Court File No.: CV-15-10832-00CL ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF TARGET CANADA CO., TARGET CANADA HEALTH CO., TARGET CANADA MOBILE GP CO., TARGET CANADA PHARMACY (BC) CORP., TARGET CANADA PHARMACY (ONTARIO) CORP., TARGET CANADA PHARMACY CORP., TARGET CANADA PHARMACY (SK) CORP., AND TARGET CANADA PROPERTY LLC THIRTY-SECOND REPORT OF THE MONITOR ALVAREZ & MARSAL CANADA INC. OCTOBER 31, 2016 TABLE OF CONTENTS 1.0 INTRODUCTION..............................................................................................................1 2.0 TERMS OF REFERENCE AND DISCLAIMER ..........................................................2 3.0 OVERVIEW OF KNOWN LATE CLAIMS ..................................................................3 4.0 PROCEDURAL BACKGROUND ...................................................................................6 5.0 APPLICABLE LAW .......................................................................................................12 6.0 MONITOR’S CONSIDERATIONS REGARDING KNOWN LATE CLAIMS .......16 7.0 REQUEST FOR ADVICE AND DIRECTIONS ..........................................................20 INDEX TO APPENDICES Appendix A – List of Applicants and Partnerships Appendix B – List of Creditors Posted to Monitor’s Website Appendix C – Endorsement dated October 18, 2016 Appendix D – List of Authorities 1.0 INTRODUCTION 1.1 On January 15, 2015, Target Canada Co. (“TCC”) and those companies listed in Appendix A (collectively, the “Applicants”), together with the Partnerships also listed in Appendix A (the “Partnerships”, and collectively with the Applicants, the “Target Canada Entities”), applied for and were granted protection by the Ontario Superior Court of Justice (Commercial List) (the “Court”) under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA”). Pursuant to an Order of this Court dated January 15, 2015, Alvarez & Marsal Canada Inc. (“A&M”) was appointed Monitor of the Target Canada Entities in the CCAA proceedings (the “Monitor”). The proceedings commenced by the Applicants under the CCAA are referred to herein as the “CCAA Proceedings”. 1.2 On February 11, 2015, this Court issued the “Amended and Restated Initial Order” (hereinafter, unless the context otherwise requires, the “Initial Order”), which incorporates certain changes to the Initial Order granted January 15, 2015 that were described in the Second Report of the Monitor dated February 9, 2015. 1.3 In connection with the CCAA Proceedings, the Monitor has provided to this Court thirty- one reports and three supplementary reports (collectively, the “Monitor’s Reports”). A&M has also provided to this Court the Pre-Filing Report of the Proposed Monitor (the “Pre-Filing Report”) dated January 14, 2015 (together with the Monitor’s Reports, the “Prior Reports”). The Prior Reports, the Initial Order and other Court-filed documents and notices in these CCAA Proceedings are available on the Monitor’s website at www.alvarezandmarsal.com/targetcanada. - 2 - 1.4 This Thirty-Second Report of the Monitor (the “Thirty-Second Report”) is filed in connection with the Monitor’s motion for advice and directions scheduled to be heard November 29, 2016, to provide this Court and Creditors with information regarding a small number of claimants who have come forward subsequent to the meeting of Creditors held May 25, 2016 (the “Creditors’ Meeting”) requesting permission to file proofs of claim against the Target Canada Entities, notwithstanding that the Claims Bar Date provided under the Claims Process for so doing has lapsed. 1.5 As described more fully herein, the Monitor requests the Court’s advice and direction on three issues: (a) Should any of the known late claims be permitted to file Proofs of Claim in the Claims Process? (b) If so, and if such claims are determined to be allowed (in whole or in part), which distributions are such claimants entitled to participate in? (c) How is the Monitor to address any as-yet unknown late claims that may come forward in the future? 2.0 TERMS OF REFERENCE AND DISCLAIMER 2.1 In preparing this Thirty-Second Report, the Monitor has been provided with, and has relied upon, unaudited financial information, books and records and financial information prepared by the Target Canada Entities and Target Corporation, and discussions with management of the Target Canada Entities and Target Corporation (collectively, the “Information”). - 3 - 2.2 The Monitor has reviewed the Information for reasonableness, internal consistency and use in the context in which it was provided. However, the Monitor has not audited or otherwise attempted to verify the accuracy or completeness of the Information in a manner that would wholly or partially comply with Canadian Auditing Standards (“CASs”) pursuant to the Chartered Professional Accountants Canada Handbook and, accordingly, the Monitor expresses no opinion or other form of assurance contemplated under CASs in respect of the Information. 2.3 Unless otherwise indicated, capitalized terms not otherwise defined in this Thirty-Second Report are as defined in the Prior Reports, the Second Amended Plan and Restated Joint Plan of Compromise and Arrangement dated April 6, 2016 (the “Plan”), and the Initial Order. 2.4 Unless otherwise stated, all monetary amounts contained in this Thirty-Second Report are expressed in Canadian dollars. 3.0 OVERVIEW OF KNOWN LATE CLAIMS 3.1 As described more fully below, following full publication of the Claims Bar Date and after providing notice that late-filed claims would no longer be permitted, the Monitor has declined to permit the filing of late claims since the Creditors’ Meeting. Since that time, the Monitor has received a small number of inquiries on behalf of individuals and corporations who did not file claims in the Claims Process seeking to now file claims against the Target Canada Entities. - 4 - 3.2 In each instance, the Monitor has informed such late claimants that their claims are barred and extinguished by operation of the Plan and the Sanction and Vesting Order, and that the Monitor would not accept late claims for filing. 3.3 The Monitor or its legal counsel has responded to inquiries from 12 putative claimants since the date of the Creditors’ Meeting, asserting a minimum aggregate of approximately $8.4 million in claims against the Target Canada Entities.1 These include: (a) five litigation claims or cross-claims asserting unliquidated damages in the aggregate approximate amount of $7.5 million; (b) six vendor claimants asserting claims in the aggregate approximate amount of $945,000; and (c) one Pharmacist Franchisee who has not provided details on the nature or quantum of their claim to date, and has not been a participant in the ongoing Pharmacist Franchisee claims adjudication proceedings. 3.4 Under the Claims Procedure Order the Monitor was granted the discretion by the Court to accept late-filed claims. As described in greater detail below, the Court’s order sanctioning the Target Canada Entities’ Plan explicitly barred and extinguished all claims not filed in the Claims Process. As a result, since the date of the Creditors’ Meeting, the Monitor has refused to accept the filing of late claims, and provided clear notification of 1 Representatives of the Monitor also received inquiries from several additional putative claimants who did not provide details of the nature of their claims, and who are not reflected in this section. In addition to the approximately $7.5 million in additional claims sought to be asserted against the Target Canada Entities, one of the putative claimants is seeking to claim for unliquidated damages in the amount of $1 million against the Target Canada Entities’ insurers. - 5 - same in the Twenty-Seventh Report of the Monitor dated May 11, 2015, which was duly served on the Service List and posted to the Monitor’s website. 3.5 In taking this position, first, the Monitor recognized that the Court established a clear and defined Claims Process and Claims Bar Dates, which were followed, and a CCAA plan was presented and unanimously approved upon on that basis. Further, the Sanction and Vesting Order was granted confirming the barring and extinguishment of claims. 3.6 Second, the Monitor considered the fairness to Affected Creditors who filed timely claims in accordance with the Claims Procedure Order, and who voted on the Plan at the Creditors’ Meeting based in part on the Illustrative Recoveries Analysis set out in section 6.0 of the Twenty-Seventh Report. These illustrative recoveries were based only on claims admitted at that time (including disputed claims in respect of which amounts had been reserved pending resolution). 3.7 Third, the Monitor wanted to ensure that late claims were treated on a consistent and principled basis. 3.8 In bringing this application to the Court for advice and directions, the Monitor wishes to ensure that this issue is fairly brought before the Court for determination. It is the Monitor’s view that there is a need for consistency and for the estate and its stakeholders to have finality and certainty with respect to the Claims Process. The Monitor is also cognizant of not inviting a deluge of additional late claims, thus effectively creating a second claims bar date, which could reduce the recoveries of Affected Creditors whose claims were timely filed. - 6 - 4.0 PROCEDURAL BACKGROUND