FACTUM AND BRIEF OF AUTHORITIES OF THE RECEIVER (Motion Returnable July 7, 2017)

ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST Court File No. CV-17-11726-OOCL B ETWEEN: HARBOUREDGE MORTGAGE INVESTMENT CORPORATION Applicant - and - 2177427 ONTARIO LIMITED Respondent FACTUM AND BRIEF OF AUTHORITIES OF THE RECEIVER (Motion Returnable July 7, 2017) FOGLER, RUBINOFF LLP Lawyers 77 King Street West Suite 3000, P.O. Box 95 TD Centre North Tower Toronto, ON M5K 1 G8 Vern W. Dane (LSUC# 32591 E) Tel: 416.941.8842 Fax: 416.941.8852 Lawyers for the Receiver TO: THE SERVICE LIST

SERVICE LIST BALDWIN LAW Barristers and Solicitors 54 Victoria Avenue Belleville, ON K8N 1 Z7 Ian Brady/Gregory R.M. Parker Tel.: 613-771-9991 Fax: 613-771-9998 Email: ibrady~a~,baldwinlaw.ca / g,~arker e,baldwinlaw.ca Lawyers for 2177427 Ontario Limited ELIE KHOURI (Email: elie(cr~,capitalrentals.ca ) 30 Lillico Drive Ottawa, Ontario K1V 9L6 GRUDEFF, BERG Barristers and Solicitors 5-3300 Steeles Ave. West Vaughan, Ontario L4K 2Y4 Sheldon J. Berg Tel: 905.761-9445 Fax: 905.761-8500 Email: s.berg~a~rogers.com Lawyers for Giuseppe Mozzone ROMSPEN INVESTMENT CORPORATION 162 Cumberland Street Suite 300, Toronto, ON MSR 3N5

thane. winters(a~j ustice. ~c. ca JUSTICE CANADA Tax Section, P.O. Box 36, Exchange Tower 3400-130 King Street West Toronto, ON MSX 1K6 Tel: 416.9733172 Fax: 416.973.0810 Attention: Diane H. A. Winters Kevin. ohara~u,ontario. ca MINISTRY OF FINANCE Legal Services Branch 33 King Street West, 6~` Floor Oshawa, ON L1H 8H5 Attention: Kevin O'Hara NATIONAL LEASING GROUP INC. 1525 Buffalo Place Winnipeg, Manitoba R3T 1L9 Attention: Anna Neustaedter Email: Anna9093(a,nationalleasin.com HEWLETT-PACKARD FINANCIAL SERVICES COMPANY 200 Connell Drive Berkeley Heights, New Jersey 07922 U.S.A. Attention: Lisa A. Kelder Email : lisa.kelder(a)hpe.com J.D.F.R. INVESTMENTS INC. 4 139 Bayswater Ave. Ottawa, Ontario KlY 2G2

Christopher A. Moore Barrister and Solicitor 63 Robert Street, Ottawa, Ontario K2P 1 GS Tel: 613.230-9448 Fax: 613.230-3624 Email: chalmo(a,istar.ca Lawyer for HTG Management Group Inc. VICTOR L. VANDERGUST PROFESSIONAL CORP. Barrister and Solicitor 1 1 Hurontario Street P.O. Box 39 Collingwood, ON L9Y 3Z4 Victor L. Vandergust Tel: 705-445-4544 Fax: 705-445-4160 Email: vic(c~r~,vandergustlaw.com Lawyers for HarbourEdge Mortgage Investment Corporation O'Flynn Weese LLP 65 Bridge Street E. Belleville, ON K8N 1 L8 William C. King Tel.: 613-966-5222 x 232 Fax:613-966-8036 Email: wkin~a,owtlaw.com Lawyers for Prospective Purchaser.

Chaitons LLP 5000 Yonge Street, l Oth Floor Toronto, Ontario M2N 7E9 Harvey Chaiton Tel.: 416-218-1125 Fax: 416-218-1849 Email: harve~(a?,chaitons.com Lawyers for Prospective Purchaser Garfin Zeidenberg LLP 5255 Yonge Street, Suite 800 Toronto, Ontario M2N 6P4 David Downs Tel.: 416-642-5406 Fax: 416-512-9992 Email: dd(cr~,~zle~al.com Lawyers for Wildwood Capital Inc.

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ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST Court File No. CV-17-11726-OOCL B ETWEEN: HARBOUREDGE MORTGAGE INVESTMENT CORPORATION Applicant - and- 2177427 ONTARIO LIMITED Respondent FACTUM AND BRIEF OF AUTHORITIES OF THE RECEIVER (Motion Returnable July 7, 2017) TAB DOCUMENT A Factum: Part I: Introduction Part II: Summary of Facts Part III: Statement of Issues, Law and Authorities Part IV: Order Requested Schedule "A": List of Authorities Schedule "B": Relevant Statutes 1 Canadian Imperial Bank of Commerce v. A & A Jewellers Ltd., 2007 CanLll 13928 (ON SC)

FACTUM AND BRIEF OF AUTHORITIES OF THE RECEIVER PART I -INTRODUCTION 1. The Fuller Landau Group Inc., in its capacity as court-appointed receiver (the "Receiver") of the real property and related personal property of 2177427 Ontario Limited ("217"), brings this motion for, inter alia, an order: (a) approving the Minutes of Settlement regarding the Wildwood Action as described in the Third Report of the Receiver dated June 27, 2017 (the "Third Report"); and (b) lifting the stay with respect to the Wildwood Action imposed by the Appointment Order for the limited purpose of completing the Settlement. PART II -SUMMARY OF FACTS Receiver's Appointment 2. Pursuant to an order dated April 7, 2017 (the "Appointment Order"), the Receiver was appointed as the court-appointed receiver of the real property and personal property of 217 (the "Property") including the property municipally known or commonly known as 500 Brisebois Crescent, Ottawa, Ontario K1 E OA6, which is used in connection with the business operating the hotel known as the Holiday Inn Express &Suites-Orleans(the "Hotel"). Stay of Proceedings Reference: Third Report of the Receiver dated June 27, 2017 ("Third Report"), para. 2, Appendix "A" 3. The Appointment Order imposes, among other things, a stay of proceedings whereby, under section 9, no proceeding against or in respect of 217 or its property shall be "commenced or continued except with the written consent of the Receiver or with leave of this

2 Court", and any and all proceedings "currently under way against or in respect of [217] or [its property] are hereby stayed and suspended pending further Order of this Court". The Wildwood Action is caught by the stay of proceedings imposed under the Appointment Order. Reference: Third Report of the Receiver, Para. 2, Appendix "A" Wildwood Action 4. The Appointment Order authorizes the Receiver to, among other things, settle or compromise any proceedings now pending with respect to 217, the Property or the Receiver (s. 3~))~ Reference: Third Report of the Receiver, para. 2, Appendix "A" 5. Wildwood Capital Inc. ("Wildwood") is the plaintiff and 217 and Bhupinder Sandhu are the defendants in the action in the Ontario Superior Court of Justice at Toronto that is Court File No. CV-14-504414 (the "Wildwood Action") Reference: Third Report of the Receiver, Para. 11 6. In the Wildwood Action, Wildwood's claim relates to an alleged unpaid mortgage brokerage fee payable pursuant to the terms of a mortgage loan application with 217 dated February 4, 2014. Wildwood claims they are owed a brokerage fee of approximately $233,500 on a mortgage commitment arranged by Wildwood in favour of 217, notwithstanding that the mortgage did not close and the mortgage funds were never advanced to 217. Reference: Third Report of the Receiver, pars. 11

3 7. Wildwood obtained in the Wildwood Action and registered a certificate of pending litigation (the "CPL") against title of the Hotel. On November 6, 2015, the Court ordered that 217 pay $234,559.78 into Court as security funds (the "Security Funds") to the credit of the Wildwood Action and the CPL was discharged from title of the Hotel. The Security Funds were funded by HarbourEdge and paid into Court by 217's legal counsel in December 2015. The Receiver is of the view that the Security Funds belong to the estate of 217 for the benefit of the creditors. Wildwood disputes that position. Reference: Third Report of the Receiver, para. 12 Settlement 8. Given the professional costs necessary to litigate the Wildwood Action and the uncertain outcome of litigating whether the Security Funds, in the circumstances, are part of the estate of 217 or trust funds for the potential benefit of Wildwood in the Wildwood Action, the Receiver agreed to settle the Wildwood Action in accordance with Minutes of Settlement dated June 23, 2017 (the "Settlement"). The Settlement is subject to court approval in these receivership proceedings. Reference: Third Report of the Receiver, para. 14 9. Some of the key terms of the Settlement include the following: (i) the Security Funds, upon receipt by the Receiver, shall be divided or paid equally between the Receiver and Wildwood; (ii) the Wildwood Action shall be dismissed without costs; and (iii) the parties to the Wildwood Action and the Receiver shall sign a mutual release. Reference: Third Report of the Receiver, pars. 15

D 10. The Receiver is recommending approval of the Settlement for the following reasons: (i) to reduce the professional costs of litigating the Wildwood Action; (ii) to reduce the professional costs of litigating whether the Security Funds belong to the estate of 217 or are trust funds for the benefit of the successful party in the Wildwood Action including, potentially, Wildwood; and (iii) to provide certainty, in light of the uncertain legal status of the Security Funds as either being property of the estate or trust funds, ensuring that half of the Security Funds will be paid into the estate of 217, that the Wildwood Action will be dismissed without costs and that the parties are mutually releasing each other from liability with respect to the Wildwood Action. Reference: Third Report of the Receiver, para. 17 PART III -STATEMENT OF ISSUES, LAW &AUTHORITIES Settlement 1 1. Court-appointed receivers are frequently granted the power to settle litigation involving the debtor or property belonging to the debtor. For example, paragraph 3(j) of the Commercial List standard template receivership order expressly empowers and authorizes the receiver "to settle or compromise any such proceedings". Reference: Appointment Order, para. 3Q) 12. The criteria to be applied when considering the approval of a settlement by a receiver may be summarized as follows: (a) whether the settlement brings certainty of outcome; (b) whether the settlement results in timely payment to the estate;

5 (c) whether the settlement resolves the litigation or dispute, and eliminates or reduces the receiver's exposure to "litigation risks and costs" and the "possible delay in completing the receivership"; and (d) if the settlement is based on the business decision of the receiver, the court should be reluctant to substitute its business judgment for that of a receiver except in exceptional circumstances. Reference: Canadian Imperial Bank of Commerce v. A & A Jewellers Ltd., 2007 CanLll 13928 (ON SC), paras. 8-10 Tab 1: 13. It is respectfully submitted that the Settlement should be approved by the Court for the following reasons: (i) to reduce the professional costs and risks of litigating the Wildwood Action; (ii) to reduce the professional costs and risks of litigating whether the Security Funds belong to the estate of 217 or are trust funds for the benefit of the successful party in the Wildwood Action including, potentially, Wildwood; and (iii) to provide certainty, in light of the uncertain legal status of the Security Funds as either being property of the estate or trust funds, ensuring that half of the Security Funds will be immediately paid into the estate of 217, that the Wildwood Action will be dismissed without costs and that the parties will mutually release each other from liability with respect to the Wildwood Action. PART IV -ORDER REQUESTED 14. For the reasons set out above, the Receiver respectfully requests the relief sought in the Third Report. ALL OF WHICH IS RESPECTFULLY SUBMITTED this 27th day of June 2017.

n ~~~ Vern W. Dane i ~ FOGLER, RUBINOFF LLP Lawyers 77 King Street West Suite 3000, P.O. Box 95 TD Centre North Tower Toronto, ON M5K 1 G8 Vern W. Dane (LSUC# 32591 E) Tel: 416.941.8842 Fax: 416.941.8852 Lawyers for the Receiver

SCHEDULE"A" LIST OF AUTHORITIES Canadian Imperial Bank of Commerce v. A & A Jewellers Ltd., 2007 CanLll 13928

SCHEDULE "B" TEXT OF STATUTES Ru/es of Civil Procedure, R.R.O. 7990, Reg. 794 PAYMENT OUT OF COURT Authority for Payment Out 72.03 (1) Money may be paid out of court only in accordance with an order or report, or on consent under subrule (4). Payment Out under Order or Report (2) A person who seeks payment of money out of court in accordance with an order or report shall file with the Accountant, (a) a written request for payment out; (b) the original order or report or a notarized copy or copy certified by the court, unless any of them has already been filed with the Accountant; and (c) an affidavit stating (i) (ii) in the case of a report, that the report has been confirmed and the manner of confirmation, or in the case of an order, that the time prescribed for an appeal has expired and no appeal is pending, unless such an affidavit has already been filed with the Accountant, and the Accountant shall then pay the money to the person to whom the order or report directs that it be paid. (3) Where the Children's Lawyer or the Public Guardian and Trustee seeks payment out in accordance with an order or report, he or she may file one written request dealing with more than one proceeding and need not file the affidavit referred to in clause (2)(c). Payment Out on Consent (4) A party who seeks payment out of court, on consent, of money paid into court shall file with the Accountant, (a) a written request for payment out;

2 (b) the consent of all parties or their lawyers; and (c) an affidavit stating that all parties have consented to the payment and that neither the party who paid the money into court nor the party to whom it is to be paid is under disability, and the Accountant shall then pay the money out to the party in accordance with the consent. 4(1) Subrule (4) does not apply if the money was paid into court under an order that provides that a further order is required for the money to be paid out of court. Payment Out of Interest (5) Money paid out of court under subrule (2) or (4) shall be paid out with accrued interest, if any, unless the order, report or consent provides otherwise.

COURT FILE NO.: 06-CL-6377 DATE: 20070420 SUPERIOR COURT OF JUSTICE -ONTARIO RE: CANADIAN IMPERIAL BANK OF COMMERCE -- Applicant - and- A & A JEWELLERS LTD. et al -- Respondents BEFORE: Ground, J. COUNSEL: Steven J. Weisz Karen S. Park for PriceWaterhouseCoopers Inc., the Receiver and Manager of the Respondents Alan Merskey.Iennifer Stam for Bogarz Inc. M. Starnino for JPI Limited DATE HEARD: April 16, 2007 ENDORSEMENT [1] The motion before the court is for the approval of a settlement agreement dated as of April 5, 2007 (the "Settlement Agreement") entered into between Canadian Imperial Bank of Commerce ("CIBC"), the Receiver and PWC in its capacity as Trustee in Bankruptcy of A&A Jewellers Limited of the first part and Neil Travis, Aubrey Sugar, Sugar Management Inc. and J.P.I. Limited (collectively "JPI") of the second part. [2] In essence, the Settlement Agreement provides for the payment by JPI to the estate of the sum of $201,000 as purchase price for moulds and models for A&A's family jewellery line and non-family jewellery line together with intellectual property and designs related thereto (the "Purchased Assets"), the release of $US 150,000 now held in reserve by the Receiver with respect to a disputed claim by JPI pursuant to section 81.1 of the BIA and the settlement of all outstanding disputes and litigation by and between the parties to the Settlement Agreement.

2 [3] The approval of the Settlement Agreement is opposed by Bogarz Inc. ("Bogarz"), a competitor of A&A, which had previously submitted an offer to purchase all of the moulds and models and related designs and intellectual property for A&A's family jewellery line for a purchase price of $175,000 conditional upon the Receiver entering into a Settlement Agreement with JPI or a court order declaring that JPI had no right, title or interest in or to such assets. Bogarz has subsequently advised the Receiver that it would be prepared to enter into an ~- agreement to purchase all of the moulds and models and related designs and intellectual property for both the family line of jewellery and the non-family line of jewellery for a purchase price of $400,000.00 on an "as is where is" basis and subject to the outstanding litigation. [4] Bogarz submits that the process followed by the Receiver in entering into the Settlement ~ Agreement and seeking court approval to the Settlement Agreement has not been fair and ~ reasonable as between JPI and Bogarz, both of whom have agreements with the Receiver, and that, in any event, the revised agreement that Bogarz is prepared to enter into is more beneficial to the estate. [5] I am not satisfied that there has been anything unfair or unreasonable in the process followed by the Receiver in entering into the Settlement Agreement and seeking court approval of the Settlement Agreement. Bogarz has been aware since prior to the entering into of its agreement with the Receiver on October 25, 2006 (the "Bogarz Agreement"), that JPI was asserting its claim to title to certain of the Purchased Assets and, as reflected in that agreement, that the Receiver was attempting to settle that claim with JPI. A motion was brought before Spence J. on January 8, 2007 for approval of the Bogarz Agreement and for the vesting of the assets subject to that Agreement in Bogarz and for a declaration that JPI had no right, title or interest in any of such assets. On the return of such motion, Spence J. directed a trial of issues to determine whether JPI had any interest in the assets subject to the Bogarz Agreement. On March 21, 2007, Bogarz's counsel was notified by the Receiver's counsel with respect to settlement negotiations with JPI as follows: As I have previously advised Jennifer, the Receiver has been in settlement negotiations with JPI Limited ("JPI") and related parties in respect of various claims, including, inter alia, its claims relating to the design rights associated with A&A's moulds and models, including those that are subject to the Agreement (the "Moulds and Models"). Please note that these settlement discussions may result in a settlement of JPI's claims in respect of the Moulds and Models and related intellectual property in JPI's favour. In such a case, the Receiver would abandon the approval motion with respect to the Agreement with Bogarz. However, as the settlement negotiations with JPI have not concluded, the Receiver would like to request a further extension of the Deadline. [6] Bogarz's counsel was further advised on the evening of April 9, 2007 that the Settlement Agreement had been executed and that the Receiver was bringing a motion before the court on April 16, 2007 for approval of the Settlement Agreement. The motion materials were served upon counsel for Bogarz, effectively on April 11, 2007, which motion materials contained details of the Settlement Agreement. The notice to the Receiver's counsel that it was prepared to make

an offer to purchase all of the Purchased Assets on an "as is where is" basis for a purchase price of $400,000 was forwarded late in the evening of April 12, 2007 and was considered by the Receiver and its counsel and CIBC, the only stakeholder with an economic interest in the proceeds of disposition of assets of A&A, during the day on April 13, 2007. Counsel for Bogarz was advised on that day that the Receiver could not recommend the proposed new agreement with Bogarz and would be proceeding on April 16, 2007 with the court motion to approve the Settlement Agreement. It appears to me that the Receiver notified Bogarz as soon as possible of the entering into of the Settlement Agreement and forwarded to Bogarz's counsel at the earliest possible time the motion materials setting out the details of the Settlement Agreement. I see no element of unfairness or unreasonableness in the process followed by the Receiver. [7] Bogarz also appears to oppose the approval of the Settlement Agreement on the basis that no opportunity was given to Bogarz or other interested parties to make an offer through the Receiver on terms similar to the Settlement Agreement. I have some difficulty with this submission. The Settlement Agreement is not a simple agreement of purchase and sale of assets. It is the result of lengthy and intense negotiations not only for the sale of the Purchased Assets but for the settlement of all claims by and between the parties to the Settlement Agreement. I am not certain how Bogarz or any other third party offeror could make an offer to the Receiver on terms that would include the settlement of all claims by and between the parties to the Settlement Agreement. v~ z O ca 0 N [8] With respect to the assertion by Bogarz that the proposed new Bogarz Agreement would be more beneficial to the estate, it appears to me that the analysis of the new Bogarz offer as set out in paragraph 21 of the Receiver's Seventh Report to this court is a full and complete answer to this assertion by Bogarz. The report states as follows: While the Bogarz proposal at $400,000 is, on its face, for a higher amount, the Receiver is of the opinion that it is not better than the Settlement Agreement because: (i) (ii) (iii) (iv) the Bogarz proposal is incapable of being accepted without further negotiation of a definitive agreement setting out the terms and conditions for the transaction, including, without limitation, the level of assistance that would be required from the Receiver by Bogarz in connection with ongoing litigation with JPI and the funding and indeminities that the Receiver would require from Bogarz in respect thereto; there is no certainty that Bogarz and the Receiver could successfully negotiate such an agreement; the August 3 Order prohibits the Receiver from completing a transaction with Bogarz without an agreement with JPI or further order of the Court; it is the Receiver's opinion that JPI would object to the Receiver accepting the Bogarz proposal and would continue to vigorously assert

4 (v) (vi) (vii) (viii) their ownership rights in the moulds and models and related intellectual property and oppose any attempt by the Receiver to convey any of A&A's rights in the same; as described in the Sixth Report, the Receiver sought the approval of the Bogarz Agreement on January 9, 2007, over the objections of JPI. On January 9, 2007, the Honourable Mr. Justice Spence issued his endorsement and ordered that such motion should be dealt with by a trial of the issues. Accordingly, the litigation that would inevitably follow the objection by JPI would be lengthy, time-consuming and expensive; the Settlement Agreement includes a resolution of the JPI 81.1 Claim (as defined in the Sixth Report) in favour of the Receiver and, if approved, results in immediate release of $US150,000, plus accrued interest thereon, to CIBC. Abandoning the Settlement Agreement in favour of the Bogarz proposal would mean the Receiver would continue to incur litigation costs and risks in connection with resolving the outstanding JPI 81.1 Claim; the Settlement Agreement is a global settlement of possible claims between the parties thereto. If the Settlement Agreement were abandoned in favour of the Bogarz proposal, the Receiver would continue to be exposed to litigation risks and costs and possible delay in completing the receivership, which, as indicated in paragraph 22 below, is nearing completion; the Bogarz proposal includes no deposit or non-refundable consideration and abandoning the Settlement Agreement in its favour would therefore put a $200,000 net recovery at risk with no certainty that alternative recovery can be made. c~ z ~; M ~.-. [9] More simplistically, it appears to me that comparing the Settlement Agreement with the new Bogarz proposal leads one to conclude that the Settlement Agreement results in approximately $400,000 paid to the estate, being the $201,000 purchase price and the $US 150,000 being released from the reserve for the section 81.1 claim, the consent of all parties to the discharge of the Trustee and Receiver and the closing of their files, and the settlement of all outstanding litigation and disputes among the parties to the Settlement Agreement whereas the new Bogarz proposal results in approximately the same amount of money being received by the estate and the continuance of prosecution and defense of litigation including the claim by JPI to title to certain of the Purchased Assets, the section 81.1 claim of JPI, the setting aside of a number of transactions between A&A and JPI and other parties as preferences or fraudulent conveyances and the claims of Mr. Travis, JPI and others against the Receiver with respect to letters sent by the Receiver to customers of A&A with the attendant expense, delay and uncertainty to the estate as a result of such litigation.

[10] In addition, it appears to me that to reject the recommendation of the Receiver for approval of the Settlement Agreement on the basis that the new Bogarz offer is more beneficial to the estate requires this court to second guess the business decision of the Receiver and to substitute its own business judgment for that of the Receiver. The court should be reluctant to substitute its business judgment for that of a receiver or trustee except in exceptional l ~ circumstances, such as those referred on the authorities cited by Bogarz, none of which, in my z~ view, are applicable m the case at bar. ~; [11] There will no costs of this proceeding. c rs Ground J., r~. Released: Apri120, 2007

HARBOUREDGE MORTGAGE INVESTMENT CORPORATION and 2177427 ONTARIO LIMITED Court File No. CV-17-11726-OOCL ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST PROCEEDING COMMENCED AT TORONTO FACTUM AND BRIEF OF AUTHORITIES OF THE RECEIVER FOGLER, RUBINOFF LLP Lawyers 77 King Street West Suite 3000, P.O. Box 95 TD Centre North Tower Toronto, ON M5K 1 G8 Vern W. Dane (LSUC# 32591 E) Tel: 416.941.8842 Fax: 416.941.8852 Lawyers for the Receiver