RichterAdvisoryGroupInc. 181BayStreet,33rdFloor Toronto,ONM5J2T3 www.richter.ca Court File No. THANE INTERNATIONAL, INC., THANE DIRECT, INC., THANE DIRECT COMPANY, THANE DIRECT MARKETING INC., WEST COAST DIRECT MARKETING, INC., THANE DIRECT CANADA INC. AND TDG, INC. REPORTOFTHEPROPOSED RECEIVER OCTOBER19,2015 CourtFileNo. ONTARIO SUPERIORCOURTOFJUSTICE (COMMERCIALLIST) BETWEEN: BANKOFMONTREAL Applicant -and- THANEINTERNATIONAL,INC.,THANEDIRECT,INC.,THANEDIRECTCOMPANY,THANEDIRECT MARKETINGINC.,WESTCOASTDIRECTMARKETING,INC., THANEDIRECTCANADAINC.AND TDG,INC. Respondents APPLICATIONUNDERsection243oftheBankruptcyandInsolvencyAct, R.S.C.1985,c.B-3,asamended,andundersection101ofthe CourtsofJusticeAct,R.S.O.1990,c.C.43 REPORTOFRICHTERADVISORYGROUPINC. INITSCAPACITYASPROPOSEDRECEIVEROF THANEINTERNATIONAL,INC.,THANEDIRECT,INC.,THANEDIRECTCOMPANY,THANEDIRECT MARKETINGINC.,WESTCOASTDIRECTMARKETING,INC.,THANEDIRECTCANADAINC.,AND TDG,INC. OCTOBER19,2015 2 TABLEOFCONTENTS I. INTRODUCTION..........................................................................................................................................4 II. PURPOSEOFREPORT...............................................................................................................................4 III. QUALIFICATIONS........................................................................................................................................5 IV. BACKGROUND...........................................................................................................................................6 V. FINANCIALPOSITION..............................................................................................................................12 VI. CREDITORS.............................................................................................................................................15 VII. PRE-FILINGSALEPROCESS...................................................................................................................16 VIII. TRANSACTION.........................................................................................................................................18 IX. LIQUIDATIONANALYSIS..........................................................................................................................20 X. SECURITYREVIEWOPINIONS................................................................................................................21 XI. URGENCY................................................................................................................................................22 XII. PROPOSEDDISTRIBUTIONTOLENDERS...............................................................................................23 XIII. RECOMMENDATION................................................................................................................................23 APPENDICIES THANEORGANIZATIONCHART OFFERTOPURCASE C MONTHLYMARGINREPORTFORPERIODENDINGSEPTEMBER30,2015 WEEKLYCASHFLOWANDMARGINFORECASTTODECEMBER21,2015 CONFIDENTIALAPPENDICIES 1 THANECONFIDENTIALINFORMATIONMEMORANDUM 2 VALUATIONANALYSISOFTHANEINTERNATIONALINC. 3 I. INTRODUCTION 1. RichterAdvisoryGroupInc. Richter CourtofJustice(CommercialList)(the"Court")bythe Agent ,forthesyndicateof lenders including the Bank of Montreal, HSBC Bank Canada and the National Bank of Canada (collectively, the Lenders ,foranorder ReceivershipOrder appointing Richterasareceiverto exercisethepowersand dutiessetoutintheReceivershipOrder,pursuanttosection243(1)ofthe BankruptcyandInsolvencyAct,R.S.C. 1985, c. B- BIA Courts of Justice Act R.S.O. 1990 c. C.43, as Receiver , without security, of all the assets, properties and undertakings (the ) of Thane Direct Company, Thane Direct Canada Inc. and Thane Direct Marketing Inc. (collectively, Canadian Debtors , Thane International, Inc., West Coast Direct Marketing, Inc., TDG, Inc. and Thane Direct, Inc. (collectively, U.S.Debtors together Thane Company . 2. RichterwaspreviouslyretainedbytheDebtortoactasafinancialadvisortoThanetoassistinprovidingstrategic , SSG Capital Advisors, LLC ( ). Richter also worked with the Lenders and their legal and financial advisors, Gowling Lafleur Henderson LLP ( ) and Ernst & Young LLP ( ), with regard to the proposed transaction,asdiscussedbelow. 3. Richteris a licensed trusteewithin the meaning ofsection2 ofthe BIAand has consented to act as Receiver in theseproceedingsintheeventthatthisCourtgrantsthereliefsoughtbytheAgent. Wearewritingthisreportas ProposedReceiverofThane ProposedReceiver . II. PURPOSEOFREPORT 4. Thepurposeofthisreport Report isto: a) ProvidethisCourtwith: (i) AnoverviewoftheCompany,includingitscorporatestructureandglobaloperations; (ii) (iii) Informationont ebtstructure;and (iv) Informationont currentfinancialpositionandliquidity. b) Outlinetheproposedsaletransactionwhichhasbeennegotiated,including: (i) The marketing and sales process undertaken by the Company to refinance or assets; (ii) Providing information regarding the proposed asset and share Asset/Share Transaction , including the proposed offer to purchase Sale Agreement to be entered 4 into between the Receiver and 9472541 Canada Inc., 9472550 Canada Inc., 635427, Inc. and 652134Limited(collectively, Purchasers ; (iii) Providing information regarding the shareholder agreement between 9472541 Canada Inc. and certainof ShareholderAgreement (iv) Providing information regarding the term sheet between the Purchasers and the Lenders (the TermSheet ;and (v) Providing the P Asset/Share Transaction with thePurchaserspursuanttotheSaleAgreement Transaction c) Provide this Court with a summary of the security opinions prepared by each of the following independent solicitorsretainedbytheProposedReceiver: (i) BLG ),inrespectofOntariolawmatters; (ii) Goulston&StorrsP.C. G&S inrespectDelawareandNewYorklawmatters;and (iii) JacksonDeMarcoTidusandPeckenpaughP.C. JDTP ,inrespectofCalifornialawmatters. d) SummarizetheresultsofaliquidationanalysispreparedbyE&Y,andreviewedbytheProposedReceiver. e) Recommendthat,intheeventthisCourtappointsRichterasReceiver,theCourtissueanorder: (i) AuthorizingtheReceivertoactasforeignrepresentativeandtakesteps asnecessaryto facilitate theChapter15proceedings; (ii) ApprovingtheTransactionandauthorizinganddirectingtheReceivertoexecutesuchdocuments andtakesuchadditionalstepsasarenecessarytocompletetheTransaction; (iii) Sealing the Confidential Appendices to prevent this information from becoming publicly available pendingaclosingoftheTransactionoruponfurtherorderofthisCourt; (iv) VestinginthePurchasers,asatclosing,theAssets,asidentifiedintheSaleAgreement,freeand clearofallliens,charges,securityinterestsandotherencumbrances;and (v) AuthorizinganimmediatedistributiontotheLenders. III. QUALIFICATIONS 5. In preparing this Report, Richter has relied upon unaudited financial information, the records, financial information prepared by the Company and discussions with management and legal counsel to theCompany. Richterhasnotaudited,reviewed,orotherwiseattemptedtoverifytheaccuracy orcompleteness of the information and accordingly, Richter expresses no opinion or other form of assurance with respect to the accordancewiththe Canadian Institute of Chartered Accountants Handbook has not been performed. Future-oriented financial information relie 5 results achieved may vary from this information and these variations may be material. Richter expresses no opinion or other form of assurance with respect to the accuracy or completeness of any financial information containedherein. 6. Unless otherwise noted, all monetary amounts contained in this Report are expressed in United States dollars USD . IV.BACKGROUND 7. Reference is made to the Affidavit of Paul James Findlay, sworn October 16, 2015 Findlay Affidavit in support of the appointment of Richter as receiver over all of the property, assets and undertakingsoftheCompany. CompanyOverview 8. Thaneoperatesasaglobaldirectresponseenterprisewithafocusonthesaleofuniqueconsumerproducts. The Companydevelopspromotionalprogramswithglobalappealforconsumergoodsinthehousewares,fitness,and healthand distributionplatform spans sevencontinents and reaches millions ofconsumers. 9. ThaneestablisheditsheadofficeinMississauga,Ontario in1997. TheCompanyalsomaintainsleasedfacilities in the United States, United Kingdom, Australia, Scandinavia and Mexico. Currently, Thane operates in over 10 countriesthroughitssubsidiariesandover100countriesthroughitsthirdpartydistributionpartners. 10. Asnotedabove,Thanemaintainsapresencegloballywithsalesoriginatingfromanumberofdifferentcountries. TheCompanysfiscal2015revenuebygeographywasthefollowing: ThaneInternational,Inc. RevenuebyGeography ForthefiscalyearendingMarch31,2015 USA $ 12,093,681 Canada $ 10,842,392 Europe/Africa $ 90,963,481 CentralandSouthAmerica $ 32,758,462 AsiaandAustralia $ 55,362,404 Total $ 202,020,420 11. at 5255 Orbitor Drive in Mississauga, Ontario Head Office . In additiontoemployeeslocatedattheHeadOffice,Thanehasstafflocatedacrosstheworld. Asatthedateofthis report,employeesbylocationareasfollows: 6 ThaneInternational,Inc. Headcountby Geography AsatSeptember30,2015 Employees Canada 55 USA 16 UnitedKingdom 27 Scandinavia 85 Australia 23 Mexico 76 Total 282 12. Management) includes Mr. Amir Tukulj, President and Chief Executive Officer, Mr. Russel Orelowitz, Chief Financial Officer, Ms. Danijela Todorovic, President, Thane Direct, and Mr. Robert Sencer, General Counsel. With the exception of Mr. Robert Sencer, the Proposed Receiver understands ManagementislocatedandoperatesfromtheHeadOffice. 13. Companydoesnotsponsorapensionplanforanyofitsemployees. 14. Filed with this Court on a sealed and confidential basis as is a copy of the CIM whichwillprovideamoredetailedbackgroundon theCompanyanditsorganizationalchart,itsbusinessmodelandvariousproducts. CorporateStructure 15. DMHI organizationalchartisattachedheretoas A . 16. AsdetailedinAppendixA,apartfromWestCoastDirectMarketing,Inc. WCDM andTDG,Inc.,whicharedirect subsidiaries of Thane International, Inc. TII TDI (either directly or indirectly) of all of the operating subsidiaries of Thane. Both TDI and TII are Delaware registered corporations; ces are located in California. day-to-day operations are carried out in TDI and TDC from the Head Office with no activeoperationsoccurringinDMHIorTII. 17. ThemajorityshareholderofDMHIis H.I.G.Capital HIG ,whichdirectlyorindirectlyaccountsforapproximately 60% of the equity ownership. The balance of the equity is held by the former founders of Thane and certain employees,includingManagement. 7 CompanyOperations 18. Aspreviouslynoted,Thanetargetsproductsinthehousewares,fitness,andhealthandbeautysectors,whichare appeal to the large demographic of middle income, middle-aged consumers who are inclined to purchase products that are marketedthroughdirectresponsetelevisionprograms DRTV . 19. a) internallydevelopedproductsandprograms; b) externallydevelopedproductsandprograms(i.e.productcomestoThanewithafinishedandtestedprogram thatisseekingglobaldistribution);and c) externallydevelopedproductsforwhichThanecreatesthemarketingmessageandtheprogram. 20. For externally-sourced products, Thane will acquire the necessary product rights and pay the product owner a royaltybasedontherevenuesgeneratedbytheproduct. 21. ave an 18-month product lifecycle from the timetheyarelaunchedinthemarket. Assuch,Thanetypicallydevelopsapproximatelyeighttotennewproducts orenhancementstoexistingproductsinitspipelineatanygiventimeinordertomaintainaflowofnewproducts inthemarketplace. Howeverafteraproducthaspeakedinthemarket,salestaperoffanddeclinequickly,which iswhy productpipelineisinstrumentaltothesuccessofitsbusiness. 22. Thanehasamulti-channelapproachtorevenuegenerationandreachingconsumersthrough: a) DRTVtomarketandsellitsproductsdirectlytoconsumersbyreceivingordersdirectlyfromconsumers. This channel involves ed products,throughvariousmediachannelsandmediaslotsthatThaneownsorhascontracted; b) products;and c) non-DRTV, including internet sales, presencetoselltheirownproducts. 23. behavior and increased competitive pressures have affected the industry. As a result, Thane experienced a decrease in its DRTV revenues and has had to adjust its business model to drive back-end business through traditional retail and non-DRTV channels. However, working capital requirements are minimal for the DRTV business since cash payments are received from consumers upfront (i.e. at the time of order), whereas the 8 Company needs to fund working capital for non-DRTV revenues as cash from sales to distributors would be receivedontypicalpaymentterms. 24. As detailed in Appendix A, Thane has subsidiaries in the United Kingdom, Scandinavia, Mexico and Australia International Subsidiaries DRTV and non-DRTV channels. The International Subsidiaries operate as profit centers and manage their own operating costs such as payroll, rent, freight, logistics, selling expenses and other general and administrative costs. 25. Each oftheInternational Subsidiaries purchases all itsproductsexclusivelyfromTDI. All orders receivedby the International Subsidiaries from their respective customers (both consumers and retailers) are forwarded to TDI. TDI places orders for the products with its suppliers, primarily located in the Peoples Republic of China, and the suppliersdelivertheproductsdirectlytoeachoftheInternationalSubsidiaries. 26. Unlike the International Subsidiaries, the Canadian Debtors and US Debtors manage their own procurement of products directly with the suppliers. In the United States,WCDM is responsible for allDRTV and internet sales, and TDG, Inc. is responsible for sales through retail channels. In Canada, TDCI managessalesthroughDRTV,internetchannelsandretailchannels. 2012DividendRecapitalization 27. OnSeptember28,2012,theCompanyenteredintoanamendedandrestatedcreditagreementwiththeLenders tomakeavailablea$10millionrevolvingcreditfacilityanda$100milliontermfacility,bothexpiringonSeptember 28,2016. 28. TheProposedReceiverunderstandsthatcertainproceeds from this transactionwereused to funda subsequent dividendrecapitalizationwherebytheshareholdersofThanewithdrewapproximately $70million byway ofshare and 2012 Dividend Recapitalization). The 2012 Dividend Recapitalization increased the overall leverage of the Company by reducing the equity value and increasing the outstanding debt. The Proposed Receiver understands this transaction was undertaken with the concurrenceof theLenders. 29. Prior to the 2012 Dividend Recapitalization, Thane experienced significant success with its product portfolio with annualizedadjustedEBITDAreaching$44millioninfiscal2010,$30millionin2011,and$40millionin2012and 2013,ascomparedtoahistoricalaverageofapproximately$23millionbetween2003and2008. CausesofFinancialDifficulties 30. lperformancedeterioratedsignificantly, primarilyduetothefollowingfactors: 9 a) With the marketplace becoming more and more global, competition has impacted Thane in certain revenue channelsand/orgeographies; b) Theconstantlychangingretailenvironmentandchannelsofconsumerdemandforproductsimpactsrevenue quickly andrequiresadditionalinvestmentsandcostoutlaystomaintain thesechannels;forexample,DRTV has considerably more competition with the growth of internet sales and other non-traditional retail intermediaries; c) Thaneoperatesinahighlycompetitiveon-linedirecttotheconsumerenvironmentwherepotentialcustomers are able to search and compare products and prices at relative ease and absent continued product innovation,longer-termloyaltyofthesecustomerstendstodeteriorate; d) The increase in the sales mix from DRTV to non- positionastheCompanyneededtofundworkingcapitalassociatedwithnon-DRTVsales; e) ThesignificantlackofliquidityhasnotallowedtheCompanytomakesignificantinvestmentsinnewresearch and development, product shows and/or product launches to better address this global competition and constantlychangingrevenuechannels; f) ly successful products peaked in fiscal 2013 and began to experience significant declines in salesinfiscal2014; g) The Company is exposed to many global variables, such as foreign currency exposures that recently have negativelyimpactedoverallfinancialperformance; h) are relatively fixed and significant to maintain andpreservewhenrevenueisdeclining;and i) Significantly reduced liquidity and the s ability to borrow under the Lenders revolving facility, as discussed below, or obtain new financing in order to fund operations created a major stress on the . 31. The aforementioned have contributed to Thane prolonged margin deficit position on its operating line with Lenders, inability to service its debt obligations to Lenders and its inability to remain in compliance with its financialcovenantsunderitsfinancingarrangementswiththeLenders,asdiscussedfurtherbelow. Restructuring&LiquidityConstraints 32. TheLendershavecontinuedtosupporttheCompanysincethefallof2013whentheCompanyadvisedtheAgent that it would be in breach of financial covenants. However, as a result of deteriorating financial 10