the login information for the electronic accounting records

(QuickBooks). The Receiver sent the consent to all known financial institutions where

the Kaptor Group has held accounts, including; Laurentian Bank of Canada

("Laurentian"), Royal Bank of Canada ("RBC"), Meridian Credit Union ("Meridian"),

Bank of Montreal ("BMO"), and TD Bank. The Receiver received a response from all

institutions, which advised on the status of existing accounts. The Receiver attended at

the office of legal counsel for 1D Bank and obtained the records for the accounts held at

TD Bank belonging to 131, the Portfolio Corporations, and Car Cap Inc. - AJM Leasing.

19. As a result of the above, the Receiver has taken possession of a considerable amount of

records to review.

KEY FINDINGS

20. In the First Report the Receiver reported on certain of its preliminary findings. These

have been updated as a result of further review and new information and are discussed in

detail below. A summary of these findings are as follows:

• The Receiver previously reported on deposits and withdrawals between theKaptor Group's accounts and the personal bank accounts belonging to Inspektorand members of Inspektor's family being Lynette Inspektor ("Lynette"), Russel,and Darren (collectively referred to as the "Inspektor Family Members"), for theperiod January 1, 2011 to June 18, 2012;

• The Receiver has updated its review of withdrawals and deposits based on thereview of additional bank statements and has also extended its review for theKaptor Group to include the period of January 1, 2003 to December 31, 2010based on available accounting records, primarily being bank account registerreports generated from QuickBooks;

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Based on the above, in total, Inspektor and the Inspektor Family Members appearto have net withdrawals (withdrawals in excess of deposits) of over $6.8 millionfor the period January 1, 2003 to June 18, 2012 (Paragraphs 21-22).;

® The majority of the banking transactions for the Kaptor Group appear to beintercompany and circular in nature and the Receiver is unable to identifybusiness purposes for those transactions. Furthermore, at different times,notwithstanding the bank accounts at both the Laurentian and TD Bank werenon-borrowing, the bank balances were in a significant overdraft position; thisappears to have led in part to both Laurentian and TD Bank terminating theirrespective relationships with the Kaptor Group (Paragraphs 25-29);

• It appears that at certain times the funds received from Investments would beused to reduce overdraft positions with the Kaptor Group's banks (Paragraphs30-34); and

▪ Based on the Receiver's analysis of the Investor accounts, it appears thatapproximately $30.2 million, excluding accrued interest since September 2011,is owed to the Investors of the Kaptor Group; $21 million is owed by Kaptor,$8.5 million is owed by 202 and $675,000 is owed by Insignia, In addition,certain Investors invested in the Portfolio Corporations. The PortfolioCorporations appear to owe Investors another $8.4 million. As such, in total,Investors appear to be owed approximately $38.6 million by the Kaptor Groupand the Portfolio Corporations (Paragraphs 35-37),

The sections below contain a detailed discussion of each finding.

Review of Transactions by Inspektor and Inspektor Family Members

As noted in the First Report, there were numerous withdrawals and deposits made

between the personal accounts of Inspektor and the Inspektor Family Members and the

bank accounts of the Kaptor Group. For the purposes of this analysis, the Receiver has

attempted to exclude any payments made to Inspektor and/or the Inspektor Family

Members on account of salary and wages and other employment type expenses.. A

summary of the Receiver's findings are as follows:

• In total, for the period January 1, 2003 to June 18, 2012, it appears thatInspektor and the Inspektor Family Members had combined netwithdrawals (withdrawals in excess of deposits) of approximately $6.8million as follows:

• For the period January 1, 2011 to June 18, 2012, Inspektor had netwithdrawals (withdrawals in excess of deposits) totaling approximately

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$2.0 million, from the Kaptor Group.4 Attached as Appendix "E" is a listof these transactions;

• For the period January 1, 2011 to June 18, 2012, the Inspektor FamilyMembers made net deposits (deposits in excess of withdrawals) totalingapproximately $439,000, to the Kaptor Group.5 Attached as Appendix"F" is a list of these transactions;

• For the review period January 1, 2003 to December 31, 2010, thatInspektor had net withdrawals (withdrawals in excess of deposits)totaling approximately $3.5 million, from the Kaptor Group.6 Attachedas Appendix "G" is a list of these transactions;

• For the review period January 1, 2003 to December 31, 2010, theInspektor Family Members had net withdrawals (withdrawals in excessof deposits) totaling approximately $1.75 million, from the KaptorGroup.' Attached as Appendix "H" is a list of these transactions; and

• As shown in the Appendices above, there are hundreds of deposits andwithdrawals involving primarily Inspektor and Lynette. In addition, theReceiver notes that the majority of deposits and withdrawals made by/toInspektor and Lynette have little to no backup documentation.

22. It should be noted that the analysis above only captures transactions executed between

the Companies and by Inspektor or the Inspektor Family Members in their personal

capacity. It does not include any transactions that may have occurred between the

Companies and corporate entities owned/controlled by Inspektor and/or the Inspektor

Family Members (if any).

Review of Transactions by Related Entities

23. In the First Report the Receiver also reported on amounts potentially owing to the

Companies from related companies controlled by Inspektor, being 131, FNI, 210, and

4 This analysis is based upon a review of bank statements for the Companies accounts at Laurentian, TD Bank,

RBC, and Meridian, as well as the QuickBook accounting records.

5 ibid

6 This analysis is based upon a review of the QuickBooks accounting records for the Laurentian bank accounts,

which appear to be the only active accounts for the review period of January 1, 2003 to December 31, 2010.

7 ibid

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the Portfolio Corporations. These amounts total approximately $14.3 million. The

Receiver sent collection notices on two separate occasions to Inspektor. After repeated

requests by the Receiver, on April 15, 2013, the Receiver received a response from

Inspektor that he did not agree with the amounts reflected. No further explanation was

provided. A copy of the response from Inspektor is attached as Appendix "I".

24. The Receiver received one response to the original October 12, 2012 collection notices

from Jetco Manufacturing. Legal counsel for Jetco Manufacturing advised the Receiver

that the advance was meant to act as a set-off for another investment with Kaptor. The

Receiver was provided evidence which confirms same.

Unusual Intercompany Banking Activity involving Two Banks

25. The Kaptor Group commenced banking with TD Bank in approximately January 2011.

The bank accounts were designated as non-borrowing accounts. As described more fully

in the affidavit of Tracey Bean, sworn December 8, 2011 (the "Bean Affidavit") in

support of the appointment of a Receiver over Carcap Companies, TD Bank's internal

electronic monitoring system flagged a high rate of unusual activity within the accounts

of the Kaptor Group on August 18, 2011. A copy of the Tracey Bean affidavit (without

appendices) is attached as Appendix "J".

26. As stated in the Bean Affidavit:

• Paragraph 7 — "The number of monetary transfers by way of cheques written orwire transfers by various corporations within the Kaptor Group to othercorporations within the Kaptor Group, and otherwise, was far greater than usual,or than would be expected for this type of business."

• Paragraph 8 — "As a result of this high rate of unusual activity, the accounts ofthe Kaptor Group were immediately frozen and TD stopped clearing cheques

that had been issued by Kaptor Group. When this largely circular flow of money

was stopped, the net overdraft position among the collective account in the

Kaptor Group amounted to approximately $7 million as at August 18, 2011."

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27. The Receiver notes that prior to the Kaptor Group opening bank accounts with TD Bank

in January 2011, it held the majority of its accounts with Laurentian8. These also appear

to be non-borrowing operating accounts. The Receiver reviewed the banking

transactions of the Kaptor Group for the period of October 1, 2010 to February 28, 2011

("the Laurentian Review Period"). For the Laurentian Review Period, the Receiver

discovered a similar pattern of numerous large intercompany transfers which also

resulted in significant overdraft positions at Laurentian. A summary of the key findings

for the Laurentian Review Period are as follows:

• On a daily basis there was an extremely large frequency of transactions involvinglarge dollar amounts amongst entities in the Kaptor Group including otherrelated entities such as the Car Cap Companies and the Portfolio Corporations;

a The intercompany deposits and withdrawals were primarily involving 202,Kaptor, and Car Cap Inc., and to a lesser extent Insignia;

• The unusual intercompany activity in the Kaptor and 202 Laurentian accountsappear to peak in January 2011, as shown in the attached Appendix "K". Of thetotal transactions, only a very small percentage of the transactions appear toinvolve arm's length parties;

• Whereas Kaptor reported total revenue of approximately $3.7 million for yearend 2010, it had over $20 million in intercompany transfers in its Canadiandollar account each month during the Laurentian Review Period. In January2011, the dollar value of the monthly intercompany transfers peaks to over $55million;

• Whereas 202 reported total revenue of approximately $2.2 million for year end2010, it had over $20 million in intercompany transfers in its Canadian dollaraccount in December 2010 and over $65 million in intercompany transfers inJanuary 2011; and

a Laurentian closed the Kaptor Group's bank accounts and ended the relationshipin February 20119; one of the reasons cited for termination was the repeated flags

8 202 also had bank accounts with the Royal Bank from the period of February 17, 2011 to June 2011, and then

opened accounts with TD Bank in July 2011. However these bank accounts do not appear to have the same level of

daily activity as the Laurentian accounts for 202.

9 it is the Receiver's understanding that notwithstanding the bank accounts for the Kaptor Group being closed, Car

Cap Inc. remained indebted to Laurentian in the amount of approximately $3.9 million as at June, 13, 2011. The

Laurentian indebtedness appears to have been satisfied in September 2011.

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being raised in Laurentian's internal security system concerning the significantintercompany transfers which appeared to be circular in nature.

28. Upon its review of various emails, the Receiver discovered communications dating back

to January 2010 from Laurentian to Inspektor expressing its concern about unusual

account activity. Attached as Appendix "L" are various emails from Laurentian which

a) question why cheques were being issued from one entity within the Kaptor Group° to

cover an overdraft in another entity when there are insufficient funds in the account of

the entity that issued the cheque in the first place and b) request substantiation of

sufficient funds to cover transactions. Finally, attached as Appendix "M" is an email

from a senior vice-president at Laurentian dated July 2, 2010, advising Inspektor of

Laurentian's decision to end the banking relationship. It appears that it took until

approximately February 2011 for Kaptor and 202 to close out their Laurentian bank

accounts.

Explanations Provided by Inspektor and Receiver's Findings

29. When the Companies faced inquiries from Laurentian and TD Bank regarding the

Kaptor Group's accounting or overdraft issues, the Companies through Inspektor appear

to have offered certain explanations. Appendix "N" contains a memo dated January 27,

2010 provided by Inspektor to Laurentian in response to questions raised. Appendix

"0" is an email from Inspektor to the TD Bank dated August 18, 2011 addressing the

reasons behind the large overdraft arising the day before. In an Amended Statement of

Claim in an action bearing Court File No. CV-11-441614 brought by Inspektor and

others against TD Bank, reference is made to an administrative error resulting in a large

overdraft incurred with TD Bank.

30. A summary of the Receiver's finding are as follows:

The Receiver discovered a large electronic spreadsheet that appears to list thedaily movement of funds between entities in the Kaptor Group including relatedentities such as the Car Cap Companies and the Portfolio Corporations for the

1° The account manager included the Car Cap Companies in the "Kaptor Group".

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period December 7, 2009 to August 17, 2011. The spreadsheet documents theamount being transferred, the sender and recipient.

For the above 21 month period, the spreadsheet indicates that, in total, there areover 4,000 intercompany transfers and the dollar value of the transactions totalsin excess of $850 million". The daily transfers appear to increase significantly involume and dollar amount beginning in early 2011, In addition, based on thespreadsheet, intercompany transfers begin occurring twice daily. It is unclear asto why the intercompany transfers increase during this period, or why theystarted occurring twice a day.

The Receiver also identified a spreadsheet titled "Daily Banking", which was apassword protected document. Although the document appeared to beincomplete, the Receiver identified a worksheet where intercompany transferswere calculated using a formula. These same numbers correspond with theintercompany transfers that occurred on August 10, 2011. These dollar amountsappear to have been calculated by taking an opening value12 of an entity (forexample 202) and then depositing four amounts into that entity's bank accountfrom other related entities (for example from Kaptor and Car Cap Inc.) ;

• Such deposits were calculated as 24%, 25%, 26%, and 27% of the opening value(or, in total, 102% of the opening value), respectively. Attached as Appendix"P", are the August 10, 2011 intercompany transactions and the correspondingscreen captures showing the formula used to calculate the amount. The finding ofthis spreadsheet, inter alia, raises questions as to whether there was any businesspurpose for the large movement of funds between intercompany accounts;

• The level of debt carried by the Kaptor Group and the resulting debt servicepayments13 appear to be disproportionate to the size of the Kaptor Group'soperations which again brings into question the activities of the business;

• It appears that the sheer volume of intercompany transfers also contributed to theKaptor Group having difficulties in being able to account internally for eachentity. Attached as Appendix "Q" is an April 7, 2011, email from Mr. Arnoneto Inspektor which discuss the difficulties these transfers were causing; and

1 1 The spreadsheet contains intercompany transactions at 3 financial institutions involving 27 entities and

approximately 42 bank accounts, On a sample basis, the Receiver traced transactions listed on the spreadsheet to

the corresponding Kaptor Group bank statements and found no discrepancies.

12 It is unclear what the opening value represents or how it was calculated as it does not appear to tie into the

opening bank balances..

13 Interest was paid on Investments until approximately September 2011, The payments were significant as

Investors were paid a yield ranging between 15% to 36%.

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a Based on a review of certain emails it appears that the intercompany transfers forthe Kaptor Group were executed by Ms. Levon upon instructions from Inspektor.Attached as Appendix "R" is a sample email from Inspektor to Ms. Levon datedJanuary 4, 2011, instructing the daily transfers to be performed.

Usage of Funds Raised from Investors

31, The Receiver conducted an analysis of funds provided by Investors to the Kaptor Group

in 2011. The analysis appears to show that each month in 2011 up to and including

September, there would consistently be Investments made with the Kaptor Group. It

would appear that in certain months where the Kaptor Group's bank accounts were in an

overdraft position there would be a substantial increase in Investor funding for the

Kaptor Group compared to other months. As highlighted in the table below in February

and August, 2011, deposits by investors peak at $4,415,000 (Feb 2011) and $4,202,000

(Aug 2011) respectively,

2011 Investments — Kaptor Group ($000s):

Jan Feb March April May June July Aug Sept

$175 $4,415 51,13 5870 53,130 $1,019 $1,961 $4,202 $930

32. As stated at paragraph 16 of the Bean Affidavit "... there were also substantial deposits

into those accounts such that the overdraft declined to approximately $4.7 million by

August 22, 2011." A review of the Companies' bank accounts after August 18, 2011

appear to indicate that the Kaptor Group raised funds from Investors immediately after it

was in a net overdraft position at the TD Bank. Attached as Appendix "S", is a

redacted copy of an a agreement dated August 24, 2011 between 202, Lynette and

certain other Investors with respect to the injection of $1.65 million into 202. The

Receiver notes that other than Lynette, all parties to the agreement appear to have

advanced funds to 202, With respect to Lynette, the banking records of 202 do not

indicate any deposit from Lynette on or around the same date.

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33. Similar activity also appears to have occurred while the Kaptor Group was banking with

Laurentian. For example on February 3, 2011, the bank balance for the operating

accounts at Laurentian for 202 was in an overdraft position of approximately $4.1

million and the Kaptor accounts held a positive balance of approximately $600,000, for

a combined net overdraft position of approximately $3.5 million. Immediately

following February 3, 2011, a large investor raise occurred; for the period February 4,

2011 to February 9, 2011, a total of approximately $1.6 million was invested in Kaptor,

and approximately $2.6 million was invested in Insignia. The total Investments thereby

covered the combined overdraft.

34. In both the above instances, the Receiver has not determined whether or not Investors

were made aware of the net overdraft positions prior to advancing the funds.

Amounts Owing and Paid to Investors

35. The Receiver has reviewed the Companies' books and records in order to determine the

amounts outstanding to the Investors; this review did not include Inspektor or the

Inspektor Family Members. The Receiver completed this review based on the Investor

"folios" it was able to locate. Each Investor had an individual folio that was detailed and

contained copies of the original method of payment, executed copies of the original

investment contracts as well as details on the monthly interest payments received. The

Receiver then analyzed those folios by cross referencing them with various bank

statements and QuickBooks accounting records to verify the amounts outstanding. It

should be noted that some of the folios for Inspektor and the Inspektor Family Members

do not appear to be complete, as they simply contain a promissory note signed by

Inspektor and/or the Inspektor Family Members. In addition, it appears that certain

amounts do not coincide with the Receiver's additional review of withdrawals and

deposits as discussed above in paragraph 21.

36. A summary of the Receiver's key findings with respect to the amounts owed to Investors

are as follows:

• It appears the Investors are owed approximately $38.6 million, excluding unpaidinterest from September 2011 as follows: approximately $21 million was

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invested in Kaptor, approximately $8.5 million was invested in 202,approximately $675,000 was invested in Insignia, and approximately $8.4million was invested in the Portfolio Corporations;

• From 2003 to 2011, over $86 million had been invested with Kaptor, 202,Insignia and the Portfolio Corporations in the form of promissory notes,debentures, shares, and co-tenancy agreements;

• During the same period, over $49 million had been paid as principal repayments;

• Over $15 million was paid out as interest and dividends; and

• Of the total amounts outstanding to the Investors of 202 and Kaptor, over $6.5million appears to be owed to Investors who advanced funds to 202 in 2011 andover $6 million appears to be owed to Investors who advanced funds to Kaptor in2011.

37. As previously reported, the majority of Investors ceased receiving payments in

September 2011. In respect of 202, the original creditor list which was compiled with

the assistance of Ms. Levon, contained inaccuracies which the Receiver has sought to

clarify and correct. In addition, there does not appear to be consensus as to the amounts

owing to all creditors, including Investors, Inspektor and the Inspektor Family Members.

Further, during the course of its review the Receiver became aware that certain Investors

a) transferred their existing Investments from Kaptor to 202 or one of the Portfolio

Corporations and b) invested directly into the Portfolio Corporations. In due course, and

subject to the recoveries in these proceedings, the Receiver intends to conduct a formal

claims process which will allow all creditors to submit claims.

DERIVATIVE ACTION AND COURT APPROVED DOCUMENT PRODUCTION

38. As reported by the Receiver in its First Report certain Investors of the Kaptor Group

obtained leave to commence the Derivative Action by Order of Justice Campbell dated

September 7, 2012. The Receiver subsequently was served with a statement of claim

filed by the Companies through these Investors against the Companies' accountants,

certain directors and certain employees. A copy of the Derivative Action is attached as

Appendix "T".

- 17_

39. The Receiver was subsequently served with a statement of defence and counterclaim

from Inspektox dated November 30, 2012. A separate statement of defence and

counterclaim was served by Lynette, Darren, and Russel. A copy of the statements of

defence and counterclaim are attached as Appendix "U".

40. The Receiver understands that the Derivative Action has now advanced to the discovery

stage.

41. The Receiver subsequently received requests from legal counsel for both the plaintiffs

and the defendants to provide access to books and records of the Kaptor Group in the

Receiver's possession.

42. As the books and records in the Receiver's possession contain an extremely large

volume of hardcopy and electronic records (some of which may be claimed as privileged

by certain of the litigants), the Receiver was concerned about the potential significant

costs involving the Receiver's time in order to deal with the litigants' requests for access

to certain documents.

43. The Receiver's legal counsel, Gowling Lafleur Henderson LLP ("Gowlings"), suggested

and drafted a Document Production Protocol. To assist in the development of the

Document Production Protocol, the Receiver prepared and distributed a summary index

of the relevant books and records of the Companies which are in the Receiver's

possession.

44. Gowlings subsequently held numerous conference calls with all legal counsel involved

in the Derivative Action which resulted in agreement of the final Document Production

Protocol. The Document Production Protocol was ultimately approved by an Order

made by Justice Wilton Siegel on July 31, 2013. A copy of the Document Production

Protocol and the Order of Justice Wilton Siegel are attached at Appendix "V".

45. In accordance with the Document Production Protocol, a third party document

management company agreed upon by the parties is photocopying and indexing the

relevant documents and circulating them to the various parties.

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REALIZATION ON PREVIOUSLY REPORTED ASSETS

46. In its First Report the Receiver advised on the Kaptor Group's existing assets that it

intended to realize upon, which are discussed below.

Real Estate Investment

47, The Receiver previously reported on a real estate investment made by 202 into a retail

building in Windsor, Ontario. On December 7, 2010, 202 subscribed for two units of

limited partnership interest (the "Units") at a cost of $50,000 per unit with the owner of

the property, 3480 Howard Park Ave Inc. ("Howard Park"). As previously reported, a

review of the Limited Partnership Agreement indicated that the general partner had the

power and authority to sell, and must grant consent to any transfer or sale of the Units.

The general partner also advised the Receiver that previous sales of the Units were only

offered to current owners and traditionally have sold for approximately 50 per cent of

the cost,

48. The Receiver contacted the general partner to discuss the possibility of marketing the

Units more generally and widely in order to maximize the realization for the estate. The

general partner advised the Receiver that he was of the view the Units could not be

widely marketed and reiterated the offer at 50 cents on the dollar.

49. The Receiver sought a legal opinion from Gowlings on the marketing of the Units,

which confirmed the position of the general partner. Gowlings advised the Receiver that

it would be difficult to market and sell the assets due to existing securities legislation

and the structure of the Limited Partnership Agreement.

50. The Receiver has not yet realized upon this asset. Inspektor had offered to assist the

Receiver in marketing the Units to maximize the return for the estate. The Receiver has

not received any other offers or expressions of interest outside of Howard Park.

51. Accordingly, it is the view of the Receiver, based on the advice it has received from its

legal counsel on securities legislation compliance, and review of the Limited Partnership

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Agreement, the Receiver is inclined to accept an offer of $50,000.00 plus HST from

Howard Park in the absence of any other offers.

Koldeway Seafoods Limited - Barrie Property

52. In December 2005, Kaptor entered into an agreement with Koldeway Seafoods Limited

("KSL") to provide a revolving loan in the amount of $600,000. The loan was

guaranteed by the owner/operator of KSL, Michael Koldeway and his spouse Margaret

Koldeway (the "Koldeways") who gave security in support of their guarantee in the

form of a collateral mortgage (the "Mortgage") registered against their matrimonial

home at 50 Cathedral Pines, Bailie, Ontario (the "Barrie Property"). The charge was

registered on November 29, 2005 a copy of the charge is attached hereto as Appendix

53. On September 29, 2007 KSL was deemed bankrupt due to the non-filing of a proposal.

The Statement of Affairs lists Kaptor as a secured creditor in the amount of $600,000; a

copy of the Statement of Affairs is attached hereto as Appendix "X".

54. By Order of Justice Gilmore dated September 9, 2008 the Koldeways were ordered to

pay to Kaptor the sum of $347,065 plus $20,252 for costs; furthermore it was ordered

that the Koldeways deliver the Barrie Property to Kaptor. The Order of Justice Gilmore

was entered but was never enforced and the Koldeways continue to reside at the Barrie

Property.

55. The Receiver was contacted by a mortgage broker who is representing the Koldeways to

assist them in refinancing the Barrie Property and has advised the Receiver of the events

outlined above and provided the relevant documentation.

56. The Receiver subsequently registered the Receivership Order on title to the Barrie

Property in order to protect the interests of the Companies.

57. The Receiver has conducted an appraisal of the Barrie Property and has also reviewed

additional mortgage documents to determine the potential equity available in the Barrie

- 20 -

Property. Based on an appraisal obtained in December 2012, there appears to be

approximately $130,000 of equity in the Barrie Property.

58. The Koldeways subsequently submitted a written offer to the Receiver proposing that

the Mortgage be discharged in exchange for a lump sum payment of $65,000 (the

"Settlement Amount"). The Koldeways are both retired and living on pension income —

they have advised that based on their age and fixed income, the Settlement Amount

represents the maximum that they would be able to obtain from a lending institution.

59. The Receiver is of the view that there are two options. First, the Receiver could initiate

power of sale proceedings under the Mortgage. Second, the Receiver could accept the

Settlement Amount. It should be noted that the Mortgage is currently a 3"1 ranking

charge behind two prior registered mortgages to other financial institutions.

Accordingly, any shortfall will detract from the Receiver's potential share of the residual

equity as the party initiating power of sale proceedings. In addition, the appraisal

indicates that the Barrie Property and house require significant repairs and maintenance,

including a new roof

60. It is the view of the Receiver that the Settlement Amount should be accepted as opposed

to initiating power of sale proceedings. Power of sale proceedings may not generate a

larger recovery for the estate, due to the unknown variables of the housing market in

Barrie, the length of time it may take to sell the Barrie Property and the potential

realization available to the Receiver. The Receiver has also taken into account the

personal circumstances of the Koldeways in making its recommendation.

OTHER ASSETS

61. The Receiver is reviewing additional transactions and other potential assets and will be

advising the Court accordingly.

DEALINGS WITH INSPEKTOR

62. After the filing of the First Report, Inspektor contacted the Receiver and alleged that the

First Report contained numerous inaccuracies and was biased against him. Given this,

- 21

Inspektor sought the adjournment of the Receiver's motion scheduled on December 14,

2012 and wanted to examine the Receiver under oath. In response the Receiver

suspended some of the relief sought, including its request for an Order approving the

activities of the Receiver as described in its First Report. This was done in an attempt to

understand and respond to Inspektor's concerns.

63. Since early 2013, the Receiver and its legal counsel have held numerous meetings and

telephone discussions with Inspektor to discuss and attempt to understand and possibly

resolve his concerns with the contents of the First Report and the actions of the

Receiver. In this regard, the Receiver requested that Inspektor clearly itemize his

specific concerns in writing. Attached as Appendix "Y" are the issues and alleged

inaccuracies which Inspektor contends are contained in the First Report of the Receiver.

64. On February 14, 2013, the Receiver's counsel provided Inspektor with the Receiver's

response to the concerns he has raised. Attached as Appendix "Z" is a copy of the

Receiver's response to Inspektor and Inspektor's further reply.

65. Despite the Receiver's efforts to attempt to communicate with Inspektor and address his

concerns, Inspektor was not satisfied with the Receiver's responses. On February 14,

2013, Inspektor sent an email to Gowlings outlining his disagreement and dissatisfaction

to the Receiver's response of February 14, 2013. Attached as Appendix "AA" is

Inspektor's response.

66. On March 13, 2013, in another attempt to try and resolve Inspektor's concerns, the

Receiver agreed to hold a "without prejudice" meeting with Inspektor at the offices of

the Receiver's legal counsel. Despite the fact that the meeting and discussions were held

on a without prejudice basis, on March 14, 2013, Inspektor prepared and distributed an

email including a memorandum (the "Memo to Investors") without the consent of the

Receiver, in which he unilaterally summarized parts of the discussions at the meeting. A

copy of the Memo to Investors is attached as Appendix "BB". It is the Receiver's

position that the Memo to Investors contained inaccuracies and misstatements as to what

was communicated by the Receiver and/or its legal counsel.

-22-

67. On August 20, 2013, Inspektor wrote to Gowlings and the Receiver raising many of the

same concerns that were raised in the Memo to Investors. In this letter Inspektor

demanded that an independent third party be brought in to supervise and provide full

access to all documents in the possession of the Receiver and that this cost be borne by

the Receiver. A copy of the letter is attached as Appendix "CC". For obvious reasons,

the Receiver was not amenable to this request. Gowlings' response dated August 24,

2013 is attached as Appendix "DD". On August 26, 2013, a letter was received from

Mr. Solmon of Solmon Rothbart Goodman LLP ("SRG") who is representing Mr.

Inspektor. A copy of said letter is attached as Appendix "EE". It should be noted that

in certain instances, Inspektor has been represented by legal counsel, and at other times

Inspektor has advised that he does not have legal counsel.

68. On September 16, 2013 the Receiver was served with a motion record by SRG. The

motion was for an order requiring the Receiver to allow Inspektor and his legal counsel

access to the electronic and hard copy documents in the Receiver's possession that are

part of the Document Production Protocol in the Derivative Action. In addition,

Inspektor alleged that the Receiver is failing to properly manage and protect the books

and records under receivership. At a 9:30 Commercial List scheduling appointment held

on October 2, 2013, the Court directed the parties to attend a further 9:30 appointment

before Justice Wilton-Siegel, who is seized of the Document Production Protocol issue,

in order to address the production issue raised by Inspektor. Attached as Appendix

"FF" is a copy of the endorsement of Justice Brown dated October 2, 2013.

69. On account of the past issues which have arisen as a result of direct communications

with Inspektor, Gowlings has informed Inspektor that going forward, neither they nor

the Receiver will have any direct communication (written or verbal) with Inspektor and

have requested that all communication and correspondence occur through Inspektor's

legal counsel.

70. It is the Receiver's view and concern that it has spent considerable time and resources, at

the expense of the estate, in dealing with the complaints and concerns of Inspektor,

which appear to be either non-relevant or secondary to the primary mandate of the

- 23 -

Receiver as provided for in the Receivership Order. The fact remains that the Investors

have lost tens of millions of dollars to date and no material recovery has yet been

realized for the benefit of the Kaptor Group's creditors.

Interim Statement of Receipts and Disbursements

71. A copy of the Receiver's Interim Statement of Receipts and Disbursements from June

18, 2012 to September 30, 2013, is attached hereto as Appendix "GG".

CONCLUSION

72. The Receiver has been able to update its findings based on additional information it has

accessed since the date of the First Report. Unfortunately, to date there has been no

significant recovery from realization upon the available assets of the Kaptor Group, and

as such, there are no significant funds in the estate.

73. The Derivative Action is advancing with the Document Production Protocol. The

Receiver has been advised that once the various documents have been reviewed, the

various parties to the Derivative Action will move forward with discoveries, including

the discovery of individuals involved with the Kaptor Group, which would include

Inspektor.

74. Given the lack of funds in the estate, until the Derivative Action is advanced or

additional relevant information becomes available (likely after the discovery process),

the Receiver intends to limit its activities to continuing to realize upon known assets and

to continue to assist with the Document Production Protocol and the advancement of the

Derivative Action.

75. The Receiver respectfully requests that this Honourable Court grant the relief requested

in paragraph 3(e) above.

All of which is respectfully submitted this 21st day of October 2013.

- 24 -

CROWE §,OERMAN INC.,in N cpa-city as4urrappointed Receiver of

2025610 Ontario Ltd, KaptorFinancial Inc., and InsigniaTrading Inc., and not in its persona]or corporate capacity

TOR J. AWN B279,103'4

Appendix D

Court File No. 31-OR-208029-TCourt File No. 31-0R-208030-TCourt File No. 31-OR-208031-T


!ct (IN BANKRUPTCY AND INSOLVENCY)

THE HONOURABLE JUSTICE TUESDAY, THE 19TH DAY OF AUGUST,McEWEN 2014

IN THE MATTER OF THE BANKRUPTCY OFKAPTOR FINANCIAL INC.

IN THE MATTER OF THE BANKRUPTCY OFINSIGNIA TRADING INC.

IN THE MATTER OF THE BANKRUPTCY OF2025610 ONTARIO LIMITED

ORDER

UPON READING the Applications for Bankruptcy Order, filed in respect of

Kaptor Financial Inc., Insignia Trading Inc. and 2025610 Ontario Limited (the "Kaptor

Group");

AND UPON reading the Affidavits of Verification of the Applicant Creditor and

upon hearing submissions of counsel and it appearing to the Court that the following

acts of bankruptcy have been committed by each of Kaptor Financial Inc., Insignia

Trading Inc. and 2025610 Ontario Limited:

(a) within the six months next preceding the date of the filing of the application,

each of the respondent companies ceased to meet its liabilities generally as

they became due.

THIS COURT ORDERS that the Applications commenced in the Superior Court

of Justice under court file numbers 31-OR-208029-T, 31-OR-208030-T and 31-

OR-208031-T are hereby consolidated.

THIS COURT ORDERS that each of Kaptor Financial Inc., Insignia Trading Inc.

and 2025610 Ontario Limited are adjudged bankrupt and a bankruptcy order is

hereby made against each of Kaptor Financial Inc., Insignia Trading Inc. and

2025610 Ontario Limited on this date.

3. THIS COURT ORDERS that Crowe Soberman Inc. be and is hereby appointed as

the Trustee of each of Kaptor Financial Inc., Insignia Trading Inc. and 2025610

Ontario Limited.

4. THIS COURT ORDERS that the first charge over the assets, undertakings and

property of each of the Kaptor Group companies granted pursuant to the Order

of Justice Brown made June 18, 2012 to Crowe Soberman Inc. (the "Receiver"),

for the reasonable fees of the Receiver and its counsel, shall continue in full

force and effect.

Doc 1219194 v1

Court File No. 31-0R-208029-TCourt File No. 31-OR-208030-TCourt File No. 31-0R-208031-T





(BANKRUPTCY AND INSOLVENCY)Proceeding commenced at TORONTO

ORDER

PALIARE ROLAND ROSENBERGROTHSTEIN LLPBarristers155 Wellington Street West, 35th FloorToronto, On M5V 3H1

Jeffery Larry (LSUC#44608D)Tel: (416) 646-4330Fax: (416) 646-4301Email: [email protected]

Lawyers for the Applicant Creditors

Doc 1170666 vi

Appendix E

Court File No. 31-OR-208029-TCourt File No. 31-OR-208030-TCourt File No. 31-OR-208031-T


(IN BANKRUPTCY AND INSOLVENCY)

THE HONOURABLE JUSTICE TUESDAY, THE 19TH DAY OF AUGUST ,McEWEN 2014




cadf ttke,41,1ORDERCm01-tv'S

THIS MOTION made by the Applicant Creditors for an order transferring to themand any other creditors of Kaptor Financial Inc., Insignia Trading Inc. and 2025610Ontario Limited (the "Kaptor Group") who elect to participate, all proceeds of theaction under the Superior Court File No. CV-12-463214 (the t"Proceedings"), butsubject to the Prior Charges (as defined below).

"Palo:at a

UPON READING the Notice of Motion and the Affidavit of Eric Grossman swornJune 19, 2014, and the consent of Crowe Soberman Inc. and upon hearing submissionsof counsel,

1. THIS COURT ORDERS that the time for service of the Notice of Motion and theMotion Record is abridged so that this motion is properly returnable today, andthat service upon those parties described in the Affidavit of Service is validated

and that any further service of the Notice of Motion and Motion Record is

dispensed with.

2. THIS COURT ORDERS AND DIRECTS the Trustee to execute an assignmentsubstantially in the form attached as Schedule "A" assigning all its right, title andinterest in the Proceedings to the Applicants for the benefit of themselves and allother creditors as may join in the Proceedings in the manner contemplatedherein, but subject to the Prior Charges

t..Qt fsi 4e,-sts eldai r

3. THIS COURT ORDERS AND DIRECTS that the Trustee provide to counsel forthe Applicants a list of the names and addresses of all creditors of the Kaptor

h#.

Group (the "List of Creditors") within seven (7) days of the date of this Order. cute

tlak

4. THIS COURT ORDERS that notice of the making of this Order upon the othercreditors of the Kaptor Group (the "Notice") will be deemed to be sufficientlyserved by:

(a) either:jll

i. mailing, within / days of the date of this Order, a lettersubstantially in the form attached as Schedule "B" (the"Notice Letter") in a prepaid addressed envelope by regularregistered mail to each of the creditors appearing on the List ofCreditors at the address as shown on the List of Creditors; or

ii. disseminating within /days of the date or this Order, the NoticeLetter in accordance with the Ontario Superior Court(Commercial List) E-Service Protocol; and

3

(b) posting a copy of this order and the motion record filed in support of

this motion on the Trustee's website.

THIS COURT ORDERS that service of the Notice shall be deemed to be made

on the date on which the Notice Letter is mailed or e-mailed in the mannerprovided above (the "Date of Service").

THIS COURT ORDERS that, in addition to any distributions to which they may

be entitled from the bankrupt estates, all benefits derived from the Proceedings,

together with any costs payable by the defendants to the Proceedings (the"Benefits of the Proceedings"), but subject to the Prior Charges shall vest inthe Applicants and in such other creditors of the Kaptor Group who, withintwenty-one (21) days of the Date of Service, notify the Trustee of their agreementto contribute to the expense and risk of this motion and the Proceedings, pro rataaccording to the amount of their respective claims, in writing, by fax or email,directed as follows (with a copy to the Trustee):

Paliare Roland Rosenberg Rothstein LLP, In Trust155 Wellington Street West, 35th FloorToronto, ON M5V 3H1

Attention: Santa SanasieEmail: [email protected] Fax: 416 646 4301

and subsequently make the requisite funding obligations in accordance with theterms of this Order and the Notice Letter (and any subsequent notices ofpayment from the Trustee) by payment to "Paliare Roland Rosenberg RothsteinLLP, In Trust" as provided for in the Notice Letter.

mutt re.;)' Nal (51-• +14z 41-44%,,t/ust4 -MR- Ickita-a —tNaut,14-`0e, 111-c-4-

Subject to the Prior Charge ., such vesting shall be free and clear of any and allof the estates, titles, rights, benefits, interests, claims, liens, hypothecs, securityinterests, trusts or deemed trusts (whether statutory or otherwise), assignments,

4

executions, judgments, options, agreements, rights of distress, legal, equitableor contractual set-offs, options, adverse claims, levies, agreements, taxes,

disputes, debts, charges, mortgages, encumbrances, claims provable or any

other rights or claims howsoever arising, whether contractual, statutory, by

operation of law or otherwise, whether or not they have attached or beenperfected, registered or filed, whether secured or unsecured or otherwise, by orof any and all other persons or entities of any kind whatsoever, including,without limitation, all individuals, firms, corporations, partnerships, jointventures, trusts, unincorporated organizations, governmental andadministrative bodies, agencies, authorities and tribunals and all other naturalpersons or corporations, whether acting in their capacity as principals or asagents, trustees, executors, administrators or other legal representatives,provided that:

(a) the Benefit of the Proceedings shall be used:

(i) first, to pay all reasonable fees and expenses of the Receiver and itscounsel incurred and outstanding pursuant to the charge granted byJustice D. A. Brown on June 18, 2012 to Crowe Soberman Inc. in itscapacity as receiver of each of the Kaptor Group companies (the"Receiver's Charge");

(ii) second, to pay all reasonable fees and expenses of the Trustee and itscounsel;

(iii) third, to pay or reimburse, as the case may be, the reasonable legalfees and costs, plus HST, of bringing the Proceedings in accordance withthe Order of Justice Campbell made September 7, 2012;

(iii) fourth, to pay the reasonable legal fees and costs, plus HST, ofbringing this Motion,

(the foregoing being, collectively, the "Prior Charges");

(b) the total amount recovered by the Applicant Creditors and such others as

may join with them in the Proceeding shall not exceed the amount of their

respective claims against the Kaptor Group in this bankruptcy proceeding

together with the costs of bringing this Motion and the Proceedings; and,

(c) nothing in this order or any action taken pursuant to this order shall be

determinative of the standing of any party as a creditor and, in the event

that the claim of a party which has elected to participate in theProceedings is subsequently determined to be invalid, then that partyshall only be entitled to have their costs of the Proceedings reimbursedout of the Benefit of the Proceedings and, for greater certainty, they shallnot be entitled to any other share of the Benefit of the Proceedings.

11--/ (-,9 e-7 ktatt .7 c ,tcr cuts Av.( lavral,e, 046./1-beriytive.•-44PILIS SSG tvt1r24-4or lkf&‘21* Cita.= k-1" -1/ P-:Ck 144t-z4,‘Li jack Zpq.k itlom.Er7. THIS COURT ORDERS that if any crecitor or creditors fail to return the Notice

60(fiki

t c?,,,kiEopte,,.6ateit:tixf)

8. THIS COURT FURTHER ORDERS that any creditor or reditors who confirm .ca.

21-11412.1-ike_ 00.r

Letter confirming its intention to participate in the Proceedings within twenty-one(21) days of the Date of Service, they will be excluded from participating in theBenefits of the Proceedings.

their intention to participate in the Proceedings in accor

Letter but subsequently fail to make their requisite initisubsequent contribution that may be required, within fou

sending of an email notification setting out the amount

they will be excluded from participating in the Benefits of

than any entitlement to recover costs of the Proceeding

advanced.

THIS COURT ORDERS tha e event that there is a

ance with the Notice

I contribution or any

een (14) days of the

f such contribution(s),

the Proceedings other

creditor has

t9wv,ze bkt 40t4am/

surplus after satisfyingany amounts that maybe outstanding underthe Prior Charges and the claims

rer14̂ ,

A wtt4t,Cmkatr, :j q Li ate, Alt e _ (✓/`f

6 Cc Pe. Cin CWrJ44,,,y1,0( cLik? 1,,,A,La TO +tie_ C., (i.1.14.4,9 Wi) teldq/7„ Cf-e: ,i41/- et i/11 trrF

cta— 71-tti t IttszAr cuj( Et e 1604. c At( 1. jtyi

6

of the Applicants and of such other creditors, if any, who elect and are entitled

to participate in the Benefits of the Proceedings, according to the priority of the

same, respectively, as determined by paragraph 6, that surplus will be paid to

the Trustee and form proceeds of the bankrupt estates.

10. THIS COURT ORDERS that a litigation committee is hereby established for

purposes of conducting, prosecuting and managing the Proceeding (the

"Litigation Committee") in such manner as the Litigation Committee sees fit inits sole discretion including the power of settle or compromise the claims made

in the Proceeding.

11. THIS COURT ORDERS that the Litigation Committee shall consist of StevenUster and Eric Grossman.

12. THIS COURT ORDERS that no proceedings shall be commenced, or joinedagainst any member of the Litigation Committee in respect of the Proceedings,including without limitation, in respect of the conduct or outcome of theProceeding without first obtaining leave of this Court, on ten (10) days notice toeach member of the Litigation Committee and the Trustee.

13. THIS COURT ORDERS that in the event leave is granted to commence anaction against the litigation committee or any member thereof, anydefendant(s) in such proceeding shall be permitted use any procoodatferived

e Proceeding, after satisfaction of the Prior Charges„ to fund his costs ofdefence and/or such defendant(s) shall be entitled to r imbursement, in full,from the roceeds of the Proceeding for the costs of his efence.

Doc 1219199 v1tz

P,A4t2-14)

cuvg )144

in\alStC, A-t *Cul. CZ1Vb WAR

4 4. sblicapki--701.1,10-.-ve6,,Ipz,chy

cam( cvak f t(iv

Schedule "A"

ASSIGNMENT

This Assignment made this day of , 2014

B ETWEEN:

Crowe Soberman Inc.,Trustee of Kaptor Financial Inc., Insignia Trading Inc. and 2025610

Ontario Limited (the "Assignor")

— and —

The Applicants in the matter bearing court file no.CV-12-9732-00CL (the "Assignees")

WHEREAS Crowe Soberman Inc. was appointed the receiver (the"Receiver") of Kaptor Financial Inc., Insignia Trading Inc. and 2025610Ontario Limited (the "Kaptor Group") pursuant to the Order of JusticeBrown made June 18, 2012 (the "Receivership Order");

AND WHEREAS the Receiver and its counsel were granted the benefit ofa first ranking receiver's charge on all of Kaptor Group's property pursuantto the Receivership Order in respect of their respective fees anddisbursements that may be outstanding from time to time (the "Receiver'sCharge").

AND WHEREAS the Assignees obtained leave on September 7, 2012 tocommence a derivative action in the name and for the benefit of theKaptor Group;

AND WHEREAS the Applicants commenced a derivative action bearingcourt file number CV-12-463214 (the "Proceeding") by Statement of Claimissued in the Superior Court of Justice on September 11, 2012

AND WHEREAS each of the Kaptor Group companies was adjudgedbankrupt by Order of Justice Wilton Sicgel made on 2014 (the"Bankruptcy Order"); 44(ftA1cr1 atetS1-

AND WHEREAS pursuant to the Bankruptcy Order, Crowe Soberman Inc.was appointed the Trustee of each of the Kaptor Group companies;

Hcavey,AND WHEREAS by Order of Justice Witten-giegel dated Juiy-8, 2014, theAssignor was authorized to execute this assignment assigning all its right,title and interest in the subject matter of the Proceeding to the Assignees;

NOW THIS ASSIGNMENT WITNESSES that, in consideration of thepremises and pursuant to the directions in the said order contained, theAssignor agrees with the Assignees as follows;) w(N),P1" pre1U4Lts k 1)-.* 4-1-f4" 4 '134?1. Subject to the Receiver's Charge continuing to attach to any and all

fib k J

benefits, including any proceeds which may be derived from theProceeding, the Assignor does hereby assign to the Assignees and 41/*Ghtifte4

such other creditors as may be entitled to share pursuant to theprovisions in the said order, all of the estate, right, title, interest,claim and demand whatsoever both at law and in equity, includingany document in support thereof and any and all rights, claims,demands and causes of action which the Assignor in theProceedings but without recourse of any kind whatsoever to theAssignor.

2. The Assignor represents and warrants to the Assignees that it hasnot previously pledged, assigned or encumbered the Proceedings.

3. Subject to the representation and warranty in paragraph 2 hereof,the Assignor makes no representation or warranty of any kindwhatsoever with respect to the Proceeding, Without limitation to theforegoing, the Assignor makes no representation or warranty of anykind whatsoever with respect to the validity, enforceability,existence, assignability, collectability, value, or any other matterwhatsoever with respect to the Proceeding.

4. Until such time as the Assignor is discharged as Trustee of each ofthe Kaptor Group companies, the Assignor agrees to execute anddeliver to the Assignees at the Assignees' expense all such furtherdocuments and instruments as the Assignee may reasonablyrequire to In order to give effect to this Assignment.

Dated at Toronto this day of , 2014.

Crowe Soberman Inc.,

Trustee of }Captor Financial Inc., InsigniaTrading Inc. and 2025610 OntarioLimited

Doc 1144525 v1

Schedule "B"

Notice Letter

Dear Sir or Madam:

Re: Kaptor Financial Inc., Insignia Trading Inc., 2025610 OntarioLimited (the "Kaptor Group")

AL,nust 9On J-u•1}L.&, 2014, Crowe Soberman Inc. was appointed the Trustee of the KaptorGroup companies pursuant to the order of Justice Wilton-Siegel (the "BankruptcyOrder").

As you may know, certain individuals (the "Applicants") have been pursuing aclaim in the name and for the benefit of the Kaptor Group against its formeraccountants, officers and directors and others (the "Proceeding"). A copy of theStatement of Claim in the Proceeding can be obtained at"www.crowehorwath.nettsoberman/".

The Applicants have funded all of the costs of the Proceeding to date eventhough the benefits, if any, derived from the Proceeding will be shared among allof the Kaptor Group creditors. The Applicants have advised the Trustee that theyremain committed to funding this Proceeding, however they are not prepared todo so without contribution from other creditors who will stand to benefit from anyrecovery.

Accordingly, the Applicants brought a motion to court to address the manner inwhich the funding of the Proceeding will occur going forward. On August 19,2014 Justice McEwen issued an order (the "Section 38 Order") pursuant to whichthe Trustee assigned all of its right, title and interest in the subject matter of theProceeding to Applicants and such other creditors (like yourself) who choose tomay join with them in the Proceeding. A copy of the Section 38 Order is attached.Any benefits, including proceeds, resulting from the Proceedings shall remainsubject to the "Receiver's Charge" granted pursuant to the Receivership Order in

favour of the Receiver and its counsel on all of the Kaptor Group's property and

assets in respect of any and all fees and disbursements that remain outstanding

and unpaid to the Receiver and its counsel. The proceeds shall also be subject

to a charge in favour of the Trustee and its counsel for their fees and

disbursements.

Those creditors who choose to join in the Proceeding will be responsible for its

funding and will be entitled to share any benefits from the Proceeding amongst

themselves, on a pro rata basis, up the maximum amount of such creditor's

claim, plus any accrued interest.

If you wish to join in this Proceeding, you must complete and return this form by

mail, fax or email to Paliare Roland: Attention Santa Sanasie (at the address set

out in Schedule "B") with a copy to the Trustee, attention Graeme Hamilton within

twenty-one (21) calendar days from the date of this letter. After the expiry of this

deadline, Paliare Roland will notify you by email within 10 days of your requiredinitial contribution. You will have fourteen (14) days to send your share of thefunds to Paliare Roland Rosenberg Rothstein LLP, In Trust, failing which you willbe excluded from participating in the benefits, if any, derived from theProceeding.

A hypothetical illustration of one's funding requirement and recovery is attachedat Schedule "A" to this letter.

In the event of any subsequent capital call, you will be notified by email of theamount of your pro rata contribution. You will then have fourteen (14) days tosend your share of the funds, failing which you will be excluded from participatingin the benefits, if any, derived from the Proceeding.

The cheque or wire for your contribution should be sent to Paliare RolandRosenberg Rothstein LLP, in Trust Attention: Santa Sanasie. A copy of theaddress and wire instructions is attached at Schedule "B" to this letter. TheApplicants have determined that the total initial funding requirement will be $ pi g#V-6

5-7)r), ece52.-

The Applicant's advise that this determination was based on theestimated fees and costs of the litigation as well as the prospect that theApplicants and any other participating creditors may be required to post securityfor the costs of the defendants in in this action. Persons who have contributedfunds towards the Proceeding to date can deduct those amounts from the totalamount that they would otherwise be required to contribute.

For purposes of calculating the amount owed to fund the litigation, eachparticipating creditor will self report the amount of principal owed to it by theKaptor Group which may and shall also include any of the silo or relatedcompanies identified in note 1 below. As confirmed in the Section 38 Order, thisprocess will not be determinative of the standing of any person as a creditor orthe amount owed to any 'person. Rather, the Trustee will be solely responsible(with the assistance and direction of the Court, as may be required) for carryingout a claims process to determine the ultimate amount of a participant's debtprovided that the amount that a participant reports on the form shall be themaximum amount that may be proven ultimately. The distribution of funds willnot begin until the Trustee has completed the claims process.

We draw your attention to the Section 38 Order which provides that any creditorwho fails to join in the Proceeding or thereafter make the required contribution(s)within the time limits set out in the Section 38 Order shall be thereafter excludedfrom participating in the benefits, if any, derived from the Proceeding.

If money is recovered in the Proceeding, the money recovered will be appliedfirst to pay all fees and disbursements owing and outstanding to the Receiverand its counsel in accordance with the Receiver's Charge; second, to pay all feesand disbursements owing and outstanding to the Trustee and its counsel inaccordance with the Bankruptcy Order; third, to pay or reimburse, as the casemaybe, the reasonable legal fees and disbursements incurred in connection withthe Proceeding, plus HST in accordance with the Order of Justice Campbelldated September 7, 2012; and fourth, to pay the reasonable legal fees and costs,

plus HST, of bringing the motion for the funding order. The balance of the funds

recovered will be divided among the creditors participating in the Proceedings

pursuant to this letter of agreement on a pro rata basis, up to the maximum

amount of each creditor's claim, including accrued interest. If surplus funds

remain after payment of all such claims in full, that surplus will be remitted to the

Trustee for the benefit of the other creditors.

If you wish to join in this Proceeding, please return this executed agreement to

Paliare Roland with a copy to the Trustee to the attention of Graeme Hamilton by

[insert date].

Yours very truly,

The undersigned creditor hereby agrees to join in the Proceeding and to be

bound by the terms and conditions set out herein and in the enclosed Order

relating to these proceedings.

, 2014

Name:

Signature:

(if corporation, by authorized signing authority)

Address2:

Email:

Phone:

Amount of Debt3:

Currency of Debt4:

1. Kapcar Capital Corp., CarCap Inc., CarCap Portfolio 1 Corp., CarCapPortfolio Two Corp., CarCap Portfolio Five Corp., CarCap Portfolio Seven Corp.,CarCap Portfolio 8 Corp., CarCap Portfolio 10 Corp., CarCap Portfolio .11 Corp.,CarCap Portfolio 12 Corp., CarCap Portfolio 14 Corp., CarCap Portfolio 15 Corp.,CarCap Portfolio 17 Corp., CarCap Portfolio 18 Corp., CarCap Portfolio 19 Corp.,CarCap Rolling Fund 1 Corp., 2102510 Ontario Corp., 1312126 Ontario Limited,Car Equity Loans.

2. Each participant shall be responsible for ensuring that its contactinformation is up to date. If the information changes that provided in this initialform, the participant must update the litigation committee with any new contactinformation. Neither the Receiver nor the litigation committee shall be obligationto search for or locate any participant other than through the contact information

provided.

3. Total principal amount, excluding unpaid interest, of outstandingdebentures, RRSP preferred shares, profit participation, promissory notes, co-tenancy interests, or other forms of secured or unsecured debt but not includingany common shares or other equity interests or accounting entries where fairconsideration was not advanced in exchange for the debt.

4.. For purposes of calculating your potential contribution, take the face valueof any debt in non-Canadian currency and record it as if it was Canadiancurrency. The Receiver will make final currency adjustments at the prevailingexchange rate at the time of any distribution. If you have multiple investments indifference currencies, please complete a separate form for each.

Assume:

Then:

Schedule "A"

i. a total of $100 million of debt participates

an individual's self reported debt is $5 million (5% of the totalparticipating debt amount)

ii. initial capital call is $3 million

iii. total net recovery (after payment of legal fees and costs) is $50million

this individual must contribute 5% of the initial funding (or$150,000); and

ii, this individual would be entitled to 5% of the net recovery afterpayment of fees (or $2.5 million).

Schedule "B"

Addresses:

Paliare Roland Rosenberg Rothstein LLP155 Wellington Street West, 35th FloorToronto, OntarioM5V 3H1

fax:416 646 4301email: sarita.sanasieApaliareroland.com

Crowe Soberman Inc.2 St, Clair Avenue East, Suite 1100Toronto, OntarioM4T 2T5

Attention: Graeme Hamilton

fax: 416 929 2555email: [email protected]

Wire Instructions:

TRUST ACCOUNT (CAD)Beneficiary: Paliare Roland Rosenberg Rothstein LLP (CAD)Bank: Scotiabank, Toronto Business Service Centre, 20 Queen Street West,Toronto, Ontario M5H 3R3Account: 47696 12980 11Transit: 47696Institute: 002Swift Code: NOSCCATTABA or IBAN: 026002532

Doc 1173926 v1

Court File No, 31-OR-208029-TCourt File No. 31-OR-208030-TCourt File No. 31-OR-208031-T

IN THE MATTER OF THE BANKRUPTCY OFKAPTOR FINANCIAL INC,




(BANKRUPTCY AND INSOLVENCY)Proceeding commenced at TORONTO

ORDER

PALIARE ROLAND ROSENBERGROTHSTEIN LLPBarristers155 Wellington Street West, 35th FloorToronto, On M5V 3H1

Jeffery Larry (LS1.10#44608D)Tel: (416) 646-4330Fax: (416) 646-4301Email: jeff.larry@paliarerolanchcom

Lawyers for the Applicant Creditors

Doc 1170666 vi

Appendix F



COMMERCIAL LIST

BETWEEN:




— and --


Applicants

Respondents



THIRD REPORT OF THE RECEIVERDATED JANUARY 13, 2015


Telephone: 416.929.2500Fax: 416.929.2555

TABLE OF CONTENTS

Introduction 4

Purpose of the Report

Restrictions 5

Background 5

Issues Raised by Eric Inspektor 8

Conclusions 22

2

APPENDICES

A. Endorsement of Justice Wilton-Siegel dated December 23, 2013

B. Inspektor January Submission dated January 12, 2014

C. Endorsement of Justice Wilton-Siegel dated February 14, 2014

D. Inspektor April Submission dated April 16, 2014

E. Endorsement of Justice Wilton-Siegel dated May 15, 2014

F. Inspektor May Submission dated May 30, 2014

G. Inspektor September Submission dated September 26, 2014

H. Inspektor Email to Receiver dated September 30, 2014

I. Excerpts from First Report of Receiver dated November 30, 2012

J. Email from RBC to the Receiver dated July 31, 2014

K. Schedule of Inspektor & Inspektor Family Member deposits to related entities

L. Schedule of Inspektor & Inspektor Family Member deposits not located or previouslyreported by the Receiver

M. Schedule of Inspektor & Inspektor Family Member non-cash adjustments

N. Correspondence from Inspektor dated November 16, 2014

0. Inspektor Email to Receiver dated January 5, 2015

P. Email from Receiver to Inspektor dated January 6, 2015

Q. Summary of Amounts Owing to/by Kaptor Group- prepared by Inspektor

R. Email from Trustee in Bankruptcy to SRG LLP dated September 4, 2014

S. Email from Inspektor to Trustee dated September 8, 2014

T. Ontario Corporate Profile Report for Food Nutrition Inc.

U. Ontario Corporate Profile Report for 2102510 Ontario Corp.



COMMERCIAL LIST

BETWEEN:




— and —


Applicants

Respondents



THIRD REPORT OF THE RECEIVERDATED JANUARY 13, 2015

4

INTRODUCTION

1. This report is filed by Crowe Soberman Inc.t ("Crowe Soberman") in its capacity ascourt appointed receiver ("Receiver") of Kaptor Financial Inc. ("Kaptor"), InsigniaTrading Inc., ("Insignia"), 2025610 Ontario Ltd. ("202"), (collectively referred to as the"Companies" or "Kaptor Group") pursuant to the order (the "Receivership Order") ofJustice D.M. Brown of the Ontario Superior Court of Justice [Commercial List] madeon June 18. 2012 (the "Appointment Date").

2. The Receiver has previously filed with the Court its first report date November 27, 2012(the "First Report"), its supplement to the First Report dated December 13, 2102 (the"First Supplemental Report"), and its second report dated October 21, 2013 (the

"Second Report").

3. A copy of the Appointment Order and the First Report, the First Supplemental Report

and the Second Report are available at the Receiver's website at

http://www.crowehorwath.net/SOBERMAN/services/advisory/Corporate_Recovery_an

d_Turnaround/Courtmandated_files Management_centre/Restructurink_Document

Centre.aspx

PURPOSE OF THIS REPORT

4. The purpose of this report (the "Third Report") is to:

a) Provide an update on the issues that were raised by Mr. Eric Inspektor

(Inspektor") in respect of the accuracy of the Receiver's First Report and Second

Report;

b) Provide an update on the outcome of several meetings held between the Receiver

and Inspektor in order to review and address the issues raised by Inspektor in an

I On September 5, 2012, as a result of an affiliation with an international professional services group, Soberman Inc.changed its name to Crowe Soberman Inc.

5

attempt to resolve or narrow the issues/differences as between the Receiver'sreview of the records of the Companies and Inspektor's views; and

c) Recommend that this Honourable Court issue an Order:

i. Approving the activities of the Receiver as described in its First Report;

ii. Approving the activities of the Receiver as described in its Supplement tothe First Report;

iii. Approving the activities of the Receiver as described in its Second Report;

iv. Approving the activities of the Receiver to date as described in this ThirdReport; and

v. Such other relief as may be requested.

Restrictions

5. In preparing this report and the analyses contained herein, the Receiver has relied uponcertain unaudited financial information and books and records of the Companies, aswell as certain information provided by various financial institutions and other parties,

including Inspektor. The Receiver reviewed the Companies' bank statements, trial

balances and other accounting information. The Receiver has not performed an audit or

other verification of the documents and the information it has received.

BACKGROUND

6. Inspektor has raised numerous issues with the First Report and Second Report and has

filed several motions in this regard. In total, Inspektor has served approximately 11

reports, affidavits and motions in connection with issues he has raised concerning the

Receiver's findings. Inspektor's position has been well documented and where possible,

the Receiver has previously included both summary and detailed particulars in the

Second Report in an effort to fairly identify and outline Inspektor's position. In the

Receiver's view, while numerous issues/objections were raised by Inspektor, including

for example, his disagreement with the Receiver as to the quantum of funds which he

actually withdrew from the Companies, the Receiver has not received sufficient

supporting documentation to enable the Receiver to significantly alter its prior review.

7. At a case conference held on December 11, 2013, Justice Wilton-Siegel directedInspektor to provide the Court and the Receiver with a short summary of the fiveprincipal concerns Inspektor had with the accuracy of the Receiver's findings, includingsupporting documentation. A copy of the signed Endorsement of Justice Wilton-Siegeldated December 23, 2013 is attached as Appendix "A".

8. On January 12, 2014, Inspektor provided the Court and the Receiver with his reportidentifying five major issues (the "Inspektor January Submission"). Although theInspektor January Submission consisted of approximately 150 pages. the Receiver's

view is that it did not contain adequate supporting documentation and there were many

instances where Inspektor advised that his findings were not yet finalized, as he still had

to review certain documents and accounting records. A copy of the Inspektor January

Submission is attached as Appendix "B".

9. At a case conference held on January 27, 2014, Inspektor was further directed by the

Court to provide a supplementary report addressing the issues identified in the Inspektor

January Submission, but which had not been fully addressed. A copy of the

Endorsement of Justice Wilton-Siegel dated February 14, 2014 is attached as Appendix“CSI.

10. On April 16, 2014 Inspektor submitted a supplementary report to the Court and to the

Receiver (the -Inspektor April Submission"). A copy of the Inspektor April Submission

is attached as Appendix "D".

11. At a case conference held on April 29, 2014, Inspektor was further directed by the Court

to submit his supplementary report setting out his five principal concerns with the

Receiver's reports, including supporting documentation, by May 31, 2014. A copy of

the Endorsement of Justice Wilton-Siegel dated May 15, 2014 is attached as Appendix

WV.

7

12. On May 30, 2014, Inspektor submitted his further supplementary report (the "InspektorMay Submission") to the Court. A copy of the Inspektor May Submission is attached asAppendix "F".

13. Since receiving the Inspektor May Submission, the Receiver has held meetings withInspektor on three occasions, being July 23, 2014, August 18, 2014 and October 22,2014, in order to attempt to resolve and/or narrow the issues/differences between theReceiver's review and Inspektor's views. These meetings were held on a "withoutprejudice" basis. In addition to the three meetings there have been several emailexchanges.

14. During the first two meetings, there was a sharing of information, exchange ofdocuments and discussion of outstanding items. At the close of the second meeting, the

Receiver and Inspektor agreed that Inspektor would attempt to provide the Receiver

with his "final" numbers, including supporting documentation, prior to the next

meeting. On September 26, 2014, Inspektor provided his final numbers (the "Inspektor

September Submission") which then led to the third and final meeting on October 22,

2014. Attached as Appendix "G" and Appendix "H" is a copy of the Inspektor

September Submission and a copy of an email exchange with the Receiver confirming

these were his final numbers.

15. On December 9, 2014, the Receiver provided Inspektor with a draft copy of this Report

(prior to its finalization) for his review and comments. As at the date of the filing of this

Report, other than contacting the Receiver's legal counsel, Gowling Lafleur Henderson

LLP ("Gowlings"). on December 16, 2014 and advising Gowlings that he disagreed

with the draft report, Inspektor has not provided the Receiver with detailed comments

on the draft report. Where possible, and in order to attempt to provide the Court with a

complete picture of the respective viewpoints of the Receiver and Inspektor, the

Receiver has sought to include, or address, comments made by Inspektor to Gowlings

in this Report.

16. Below is a summary of the five issues raised by Inspektor and the results of the three

meetings with the Receiver.

8

ISSUES RAISED BY INSPEKTOR

17. The following five issues were raised by Inspektor in the Inspektor January Submission(listed in the same order):

1, Loss of the Disney and Nickelodeon Licenses held by Insignia;

2. Accuracy of the Receiver's analysis of Inspektor and Inspektor familywithdrawals and deposits from Kaptor, 202, and Insignia;

3. Amounts owed to related companies including Silos/Portfolio Companies;

4. TD Bank affidavit of Tracey Bean referred to in the Second Report; and

5. Deleted emails referenced in the First Report and Second Report.

Executive Summary

18. With respect to issues 1, 3, 4 and 5, as raised by Inspektor in the Inspektor January

Submission, the Receiver believes that the Receiver's response, including additional

clarification and information provided by the Receiver regarding Inspektor's point of

view in respect of each of these issues is sufficient and that there is no need for a further

follow-up by the Receiver.

19. Based on Inspektor's September Submission re: issue #2: the accuracy of the Receiver's

analysis of Inspektor and Inspektor family withdrawals and deposits from Kaptor, 202,

and Insignia, continues to be an issue of dispute as there still appears to be a difference

between the analysis of the Receiver and that of Inspektor. However, the Receiver notes

the following:

i. Even if the Receiver adopted Inspektor's analysis including all ofInspektor's proposed cash adjustments, Inspektor's September Submissionconfirms that Inspektor and the Inspektor family members withdrewapproximately $3.5 million from the Companies during the ReviewPeriod, contrasted with the Receiver's revised figure of $5.4 million;

9

ii. The cash difference of approximately $1.9 million can be explained asfollows:

Adjustment Amount($000s)

Deposits Made to Related Entities (i.e. not the Companies) 1,279Deposits Already Included in the Receiver's Analysisand/or Additional Supporting Documentation not Providedby Inspektor 652Total 1,931

Paragraphs 34-36 below explain why the Receiver is of the view that theseamounts should not be excluded from the amounts withdrawn by Inspektoror the Inspektor Family Members.

iii. In addition to the cash adjustments claimed by Inspektor, the InspektorSeptember Submission also includes another approximately $7.1 millionin non-cash adjustments to the shareholder loan account of Inspektor andloan accounts of the Inspektor Family Members-. The Receiver hasattempted to explain to Inspektor that these non-cash adjustments do notchange how much cash Inspektor and Inspektor Family Member eitherwithdrew, or deposited during the Review Period, which is the analysisthat the Receiver performed.

iv. Inspector is of the view that the adjustments to the shareholder loanaccounts should be included in the reporting by the Receiver as it explainswhy Inspektor and the Inspektor Family Members were entitled towithdraw the cash they did.

These non-cash adjustments to the shareholder loan accounts are discussedin more detail in paragraphs 37-49 below.

20. Each of the 5 issues are discussed in detail below.

Issue 1 — Loss of the Disney and Nickelodeon Licenses as a Direct Result of the

Receivership

21. Insignia held licenses which permitted it to sell products containing Disney and

Nickelodeon branded characters and trademarks. Inspektor has asserted that the

Applicants and the Receiver knew that pursuant to the Disney and Nickelodeon

licensing agreements, that the Receivership Order would trigger immediate termination

2 Lynette Inspektor.

10

of the licenses. Inspektor asserts that instead of the Receiver protecting these assets, itsupported the Receivership application instead of a "monitorship" arrangement thatpreceded the Receivership.

22. It should be noted that, as the Court is aware, the Receiver can only respond tolnspektor's issues with the Receiver and not the Applicants. The Receiver's response isas follows:

• The Receiver is of the view that this issue was raised by Inspektor at the time ofthe Receivership application. Inspektor opposed the Receivership application andraised several issues, including the Disney/Nickelodeon license issue, in support

of his opposition. Inspektor was unsuccessful in his opposition and the Courtultimately granted the Receivership Order. Further, the proposed Receiver, CroweSoberman, was not an applicant and had no legal status to either support oroppose the Receivership application; and

• As extensively discussed in the First Report, each of the Disney and Nickelodeon

licenses were in default well before the date of the Receivership Order and while

the Receiver submitted a formal proposal to Disney in an attempt to restore the

licenses, Disney refused. Attached as Appendix "I" are the relevant excerpts

from the First Report detailing this issue and related correspondence with

Nickelodeon and Disney.

Issue 2 — Accuracy of Receiver's Analysis of Inspektor Deposits and Withdrawals

23. In the Second Report the Receiver updated the Court on the status of its review of the

transactions between the Companies' bank accounts and the personal bank accounts

belonging to Inspektor and the Inspektor Family Members for the period January 1,

2003 to June 18, 2012 (the "Review Period-).

24. Inspektor has raised an issue with the date range of the Review Period and has stated

that because the analysis starts on January 1, 2003, the analysis is flawed.

Notwithstanding, that Inspektor has not provided the Receiver with documentation prior

to 2003 which supports his position. Inspektor has expressed the view that in order to

11

perform a complete review, the analysis needs to go back to the inception of both 202and Kaptor, which was 2003 and 1988 respectively. The Receiver notes the followingwith respect to the Review Period:

i. January 1, 2003 was selected as the start date for the Review Period by theReceiver as it appeared to the Receiver that this was approximately thetime frame when Inspektor started raising monies from third partyinvestors not related to Inspektor;

The earliest bank records for the Companies, which the Receiver had in itspossession to review, were dated 2003; and

iii. While there are some transactions/adjusting entries that Inspektor hasraised that are dated prior to January 1, 2003, these total only $770,000 ofthe $7.1 million in adjustments claimed by Inspektor, Further, Inspektorhas been unable to provide the Receiver with sufficient supportingdocumentation or even a breakdown of how much of the $770,000 inadjustments is cash versus non-cash.

25. Inspektor also requested that the Receiver provide him with a copy of the information

the Receiver reviewed in order to come to select January 1, 2003 as the start date for the

Review Period. Notwithstanding that Inspektor has access to the books and records of

the Companies, which were copied pursuant to the Document Production Protocol

("DPP"). including the investor folios, which were also located at the premises of the

Companies, the Receiver also provided Inspektor with a copy of the investor folios,

which contained two advances made by third party investors (through debentures) dated

April 1, 2003. These were the earliest record of the third party investor transactions that

the Receiver could locate.

26. In the Second Report, the Receiver noted that, in total, Inspektor and the Inspektor

Family Members appeared to have made net withdrawals (withdrawals in excess of

deposits) of approximately $6.76 million for the period January 1, 2003 to the date of

the Receivership Order. In calculating this amount, the Receiver attempted to exclude

any payments marked as 'salaries' or 'wages' made to Inspektor, or the Inspektor

Family Members in the Companies' books and records.

12

27. The Receiver notes that from the time of the Inspektor January Submission up to andincluding the Inspektor September Submission, the Receiver and Inspektor heldmeetings with the goal of discussing and understanding all apparent discrepancies, ordifferences of opinion. During the first two meetings, the Receiver explained toInspektor the basis of the Receiver's analysis (i.e. including reviewing the net casheither withdrawn and deposited by Inspektor and/or the Inspektor Family Members),and also specifically outlined that the Receiver was of the view that Inspektor'sanalysis/methodology was unsupportable (e.g. significant non-cash items were included

in lnspektor's calculations; as were deposits that went into other entities (i.e. Car Cap

Inc.)). Inspektor agreed that many of the adjustments which he raised were non-cash

and that the cash adjustments which he raised with the Receiver did not relate to the

Companies.

28. Inspektor provided the Receiver with additional information, which the Receiver had

not previously been made aware of (and which was not located amongst the documents/

information recovered by the Receiver from the Companies), including evidence of a

$1.3 million deposit made by Inspektor and Lynette Inspektor ("Lynette"), the stated

purpose was to pay out the outstanding balance on a loan owing by 202 to Royal Bank

of Canada (-RBC"). The deposit by Inspektor and Lynette was not reflected on the bank

statements reviewed by the Receiver for 202, as, the payment was made from their

personal account to close out the loan account. This deposit represents the only material

amount which impacts the Receiver's prior analysis with respect to issue # 2. A copy of

an email the Receiver obtained from RBC dated July 31, 2014, confirming why this

amount was not included on the bank statements in the possession of the Receiver is

attached as Appendix "J".

29. In the Inspektor September Submission, other than adjusting for an "addition" mistake,

Inspektor still contended that on a combined basis, he and the Inspektor Family

Members had deposited approximately $3.6 million into the Companies during the

Review Period (in contrast to the Receiver's revised finding that on combined basis,

Inspektor and the Inspektor Family Members withdrew approximately $5.5 million).

Accordingly, it appears to the Receiver that Inspektor still takes the position that there is

13

an apparent discrepancy as between the Receiver's calculation and Inspektor'scalculation of approximately $9.0 million.

30. A summary of the variations in Inspektor's analysis from the date of the InspektorJanuary Submission to the date of the Inspektor September Submission as compared tothe amounts set out in the Receiver's analysis (taking into account additionalinformation and evidence provided by Inspektor) is as follows:

Amount of NetDeposi ts/

(Withdrawals)Per Inspektor

Amount of NetDeposits/

(Withdrawals)Per Receiver Difference

Inspektor January Submission $ 5,224,246 $ (6,771,439) $ 11,995,685

Inspektor September Submission $ 3,595,097 $ (5,423,484) $ 9,018,581

31. The Receiver reviewed the Inspektor September Submission and prepared a schedule

which was discussed at the third and final meeting with Inspektor on October 22, 2014.

A summary of that analysis is provided below:

Eric Inspektor TransactionsPer SecondReport

Per EricInspektor

RevisedAmount PerReceiver

Net Cash Deposits/(Withdrawals) $(5,457,849) $(3,412,894) $(4,109,894)Other Non- Cash Adjustments: $4,941,652Reconciliation to EI Analysis $ 1,528,758

RevisedPer Second Amount Per

Inspektor Family Transactions Report Per Eric Inspektor ReceiverNet CashDeposits/(Withdrawals) $(1,313,590) $ 246,704 $(1,313,590)

Other Non- Cash Adjustments: $1,819,634Reconciliation to EI Analysis $2,066,338

14

32. As noted above, the Receiver separated the figures as included in the InspektorSeptember Submission into two categories, cash and non-cash adjustments. This wasperformed in order to demonstrate that even Inspektor's own analysis does not confirmthat the Receiver's analysis was incorrect by approximately $9.0 million. Inspektor'sanalysis confirms that even if the Receiver adopted lnspektor's analysis including allof his cash adjustments (as discussed below), on a combined basis, Inspektor and theInspektor Family Members withdrew approximately $3.5 million during the ReviewPeriod, as contrasted with the Receiver's revised figure of $5.4 million.

The Remaining Discrepancies

33. The Receiver has analyzed the remaining discrepancy as between the Receivers

calculations and those of Inspektor's of approximately $9.0 million. The discrepant

amounts fall into the following categories:

AmountDeposits Made to Related Entities $1,279,000Deposits Already Included in the Receiver's Analysisor Not Found by the Receiver $652,000Adjustment for Salary (Non-Cash Adjustment) $710,000Adjustment for Guarantee Fee (Non-Cash Adjustment) $325,000Other Non-Cash Adjustments $6.051,286

Total Remaining Discrepancy $ 9,017,286

Each category of discrepancy is discussed below.

Deposits Made to Related Entities

34. Included in Inspektor's analysis were approximately $1.3 million of deposits that

Inspektor claims were made by him or by the Inspektor Family Members to entities

that, while related to the Companies, are not included in the Receivership Order (i.e.

Car Cap Inc.). The Receiver explained to Inspektor that pursuant to the Receivership

Order. the Receiver's mandate is only with respect to Kaptor. Insignia and 202, and as

such, the Receiver did not review any transactions (deposits or withdrawals) between

Inspektor and the Inspektor Family Members and the Car Cap entities. Included in

Appendix "K" is a list of the deposits Inspektor claims were made to entities related to

15

the Companies. Inspektor still remains of the view that the deposits to the Car Capentities should be reflected in the numbers reported by the Receiver.

Deposits Already Included in the Receiver's Analysis or Not Found

35. Inspektor claims deposits totaling $652,000 were made by him, or by the InspektorFamily members into a bank account belonging to Kaptor, Insignia or 202. The depositsare summarized in Appendix "L". The Receiver has reviewed the bank accounts forKaptor, Insignia and 202 and could not locate the deposits. The Receiver requested thatInspektor provide to the Receiver any supporting documentation such as copies ofcancelled cheques. Inspektor was unable to provide supporting documentation for anythese deposits.

36. It should be noted that for the deposits claimed by Inspektor in the amount of $412,000,the Receiver advised Inspektor that based on its review of Kaptor's bank statements,

while the Receiver was unable to locate such deposit, it had identified three separate

deposits made by Inspektor and Inspektor Family members in or around the same date

which totaled $412,000 and asked him to confirm whether these were the deposit(s)

Inspektor was referring to. Inspektor has not confirmed the same with the Receiver, nor

has Inspektor provided the Receiver with any further evidence which confirms that

there was a single deposit he made in the amount of $412,000. It appears Inspektor still

remains of the view that these deposits should be reflected in the numbers as reported

by the Receiver.

Adjustments for Non -Cash Items

37. Inspektor presented the Receiver with additional non-cash adjustments totaling

approximately $7.1 million.

38. Inspektor is of the view that these non-cash adjustments should be reflected in the

Receiver's analysis of the cash withdrawn by him or the Inspektor Family Members.

Notwithstanding that Inspektor agrees that these adjustments are 'non-cash' and do not

relate to the analysis performed by the Receiver, Inspektor is of the view that including

these adjustments demonstrate that he was entitled to make withdrawals from the

16

Companies after factoring in these non-cash transactions, on account of Inspektor beinga creditor of the Companies. A summary of the non-cash adjustments is attached asAppendix "M".

39. The Receiver has communicated and reiterated to Inspektor that at no time has the

Receiver commented on the appropriateness of the withdrawals; in any event, 'non-

cash. adjustments should not be factored into the analysis of what cash was either

withdrawn, or deposited into the Companies' bank accounts by Inspektor, or the

Inspektor Family Members.

40. The most substantial adjustment proposed by Inspektor is in relation to a general journal

entry for 202 dated May 15, 2003 pursuant to which Inspektor is purportedly credited

for a shareholder loan account in the amount of $3.7 million. Inspektor has advised the

Receiver that this amount relates to a transaction involving the purchase in 2003 and

sale in 2004 of a plaza located on Dufferin Street, Toronto (the -Dufferin Plaza") that

resulted in a corresponding shareholder loan balance in favor of Inspektor. In response

to Inspektor's explanation concerning the Dufferin Plaza transaction, the Receiver has

requested supporting documentation. To date, the Receiver is of the view that the

documentation provided by Inspektor, together with a review of the reporting letters on

the purchase and sale, do not appear to justify, or substantiate the $3.7 million adjusting

entry on account of Inspektor's purported shareholder loan. Attached as Appendix "N"

is a copy of the correspondence and a series of explanations provided by Inspektor.

41. Notwithstanding that the $3.7 million adjusting entry as requested by Inspektor is a non-

cash entry (and as such did not form part of the Receiver's cash analysis) it also appears

that the material events regarding this transaction occurred in 2003 and did not involve

Inspektor in his personal capacity (i.e. the adjusting entry was dated in 2003, and 202

purchased the Dufferin Plaza in 2003, which purchase was funded by parties other than

17

Inspektor.3 Inspektor has advised the Receiver that it needs to review, inter cilia, certainlitigation documents related to the Dufferin Plaza that date back to 1998.

42. In an effort to further substantiate the claims of Inspektor with respect of the $3.7million adjusting entry on account of Inspektor's purported shareholder loan. theReceiver conducted a review over a period of two days of more than 240 boxes ofdocuments which the Receiver is keeping in storage for the materials that Inspektor hadidentified as being relevant to the Dufferin Plaza transaction. Upon completing thisreview, the Receiver was able to locate two banker boxes of documents pertaining to theDufferin Plaza transaction. Notwithstanding this further extensive review, the Receiverwas still unable to ascertain, or understand the basis for the claim that Inspektor isentitled to the alleged $3.7 million adjusting entry.

43. The Receiver then invited Inspektor to attend at the Receiver's offices in order to

personally review the documentation in the bankers boxes and provide the Receiver

with further directions with respect to which document(s) Inspektor was specifically

relying on to substantiate the $3.7 million adjusting entry.

44. Inspektor attended at the Receiver's offices on January 5, 2015 in order to review the

two banker boxes of documentation pertaining to the Dufferin Plaza transaction. At the

conclusion of his review, Inspektor advised the Receiver that further documentation was

still required by him in order to support his position. Inspektor made a request for

copies of certain documents as set out in an email from Inspektor date January 5, 2015,

which is attached as Appendix "0". The Receiver made copies of the documentation

requested by Inspektor and couriered those materials to lnspektor's residence. With

respect to certain other documentation requested by Inspektor, the Receiver noted that

those materials were included in the Document Production Protocol. Attached as

Appendix "P" is a copy of an email from the Receiver dated January 6, 2015 in which

this is explained.

3 On closing the purchase price appeared to he funded through mortgages/loans from The Equitable Trust Companyand Firm Capital Mortgage Fund Inc.

18

Adjustment for• Salary

45. As noted on Appendix "M", Inspektor has also advised the Receiver that he is of theview that the net cash withdrawal amount should be reduced by a further $710,000 onaccount of "salary" that was to have been paid to Inspektor. Inspektor has asserted thatcertain of these withdrawals were actually in lieu of salary, and should have beenexcluded by the Receiver in its analysis. The Receiver notes that it had already excludedapproximately $624,000 from withdrawals made by Inspektor on account of paymentsthat were marked as "salary/wages" in the Companies records. Inspektor has not

provided the Receiver with documentation supporting his claim that the salary and

wages for the period should be $710,000 (as opposed to the $624,000 that was excluded

by the Receiver). In fact, based upon the September Submission, it appears that

Inspektor remains of the view that the Receiver's calculation should be reduced by a

further $710,000 (as opposed to the $86,000 difference between the amounts recorded

in the Companies' books and records and Inspektors calculations).

46. Finally, it should be noted that in addition to the $624,000 in withdrawals that the

Receiver excluded on account of "salary/wages", the Receiver also excluded

approximately $475,000 in expenses that appear to have been paid by the Companies on

behalf of Inspektor.

Adjustment for• Guarantee Fee

47. As noted on Appendix "M", Inspektor has asserted that the Receiver should also

reduce its figure for withdrawals made by Inspektor and the Inspektor Family Members

by $325,000 on account of a "guarantee fee" which was to be paid to Lynette in order

for her to personally guarantee a loan provided to Kaptor. Despite requests, Inspektor

has not provided the Receiver with any documentation in support of the alleged

payment to Lynette.

48. The Receiver was able to locate what appears to be an unsigned guarantee fee

agreement; however that document is in the name of Inspektor, not Lynette.

Furthermore, based on a review of the unexecuted agreement, it appears that the alleged

19

"guarantee fee- was in place while Kaptor was banking with Laurentian Bank.Inspektor remains of the view that the Receiver should have reduced its figure by$325,000 for withdrawals made by Lynette on account of a guarantee fee payment.

49. The remaining non-cash differences not discussed above are commented upon directlyin Appendix "M".

Issue 3 —Amounts Owed to Companies by Related Entities

50. Inspektor has advised the Receiver that he is concerned that the Receiver did not reporton amounts which appear to be owed by the Companies to related entities, and instead,

only focused on amounts owed to the Companies. This issue appears to arise from the

fact that in paragraph 42 of the First Report, the Receiver reported on potential assets at

the date of the Receivership Order. The Receiver has sent out collection letters in

respect of these amounts potentially owing to Kaptor and 202 and has reported on the

responses received as of the date of the First Report. In the Second Report, the Receiver

provided the Court with an update on the responses to the collection letters.

51. The Receiver has explained to Inspektor that the purpose of paragraph 42 of the First

Report was to simply update the Court on potential assets (i.e. accounts receivable) and

the steps the Receiver was taking to attempt to realize on those potential assets.

52. Attached as Appendix "Q" is a summary, as prepared by Inspektor, of amounts

purportedly owing by the Companies to other related entities. The amount owed to

these related entities is approximately $16.1 million based on a schedule as prepared by

Inspektor. The Receiver has confirmed that the trial balances of each of the Companies

reflect these amounts.

53. Notwithstanding the summary of amounts purportedly owing by Kaptor and 202 to

related entities as reflected in Appendix "Q", in preparing the Statements of Affairs for

the bankruptcy of each of the Companies, Inspektor did not disclose that these amounts

were owed by Kaptor and 202 to the Car Cap Portfolio companies on the Kaptor and

202 Statement of Affairs. In fact, Inspektor insisted they be removed from the

Statements of Affairs for Kaptor and 202.

20

54. Attached as Appendix "R" is an email from the Trustee to Inspektor's legal counselSRG LLP, dated September 4, 2014 which includes the draft Statements of Affairs forKaptor, Insignia and 202 which lists the Car Cap Portfolio companies as creditors basedon the amounts indicated in the Kaptor and 202 trial balances.

55. Attached as Appendix "S" is an email dated September 8, 2014 from Inspektor,wherein Inspektor provides his comments and revisions to the Statements of Affairs for

Kaptor, Insignia, and 202. In respect of the Statements of Affairs for 202 and Kaptor.Inspektor advised the Trustee that the Car Cap Portfolio's should not be listed on either

Statement of Affairs.

56. It is unclear to the Receiver why, on the one hand, Inspektor raised the issue that the

Receiver failed to report amounts purportedly owing by the Companies to entities that

are related to Inspektor, including the Car Cap Portfolio companies, yet on the other

hand, Inspektor instructed the Trustee not to include these amounts on the Statements of

Affairs prepared for Kaptor and 202 in their respective bankruptcy proceedings.

57. Inspektor has also advised the Receiver that certain corporations which the Receiver has

reported in the First Report as being "controlled" by Inspektor, are not actually

controlled by Inspektor; more specifically, Food Nutrition Inc. ("FN1"), and 2102510

Ontario Corp. ("210").

58. A Corporate Profile Report for FNI is attached as Appendix "T". Inspektor is listed as

a director and officer of FNI. A Corporate Profile Report for 210 is attached as

Appendix "U". Shalom Romm, the former Chief Business Development Officer for

Kaptor, is listed as a director and officer, and Robin Levon, the former head of investor

relations at Kaptor, is listed as the contact in the mailing address. Both Shalom Romm

and Robin Levon are now deceased.

59. The Receiver issued collection notices to 210 and FNI for amounts potentially owing to

Kaptor, and has provided the Court with an update on its collection efforts. In paragraph

23 of the Second Report the Receiver described those entities as "related entities

controlled by Inspektor." The Receiver had described those same entities in paragraph

21

17 of the Second Report as entities that "appeared to be related ro the Kaptor Group,which were controlled by Inspektor, and/or had significant dealings with the KaptorGroup." It would appear that the latter description would be the more accuratedescription.

Issue 4 — Reliance by the Receiver on the Affidavit of Tracey Bean

60. In the Second Report, at paragraphs 25 & 26, the Receiver described certain eventsregarding the intercompany banking activity for accounts held at TD Bank ("TD") by

the Kaptor Group. In its description, the Receiver referenced portions of an affidavit

sworn by Tracey Bean, Vice President, Commercial Credit Risk Management, which

was filed in support of a motion for the appointment of a Receiver over the Car Cap

entities and which also outlined a series of events that led to the Kaptor group's bank

accounts being frozen by TD and resulting in an overdraft position of approximately $7

million.

61. The Receiver had also included in the Second Report, at paragraph 29, the explanations

which were provided by Inspektor for the overdraft.

Issue 5- Deleted Emails

62. The Receiver agrees with Inspektor that it appears that all data that was on the hard

drives labeled as belonging to Inspektor was recovered by the IT consultants engaged

by the Receiver, and that no deleted emails were found on these hard drives. The

Receiver had previously advised the Court of the difficulties it experienced in retrieving

information from the hard drives located by the Receiver and the steps that the Receiver

took in order to access the hard drives, including the engagement of two IT specialists.

The Receiver has also provided to the Court and Inspektor copies of the detailed

memos/ reports prepared by the IT specialists retained by the Receiver documenting the

steps taken to copy/mirror the hard drives located by the Receiver.

63. The Receiver is now satisfied that it has access to all emails and documents that were

located on the hard drives of Inspektor and the other employees of the Companies

located at the commencement of the Receivership. However, as noted in the First

22

Report, the Receiver also experienced difficulty in retrieving emails belonging to RickArnone, the Chief Operating Officer of Kaptor. The IT specialists retained by theReceiver were only able to locate 329 emails directly associated with Rick Arnone, ofwhich 236 had been found to be deleted.

CONCLUSION

64. The Receiver has spent a considerable amount of time with Inspektor, seeking toresolve, or narrow the issues/differences as between the Receiver's review of therecords of the Companies and Inspektor's views of those records.

65. The Receiver is of the view that this Report comprehensively addresses Inspektor's

previously documented concerns. In respect of those issues where the Receiver issimply unable to agree with Inspektor's assessment, this Report identifies the factual

basis upon which the Receiver is unable to agree with Inspektor's assessment.

66. Finally, the Receiver notes that although Inspektor purports that he, the Inspektor

Family Members and the entities owned/controlled/related by Inspektor are significant

creditors of the Companies, to date no proofs of claim have been filed for any of these

persons/entities in the Companies' bankruptcy estates. The Receiver is of the view that

on account of the bankruptcy of the Companies, and the proof of claim process, which

will be implemented in the bankruptcy estates, the bankruptcy proceedings are the

proper forum in which these issues should be addressed, in order to determine the

amounts which may be owed to any of the Companies' purported creditors, including

Inspektor, the Inspektor Family Members and entities related to Inspektor

67. On account of the above, the Receiver respectfully requests that this Honourable Court

grant the relief requested in paragraph 4 (c) above.

23

All of which is respectfully submitted this 13th day of January 2015

CROWE SOBERMAN INC.,Court Appointed Receiver of2025610 Ontario_Ltd;Financial Inf and Insi nfaTrading

1

Appendix G



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Respondents



FOURTH REPORT OF THE RECEIVERDATED MARCH 16, 2015


Telephone: 416.929.2500Fax: 416.929.2555

In its capacity as court appointedReceiver of 202 Ontario Limited,Kaptor Financial Inc., and InsigniaTrading Inc.

TABLE OF CONTENTS

INTRODUCTION

PURPOSE OF THIS REPORT 3

RESTRICTIONS 3

OSC PROCEEDINGS 4

CONCLUSION 6

APPENDICES

A. Order of Justice Brown dated June 18, 2012

B. Notice of Hearing issued by the OSC dated March 28, 2014

C. Statement of Allegations issued by the OSC dated March 28, 2014

D. Reasons and Decision of the OSC dated December 10, 2014

E. Summonses to Witness issued by the OSC dated January 27, 2015

F. Letter from Receiver's counsel dated February 18, 2015

G. Letter from Inspektor to Receiver's counsel dated February 18, 2015

H. Letter from Receiver's counsel to lnspektor dated February 19, 2015

I. Letter from Inspektor to Receiver's counsel dated February 19, 2015

J. Email exchange between the Receiver's counsel and Inspektor dated March 10, 2015



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INTRODUCTION

1. This report is filed by Crowe Soberman Inc.' in its capacity as court appointed receiver("Receiver") of Kaptor Financial Inc. ("Kaptor"). Insignia Trading Inc., (-Insignia").2025610 Ontario Ltd. ("202"), (collectively referred to as the "Companies" or "KaptorGroup") pursuant to the order (the "Receivership Order") of Justice D.M. Brown of theOntario Superior Court of Justice [Commercial List] made on June 18, 2012 (the"Appointment Date"). A copy of the Order of Justice Brown dated June 18, 2012 isattached hereto as Appendix "A".

2. The Receiver has previously filed with the Court its first report dated November 27,2012 (the "First Report"), its supplement to the First Report dated December 13, 2102(the "First Supplemental Report"), its second report dated October 21, 2013 (the"Second Report"), and its third report dated January 13, 2015 (the "Third Report").

3. Copies of the Receivership Order and the First Report, the First Supplemental Report,and the Second Report are available at the Receiver's website athttp://www.crowehorwath.net/SOBERMAN/services/advisory/Corporate_Recovery_an d Turnaround/Court_mandated_files_Mantmement_centre/Restructuring_Pocument

Centre.aspx

4. Unrelated to the activities of the Receiver, the Ontario Securities Commission ("OSC"

or the "Commission") commenced an investigation into unregistered trading and illegal

distribution of securities to investors by Kaptor, 202, CarCap Inc., and CarCap Auto

Finance Inc. (the "Kaptor/CarCap Group")2 and Eric Inspektor ("Inspektor"), who

controlled and managed the Kaptor/CarCap Group at the material times during the

relevant period under investigation by the OSC.

I On September 5, 2012, as a result of an affiliation with an international professional services group,Soberman Inc. changed its name to Crowe Soberman Inc.

2 CarCap Inc. and CarCap Auto Finance Inc. (the "CarCap Companies") were incorporated in Ontario andwere subsidiaries of Kaptor. The CarCap Companies were placed into receivership on December 14, 2011and their assets were subsequently sold by order of this Court on March 13, 2012.

3

5. The OSC commenced proceedings against Inspektor pursuant to which the OSC hasalleged, among other things, that Inspektor traded and engaged in or held himself out asengaging in the business of trading in securities of the Kaptor/CarCap Group withoutbeing registered to do so and that Inspektor authorized, permitted or acquiesced in theKaptor/CarCap Group's failure to comply with Ontario securities law.

6. Inspektor seeks to summons the Receiver to give evidence before the Commission at ahearing at which time these allegations will be heard by the Commission.


7. The purpose of this report (the "Fourth Report") is to:

Respond to the Motion Record of Inspektor dated March 9, 2015 (the "InspektorMotion" or the "Inspektor Record") pursuant to which Inspektor seeks , inter alia,

i. a declaration that the Receivership Order does not impose a requirementthat leave of this Court be obtained to summons the Receiver as a witness

before the OSC; and

ii. leave of the Court to summons the Receiver to attend as a witness before

the OSC.

b) Recommend that this Honourable Court refuse to grant the relief sought by

Inspektor in the Inspektor Motion.

RESTRICTIONS

8. In preparing this report and the analysis contained herein, the Receiver has relied upon

certain unaudited financial information and books and records of the Companies, as

well as certain information provided by various financial institutions and other parties,

including Inspektor. The Receiver has not performed an audit or other verification of

the documents and the information it has received.

4

9. The Receiver has been limited in its efforts to obtain information and documentationrelated to the facts deposed by Inspektor in his affidavit sworn March 9, 2015 filed inthe Inspektor Motion (the "Inspektor Affidavit") as Inspektor has taken the position thatthe information and documentation referenced in the Inspektor Affidavit is prohibitedfrom disclosure pursuant to section 16 of the Securities Act R.S.O. 1990, c.S.5, (the"Securities Act"}.

OSC PROCEEDINGS

10. After the Appointment Date, the OSC commenced an investigation into the affairs ofthe Kaptor/CarCap Group and Inspektor.

11. On March 28, 2014, the OSC issued a Notice of Hearing pursuant to sections 127 and127.1 of the Securities Act (the -Notice of Hearing") in relation to a Statement ofAllegations filed by OSC dated March 28 2014 (the "Statement of Allegations"), toconsider whether it was in the public interest to make certain orders against Inspektorrelating to the affairs of the Kaptor/CarCap Group (the "OSC Hearing"). As set out inparagraph 2 of the Statement of Allegations, the "Relevant Period" for the purposes ofthe OSC proceeding is between January 2005 and September 2011. Copies of theNotice of Hearing and the Statement of Allegations are attached hereto as Appendices"B" and "C".

12. On October 21, 2014, Inspektor brought a motion before the OSC, pursuant to section17 of the of the Securities Act, seeking disclosure of certain investigation notes that hereceived from Enforcement Staff of the OSC. Though the initial relief sought on thatmotion included the disclosure of OSC Enforcement Staff's investigation notesdocumenting discussions between Staff and the Receiver, during the OSC hearingInspektor withdrew his request for that information/documentation. On December 10,2014, the OSC delivered its Reasons and Decision denying lnspektor's request for the

balance of the investigation notes. A copy of the Reasons and Decision of the OSCdated December 10, 2014 is attached hereto as Appendix "D".

5

13. As stated in paragraph 8 of the Inspektor Affidavit and Exhibit B, at the request ofInspektor, the OSC issued four summonses to the Receiver on January 27, 2015 (the"January 2015 Summons"). Copies of the January 2015 Summons are attached hereto asAppendix "E".

14. The Receiver has not responded to the January 2015 Summons and has not attended forany examinations at the OSC pursuant thereto.

15. On February 18, 2015, counsel to the Receiver wrote to Inspektor, advising that theReceivership Order prohibited the commencement of a proceeding or enforcementprocess against the Receiver and objecting to the issuance of the January 2015Summons as a violation of the Receivership Order. In the letter, counsel also raised thefact that, although the Receiver was appointed by the Court well after the events that arethe subject of the OSC's proceeding against inspektor, the Receiver would be willing todiscuss producing documents in its possession, control or power relating to theKaptor/CarCap Group prior to the Receiver's Appointment if that would satisfyInspektor's request. A copy of the letter dated February 18, 2015, is attached hereto asAppendix "F".

16. The same day, Inspektor responded and advised that a motion pursuant to section 17 ofthe Securities Act would be required to produce the material necessary for the hearing ofthis motion. He further advised that he was not seeking any documents from theReceiver, but only that the Receiver clarify what statements it made to the OSC and thatthe parties address the objections raised by the Receiver regarding the January 2015Summons directly with the OSC. A copy of the letter dated February 18, 2015 isattached hereto as Appendix "G".

17. On February 19, 2015, counsel for the Receiver responded to the February 18th letterfrom Inspektor and reiterated that the issuance of the January 2015 Summons was abreach of the Receivership Order and, in particular, paragraphs 8 and 9 thereof. It was

also reiterated that the Receiver has no personal knowledge of the events which are

under investigation by the OSC, which all occurred prior to the Appointment Date. A

copy of the letter dated February 19, 2015 is attached hereto as Appendix "El".

6

18. Inspektor responded the same day advising that he viewed the Receiver's reasons for itsobjection to the issuance of the January 2015 Summons as having no merit and that hewould be would raising the issue before the Court at a 9:30 attendance. A copy of theletter dated February 19, 2015 is attached hereto as Appendix "I".

19. On March 9, 2015, at 6:23 p.m., Inspektor served the Inspektor Record. On March 10,2015, counsel for the Receiver wrote to Inspektor in respect of the Inspektor Motion,requesting a complete list of the all the documents that the OSC had released to him thatwere provided by the Receiver as well as copies of the transcripts of the telephonediscussions between the OSC and the Receiver referenced in paragraphs 7 and 8 of theInspektor Affidavit. Inspektor responded the same day to advise that he was unable toprovide the Receiver with the requested information and that a motion pursuant tosection 17 of the Securities Act was required. A copy of the email exchange datedMarch 10, 2015 is attached hereto as Appendix "J".

CONCLUSION

20. Inspektor has caused the January 2015 Summons to be issued by the OSC contrary tothe provisions of the Receivership Order and without the consent of the Receiver. Hehas done so in order to examine representatives of the Receiver with regard to

discussions Inspektor says they had with the OSC Staff while the OSC was conducting

an investigation into the activities of Inspektor regarding the Kaptor/CarCap Group for

the Relevant Period.

21. As stated in the Statement of Allegations, the Relevant Period under scrutiny by the

OSC is January 2005 to September 201 1. As that period predates the Receiver's

appointment, the Receiver has not independent knowledge of the events in question and

therefore has no relevant information to provide at the hearing before the OSC.

22. To the extent that the Receiver has documents for the Relevant Period, Inspektor has

advised in his February 18, 2015 letter found at Appendix "G" that he is not seeking

the production of such documents pursuant to the January 15, 2015 Summons. Even if

Inspektor were to seek such production, the Receiver did not author those documents,

7

did not receive those documents, and has no personal knowledge with respect to thosedocuments. The Receiver has, however, offered in its February 18, 2015 letter found atAppendix "F", to discuss producing such documents to Inspektor but this proposal hasnot been accepted.

23. The Receiver respectfully recommends that this Honourable Court deny the requestedrelief contained in the Inspektor Motion.

All of which is respectfully submitted this 16th day of March, 2015.

CROWE SOBERMAN INC.,in its capacity as courtappointed Receiver of 202Ontario Limited, Kapto;Financial Inc., and IngigniaTrading Inc.

err

KEITH ALEXANDER, et al (Applicants)


- and - 2025610 ONTARIO LIMITED, et. al. (Respondents)


(Commercial List)


COWLING LAFLEUR HENDERSON LIPBarristers and Solicitors1 First Canadian Place

100 King Street West, Suite 1600Toronto ON M5X 1G5

Alex MacFarlane (LSUC No. 28133Q)Tel: (416) 369-4631Fax: (416) 862-7661

Matthew Karabus (LSUC No. 61892D)Tel: (416) 369-6181Fax: (416) 862-7661

Solicitors For Crowe Soberman Inc., Receiverroit_LAvo 864721018

Appendix H



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BETWEEN:



MICHAEL STEINBERG, JOHN LISTER,STEVEN WARSH and DAVID YARMUS

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Applicants

Respondents



FIFTH REPORT OF THE RECEIVERDATED SEPTEMBER 9, 2015


Telephone: 416.929.2500Fax: 416.929.2555

Court appointed receiver of 2025610Ontario Limited, Kaptor FinancialInc. and Insignia Trading Inc.

TABLE OF CONTENTS

Introduction 4

Purpose of the Report 4

Restrictions 5

Receiver's Activities Since the Date of the Fourth Report ..5

OSC Proceeding and Settlement Agreement 6

Negotiations with the Koldewey's 7

Acceptance of Settlement vs. Initiating Power of Sale 9

Current Position of the Koldewey's 11

Conclusion 12

APPENDICES

A. OSC Notice of Hearing dated March 28, 2014

B. OSC Statement of Allegations dated March 28, 2014

C. Email from Eric Inspektor dated April 8, 2015

D. Settlement Agreement dated March 31, 2015

E. OSC Order dated April 8, 2015

F. Registered Charge against the Barrie Property dated November 25, 2005

G. Judgment of Justice Gilmore dated September 9, 2008

H. Appraisal of the Barrie Property dated November 27, 2012

I. Parcel Registry of the Barrie Property dated March 4, 2015

J. Email from Mike Koldewey to the Receiver dated May 22, 2014

K. Affidavit of Mike Koldewey dated June 18, 2015

L. Affidavit of Margaret Koldewey dated June 18.2015

3



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APPLICATION UNDER section 243(1) of the Bankruptcy and Insolvency Act, R.S.C. 1985,c.B-3, as amended and section 101 of the Cowls of Justice Act,


FIFTH REPORT OF THE RECEIVERDATED SEPTEMBER 9, 2015

4

INTRODUCTION

1. This report is filed by Crowe Soberman Inc.I ("Crowe Soberman") in its capacity as

court appointed receiver ("Receiver") of Kaptor Financial Inc. ("Kaptor"), InsigniaTrading Inc., ("Insignia"), 2025610 Ontario Limited ("202"), (collectively referred to as

the "Companies" or "Kaptor Group") pursuant to the order (the "Receivership Order")

of Justice D.M. Brown of the Ontario Superior Court of Justice [Commercial List] made

on June 18, 2012 (the "Appointment Date").

The Receiver has previously filed with the Court its first report dated November 27,

2012 (the "First Report"), its supplement to the First Report dated December 13, 2012

(the "First Supplemental Report"), its second report dated October 21, 2013 (the

"Second Report"), its third report dated January 13, 2015 (the "Third Report"), and its

fourth report dated March 16, 2015 (the "Fourth Report").

A copy of the Appointment Order and the First Report, the First Supplemental Report

the Second Report, the Third Report and the Fourth Report are available at the

Receiver's website at http://www.crowesoberman.com/insolvency/engagements/


4. The purpose of this report (the "Fifth Report") is to:

a) Provide an update on the activities of the Receiver since the date of the Fourth

Report, including the status of the settlement negotiations held between the

Receiver and Mike and Margaret (Peggy) Koldewey (the "Koldeweys"), with

respect to the property located at 50 Cathedral Pines, Barrie, Ontario (the "Barrie

Property") over which Kaptor holds a mortgage;

On September 5, 2012, as a result of an affiliation with an international professional services group, Soberman Inc.changed its name to Crowe Soberman Inc.

5

b) Provide an update on the proceeding commenced by the Ontario SecuritiesCommission ("OSC") against Eric Inspektor ("Inspektor");

c) Provide an update on the mediation and settlement process in the DerivativeAction and the agreed upon final settlement dated April 17, 2015 (the "ExecutedSettlement"); and,

d) Recommend that this Court issue an Order:

i. Approving the activities of the Receiver to date as described in this FifthReport; and

ii. Such other relief as may be requested.

Restrictions

5. In preparing this report and the analyses contained herein, the Receiver has relied upon

certain unaudited financial information and books and records of the Companies, as

well as certain information provided by various financial institutions and other parties,

including Inspektor. The Receiver reviewed the Companies' bank statements, trial

balances and other accounting information. The Receiver has not performed an audit or

other verification of the documents and the information it has received.

RECEIVER'S ACTIVITIES SINCE THE DATE OF THE FOURTH REPORT

6. Since the date of the Fourth Report the Receiver has spent a significant amount of time

in discussions with the Koldeweys with respect to the Barrie Property, and in

monitoring the progress of the OSC proceeding. Crowe Soberman is also acting as the

Trustee in bankruptcy of the Companies and is dealing with the day to day

administration of those estates via the bankruptcy proceeding.

7. As previously reported by the Receiver in the Second Report, shortly after the

Receivership Order was granted, certain investors obtained leave to commence a

proceeding against the Companies' accountants, certain directors and certain employees

of the Companies (the "Derivative Action").

6

8. On August 19, 2014 Justice Wilton-Siegel granted an order pursuant to section 38 of theBankruptcy and Insolvency Act (the "Section 38 Order"). The Section 38 Orderrequired that, the Trustee execute an assignment in respect of the Derivative Actionpursuant to which the Trustee transferred all its right, title and interest in and to theDerivative Action to the applicants in that action, for the benefit of themselves and anyother creditors that wished to join in funding the Derivative Action (subject to theexisting Prior Charges granted by the Court in these receivership proceedings, the feesand expenses of the Trustee, and without prejudice to the rights and remedies of certaincreditors).

9. After the granting of the Section 38 Order the parties to the Derivative Action have beeninvolved in a series of mediation sessions and settlement discussions. The Receiver wasadvised that the plaintiffs and certain of the defendants to the Derivative Action reacheda settlement in April 2015, and subsequently executed settlement documentation in

order to formalize the settlement (the "Executed Settlement").

10. The Trustee has been asked to execute certain releases, on behalf of the Companies, as

part of the Executed Settlement. On account of all of the inspectors who have been

appointed in the bankruptcy proceedings of each of the Companies being conflicted, the

Trustee has brought a motion before this Court for an order authorizing the Trustee to

execute the releases.

OSC PROCEEDING AND SETTLEMENT AGREEMENT

11. In its First Report, the Receiver advised the Court of an investigation that was

commenced by the OSC into the affairs of the Companies and Inspektor. On March 28,

2014 the OSC issued a Notice of Hearing (the "OSC Hearing") in relation to a

Statement of Allegations of the same date (the "Statement of Allegations"), filed by

staff at the OSC. Copies of the Notice of Hearing and the Statement of Allegations are

attached hereto as Appendices "A" and "B".

12. On January 27, 2015, at the request of Inspektor, the OSC issued four summons to

witness to the staff of the Receiver to attend as a witness at the OSC Hearing. In its

7

Fourth Report dated March 16, 2015, the Receiver outlined its position in objecting toInspektor's request that the Receiver's employees, and the managing partner of theReceiver's parent accounting firm be required to attend at the OSC Hearing.

13. On April 8, 2015, prior to the Fourth Report being heard by the Court, the Receiver wasadvised by Inspektor that the OSC Hearing had been settled and that staff from theReceiver would no longer be required to attend as a witness. Attached hereto asAppendix "C" is an email from Inspektor sent to staff of the Receiver advising of thedevelopment.

14. The Receiver located a copy of a Settlement Agreement dated March 31, 2015 (the"Settlement Agreement") from the website of the OSC. The Settlement Agreement was

approved by the OSC on April 8, 2015 (the "OSC April 8th Order"). Copies of the

Settlement Agreement and the OSC April 8th Order are attached hereto as Appendices

"D" and "E".

NEGOTIATIONS WITH THE KOLDEWEYS ON THE BARRIE PROPERTY

Background

15. On October 31, 2012, the Receiver was first contacted by a mortgage broker, Mrs. Barb

Lennox ("Lennox"), who was assisting the Koldeweys in securing refinancing on the

Barrie Property. The Receiver was advised that Kaptor held a mortgage against the

Barrie Property and the Koldeweys wanted to negotiate with the Receiver in order to

have the mortgage removed. Lennox advised the Receiver that in 2005 a corporation

owned by Mike Koldewey, Koldewey Seafoods Limited ("Koldewey Seafoods"),

obtained a revolving demand loan from Kaptor in the amount of $600,000 (the "Kaptor

Loan"); the Kaptor Loan was guaranteed personally by the Koldeweys and secured by

a mortgage dated November 25, 2005 and registered against the Barrie Property (the

"Kaptor Mortgage"). A copy of the Kaptor Mortgage is attached as Appendix "F".

16. Lennox further advised that Koldewey Seafoods subsequently defaulted on the Kaptor

Loan and Kaptor appointed a receiver over the assets of Koldewey Seafoods. Koldewey

Seafoods filed a Notice of Intention to make a Proposal on May 29, 2007. Ultimately

8

Koldewey Seafoods did not file a Proposal and was deemed bankrupt on September 29,2007. pursuant to Section 50.4(8) of the Bankruptcy and Insolvency Act (the "BIA").

17. Lennox also advised that Kaptor then proceeded to obtain a judgment against theKoldewey's for the shortfall under the Kaptor Loan in the amount of $347,064.87 (the"Judgement"). A copy of the Judgment is attached as Appendix "G". The Judgmentalso required the Koldeweys to deliver to Kaptor vacant possession of the BarrieProperty.

18. Margaret Koldewey and Mike Koldewey filed assignments in bankruptcy on November2 and 3, 2009 respectively.

Actions of the Receiver

19. The Receiver obtained an independent appraisal of the Barrie Property which was

conducted on November 27, 2012 (the "Appraisal"). A copy of the Appraisal is attached

as Appendix "H".

20. Legal counsel for the Receiver registered the Appointment Order on title for the Barrie

Property. Attached as Appendix "I" is a copy of the parcel registry for the Barrie

Property dated March 14, 2015.

21. The Receiver met with the Koldeweys and Lennox at the office of the Receiver on April

8, 2013 in order to discuss a settlement. On September 18, 2013 Lennox emailed the

Receiver with a settlement offer proposing that the Kaptor Mortgage be discharged in

exchange for a lump sum payment of $65,000.00 (the "Initial Offer").

22. The Initial Offer was not accompanied by a current commitment letter from a lender.

Accordingly, the Receiver advised the Koldeweys that any further offers should be

made in writing with an accompanying commitment letter from a third party lender.

23. On May 22, 2014 Mike Koldewey emailed the Receiver an offer in writing for a lump

sum payment of $68,609.00 in exchange for a discharge of the Kaptor mortgage (the

"Formal Offer"). The Formal Offer included a current commitment letter from MCAP.

9

Attached as Appendix "J" is a copy of the Formal Offer and the MCAP commitmentletter,

24. Prior to receiving the Formal Offer, the Receiver contacted another mortgage broker inorder to obtain a second opinion as to the refinancing available to the Koldeweys on theBarrie Property. The second mortgage broker confirmed that the. Formal Offerrepresented "market" refinancing available to the Koldeweys based on their age andincome, and the value of the Barrie Property based on the Appraisal.

25. The Receiver has not responded to the Formal Offer and has advised the Koldeweysthat the Receiver will be reporting to Court on this matter.

ACCEPTANCE OF A SETTLEMENT vs. INITIATING A POWER OF SALE

26. Below is a summary of the potential equity available if the Receiver were to initiate

power of sale proceeding on the Barrie Property. The analysis presents both the total

equity and the net individual equity, as the Barrie Property is solely owned by Margaret

Koldewey. The value of the Barrie Property is based on the Appraisal.

Equity

Calculation

Property Value $350,000.00

1" Mortgage- RBC $75,849.05

Penalty to break l' Mortgage

(Estimated)

$2,600.00

2nd Mortgage $76,000,00

MCAP Withholding $1,100.00

10

Property Tax Arrears $11,984.41

Real Estate Commissions (5%) $17,500.00

Legal Costs-(Estimated) $15,000.00

Total Equity Estimated to be

Available to the Receiver

5149,966.54

Net Individual Equity 874,983.27

27. As outlined in the analysis presented above, if power of sale proceedings were initiatedby the Receiver on the Barrie Property, the Receiver could potentially generate a greater

return for the estate than that contained in the Formal Offer.

28. This return is based on the assumption that the Barrie Property will sell quickly, and

would sell at or near the Appraisal value. It should be noted, however, that power of

sale proceedings may not necessarily generate a greater recovery for the estate. The

Kaptor Mortgage is a third charge registered against title to the Property. Any shortfall

or increase in legal expenses will be borne by the Receiver for initiating a proceeding.

The Koldeweys have also retained legal counsel and have advised the Receiver that they

would oppose any power of sale proceeding.

29. The Formal Offer is near the amount of the individual equity held by Mike Koldewey,

who has reiterated that his wife should not continue to be impacted by his decision to

obtain the Kaptor Loan for his business. The Koldewey's are also nearing retirement

and are still dealing with the negative effects of their personal bankruptcy filings with

regard to their personal finances. The Koldewey's contacted the Receiver voluntarily in

order to finally resolve the Kaptor Mortgage and the Judgment, and have been open,

honest, and transparent throughout this process.

11

CURRENT POSITION OF THE KOLDEWEYS

30. Prior to preparing the Fifth Report, the Receiver contacted the Koldeweys and advisedthat the Receiver anticipated attending at Court in order to have the previous reports ofthe Receiver approved, and would update the Court on the Barrie Property, and thestatus of negotiations with the Koldeweys.

31. The Koldewey's have provided the Receiver with an affidavit of current income andexpenses, and current assets and liabilities dated June, 18, 2015 (the -KoldeweyAffidavits"). The Affidavit of Mike Koldewey is attached as Appendix "K". TheAffidavit of Margaret Koldewey is attached as Appendix "L".

32. Legal counsel for the Koldeweys has advised the Receiver that the MCAP commitment

letter found as part of Exhibit "J" is no longer available and the Koldeweys' were not

able to raise financing through a mortgage lender. The Receiver understands that Mike

Koldewey is now self-employed, and his income has decreased, which has contributed

further to the Koldeweys' difficulties in securing mortgage financing. The Receiver has

also been advised by Margaret Koldewey that she is experiencing difficulties with her

credit rating on account of her previous bankruptcy filing.

33. In his affidavit, Mike Koldewey has stated that his mother-in-law recently passed away

and left a modest inheritance that was used to invest in TFSAs and RRSPs, which

would be used to fund a cash settlement for $65,000.00 payable to the Receiver in order

to discharge the Kaptor Mortgage.

34. The proposed settlement with the Koldeweys has been a concern for the Receiver as it

attempts to balance its primary obligation to maximize the realizations from the assets

of the Companies for the creditors with its concern for the personal circumstances of the

Koldeweys: two individuals nearing retirement, seeking to preserve their matrimonial

home.

35. The Receiver is in the process of obtaining an updated appraisal of the Barrie Property.

12

CONCLUSION

36. On account of the above, the Receiver respectfully requests that this Court grant the

relief requested in paragraph 4 (d) above.

All of which is respectfully submitted this 9th day of September 2015

CROWE SOBERMAN INC., in its capacity asCourt Appointed Receiver of2025610 Ontario Ltd, RaptorFinancial Inc., a.n,,ttinsignia Trading Inc.

Per ns rri CPA, CA, CIRP

Appendix I

THE HONOURABLE



TUESDAY, THE 15THJUSTICE WILTON-SIEGEL DAY OF SEPTEMBER, 2015

BETWEEN:


ROBERT GROSSMAN, STANLEY GROSSMAN, TOM KOFFLER,AV' RITTER, MARK SIMON, JUDITH SPORN, STEPHEN STARK,


-and-


Applicants

Respondents

APPLICATION UNDER SUBSECTION 243(1) OF THE BANKRUPTCY AND INSOLVENCYACT, R.S.C. 1985, c. B-3, AS AMENDED AND SECTION 101 OF THE COURTS OF

JUSTICE ACT, R.S.O. 1990, C. c.43, AS AMENDED

ORDER

THIS MOTION, made by Crowe Soberman Inc. in its capacity as court-appointed receiver

("Receiver") of Kaptor Financial Inc., Insignia Trading Inc. and 2025610 Ontario Limited

(collectively referred to as the "Companies" or "Kaptor Group"), for an Order, inter alga:

(a) Approving the activities of the Receiver as described in its First Report datedNovember 27, 2012;

(b) Approving the activities of the Receiver as described in its supplement to the FirstReport dated December 13, 2012;

(c) Approving the activities of the Receiver as described in its Second Report datedOctober 21, 2013;

(d) Approving the activities as described in its Third Report dated January 13, 2015;

(e) Approving the activities as described in its Fourth Report dated March 16, 2015;

(f) Approving the activities as described in its Fifth Report dated September 9, 2015;

(collectively referred to as the "Reports); and

(g) Such further and other relief as counsel may advise and this Honourable Court

permit.


ON READING the Reports of the Receiver and on hearing the submissions of counsel for the

Receiver, Eric Inspektor appearing in person, no one appearing for any other person on the

Service List, although properly served as appears from the Affidavit of Service of Frances

Dunne, sworn September 10, 2015.

1. THIS COURT ORDERS that the time for service of the Notice of Motion and the

Motion Record in respect of this motion be and is hereby abridged and that the motion is

properly returnable today and further that the requirement for service of the Notice of Motion

- 3 -

and Motion Record herein upon any other parties is hereby dispensed with and that the service of

the Notice of Motion and Motion Record herein is hereby validated in all respects and deemed

sufficient for all purposes.

2. THIS COURT ORDERS that the Reports and the activities and conduct of the Receiver

as described therein are hereby approved.

%r - /NAL7-7,-ON / BOOK NO:

LE I DAN:: LE REGiSTRE Na.

SEP i 5 2015

Court File No. CV-12-9732-00CLBETWEEN:

KEITH ALEXANDER, ARTHUR BARKIN et al. -and- 2025610 ONTARIO LIMITED, KAPTOR FINANCIAL INC., andINSIGNIA TRADING INC.

- Applicant - - Respondents —


(COMMERCIAL LIST)

(PROCEEDING COMMENCED AT TORONTO)

ORDER(dated September 15, 2015)

GOWL1NG LAFLEUR HENDERSON LLPBanisters and Solicitors1 First Canadian Place

100 King Street West, Suite 1600Toronto, Ontario M5X 1G5

Alex MacFarlane (LSUC #28133Q)Tel: (416) 369-4631Fax: (416) 862-7661


Thomas Gertner (LSUC 467756S)Tel: (416) 369-4618Fax: (416) 862-7661



TOR LAWI 8780568 \I