RSM RichterRSM Richter Inc.

200 King St. W., Suite 1100, P.O. Box 48Toronto, ON M5H 3T4Tel: 416.932,8000 Fax: 416.932.6200www.rsmrichter.com

Estate File No.: 31-1121528

IN THE MAYFER OF THE BANKRUPTCY OFLINENS 'N THINGS CANADA CORP., OF THE CITY OF TORONTO, IN THE

PROVINCE OF ONTARIO

REPORT OF TRUSTEE'S PRELIMINARY ADMINISTRATION

1. BACKGROUND TO FILINGS

On October i8, 2008, Linens N' Things Canada Corp. (the "Company") filed a Notice ofIntention to Make a Proposal under Section 50.4 (i) of the Bankruptcy and InsolvencyAct (BJA). RSM Richter Inc. ("Richter") was appointed trustee under that filing.

On October 23, 2008, the Company made an application to the Ontario Superior Courtof Justice to appoint Richter as Interim Receiver pursuant to Sections 47 (i) and 47.1 (i)of the BIA and pursuant to Section 101 of the Courts of Justice Act. Richter was soappointed.

On October 31, 2008, the Company was assigned into bankruptcy, with Richter beingappointed Trustee.

1.1 Restriction

This is a preliminary report of the Trustee on its administration of the estate. There aremany estimates herein both in terms of asset realizations and liabilities. This reportshould not be relied upon by any party for a purpose other than as outlined above.

1.2 Currency

All currencies noted herein are Canadian dollars unless otherwise indicated.

2. BACKGROUND ON COMPANY

The Company, together with its U.S. parent companies, was one of North America'slargest specialty retailers of home textiles (including bedding, towels, draperies and tablelinens), housewares and home accessories (cookware, dinnerware, glassware and smallappliances).

RSM Richter is an independent member firm of RSM International,an affiliation of independent accounting and professional firms.

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The Company is a wholly-owned subsidiary of a California company.

The corporate structure is as follows.

Linens Holding Co.

Linens n Things, Inc.

Linens n Things Center,Inc.

Bloomington MN., LT., Inc. I I Vendor Finance, LLC

LNT, Inc.

LNT Services, Inc. LNT Leasing II, LLC

I LNT Merchandising Company LLC r

LNT West, Inc.

Linens 'n Things InvestmentCanada II Company (1%)

LNT Virginia LLC

Linens 'n Things InvestmentCanada I Company (99%)

Linens 'n Things CanadaLimited Partnership

Linens n Things CanadaCorp.

LNT Leasing III, LLC

2.1 U.S. Entities and Chapter 11 Proceedings

Citadel LNT, LLC

The four corporate entities operating in Canada, along with Linens 'N Things CanadaLimited Partnership ("Partnership"), are wholly-owned indirect subsidiaries of Linens 'nThings Center, Inc. and other entities in the U.S. (collectively, "Linens US").

Linens US's head office is located in Clifton, New Jersey. Linens US, comprising thirteenrelated U.S. entities, filed for protection under Chapter ii of the United StatesBankruptcy Code on May 2, 2008 in the United States Bankruptcy Court for the Districtof Delaware ("U.S. Bankruptcy Court"). The Company was not a party in the Chapter iiproceedings.

At the time of its filing, Linens US attributed its losses (fiscal 2007 of US$242 million onrevenue of US$2.8 billion) to "deterioration in the mortgage, housing and credit marketsand the resulting impact on the retail marketplace, particularly the home sector".

As of December 31, 2007, Linens US operated approximately 551 stores.

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Linens US's restructuring plan was predicated on closing underperforming stores andeffecting either a going-concern sale or divestiture of some or all of its assets. Asdiscussed further below, Linens US engaged Financo, Inc. ("Financo") and GenuityCapital Markets ("Genuity") to explore potential transactions. After the Chapter iifiling, Linens US also engaged Asset Disposition Advisors, LLC regarding the selection ofliquidation firms to conduct store closing sales.

2.1.1 Debtor-In-Possession ("DIP") Financing

In order to support its operations post-filing, Linens US obtained approval from the U.S.Bankruptcy Court on May 28, 2008 for DIP financing. The DIP facility consisted of asenior revolving credit facility in a committed amount of up to US$700 million. The DIPlenders under the DIP financing agreement made as of May 5, 2008 ("DIP FinancingAgreement") were General Electric Capital Corporation, as the U.S. Administrative andCollateral Agent in respect of Linens US and GE Canada Finance Holding Company, asthe Canadian Administrative and Collateral Agent for the secured lenders in respect ofLinens Canada (collectively, "GE").

This DIP financing was secured by the assets of Linens US and the Company up to theamounts drawn by each entity. The Company was a borrower under the DIP FinancingAgreement pursuant to a non-DIP revolving loan sub-facility for the Company of up toUS$o million. It did not guarantee advances made to Linens US.

After entering into the DIP Financing Agreement, Linens US defaulted on a number ofthe covenants therein; ultimately it was determined that a going-concern sale could notbe completed.

Accordingly, Linens US entered into an agency agreement with certain liquidators("Agents") on October 10, 2008 to effect a liquidation of the US store inventory andother assets. It was and is anticipated that Linens US will cease to operate its retaillocations following completion of the liquidation estimated to be in January, 2009.

2.2 The Company

The Company was incorporated pursuant to the laws of Nova Scotia.

The Company had operated in Canada since 2000.

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The Company was operating forty (40) leased retail locations across Canada at theNotice of Intention filing date, as follows:

Province Number of StoresBritish Columbia 7Alberta 9Saskatchewan iManitoba iOntario 19Prince Edward Island iNova Scotia 2

40

In addition, the Company had entered into two additional retail leases (one in Ontarioand one in British Columbia) for locations which were expected to open in 2009.

The Company employed approximately fifteen hundred (1,500) individuals at its storelocations.

All head-office type functions were provided by Linens US, including:

• Procurement and supply chain, which included servicing the Company withinventory from distribution centres in Kentucky and New Jersey to twothird-party distribution centers in Canada;

• Accounting, data processing and reporting functions;

• Real estate management;

• Human resource management;

• Credit card account maintenance (including over 115,000 accounts); and

• Management information systems.

All of the above functions were conducted in New Jersey, by employees of Linens US,pursuant to a Management Services Agreement in place between Linens US and theCompany. For these services, the Company paid Linens US a monthly management feeof approximately $540,000 per month. The Company licenced intellectual property,including the Linens 'n Things brand, from Linens US pursuant to a royalty agreement.

Linens US has raised the issue of whether the royalty amount is payable under thepresent circumstances. This matter has not been conclusively resolved.

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2.3 Financial Performance

Over the last three years the Company was profitable. Based on internal, unauditedfinancial statements, the Company's financial results for fiscal 2005 to 2007 and year-to-date to September 30, 2008 are as follows:

Year ending Year ending Year ending Year-to-dateDec. 31, Dec. 31, Dec. 31, Sept. 30,

2005 2006 2007 2008(US$ Millions)

Sales 192 233 255 i6iGross profit 91 115 114 8iAdjusted EBIT' 22 36 ii (i)

Number of stores 30 35 38 40

The Company's profitability was directly attributable to its ability to leverage thepurchasing power and logistical support of Linens US.

3. MARKETING PROCESS TO SELL BUSINESS AND ASSETS

The Company engaged Genuity on February 20, 2008 to market the Canadian businessand assets to strategic buyers as a going concern. The efforts of Genuity continued afterthe Chapter ii filing, in coordination with the marketing steps taken in the US byFinanco.

A summary of the marketing process, which commenced in February, 2008, is asfollows:

Genuity conducted a targeted search of prospective purchasers, includingmajor national home furnishing retailers, department store chains andniche players;

In addition to the targeted search, the marketing process was made publicfollowing the Linens US Chapter ii proceedings, which received widemedia attention;

An interest solicitation letter summarizing the acquisition opportunitywas distributed to the prospective purchasers;

1 Normalized in fiscal 2005 and 2006 by Genuity for one-time transaction expenses, straight-line rent,allowances and head office allocations.

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Presentations were made by senior management to interested parties,following execution of a confidentiality agreement. In total, sixpresentations were made; and

An electronic data room containing, inter alia, background on theCompany, historical and pro forma financial statements, employee costinformation (wages, benefits, etc.), real estate information, inventory costdata on an SKU basis and sales history by store location, was madeavailable to four prospective purchasers.

No acceptable offer was received by Genuity for the business.

According to Genuity, the primary response from prospective purchasers for notpursuing the opportunity was: (i) the lack of infrastructure in Canada; and, (ii) inabilityto operate independently with the same or similar level of profitability. Prospectivepurchasers indicated that a critical mass of stores in the U.S., with the attendantpurchasing power, was required for the Company to be viable.

No going-concern offers were submitted to Financo either.

4. EVENTS LEADING TO EXECUTION OF THE AGENCY AGREEMENT

As noted above, in early October, 2008, Linens US determined that a going-concern salewas not achievable and the remaining US stores had to be liquidated. The Agents wereselected as a designated group to conduct a liquidation. This was approved by the USBankruptcy Court.

As part of a US agency agreement (which governed the process by which the storeswould be liquidated), the stores in Canada could be included on an optional basis. Asthe Company could not continue operations without Linens US, on October i6, 2008,the option was triggered by the Company such that the Agents would also liquidate theCanadian stores.

4.1 Summary of Agency Agreement

Attributes of the Agency Agreement, inter alia, include the following:

The Agent is to pay 100.5% of the cost value of the Canadian merchandise(versus 95.1% of the cost value of the US merchandise) ("GuaranteePercentage"). The percentage is based upon an overall inventory level ofbetween $62 million and $66.5 million, at cost value ("Inventory Range");

The Guarantee Percentage is subject to adjustments for, inter alia, levelsof inventory higher or lower than the Inventory Range, any change in theCost Value of the inventory as a percentage of the Retail Price of theinventory greater than or lesser than 47% (Cost Value and Retail Priceboth as defined in the Agency Agreement), inventory on order to beincluded in the sale and inventory at the distribution centers;

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The purchase price is payable as follows:

• Approximately 90% upon Court approval of the AgencyAgreement (the "Initial Guarantee Payment");

• The balance following receipt and reconciliation of the results of aphysical inventory count to take place at sixteen (16) of theCompany's store locations. The count is to be conducted by anexternal inventory-taking agency within 30 days of approval of theAgency Agreement;

• The sale is to commence not later than October 24, 2008 and is scheduledto terminate on or before January 31, 2009 ("Liquidation Period");

• The Agency Agreement contemplates participation in the event theproceeds from the liquidation exceed the sum of the Agents' purchaseprice, the Agents' expenses (as set out in the Agency Agreement) and3.75% of the Cost Value of the inventory;

• All head office and distribution center infrastructures remain in place atthe expense of the Company based on the Management Agreement;

• The Agents are able to augment the inventory by up to i%. The Agentsare to pay the Company % of the gross proceeds from the augmentedinventory;

• The Agents are to fund essentially all store level expenses during the saleterm, including employee payroll and related benefits/taxes, rent andother occupancy costs in accordance with a per diem schedule,advertising and store security. Employees are not employed by theAgents or the Receiver. The Agents are to provide the Company a letter ofcredit to secure its commitment to pay these expenses, as well as 15% ofthe balance of the Guaranteed Amount (as defined in the AgencyAgreement);

The Agents will sell furniture, fixtures and equipment ("FF&E") owned bythe Company and will be entitled to a fee of 20% of the gross proceedsfrom all sales thereof;

The Agency Agreement required that the Company seek and obtain Courtapproval of the Agency Agreement and the transactions contemplatedtherein on terms satisfactory to the Agent.

On October 23, 2008, Court approval of the Agency Agreement was obtained and theAgency Agreement was executed.

On October 24, 2008, Richter received payment of $56 million as the Initial GuaranteePayment.

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4.2 Employee Holdback

Section 3.3 (b) of the Agency Agreement provides for the Receiver to deposit $2 millionfrom the Initial Guarantee Payment to establish a trust fund (the "Employee PriorityHoldback") to satisfy any potential priority claims by the Company's employees pursuantto Sections 81.3 and/or 81.4 of the BIA ("Employee Priority Claims"). The AgencyAgreement contemplates that no portion of the Employee Priority Holdback shall bemade available for distribution until the Agents have first received written confirmationthat all payments to the Company's employees have been made in full satisfaction of allpotential Employee Priority Claims, or following the issuance of an Order of this Courtauthorizing such distribution.

5. ASSETS OF THE COMPANY

The assets of the Company at the date of bankruptcy are listed on the Estimated BalanceSheet attached hereto as Schedule "A".

In addition, Richter has commenced a marketing program for the Company's leases. Anadvertisement was placed in The Globe and Mail and 70 solicitation letters were sent toNorth American retailers. The closing date for offers is December 11, 2008.

The Trustee is not aware of assets other then the ones listed on Schedule "A".

6. PROPERTY OF THE BANKRUPT NOT DIVISIBLE AMONGST CREDITORS BY VIRTUE OFSECTION 67 (B) OF THE BIA

There does not appear to be any assets subject to a trust. There were some "30-daygoods" pursuant to Section 8i.i of the BIA. The 30-day goods claims that were receivedamounted to approximately US$158,000.

There are statutory claims in respect of wages and vacation pay and Court-orderedencumbrances that would rank ahead of unsecured creditors.

7. SECURED CREDITORS

The Company was party to a credit agreement dated as of October 24, 2007 amongcertain of the U.S. entities and GE as administrative and collateral agents in the U.S. andCanada for the secured lenders to Linens US (the "Credit Agreement").

The Credit Agreement provided the Company with a US$40 million revolving creditfacility and a US$5 million "swingline" loan facility, subject to certain borrowing baserestrictions. As security for the obligations of the Company owing under the CreditAgreement, the Company provided a security agreement.

Upon the Chapter ii filing, Linens US secured DIP financing with the secured lendersthrough their agent, GE. The DIP Financing Agreement also provided the Company witha US$o million non-DIP revolving credit facility and a US$ million swingline loan

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facility, subject to certain borrowing base restrictions. The proceeds of the funding tothe Company were used, in part, to repay the obligations of the Company owing underthe Credit Agreement.

As security for the obligations owing under the DIP Financing Agreement, the Companyprovided a security agreement.

The security granted by the Company specifically contemplated that it only relates to theCompany's obligations.

On October 17, 2008, GE demanded repayment of approximately $23 million owing to itby the Company and issued a Notice of Intention to Enforce Security pursuant toSection 244 of the BIA. GE and the Company entered into a forbearance agreementdated October 17, 2008 ("Forbearance"), which provided, inter alia, the AgencyAgreement be approved by the Court by October 23, 2008 and that GE would be repaidits advances no later than October 31, 2008.

Fasken Martineau DuMoulin LLP ("Fasken"), independent counsel to Richter in thismatter, completed a review of the security granted by the Company in favour of GE.

Fasken utilized the services of agents in Saskatchewan, Manitoba, Nova Scotia andPrince Edward Island to review the registrations made by GE in such provinces.Although Fasken expresses no opinion thereon, Fasken has been advised by the agentsthat GE has validly registered financing statements against all of the personal and after-acquired personal property of the Company in these provinces2.

On October 31, 2008, GE was paid approximately $26 million, which was the amountthen due on advances and letters of credit. A portion of this is repayable as certainletters of credit are returned and a final reconciliation of the GE position is completed.The payment to GE was approved by the Court on October 30, 2008.

Other then the GE Security, the Trustee conducted a search under the Ontario PersonalProperty Security Act registration system (PPSA). The PPSA indicated the following:

Secured Party Date of Registration Collateral Classification

IBM Canada Limited May 2, 2006 Office machines and computerhardware

2 Fasken engaged agents in Saskatchewan, Manitoba, Nova Scotia and Prince Edward Island.

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8. BOOKS AND RECORDS

The Company's books and records ("Records") were maintained by Linens US in Clifton,New Jersey. The Trustee has attended in Clifton and has had access to the Records. TheTrustee will obtain relevant Records needed for the administration of the estate fromLinens US.

9. PROVABLE CLAIMS

Based on the proofs of claim received to date, with the exception of certain landlordclaims, there does not appear to be any substantial change from the preliminary list ofcreditors. The Trustee is of the view that certain landlord claims that have been filed willnot be claims provable and thus have not been reflected on Schedule "A". The Trusteehas asked Fasken for a formal opinion. It is early in the claim process and many majorclaimants have yet to file their claims. The Trustee will be sending out "30 day notices"pursuant to Section 149 of the BIA to accelerate the filing of claims.

10. REVIEWABLE TRANSACTIONS AND PREFERENCE PAYMENTS

At the time of writing of this report, the Trustee has not yet completed its review of theRecords. As a result the Trustee has not yet determined whether there are transactionsthat could be set aside.

11. ANTICIPATED REALIZATION AND PROJECTED DISTRIBUTION

On a preliminary basis the Trustee estimates that there will be funds available fordistribution to unsecured creditors in the range of $ .96 to $ .71 on the dollar, based onthe preliminary list of creditor claims. The Trustee cautions that as all claims have yet tobe received, and all assets sold and/or recovered, the distribution may vary.

12. OTHER MATTERS

There no other matters at this time.

DATED at Toronto, Ontario, this 21st day of November, 2008.

Schedule "A"

Linens 'N Things Canada Corp.Estimated Balance Sheet

October 23, 2008($million)

(Unaudited)

AssetsCash and cash equivalentsAccounts receivableInter-company receivableInventories (Notei)Prepaid expenses and other current assetsTax refund, net of amounts owedTotal current assets

Property and equipmentIdentifiable intangible assets, netGoodwillTotal assets

Payment to GELess: Expected reimbursement from GE

Estimated funds available to unsecured creditors, before costsCosts (Note 2)Net estimated funds available to unsecured creditors

Unsecured CreditorsUnsecured creditors (Note 3)Inter-company payableTotal liabilitiesEstimated unsecured creditors dividend rate

Notes:

26.0 26.01.4 0.7

24.6 25.346.1

9.739.7

12.8536.4 26.85

33.94.0

33.94.0

37.9 37.996% 71%

1. Per Agency Agreement, subject to physical inventory count currently being tabulated. Excludesany provision for recovery on the sale of augmented goods.

2. Includes wage arrears, vacation pay arrears, Linens US management fee, professional fees andother costs, but does not reflect any royalty payments to Linens US.

3. Based on the Company's September 30, 2008 financial statements and subject to actual claimsto be received. There may be material variances in the total claims. Assumes landlord claimsare satisfied by occupancy costs to be paid by the Trustee to January 31, 2009.

4. The above does not reflect any proceeds on the sale of leases.

EstimatedBook Value EstimatedNovember Realizable

2008 Value and Claims

High Low

5.0 5.0 5.02.0 1.0 0.5

62.0 61.4 58.92.0 0.2 0.15.0 2.5 -

76.0 70.1 64.5

39.0 0.6 0.51.0 -

i8.o Unknown134.0 70.7 6.o

. This schedule should be read in conjunction with a report from the Trustee dated November 21,2008 and is based on the Company's books and records.