Sears Canada Employee and Retiree Claims Process Webinar

Sears Canada Employee and Retiree Claims Process Webinar March 28, 2018

Introductions Ken Eady • Court-appointed Representative, SCRG, Retiree Larry Moore • Court-appointed Representative, SCRG, Retiree William Turner • Court-appointed Representative, SCRG, Retiree KOSKIE MINSKY LLP 2

Introductions: Advisors Andrew Hatnay, Mark Zigler • Koskie Minsky LLP • Court-appointed Representative Counsel Gus Tertigas • EY • Financial advisor Tom Levy • The Segal Company • Actuarial advisor KOSKIE MINSKY LLP 3

Housekeeping • PDF copy of slides (English / French) available on KM website www. kmlaw. ca/case-central • Click on Sears Canada • Archived version of the webinar, with audio, will be available a few days after the webcast, on KM website • Q&A will be held at the end, based on questions received in advance and questions e-mailed during the course of the webcast • This presentation has been developed for the Sears Canada retiree constituency KOSKIE MINSKY LLP 4

Outline of Presentation 1. 2. Status of Sears Canada CCAA Proceedings Status of Sears Canada (DB) Pension Plan a) Presentation from Representative Counsel b) Presentation from Morneau Shepell 3. Claims process & categories of claims a) Registered Pension Plan b) Retiree Health Benefits c) Retiree Life Insurance d) Lifetime Merchandise Discount e) Supplemental Pension Claims 4. Next steps in CCAA KOSKIE MINSKY LLP 5

Status of Sears Canada CCAA Proceedings • June 22, 2017 – Filed for CCAA Protection > • Koskie Minsky LLP appointed Representative Counsel for Actives and Retirees with interest in Pensions and/or Other Post-Employment Benefits (“OPEBs”) September 30, 2017 > • Special payments to DB Pension Plan and OPEBs suspended October 13, 2017 > • Court approval of final liquidation of Sears stores and inventory February 22, 2018 > • Court approval of Employee and Retirees Claims Process March 2, 2018 > Litigation Investigator appointed by CCAA Court to investigate any claims that Sears Canada and/or its creditors may have against any third parties KOSKIE MINSKY LLP 6

Sears Canada DB Pension Plan December 31, 2015 Wind-Up Ratio 81% (estimated) Wind-up Assets $1, 136, 970, 000 Wind-up Liabilities $1, 403, 775, 000 Wind-up Shortfall ($266, 805, 000) Current estimates unknown KOSKIE MINSKY LLP 7

Morneau Shepell – Introduction (**slides 8 -12 have been prepared by Morneau Shepell and do not necessarily represent the views of Representative Counsel**) • The Superintendent of Financial Services (the “Superintendent”) appointed Morneau Shepell Ltd. (“Morneau Shepell”) as the Administrator of the Sears Canada Inc. Registered Retirement Plan (the “Sears Plan”) effective October 16, 2017. • Morneau Shepell is the largest administrator of retirement and benefit plans in Canada. Morneau Shepell services approximately 20, 000 clients, ranging from small businesses to some of Canada’s largest corporations and associations. Morneau Shepell has more than 4, 000 employees in offices across North America. • For your reference you may contact Morneau Shepell by phone 1 -888 -841 -8956 Monday to Friday from 9: 00 am to 5: 00 pm EST or by email at searspension@morneaushepell. com. KOSKIE MINSKY LLP 8

Administration Activities • Since its appointment Morneau Shepell has been undertaking many activities with respect to the Sears Plan in the following areas: > Canada Revenue Agency Compliance > Plan Trustee/Custodian Arrangements > Data, Records and Administration > Pension Plan Investments > Member Communication > Actuarial Review > CCAA Procedural Matters KOSKIE MINSKY LLP 9

Administration Activities (cont’d) • On or before 5 pm by April 9, 2018, Morneau Shepell will file a proof of claim in accordance with the Employee Retiree Claims Procedure Order with respect to the windup deficit in the Sears Plan and will work with Koskie Minsky to avoid duplication of efforts and costs. • The Superintendent has proposed to order: 1. The wind up of the Sears Plan effective October 1, 2017, such wind up to include all members of the Plan whose employment was terminated on or after June 13, 2017; and 2. That contributions towards the defined contribution component of the Sears Plan continue until all or substantially all of the members of the Sears Plan cease employment with Sears, despite the wind up of the Sears Plan. • A class action group had requested a hearing before the Financial Services Tribunal. This has slowed down the wind-up process and required resources to be expended on this challenge. A settlement of that hearing request has been negotiated and a wind-up order can now proceed. KOSKIE MINSKY LLP 10

Adjustments to Pensions/PBGF Protection • • • For eligible Ontario former members and pensioners the Pension Benefits Guarantee Fund guarantees benefits of up to $1, 000 (the “PBGF Guaranty Level”) for service while employed in Ontario, with some exclusions. Pension benefits for pensioners will be subject to interim reduction levels that will protect the benefits of all of the members. The reductions will only occur 60 days after a letter informing each pensioner of the reduction has been sent, Provided the wind up of the Plan is ordered as anticipated we expect that letters will be sent out in June. However, for Ontario members the interim reduction will not be below the PBGF guaranteed level. Examples: 1. If a qualifying Ontario member’s pension is $1, 000 per month or less there will be no reduction to their pension. 2. If a qualifying Ontario member’s pension is $1, 200 per month there will be no interim reduction to their pension below $1, 000 per month. Only the $200 above the PBGF guaranteed level will be subject to an interim cutback. Once the wind up report is approved by the Superintendent and the final wind up funded ratios of the Plan are known, further adjustments to pensions (positive or negative) will be made. KOSKIE MINSKY LLP 11

Payment of Commuted Values • The payment of commuted values for members is affected by the jurisdiction of employment of the member and the timing of the payment of the benefit. Please refer to Morneau Shepell’s website for more detail: www. pensionwindups. morneaushepell. com KOSKIE MINSKY LLP 12

Objectives of your Representatives (Sears Canada DB Pension Plan) 1. Maximize recovery for pension fund in CCAA process, including priority deemed trust claim in Sears Canada estate 2. Get PBGF support for Ontario members 3. Get government support to increase PBGF coverage to $1, 500 in Ontario 4. Minimize hardship KOSKIE MINSKY LLP 13

What is the Employee and Retiree Claims Process? • Approved by CCAA Court on February 22, 2018 • Potential claims that may be asserted by employees and retirees against the Sears Canada Entities and their current and former officers and directors • Used successfully in other insolvency proceedings • Agreed-upon methodology and streamlined process • Without the benefit of this process, retirees would have to value their own claims as well as engage their own advisors (including actuarial advisors) for assistance KOSKIE MINSKY LLP 14

What is the Employee and Retiree Claims Process? • Kinds of claims: > Sears Canada DB Pension Plan claim for funding shortfall > Retiree health/dental benefits; > Retiree life insurance; > Employee and Retiree Lifetime Merchandise Discount; > Supplemental pensions for certain retired management personnel KOSKIE MINSKY LLP 15

What is the Employee and Retiree Claims Process? • Estimated Retiree Claims (exclusive of Sears Canada DB Pension Plan Claim) Million Health, Dental, and Life Insurance (“Retiree Benefits”) 421 Lifetime Merchandise Discount 13. 8 Supplemental Pension (Funded and Unfunded Arrangements) 33. 8 KOSKIE MINSKY LLP 16

What is the Employee and Retiree Claims Process? Court Approval of Employee and Retiree Claims Process February 22, 2018 Proof of Claims You do not have to file a Proof of Claim for claims relating to: a) Sears DB Pension Plan; b) Retiree Benefits; c) Lifetime Merchandise Discount; and d) Supplemental Pensions. March 5, 2018 Retiree Claims Package Prepared and Mailed to Everyone Individualized Statements showing your indivdiual Retiree Benefit Claim (if applicable). April 9, 2018 REQUEST FOR CORRECTIONS BAR DATE You must submit your Retiree Request for Correction form before this date. The Monitor will issue a Revised Information Statement, Notice of Acceptance or Notice of Disallowance. May 7, 2018 CLAIMS BAR DATE Cut off date for any filing of proofs of claim KOSKIE MINSKY LLP Post-May 2018? DISTRIBUTION ON CLAIMS Timing uncertain 17

Developing the Employee and Retiree Claims Process • Involved the active engagement of key stakeholders: > Retiree and Former Employees’ representatives; > Active Employees’ representatives; > the Monitor; and > Sears Canada • Plus participation of legal, actuarial and financial advisors for all parties KOSKIE MINSKY LLP 18

Retiree Claims Procedure • Sears Canada Pension Plan Claim (DB entitlements) > > > You do not need to take any action A claim will be filed on your behalf with respect to the defined benefit entitlements under the Sears Canada Pension Plan DC Plan members will be fully paid KOSKIE MINSKY LLP 19

Retiree Claims Procedure • If you have retiree health and/or life insurance entitlements, you should have received an individualized Retiree Benefit Claim prepared by Sears Canada with the assistance of the Monitor, and input from Representative Counsel, using the court-approved methodology • Statements are tailored for each person and include: > Amount of claim > Personal data on which the claim is based > How you can make corrections to your data (Retiree Benefit Claims Correction form) KOSKIE MINSKY LLP 20

Retiree Claims Procedure • If your personal data is correct, you do not need to do anything further • If your personal data is wrong, you will have a chance to correct it > > Any corrections to data must be made in the Retiree Benefit Claims Correction form, signed, and submitted to the Monitor with supporting documents before May 7, 2018 Monitor will review and consider all Requests for Correction, and may accept or reject them, in whole or part KOSKIE MINSKY LLP 21

Retiree Claims Procedure • Where a Request For Correction is rejected, the Monitor will send a Notice of Disallowance. • A Notice of Disallowance may be appealed by completing a Notice of Dispute (Personal Information) no later than 30 days upon receipt of the Notice of Disallowance • No appeal of the methodology – calculations in accordance with the methodology cannot be challenged. KOSKIE MINSKY LLP 22

Methodologies: Valuing Claims • Claims for the value of lost benefits are difficult to quantify. Replacement benefits cannot be readily “purchased” in the open market. • Retiree Benefit Claims represent the estimated costs of replacing the lost benefits • Sears Canada calculated the Retiree Benefit Claims, with input from our actuaries • Claims calculations for medical and life insurance benefits can be highly complex and were approved by the Court as being reasonable KOSKIE MINSKY LLP 23

Lifetime Merchandise Discount Claims • You do not need to do anything to advance your lifetime merchandise discount claim • If you were entitled to a lifetime merchandise discount, your claim has been deemed to be $840 • Calculated by Sears Canada, with input from our actuaries, based on a projected annual savings of $120 for an additional 7 years of usage. This was approved by the Court as a reasonable estimate. KOSKIE MINSKY LLP 24

Supplemental Pension Claims • If you have entitlements to a non-registered Supplemental Pension, Representative Counsel will file a claim on your behalf by April 9, 2018 • This affects approximately 110 individuals • Representative Counsel will be contacting you separately and sending a mailing to you regarding your individual claim amount and the personal data on which your supplemental pension claim is based KOSKIE MINSKY LLP 25

Four Important Points 1. Pension recoveries go directly to the Sears Canada DB Pension Plan. 2. You will not receive a cheque for the amount of your non‑pension claim – only for the part of it that can be paid from the Sears Canada estate. As reported by the Monitor, the estimate dividend rate might be around 10 cents on the dollar or less. 3. You cannot do the math yourself. The calculations are complex and involve specialized actuarial computer models and many underlying assumptions. 4. Your responsibility is to make sure that your personal data is correct so that the correct claim is calculated for you. KOSKIE MINSKY LLP 26

Proof of Claim • If you have any other claim against Sears Canada or the Directors that is not covered by the Employer and Retiree Claims Process, you must submit a Proof of Claim form by April 9, 2018 • The Monitor will review all Proofs of Claim, and may: > > request additional information; and either accept or disallow the claim, by sending a Notice of Disallowance KOSKIE MINSKY LLP 27

Proof of Claim • Within 30 days of receiving a Notice of Disallowance, the individual must file a Notice of Dispute (Proof of Claim) if they intend to dispute it. After filing a Notice of Dispute, the Monitor: > > may refer the dispute to a Claims Officer for determination; or may bring the dispute before the Court for determination KOSKIE MINSKY LLP 28

Next Steps in CCAA • Timing for payment of your claims cannot be estimated but it should not be expected in the near future for many reasons. Ultimate distribution of Sears Canada’s estate depends on: > Finalizing asset sales > Potential litigation claims > Collecting additional funds owing to Sears Canada • It is normal for complex estate distributions in CCAA proceedings to take years to effect KOSKIE MINSKY LLP 29

Next Steps in CCAA • Litigation Investigator > > > Appointed by the Court on March 2, 2018 Mandate to investigate, review and report on all potential claims against any third parties, including current and former directors, shareholders, and advisors of Sears Canada Objective to increase recoveries for creditors in a coordinated, organized, and cost-effective manner in respect of certain transactions and asset stripping of Sears Canada in recent years KOSKIE MINSKY LLP 30

Next Steps in CCAA • Sears Canada Plan > Morneau Shepell will be providing more information on the wind-up process in the coming months KOSKIE MINSKY LLP 31

Address Changes & Notifications of Deaths • Please keep us informed of personal information changes (address, deaths, etc. ): > > Koskie Minsky LLP (Tel) : 1 -800 -244 -7120 Email: searsrepcounsel@kmlaw. ca • Morneau Shepell – please also contact MS if you have a registered pension > > Morneau Shepell (Tel): 1 -888 -841 -8956 Email: searspension@morneaushepell. com • Executors and Executrixes – we recommend keeping estates open until after the final distribution as there may be more funds coming, however, the date is not yet known. KOSKIE MINSKY LLP 32

Keep Informed of Updates • Pension Representative Counsel > https: //kmlaw. ca/cases/sears-canada/ • SCRG > http: //www. scretireegroup. ca/ • The Monitor (FTI Consulting) > http: //cfcanada. fticonsulting. com/Searscanada/default. htm • Pension Plan Administrator (Morneau Shepell) > https: //www. pensionwindups. morneaushepell. com/en/plan_inf o/SRRP/plan_info. asp KOSKIE MINSKY LLP 33

Questions? Please contact Representative Counsel at: Toll-free hotline: 1 800 244 7120 Email: searsrepcounsel@kmlaw. ca KOSKIE MINSKY LLP 34