IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, as amended

Transcription

1 CLERK OF THE COURT FILED APR CALGARY, ALBERTA COURT FILE NUMBER ILO C)77. COURT COURT OF QUEEN'S BENC JUDICIAL CENTRE CALGARY IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, as amended AND IN THE MATTER OF THE COMPROMISE OR ARRANGEMENT OF SANJEL CORPORATION, SANJEL CANADA LTD., TERRACOR GROUP LTD., SURETECH GROUP L TD., SURETECH COMPLETIONS CANADA LTD., SANJEL ENERGY SERVICES (USA) INC., SANJEL (USA) INC., SURETECH COMPLETIONS (USA) INC., SANJEL CAPITAL (USA) INC., TERRACOR (USA) INC., TERRACOR RESOURCES (USA) INC., TERRACOR LOGISTICS (USA) INC., SANJEL MIDDLE EAST LTD., SANJEL LATIN AMERICA LIMITED and SANJEL ENERGY SERVICES DOCUMENT HEARING ADDRESS FOR SERVICE AND CONTACT INFORMATION OF PARTY FILING THIS DOCUMENT BENCH BRIEF OF THE APPLICANTS April 1, 2016 BENNETT JONES LLP Barristers and Solicitors 4500, 855 2nd Street S.W. Calgary, Alberta T2P 4K7 Attention: Chris Simard Tel No.: Fax No.: Client File No

2 TABLE OF CONTENTS I. INTRODUCTION 1 II. LAW AND ARGUMENT 1 A. The CCAA applies to the Sanjel Group 1 B. A Broad Stay of Proceedings is Necessary to Preserve the Status Quo and Allow the Applicants Breathing Room 4 C. The Priority Charges Sought by the Applicants are Necessary and Appropriate 5 D. The Applicants require a Foreign Representative 18 E. The Test for a Sealing Order is Met 18 III. CONCLUSION AND RELIEF SOUGHT 19 WSLEGAL\ \ \ v6 1

3 I. INTRODUCTION 1. This Bench Brief is submitted on behalf of the Applicants, Sanjel Corporation ("Sanjel Corp"), Sanjel Canada Ltd., Terracor Group Ltd., Suretech Group Ltd., Suretech Completions Canada Ltd., Sanjel Energy Services (USA) Inc., Sanjel (USA) Inc. ("SUSA"), Suretech Completions (USA) Inc., Sanjel Capital (USA) Inc., Terracor (USA) Inc., Terracor Resources (USA) Inc., Terracor Logistics (USA) Inc., Sanjel Middle East Ltd., Sanjel Latin America Limited, and Sanjel Energy Services (collectively, the "Applicants" or the "Sanjel Group"), in support of an application for a stay of proceedings and such other relief as is more particularly set out in the draft Initial Order scheduled to the Applicants' Originating Application, pursuant to the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"). 2. The Applicants' application for an Initial Order will be supported by, among other things, an Affidavit to be sworn by Paul Crilly, Chief Financial Officer of Sanjel Corp and all of the Canadian and U.S. Applicants (the "Crilly Affidavit") together with a confidential affidavit of Paul Crilly attaching certain confidential records and disclosing certain confidential information to be sealed on the Court file (the "Confidential Affidavit"), and an affidavit sworn by Michael J. Genereux, a partner of PJT Partners Inc. ("PJT"), one of the Applicants' Financial Advisors (the "Genereux Affidavit"). Capitalized terms not defined herein have the meanings given to them in the Crilly Affidavit. 3. The purpose of this Bench Brief is to outline for the Court the legislation and jurisprudence that is relevant to the relief being sought in the Applicants' initial application on April 1, 2016, and to demonstrate the necessity of and justification for certain priority charges in favour of the Applicants' lenders, key stakeholders and advisors, which are critical to ensure the Applicants' successful restructuring. II. LAW AND ARGUMENT A. The CCAA applies to the Sanjel Group 4. The CCAA applies in respect of a "debtor company" or "affiliated debtor companies" where the total amount of claims against the debtor or its affiliates exceeds five million dollars. CCAA, supra, s 3(1) [TAB 1]

4 -2-5. Each Applicant is a "company", being either (i) incorporated under the Alberta Business Corporations Act, R.S.A. 2000, c. B-9 or (ii) incorporated or formed under the laws of a foreign jurisdiction (i.e. the State of Delaware, the State of Montana, Barbados, or the United Arab Emirates) and having assets and, or, doing business in Calgary. Specifically, all of the Applicants' operations are fully integrated and centralized in Calgary, including, among other things, their accounting and treasury functions and their cash management system. CCAA, supra, s 2(1) [TAB 1] 6. Each of the Applicants is also a "debtor company", defined in section 2 of the CCAA to include any company that is bankrupt or insolvent. CCAA, supra, s 2(1) [TAB 1] 7. Insolvency is not defined in the CCAA, but courts have interpreted the term with reference to section 2(1) of the Bankruptcy and Insolvency Act: "insolvent person" means a person who is not bankrupt and who resides, carries on business or has property in Canada, whose liabilities to creditors provable as claims under this Act amount to one thousand dollars, and (a) who is for any reason unable to meet his obligations as they generally become due, (b) who has ceased paying his current obligations in the ordinary course of business as they generally become due, or (c) the aggregate of whose property is not, at a fair valuation, sufficient, or, if disposed of at a fairly conducted sale under legal process, would not be sufficient to enable payment of all his obligations, due and accruing due. Re Stelco Inc, [2004] OJ No 1257 at paras 21-22, 28 (Sup Ct) [Stelco]; leave to appeal to C.A. refused, [2004] OJ No 1903; leave to appeal to S.C.C. refused, [2004] SCCA No 336 Bankruptcy and Insolvency Act, RSC 1985, c B-3 [BM], s 2(1) [TAB 2] [TAB 3] 8. Consistent with the remedial purpose of the CCAA, the test in part (a), above, has been interpreted expansively, such that a financially troubled corporation will be considered insolvent for the purposes of the CCAA if it is "reasonably expected to run out of liquidity within a

5 - 3 - reasonable proximity of time as compared with the time reasonably required to implement a restructuring." Stelco, supra at para 26 [TAB 2] 9. On either the plan meaning of s. 2(1)(a) of the BIA, or the more expansive interpretation, the Sanjel Group is insolvent. 10. As a result of the steep decline in benchmark oil and gas prices since July 2014, the Sanjel Group has experienced decreasing revenues and profitability, negative net cash flow and increasing pressure on its working capital. This led to Sanjel Corp and SUSA breaching certain covenants under the Bank Credit Agreement governing the secured credit Facility advanced by the lending Syndicate in late Since that time, the Syndicate has been in a position to exercise their enforcement rights under the Bank Credit Agreement, including accelerating all amounts outstanding thereunder. 11. Also as a result of its constrained working capital situation, Sanjel Corp made the decision to default on a semi-annual interest payment of USD $11,250,000 due on December 19, 2015 on the 7.5% Senior Bonds issued by it under the governing Bond Agreement. This resulted in a cross-default under the Bank Credit Agreement and certain equipment leases. 12. As all of the Applicants are either principal obligors or guarantors under the Bank Credit Agreement and the Bond Agreement, they all are exposed to these events of default. 13. Since late 2015, the Applicants have undertaken extensive negotiations with the Syndicate, certain holders of the Senior Bonds, and certain equipment Lessors, which resulted in an agreement on the terms of forbearance agreements between the Sanjel Group and the Syndicate, certain Bondholders and certain equipment Lessors, respectively. However, those agreements have not been executed, and the Syndicate, the Bondholders and the Lessors may exercise creditor remedies at their discretion. 14. On March 18, 2016, the Syndicate demanded repayment of all amounts outstanding under the Bank Credit Agreement, and served Notices of Intention to Enforce Security under s. 244 of the BIA. The Syndicate can now enforce its rights and remedies against the Applicants.

6 The Applicants have insufficient liquidity to pay the accelerated amounts due to any one of the Syndicate, the Senior Bonds, and the Lessors. The Applicants would be unable to meet their obligations as they come due, and thus could not reasonably complete a restructuring before their liquidity runs out. As such, the Applicants are insolvent and, as is apparent from the Crilly Affidavit, the total claims against the Applicants amount to significantly more than $5 million. B. The Pre-Filing Appointment of a CRO was Necessary and Ought to be Approved 16. As part of the Initial Order, the Applicants are seeking approval of their engagement of Paul Crilly as Chief Restructuring Officer ("CRO"). Mr. Crilly's engagement as CRO was made necessary by the Applicants' desire to avoid a potential conflict in the duties of Darin MacDonald, the Applicants' CEO, to different stakeholder groups. Mr. Crilly executed an engagement letter effective as of [NTD: March 30], 2016, which, among other things, authorized him to instruct counsel on behalf of the Applicants to commence proceedings under the CCAA. 17. There is precedent for a restructuring advisor being retained prior to the debtor's initial filing, whose appointment as CRO is then confirmed and authorized in the initial order. In Re Plasco Energy Group Inc., the initial application was brought by the debtor companies, but was supported by an affidavit sworn by their restructuring advisor, who had been engaged by the debtors approximately one week before the initial application was made. The Court in that matter approved the CRO's appointment as of the date of his engagement on the terms previously agreed to. Affidavit of Randall Benson, sworn February 9, 2015, In the Matter of Plasco Energy Group Inc et al, Court File No. CV CL, paras 1, Initial Order of the Honourable Regional Senior Justice Morawetz, granted February 10, 2015, In re Plasco Energy Group Inc, supra, paras [TAB 4] [TAB 5] C. A Broad Stay of Proceedings is Necessary to Preserve the Status Quo and Allow the Applicants Breathing Room 18. The overarching goal of an interim order like the one sought in these proceedings is to maintain the status quo while the debtor develops a plan. Courts should exercise their statutory

7 - 5 - and common law powers broadly in order to maintain the status quo allowing the debtor to develop a plan and obtain consensus from its creditors. Meridian Developments v Toronto Dominion Bank, 1984 CarswellAlta 259 (QB) at para 21 [TAB 6] Re Royal Oak Mines, Inc, [1999] OJ No 709 (Gen Div) at paras 7-8 [TAB 7] 19. Under section of the CCAA the court has broad jurisdiction to grant a stay of proceedings. The purpose of a stay of proceedings is to allow the debtor company to put forward a plan of compromise or arrangement that will be acceptable to its creditors and the court. CCAA, supra, s [TAB 1] Re Lehndorff, [1993] OJ No 14 (Gen Div), at para 5 [TAB 8] 20. The requested stay of proceedings, which substantially conforms with the stay provisions of Alberta Template CCAA Initial Order, is sought to enable the Applicants to restructure their debt obligations for the long-term benefit of their creditors and stakeholders. It is the Applicants' expectation that they, their creditors and their stakeholders will derive a greater benefit from a restructuring than through liquidation or bankruptcy. D. The Priority Charges Sought by the Applicants are Necessary and Appropriate 21. The Applicants seek seven priority charges as part of the Initial Order, each securing payment or performance of the Applicants' obligations to various advisors, creditors and stakeholders. Each of the requested charges is essential to the Sanjel Group's prospects of being able to successfully restructure, for the benefit of the Applicants and their stakeholders. The Syndicate does not oppose the granting of any of the priority charges sought by the Applicants. 22. The six charges sought by the Applicants, in order of their requested priority, are: (a) (b) First Administration Charge, to secure payment of professional fees of the proposed Monitor and its Canadian and U.S. counsel, the Applicants' Canadian and U.S. counsel, and the proposed Chief Restructuring Officer; Second Interim Lenders' Charge, to secure payment and performance of the Applicants' obligations under the Interim Credit Agreement;

8 - 6 - (c) (d) (e) (f) (g) Third Credit Card Charge, to secure the Applicants' obligations owed to The Bank of Nova Scotia ("BNS") in relation to certain credit cards; Fourth Directors' Charge to secure the indemnity given by the Applicants to their directors and officers pursuant to the Initial Order; Fifth KERP Charge to secure payments under the Applicants' Key Employee Retention Plan, or KERP; Sixth Financial Advisors' Charge to secure the fees and disbursements of the Applicants' Financial Advisors; and Seventh Critical Suppliers' Charge to secure post-filing supply of goods and services by suppliers deemed to be critical suppliers by the Applicants in consultation with the proposed Monitor and the Syndicate. 1. The Administration Charge is appropriate in the circumstances 23. The Applicants seek an Administration Charge in an amount not to exceed $2,000,000 to secure the pre- and post-filing professional fees and disbursements of the Monitor, counsel to the Monitor, the Applicants' counsel, the Syndicate's financial advisor (Ernst& Young Inc.), counsel to the Syndicate, and the proposed Chief Restructuring Officer. 24. Section of the CCAA expressly provides this Court with the power to grant a charge in respect of professional fees and disbursements on notice to affected secured creditors. CCAA, supra, ss 11.52(1) and (2) [TAB 1] 25. Courts have held that, unless professional advisor fees are protected by way of a charge the objectives of the CCAA would be frustrated as professionals would be unlikely to risk offering services without any assurance of ultimately being paid. Failing to provide protection for professional fees will "result in the overwhelming likelihood that the CCAA proceedings would come to an abrupt halt, followed, in all likelihood, by bankruptcy proceedings." Timminco Ltd, Re, 2012 ONSC 506, at para 66 [TAB 9]

9 The Applicants require the expertise, knowledge and continuing participation of the proposed beneficiaries of the Administration Charge in order to complete a successful restructuring, and the Administration Charge is necessary to ensure such continuing assistance and participation. 27. The factors to be considered in determining whether to approve an administration charge include: (a) the size and complexity of the business being restructured; (b) the proposed role of the beneficiaries of the charge; (c) whether there is unwarranted duplication of roles; (d) whether the quantum of the proposed charge appears to be fair and reasonable; (e) the position of the secured creditors likely to be affected by the charge; and (f) the position of the Monitor. Re Canwest Publishing Inc, 2010 ONSC 222 [Canwest Publishing], at para 54 [TAB 10] 28. Consideration of these factors in the present case supports the granting of the proposed Administration Charge. 29. The Sanjel Group's business is large and complex, involving numerous subsidiaries and significant assets in both Canada and the U.S. Each proposed beneficiary of the Administration Charge has a separate and clearly defined role, particularly in light of the cross-border element of the proposed restructuring. The quantum of the proposed charge was determined in consultation with the proposed Monitor, and is fair and reasonable in light of the number of beneficiaries and the size, scope and complexity of the proposed restructuring. The size of the Administration Charge is comparable with administration charges in other recent CCAA proceedings of large corporations.1 Initial Order of the Honourable Justice D. B. Nixon, granted March 8, 2016, In the Matter of Quicksilver Resources Canada Inc, Action No , para 33 ($2.5 million) [TAB 11]; Initial Order of the Honourable Justice K. D. Yamauchi, granted on January 21, 2015, In the Matter of Southern Pacific Resource Corp, Action No , at para 31 ($3 million) [TAB 12]

10 - 8 - (a) It is necessary and appropriate to appoint a CRO 30. The Administration Charge will also cover the payment of fees to Paul Crilly, whom the Applicants wish to appoint as Chief Restructuring Officer (CRO). In that capacity, Mr. Crilly will carry out certain restructuring activities in consultation with the proposed Monitor and the Syndicate. Mr. Crilly will be paid $50,000 per month. These fees and their inclusion in the Administration Charge is an arrangement supported by the proposed Monitor, and not opposed by the Syndicate. The Initial Order will limit, and provide for Mr. Crilly's indemnification in relation to, post-filing obligations and liabilities he may incur as CRO, subject to exceptions for gross negligence or wilful misconduct. The Applicants' obligations to indemnify Mr. Crilly in his capacity as CRO will be secured by the Directors' charge. 31. Recently, in Re Walter Energy Canada Holdings, Inc, Justice Fitzpatrick of the B.C. Supreme Court considered the debtors' request to appoint a CRO to assist in implementing a SISP, observing that it is usual to engage professionals where existing management is unable or unwilling to act. In that case, the debtor's sole director and officer were anticipated to resign, and the Court held there was "a legitimate risk that the [debtor] ship may become rudderless in the midst of [the] proceedings and most significantly, in the midst of [a] very important sales and solicitation process." The Court found that the appointment of a CRO would allow the debtor's operations to continue in an orderly fashion, pending a transaction. Walter Energy Canada Holdings Inc, Re, 2016 BCSC 107 [Walter Energy], at paras [TAB 13] 32. There is a risk the Applicants will find their ship rudderless in the midst of their restructuring proceedings and SISP, as the Applicants' CEO, Darin MacDonald, is also affiliated with the ultimate shareholders of the Sanjel Group and the lessors of the Applicants' business premises (the MacBain and U.S. MacBain Entities). Mr. MacDonald realizes the interests of these stakeholder groups may diverge, such that he will have conflicting duties to each different group. The appointment of Mr. Crilly as CRO will allow the Applicants to avoid the potential conflict, and permit operations to continue in an orderly manner pending a transaction. 33. In Walter Energy, Justice Fitzpatrick also considered the quantum of the CRO's proposed compensation and related charge, applying the six Canwest Publishing factors: (1) the size and complexity of the business being restructured; (2) the proposed role of the advisor; (3) whether

11 - 9 - there is an unwarranted duplication of roles; (4) whether the quantum of the proposed charge appears to be fair and reasonable; (5) the position of affected secured creditors; and (6) the position of the Monitor. Canwest Publishing, supra, at para 54 Walter Energy, supra, at paras [TAB 10] [TAB 13] 34. The first, fifth and sixth factors support the CRO's compensation and related charge. The business being restructured is large and complex and the decision to appoint a CRO was made in consultation with Syndicate and the Monitor. There will be no unwarranted duplication of roles. Mr. Crilly will carry out the restructuring activities contemplated in paragraph 11 of the proposed Initial Order, which otherwise would have been carried out by Mr. MacDonald, while the Monitor will exercise the enhanced powers sought with respect to the SISP and contract disclaimers. The quantum of the proposed monthly payment to Mr. Crilly is fair and reasonable in light of the amount of the Applicants' pre-filing debt. 2. The Interim Financing and related Interim Financing Charge are critical to the Applicants' restructuring 35. The Applicants are seeking an order authorizing them to obtain and borrow under a credit facility from the Syndicate, as interim lenders, in an amount not to exceed CAD$50 million, to finance their working capital requirements and other general corporate purposes and capital expenditures. The Applicants also seek a charge to secure all obligations under the governing Interim Credit Facility and related documents. 36. Section 11.2 of the CCAA empowers this Court to grant an interim debtor-in-possession financing charge in priority to the claim of any secured creditor of the debtor company, on notice to the secured creditors who are likely to be affected by the security or charge. CCAA, supra, s 11.2 [TAB 1] 37. The factors to be considered by the Court in determining whether to grant an interim financing charge include: (a) the period during which the company is expected to be subject to proceedings under this Act; WSLEGAL022681\00375\ v6

12 (b) (c) (d) (e) (f) (g) how the company's business and financial affairs are to be managed during the proceedings; whether the company's management has the confidence of its major creditors; whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect of the company; the nature and value of the company's property; whether any creditor would be materially prejudiced as a result of the security or charge; and the monitor's report, if any. CCAA, supra, s 11.2(4) [TAB 1] 38. These factors are met in this case, both objectively and in the view of the proposed Monitor, as set out in its pre-filing report. The maturity date of the Interim Facility gives the Applicants sufficient time to restructure, and the funding will result in greater financial stability, allow the Applicants to carry on business in the normal course during the CCAA proceedings, and enhance the prospects of a viable restructuring. The nature and value of the Applicants' assets also significantly exceed the Interim Financing Charge. 39. The confidence of the Applicants' major creditors is apparent from the fact that the Applicants' interim financing is being provided by members of the Syndicate, and in the view of the proposed Monitor, no creditor will be materially prejudiced by the granting of the Interim Financing Charge. As outlined in the Crilly Affidavit, the proposed interim financing facility offered by the Interim Lender is the only feasible alternative available to the Applicants, and its terms are fair, reasonable and adequate. 40. When all of the foregoing factors are considered, the relief sought by the Applicants with respect to the Interim Financing and related charge is demonstrably necessary and appropriate in the circumstances. WSLEGAL \ \ \ v6

13 The Credit Card Charge is reasonable and appropriate in the circumstances 41. If their application is granted, the Applicants seek to continue using and paying their corporate credit cards with BNS in the same manner as they were used and paid pre-filing. Specifically, amounts outstanding under the cards are repaid daily, and are secured by a charge on the Applicants' property the Applicants wish to continue to use and pay the cards in this manner, with respect to pre- and post-filing obligations. 42. The Applicants' ability to continue using and paying their corporate credit cards in this manner is another facet of their ability to carry on business in the normal course during the restructuring process. Further, the size of the charge ($250,000) is minor in light of the nature and value of the Applicants' assets, is supported by the Monitor, and is not opposed by the Syndicate. For these reasons, the Credit Card Charge is reasonable and appropriate. 4. The Directors' Charge is necessary to maintain the valuable knowledge and expertise of management during the restructuring 43. The Applicants seek a Directors' Charge to the maximum amount of $5 million, to secure the indemnity of the Applicants' directors and officers provided for in the Initial Order. 44. A successful restructuring of the Applicants' business will only be possible with the continued participation of their directors and officers. These individuals have specialized expertise and relationships with the Applicants' stakeholders, as well as historical and current knowledge that cannot be replicated or replaced, and they have expressed the need for certainty with respect to their potential personal liability if they continue in their current capacities in the context of a restructuring. 45. This Court has jurisdiction to grant a charge relating to directors' and officers' indemnification on a priority basis pursuant to s of the CCAA, on notice to the affected secured creditors. The court must be satisfied with the amount of the charge, and the order is not to extend to coverage of wilful misconduct or gross negligence and no order should be granted if adequate insurance at a reasonable cost could be obtained. CCAA, supra, s [TAB 1] Re Canwest Global Communications Corp, [2009] OJ No 4286 (SCJ) [Canwest Global], at para 46 [TAB 14] WSLEGAL\ \00375\ v6

14 Canwest Publishing, at paras [TAB 10] 46. The Alberta Template CCAA Initial Order contemplates a Directors' Charge that does not duplicate coverage already in place pursuant to Directors & Officers insurance. That formulation has not been changed in the Initial Order being sought by the Applicants: the proposed Directors' Charge only extends to post-filing liabilities, expressly excludes wilful misconduct and gross negligence, and does not duplicate coverage already in place under the Applicants' existing directors' and officers' liability insurance, which is subject to certain exclusions and limitations. 47. As to the quantum of a directors' charge, the court should also consider whether the proposed Monitor has reviewed the quantum of the charge and whether the proposed Monitor considers the amount to be reasonable. Marketing Solutions Group (Re), 2013 ONSC 2223, at para 20 [TAB 15] 48. As set out in the its report, the proposed Monitor understands that the amount of the Directors' Charge was calculated based on the estimated maximum liability of the directors and officers arising from statutory obligations for employee-related liabilities and sales taxes that may arise and be payable during the CCAA proceedings. The proposed Monitor views the Director's Charge as reasonable in these circumstances and supports the charge and its quantum. 5. The KERP and KERP Charge are critical to the a successful restructuring 49. The Applicants request the Court's approval of a key employee retention plan or KERP and a related KERP Charge up to the aggregate amount of CAD $4.5 million as security for payment under the KERP. The KERP was implemented by Sanjel Corp with an effective date of January 1, 2016, and is designed to incentivize a small number of key employees remain in their employment during the anticipated restructuring. The proposed KERP relates to 46 of approximately 2,200 employees only 2% of the entire employee population. 50. There is no express statutory jurisdiction in the CCAA for the Court to approve a key employee retention plan. However, courts have recognized that the approval of such plans is within the scope of their discretion under the CCAA, and KERP Charges are regularly granted.2 Out of 56 CCAA proceedings initiated in Ontario and Alberta between January 1, 2016 and January 1, 2013 listed on the website of the Office of the Superintendent of Bankruptcy Canada, we have identified 20 proceedings involving KERP plans and related charges. This constitutes approximately 36% of cases initiated in that tune frame. WSLEGAL \ \00375\ v6

15 Grant Forest Products Inc, (Re) (2009), 57 CBR (5th) 128 [Grant Forest] at paras 8 and 18 (Ont SCJ [Comm List]) [TAB 16] Canwest Global, supra, at para 49 [TAB 14] Cinram International Inc, (Re), 2012 ONSC 3767 [Cinram] at para 91 [TAB 17] 51. Key employee retention plans have been approved in CCAA proceedings where the continued participation of key employees is crucial to a successful restructuring or where their continued service was important for the stability of the business and could not easily be replaced, for example, where the level of integration between Canadian and U.S. affiliates was significant. Nortel Networks Corp (Re), [2009] OJ No 1044 (Ont SCJ [Comm List]) at para 4 [TAB 18] U.S. Steel Canada Inc, (Re), 2014 ONSC 6145 at paras [TAB 19] Target Canada Co, (Re), 2015 ONSC 303 at para 57 [TAB 20] 52. The following factors have been identified as considerations in determining whether to approve a key employee retention plan and related charge: (a) (b) (c) (d) (e) (f) whether the Monitor supports the key employee incentive plan and related charge; whether the beneficiaries of the key employee retention plan are likely to consider other employment opportunities if the plan is not approved; whether the continued employment of the employees to which the KERP applies is important for the stability of the business and to enhance the effectiveness of the marketing process; the employees' history with and knowledge of the debtor; the difficulty in finding a replacement to fulfill the responsibilities of the employees to which the KERP applies; whether the KERP agreement and charge were approved by the board of directors, including the independent directors, as the business judgment of the board should not be ignored;

16 (g) (h) whether the KERP agreement and charge are supported or consented to by the secured creditors of the debtor; and whether the KERP payments are payable upon the completion of the restructuring process. Cinram, supra, at para 91, citing Grant Forest, supra, at paras 8-24, Canwest Publishing, supra, at para 59, Canwest Global, supra, at para 49 and Timminco, supra, at paras [TAB 17] 53. The proposed KERP is justified and reasonable based on these factors: (a) (b) (c) (d) (e) the proposed Monitor supports the proposed KERP and KERP Charge, and the Syndicate does not object to either; without the KERP and the security provided by the KERP Charge, there is concern that the KERP Participants would leave their employment prior to the completion of the Applicants' restructuring proceedings; the KERP participants are critical to a successful restructuring of the Applicants, as their institutional and historical knowledge and experience cannot be replaced, and is needed to maintain the stability of the Applicants' business operations and preserve asset value in the restructuring process, including the SISP; the Applicants'.directors exercised their business judgment in developing and implementing the KERP; and a significant amount of the KERP payments to executive-level employees are to be deferred until the closing of a transaction. 54. Finally, the quantum of the proposed KERP Charge is reasonable in comparison to the total outstanding debt of the Applicants, and is consistent with the relative size of KERP charges granted in other complex CCAA restructurings over the last fifteen months.3 3 Initial Order of the Honourable Regional Senior Justice G. H. Morawetz, granted January 15, 2015, In the Matter of Target Canada Co, Court File No. CV CL (granting a KERP charge not to exceed $6.5 million) [TAB 21]; Initial Order of the Honourable Regional Senior Justice G. H. Morawetz, granted April 29, 2015, In the Matter of Armtec Infrastructure Inc, Court File No CV CL (granting a KERP charge not to exceed $3.83 million) [TAB 22]; WSLEGAL \022681\00375\ v6

17 The Financial Advisors' Charge is necessary and justified 55. The Applicants are seeking a Financial Advisors' Charge up to the maximum amount of US$6.1 million in respect of the fees and disbursements of Credit Suisse Securities (Canada), Inc. ("CS") and PJT Partners LP ("PJT") in connection with the Applicants' restructuring, and a charge of US$500,000 in respect of Wells Fargo Securities Canada Ltd.'s ("Wells Fargo") fees and disbursements in connection with the Applicants' restructuring. 56. As with the Administration Charge, s of the CCAA gives this Court jurisdiction to grant the Financial Advisors' Charge. The six factors referenced in Canwest Publishing apply to the determination of whether to grant such a charge. The application of these factors in the present case supports the granting of the proposed Financial Advisors' Charge. Canwest Publishing, supra, at para 54 [TAB 10] 57. The Sanjel Group's operations are large and complex, and the proceedings are further complicated by the significant cross-border element of the proposed restructuring. Additionally, the proposed Monitor supports the concept and quantum of the proposed charges, and, as noted, the Syndicate does not oppose the Applicants' request for this relief 58. While there may be some minimal duplication of effort among the Financial Advisors, the issue is whether the duplication is unwarranted. The appointment of multiple advisors has been recognized as appropriate where the SISP recognizes their respective roles, but also allows for a coordinated effort that will assist them in achieving their goals, and where the joint enterprise is expected to produce a better result overall. This is such a case. Walter Energy, supra, at para 44 [TAB 13] 59. The SISP was commenced in mid-january 2016 as a condition of the Syndicate's continued forbearance, and was concluded in early March, The urgency and speed with which the SISP was completed was a direct result of the Applicants' constrained liquidity position and required the engagement of more than one Financial Advisor, each of whom worked to maximum capacity. This allowed each Financial Advisor to do more work, and complete its work more quickly, resulting in a robust SISP in an extremely limited time period. Order re: KERP Approval of the Honourable Justice F. Newbould, granted December 7, 2015, In the Matter of Essar Steel Algoma Inc, Court File No CV CL (granting a KERP charge of $3,468,027) ]TAB 23]. WSLEGAL\ \00375\ v6

18 Furthermore, the different expertise or mandate of each Financial Advisor resulted in a co-ordinated effort, rather than a duplication of efforts. Wells Fargo has been engaged since September 2015 to market the Suretech and Terracor parts of the business, while CS and PJT were both engaged later with respect to the solicitation of purchase, investment, recapitalization and restructuring proposals for the Applicants or their assets. Despite having similar mandates, CS and PJT have complimentary expertise in the M&A and restructuring spaces, respectively, and each has contributed valuable contacts, expertise and knowledge within these separate spheres of experience, as set out in the proposed Monitor's Report. 61. The quantum of the proposed Financial Advisors' Charge is fair and reasonable. The proposed Monitor has included in its pre-filing Report an analysis of financial advisor fees and arrangements from 29 different restructurings, for use as a rough guide to gauge the reasonableness of the proposed charge, as a percentage of the Applicants' pre-filing debt. The proposed Monitor's conclusion is that the size of the charge is justified in light of the synergies generated by the Financial Advisors, and the success of the SISP. 62. The SISP attracted and maintained significant interest, and generated multiple attractive bids for the Applicants' assets, which further justifies the quantum of the proposed Financial Advisor Charge. In Canwest Publishing, the Court recognized that financial advisor charges also act as an incentive to advisors providing essential services to generate interest and desirable bids in a solicitation process, which can justify the quantum of such charges. Canwest Publishing, supra, at paras 52 and [TAB 10] 63. Given all of the foregoing, the priority and quantum of the Financial Advisors' Charge is justified and appropriate in the circumstances. 7. The Critical Suppliers Charge is necessary to enable the Applicants to stay in business and preserve value 64. The Applicants seek an order under s of the CCAA permitting them to pay suppliers identified by them as critical suppliers, in consultation with the Syndicate and the proposed Monitor, for goods or services supplied by them on or after the date of the Initial Order. The Applicants also seek a charge in favour of such critical suppliers for their post-filing supply. WSLEGAL\ \ \ v6

19 Section 11.4 of the CCAA gives this Court the jurisdiction to declare certain suppliers to the Applicant to be critical suppliers, and to grant a charge over the debtor's property to secure payments due to such suppliers. The court must be satisfied that the goods or services that are supplied are critical to the company's continued operation, and the application must be made on notice to the secured creditors likely to be affected by the security or charge. CCAA, supra, s [TAB 1] 66. The mechanism proposed by the Applicants for identifying and paying critical suppliers satisfies these criteria: the Applicants will consult with the Syndicate and the proposed Monitor to identify suppliers whose goods and services are critical to the Applicants' ongoing operations, and whose continued, uninterrupted provision of goods and services is crucial to the continuation and preservation of value of the Applicants' business operations. As set out in its pre-filing report, the proposed Monitor intends to apply the statutory and common law requirements to its assessment of potential critical suppliers. 67. The granting of a charge in favour of critical suppliers is appropriate where the interruption of supply by the critical suppliers could have an immediate material adverse impact on the debtor companies. Re Priszm Income Fund (2011), 75 CBR (5th) 213 (Ont SCJ) at para 34 [TAB 24] 68. Without continued payment to the critical suppliers in the ordinary course, there is a real possibility that those suppliers will withhold their goods and services while other arrangements are put into place. The potential disruption to the Applicants' business operations would have a material and negative impact on the cashflow forecast. In contrast, the impact of critical supplier payments on the Applicants' cash flow are anticipated to be limited to the first few weeks of the proposed CCAA proceedings. 69. In these circumstances, the relief sought is appropriate and necessary to allow the Applicants' business operations to continue uninterrupted after their application for an Initial Order, for the benefit of all their stakeholders.

20 E. The Applicants require a Foreign Representative 70. Section 56 of the CCAA affords the Court the jurisdiction to appoint a foreign representative: The court may authorize any person or body to act as a representative in respect of any proceeding under this Act for the purpose of having them recognized in a jurisdiction outside of Canada. CCAA, supra, s 56 [TAB 1] 71. It is anticipated that a Chapter 15 filing will occur shortly after the application for the Initial Order under the CCAA. The filing is necessary because, while the centre of main interest of all of the Applicants is in Canada, certain Applicants are incorporated in the United States (and elsewhere in the world), as are some of the Applicants' significant stakeholders. A foreign representative has to be named for the purposes of the Applicants' Chapter 15 filing. F. The Test for a Sealing Order is Met 72. This Honourable Court has the jurisdiction to order that certain materials filed with the Court, be sealed on the Court file. The Supreme Court of Canada has stated that such orders can be granted where: (a) (b) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial interest, in the context of litigation because reasonably alternative measures will not prevent the risk; and the salutary effects of the confidentiality order, including the effects on the right of civil litigants to a fair trial, outweigh its deleterious effects, including the effects on the right to free expression, which in this context includes the public interest in open and accessible court proceedings. Sierra Club of Canada v Canada (Minister of Finance), 2002 SCC 41 at para 53 [TAB 25] 73. In their initial application, the Applicants will ask this Honourable Court to seal on the court file the Confidential Affidavit and Exhibit "1" to the Genereux Affidavit, which include the following commercially sensitive exhibits and information:

21 (a) the Confidential Affidavit includes the following: (i) (ii) (iii) the Confidential KERP Summary, which contains details of the names of key employees of the Applicants, their annual salaries and the retention payment that has been offered to them under the KERP; information regarding the top bids identified through the SISP; and copies of certain confidential restructuring term sheets delivered by and to the Ad Hoc Bondholders; and (b) Exhibit "1" to the Genereux Affidavit contains a summary of interim financing offers made to the Applicants by other parties than the Interim Lenders. 74. Given the commercially sensitive nature of this information, and the potential harm to the Applicants' commercial interests, the privacy interests of the Applicants' employees, the potential negative impact of disclosure on the SISP or any continuation thereof, and the commercial interests of other parties that offered interim financing to the Applicants, the materials sought to be sealed fit squarely within the Sierra Club test. III. CONCLUSION AND RELIEF SOUGHT 75. The Applicants seek an Initial Order under the CCAA substantially in the form as attached to the Originating Application. ALL OF WHICH IS RESPECTFULLY SUBMITTED this l day of April, 2016 BENNETT JONES LLP Estimated Time for Arguthent: 45 minutes Per: Chris Simard & Alexis Teasdale Solicitors for the Applicant

22 TABLE OF AUTHORITIES 1. Companies' Creditors Arrangement Act, R.S.C. 1985, c. C Re Stelco Inc, [2004] OJ No Bankruptcy and Insolvency Act, RSC 1985, c B-3 4. Affidavit of Randall Benson, sworn February 9, 2015, In the Matter of Plasco Energy Group Inc et al, Court File No. CV CL 5. Initial Order of the Honourable Regional Senior Justice Morawetz, granted February 10, 2015, In re Plasco Energy Group Inc, supra 6. Meridian Developments v Toronto Dominion Bank, 1984 CarswellAlta 259 (QB) 7. Re Royal Oak Mines, Inc, [1999] OJ No 709 (Gen Div) 8. Re Lehndorff, [1993] OJ No 14 (Gen Div) 9. Timminco Ltd, Re, 2012 ONSC Re Canwest Publishing Inc, 2010 ONSC Initial Order of the Honourable Justice D. B. Nixon, granted March 8, 2016, In the Matter of Quicksilver Resources Canada Inc, Action No Initial Order of the Honourable Justice K. D. Yamauchi, granted on January 21, 2015, In the Matter of Southern Pacific Resource Corp, Action No Walter Energy Canada Holdings Inc, Re, 2016 BCSC Re Canwest Global Communications Corp, [2009] OJ No 4286 (SCJ) 15. imarketing Solutions Group (Re), 2013 ONSC Grant Forest Products Inc, (Re) (2009), 57 CBR (5th) Cinrant International Inc, (Re), 2012 ONSC Nortel Networks Corp (Re), [2009] OJ No 1044 (Ont SCJ [Comm List]) 19. U.S. Steel Canada Inc, (Re), 2014 ONSC Target Canada Co, (Re), 2015 ONSC Initial Order of the Honourable Regional Senior Justice G. H. Morawetz, granted January 15, 2015, In the Matter of Target Canada Co, Court File No. CV CL 22. Initial Order of the Honourable Regional Senior Justice G. H. Morawetz, granted April 29, 2015, In the Matter of Arintec Infrastructure Inc, Court File No CV CL 23. Order re: KERP Approval of the Honourable Justice F. Newbould, granted December 7, 2015, In the Matter of Essar Steel Algoma Inc, Court File No CV CL

23 24. Re Priszm Income Fund (2011), 75 CBR (5th) 213 (Ont SCJ) 25. Sierra Club of Canada v Canada (Minister of Finance), 2002 SCC 41