ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY) [COMMERCIAL LIST]

ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY) [COMMERCIAL LIST] Court File No.31-2016058 Estate No. 31-2016058 IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED AND IN THE MATTER OF THE PROPOSAL OF COGENT FIBRE INC. FACTUM OF COGENT FIBRE INC. PART I. OVERVIEW 1. This factum is filed by Cogent Fibre Inc. ( CFI ) in support of CFI s motion for an order extending the time for the filing of a proposal and in response to the motion filed by NS United Kaiun Kaisha, Ltd. ( NSU ). 2. CFI is acting in good faith and with due diligence and it is likely that CFI will be able to make a viable proposal to its creditors if the extension for the time to file a proposal is granted. 3. CFI is working towards and intends to submit a proposal to all of its creditors. In this respect, CFI has engaged in discussions with Nippon Yusen Kaisha, Toyko ( NYK ), one of its largest creditors, and has submitted a framework of a proposal to NSU, its other largest creditor. 4. CFI s discussions with these parties are ongoing and CFI expects that such discussions will result in a formal proposal that provides greater value to all creditors than what each would receive in a bankruptcy. 5. NSU s motion to terminate the time for the filing of a proposal is premature and will only serve to cut off the ongoing discussions between the parties and eliminate all progress towards a viable proposal that has been made to date.

- 3 - PART II. FACTS Background 6. Established in 2005, CFI marketed, exported and shipped woodchips from the eastern coast of the United States to clients worldwide. 1 7. CFI was originally incorporated pursuant to the laws of the State of Delaware. In 2011 CFI changed its name to Cogent Fibre Inc., and in 2011, CFI continued pursuant to the federal laws of Canada and extra-provincially registered in Ontario. Its head office is located in Toronto, Ontario. 2 8. CFI s sole source of financing is its parent company, Cogent Biomass, Inc. ( Biomass ). Biomass periodically funds CFI s operations on a secured basis. 3 9. Based in Canada, CFI carried on business exporting woodchips acquired in the United States and shipped predominantly to customers in Turkey. The product was primarily shipped under contracts with NSU and NYK, two Japanese shipping companies. 4 10. Recently, CFI lost an arbitration decision in favour of NSU. On January 23, 2015, the arbitration panel issued its findings and awarded damages in favour of NSU in the total amount of US$11,606,421 (the Arbitration Award ). 5 11. On July 14, 2015 the United States District Court for the Southern District of New York confirmed the Arbitration Award. 6 12. On July 15, 2015, CFI filed a Notice of Intention to Make a Proposal (the NOI ) under the Bankruptcy and Insolvency Act (Canada) (the BIA ) 7. 1 Affidavit of Robert Mantrop, sworn August 6, 2015, para 3, Motion Record of Cogent Fibre Inc., Tab 2 [Mantrop Affidavit] 2 Mantrop Affidavit, para 4. 3 Mantrop Affidavit, para 6. 4 Mantrop Affidavit, para 7. 5 Mantrop Affidavit, para 8. 6 Mantrop Affidavit, para 9. 7 Mantrop Affidavit, para 10.

- 4-13. The Fuller Landau Group Inc. was appointed as Proposal Trustee in respect of the proceedings commenced by the filing of the NOI (the NOI Proceedings ). 8 14. At the time of CFI s NOI filing, NYK and CFI were in the early stages of an arbitration proceeding with respect to NYK s claim. NYK alleges that it is owed over USD $10.9 million. 9 US Chapter 15 Proceedings 15. Pursuant to the Order of the Honourable Justice Pattillo dated July 17, 2015, CFI was appointed foreign representative in respect of the NOI Proceedings. 16. In its capacity as foreign representative, CFI filed a petition for recognition of the NOI Proceedings pursuant to chapter 15 of title 11 of the United States Code (the Chapter 15 Petition ) before the United States Bankruptcy Court of the Southern District of New York (the U.S. Court ). 17. On July 20, 2015, the U.S. Court granted an interim stay of proceedings in respect of CFI and its property and ordered that the hearing in respect on CFI s Chapter 15 Petition shall be heard on August 10, 2015. 10 18. Prior to the August 5, 2015 deadline for responses or objections to the Chapter 15 Petition, NSU and NYK each filed objections. 19. After hearing submissions from all parties on August 10, 2015, the U.S. Court decided to preserve the interim stay of proceedings pending the outcome of the motions pending before this Honourable Court. 8 Mantrop Affidavit, para 11. 9 Mantrop Affidavit, para 12. 10 Mantrop Affidavit, para 14.

- 5 - PART III. LAW AND DISCUSSION Purpose of the BIA Proposal Provisions 20. The intent of the BIA proposal sections is to give the insolvent person an opportunity to put forward a plan. The purpose of the legislation is rehabilitation, not liquidation. 11 Insolvent companies should have the chance to put forth a proposal. 12 21. Applications to terminate the time to file a proposal are an unusual and serious remedy and should only be granted in exceptional cases. 13 Tests for Extending and Terminating the Time to Make a Proposal 22. Section 50.4(9) of the BIA sets out the test for an extension of the time for the filing of a proposal: 14 50.4(9) The insolvent person may, before the expiry of the 30-day period referred to in subsection (8) or of any extension granted under this subsection, apply to the court for an extension, or further extension, as the case may be, of that period, and the court, on notice to any interested persons that the court may direct, may grant the extensions, not exceeding 45 days for any individual extension and not exceeding in the aggregate five months after the expiry of the 30-day period referred to in subsection (8), if satisfied on each application that: (a) (b) (c) the insolvent person has acted, and is acting, in good faith and with due diligence; the insolvent person would likely be able to make a viable proposal if the extension being applied for were granted; and no creditor would be materially prejudiced if the extension being applied for were granted. 11 N.T.W. Management Group Ltd., Re, 1993 CarswellOnt 208, 19 C.B.R. (3d) 162 (Ct. J. (Gen. Div.)) at para 22 [N.T.W. Management], Book of Authorities of Cogent Fibre Inc., Tab 1; Cantrail Coach Lines Ltd., Re, 2005 CarswellBC 581, 2005 BCSC 351 at para 11 [Cantrail Coach Lines], Book of Authorities of Cogent Fibre Inc., Tab 2. 12 N.T.W. Management, para 19. 13 Quality Meat Packers, Re, 2014 CarswellOnt 5007, 2014 ONSC 2296, para 17, Book of Authorities of Cogent Fibre Inc. Tab 3; Magasin Coop Degelis, Re, 1993 CarswellQue 42, 24 C.B.R. (3d) 49 (C.S.) para 19 [Magasin Coop], Book of Authorities of Cogent Fibre Inc., Tab 4. 14 Bankruptcy and Insolvency Act, R.S.C. 1995, c. B-3, as amended, s. 50.4(9) [BIA].

- 6-23. Section 50.4(11) sets out the test to be applied on an application to terminate the time period to make a proposal: 15 50.4(11) The court may, on application by the trustee, the interim receiver, if any, appointed under section 47.1, or a creditor, declare terminated, before its actual expiration, the thirty day period mentioned in subsection (8) or any extension thereof granted under subsection (9) if the court is satisfied that (a) (b) (c) (d) the insolvent person has not acted, or is not acting, in good faith and with due diligence, the insolvent person will not likely be able to make a viable proposal before the expiration of the period in question, the insolvent person will not likely be able to make a proposal, before the expiration of the period in question, that will be accepted by the creditors, or the creditors as a whole would be materially prejudiced were the application under this subsection rejected, and where the court declares the period in question terminated, paragraphs (8)(a) to (c) thereupon apply as if that period had expired. 24. If this Honourable Court terminates the time to file a proposal, pursuant to Section 50.4(8)(c) of the BIA, CFI will be deemed to have made an assignment in bankruptcy. 16 This will result in a liquidation of CFI s assets by the trustee in bankruptcy and the distribution of any proceeds, after the costs of administration, to CFI s creditors based on their relative priorities. 25. The tests set out in sections 50.4(9) and 50.4(11) of the BIA are essentially mirrors of each other, the difference being the party that bears the onus. 17 An objective standard must be applied to each factor, and it must be determined what a reasonable creditor would do in the circumstances. 18 15 BIA, s. 50.4(11). 16 BIA, s. 50.4(8). 17 Cantrail, Coach Lines, para 9; N.T.W. Management, para 14. 18 Cantrail, Coach Lines, para 11.

- 7 - (a) CFI is acting in good faith and with due diligence (Sections 50.4(9)(a) & 50.4(11)(a)) 26. Section 50.4(9)(a) requires the insolvent person to establish that they are acting in good faith and with due diligence. 19 Section 50.4(11)(a) requires the moving party to establish that the insolvent person has not acted, or is not acting, in good faith and with due diligence. 20 27. There is clear evidence on the record that CFI is acting in good faith and is diligently working towards putting forward a proposal to all of its creditors. 28. CFI s two largest creditors are NSU and NYK. Subsequent to the filing of the NOI, CFI has engaged in discussions NYK with a view to putting forward a proposal on terms agreeable to NYK. 21 29. In order to materially advance its negotiations with NSU, CFI has offered in good faith to meet with the principals of NSU in person and fund the travel costs for such meeting. In addition, CFI has submitted to NSU a framework of a proposal which CFI believes will generate a greater return for all creditors, including NSU, than would be available in bankruptcy and liquidation scenario. 22 30. CFI requires additional time to continue discussions with NSU and NYK and formulate the terms of a formal proposal to all of its creditors, which will be put forward in good faith. 23 31. NSU s materials filed in respect of its motion to terminate the NOI Proceedings do not allege that CFI has acted in bad faith, and no other party has made any such allegations. (b) CFI will likely able to make a viable proposal that will be accepted by its creditors (Sections 50.4(9)(b) and 50.4(11)(b) and (c)) 32. Section 50.4(9)(b) requires that the insolvent person show they would likely be able to make a viable proposal if the extension being applied for were granted. 24 19 BIA, s. 50.4(9)(a). 20 BIA, s. 50.4(11)(a). 21 Mantrop Affidavit, para 23. 22 Mantrop Affidavit, para 25. 23 Mantrop Affidavit, para 26. 24 BIA, s. 50.4(9)(b).

- 8-33. Similarly, Sections 50.4(11)(b) and (c) require the objecting party to establish that the insolvent person will not likely be able to make a viable proposal before the expiration of the period in question, or that the insolvent person will not likely be able to make a proposal, before the expiration of the period in question, that will be accepted by the creditors. 25 (i) NSU s position is not determinative 34. CFI s proposal will be made to all of CFI s creditors, which include both NYK and NSU. NSU is not the only material creditor to whom the proposal will be made. 35. There is conflicting jurisprudence in situations where a creditor with a determining vote in respect of a proposal indicates that it will not vote in favour of any proposal the debtor files. 36. Certain of the caselaw has strictly applied Section 50.4(11)(c) and held that the vetoing creditor s position, that it will not vote in favour of any proposal, is sufficient to establish that the debtor will not likely be able to make a proposal that will be accepted by its creditors. 26 These cases were cited by and relied upon by NSU in its factum filed in support of its motion to terminate the NOI Proceedings. 37. Other decisions have interpreted Section 50.4(9)(b) and Subsections 50.4(11)(b) and (c) more purposively and in light of the rehabilitation objections and policy underpinning the BIA proposal scheme. 38. In particular, the Ontario Superior Court of Justice held in N.T.W. Management Group Ltd. Re, 27 that the debtor company should have an opportunity to put forward a proposal despite the objections of a creditor holding a veto vote. 28 25 BIA, s. 50.4(11)(b) and (c). 26 Cumberland Trading Inc., Re, [1994] O.J. No. 132, 23 C.D.R. (3d) 225 (Ct. J. (Gen. Div. [Commercial List]), para 9 [Cumberland Trading], Book of Authorities of NS United Kaiun Kaisha Ltd., Tab 3; See also Triangle Drugs Inc., Re, [1993] O.J. No. 40, 16 C.B.R. (3d) 1 (Ct. J. (Gen. Div.) para 4, Book of Authorities of NS United Kaiun Kaisha Ltd., Tab 4. 27 Supra; See also Magasin Coop; Enirgi Group Corp. v. Andover Mining Corp., 2013 CarswellBC 3026, 2013 BCSC 1833, Book of Authorities of Cogent Fibre Inc., Tab 5; National Bank of Canada v. Dutch Industries Ltd., 1996 CarswellSask 631, 149 Sask. R. 317 (Q.B.), Book of Authorities of Cogent Fibre Inc., Tab 6. 28 N.T.W. Management, para 19.

- 9-39. In addition, in the decision of Cantrail Coach Lines Ltd., Re, 29 the B.C. court found as follows: If a creditor with over 50 percent of the indebtedness could take the position that it would vote no, prior to seeing any proposal, and thus terminate all efforts under the proposal provisions, one wonders why Parliament would not simply set up the legislation that way. One wonders what the point would be of the proposal sections in the Bankruptcy and Insolvency Act if that were the case. If the test to be applied was simply one of majority rules then in my view Parliament would not have set the test as it did in s. 50.4(9). They would simply set a test that if 50 percent of the creditors object at any point the proposal would be over. That is not the test that has been set. 30 40. The court in Cantrail Coach Lines held that the evidence of the vetoing creditor, that it would vote no to any proposal in any circumstances, was disingenuous when there was no evidence of bad faith, and no determination of what the proposal would look like. 31 In such circumstances, the attitude of the secured creditor was not determinative of the issue, especially in light of the fact that the proposal had not yet been formulated. 32 41. As noted above, CFI is in the process of negotiating the terms of its formal proposal. 33 Similar to the situation in Cantrail Coach Lines, it is disingenuous for NSU to say that they will vote no to any proposal under any circumstances when there is no evidence of bad faith and the terms of the proposal have yet to be finalized. 34 42. CFI may put together a proposal that, if NSU voted against, they would be viewed as irrational business people. 35 43. In the decision of Magasin Coop Degelis, Re, 36 the court held that an application for termination of the initial 30 day period should not, according to the spirit of the BIA, be standard 29 Supra note 11. 30 Cantrail Coach Lines, paras 15 & 16. 31 Cantrail Coach Lines, para 17. 32 Cantrail Coach Lines, para 18. 33 Mantrop Affidavit, paras 23 & 25. 34 Cantrail Coach Lines, para 17. 35 Cantrail Coach Lines, para 17. 36 Supra note 13.

- 10 - procedure. 37 Such applications should only be granted in exceptional cases. 38 This is not one of those exceptional cases. 44. In the decisions of Baldwin Valley Investors Inc., Re, 39 and Com/Mit Hitech Services Inc., Re, 40 cited by NSU in its factum in support of its motion terminating the time to file a proposal, the court found that the debtor company had acted in bad faith and was not proceeding with due diligence. 41 There is no evidence on the record before this Honourable Court of CFI acting in bad faith. 45. In the decision of 1512759 Ontario Ltd., 42 also relied upon by NSU, the court found that it was highly unlikely that the debtor company would be able to ever obtain alternative financing necessary to fund the terms of any proposal. 43 NSU has not challenged CFI s ability to fund a proposal to its creditors. 46. The terms of CFI s formal proposal are in the process of being negotiated. 44 As CFI has not had an opportunity to put forth a proposal, it is impossible at this stage to make a final determination that it would not be able to put forward a viable proposal. 45 47. Any assertions by NSU that it will not support any proposal made by CFI to its creditors are premature. 48. In light of CFI s efforts to date to present a framework of a proposal and engage in discussions with both NSU and NYK, it is likely that CFI will be able to make a viable proposal that will be accepted by its creditors. 37 Magasin Coop, para 19. 38 Magasin Coop, para 19. 39 [1994] O.J. No. 271 (Ct. J. (Gen. Div. [Commercial List])) [Baldwin Valley], Book of Authorities of NS United Kaiun Kaisha Ltd., Tab 6. 40 [1997] O.J. No. 3360 (Ct. J. (Gen. Div. [Commercial List])) [Com/Mit Hitech], Book of Authorities of NS United Kaiun Kaisha Ltd., Tab 2. 41 Baldwin Valley, para 5; Com/Mit Hitech para 8; 42 [2002] O.J. No. 4457 (S.C.J) [1512759 Ontario], Book of Authorities of NS United Kaiun Kaisha Ltd., Tab 1. 43 1512759 Ontario, para 2. 44 Mantrop Affidavit, paras 23 & 25. 45 N.T.W. Management, para 19.

- 11 - (ii) NSU s evidence is ambiguous 49. Although no claims process has been commenced, it is likely that NSU would have a determining vote in respect of CFI s proposal made to its creditors. 50. NSU has put forward evidence in the Affidavit of Mr. Kazushi Fukuda, sworn August 6, 2015, that NSU will not support any proposal made by CFI to its creditors. 46 51. However, when this assertion was tested on cross-examination, Mr. Fukuda stated that he could not answer whether NSU would consider a proposal that was better than what would be received in bankruptcy: Q. And if there was -- if you were convinced that Cogent made you a proposal that was better than you would receive in a bankruptcy, would you consider that? A. At this point in time, where I have not seen any concrete proposal from the party, it is unable for me to answer either yes or no. Q. The question was: if you were offered something that was -- if NSU, pardon me, was offered in a proposal, a formal proposal, a result that was better than you would receive in a bankruptcy, is that something you would consider? A. We cannot assume a condition where the company is bankrupt; therefore I am unable to answer either yes or no. 47 52. NSU has accordingly failed to establish definitively that it will not vote in favour of any proposal put forward by CFI, particularly if such proposal provides greater value than would be received in a bankruptcy scenario. 53. Mr. Fukuda also acknowledged in cross-examination that he would not be the final decision maker in respect of any proposal made by CFI and any such decision would be made by the President of NSU: 48 46 Affidavit of Kazushi Fukuda, sworn August 6, 2015, para 47, Motion Record of NS United Kaiun Kaisha Ltd., dated August 4, 2015, Tab 2. 47 Transcript of Videoconference Deposition of Kazushi Fukuda, August 10, 2015, page 25 [Transcript of Fukuda Examination]. 48 Transcript of Fukuda Examination, page 27-28.

- 12 - Q. You mentioned earlier in your evidence that you are not likely the final decision maker on this particular matter; is that correct? Q. From the perspective of the amount involved, I believe that would be the case here. Q. Who would be the decision maker? A. Probably I will be reporting to the president. Q. And that is probably where the decision would be made? A. That will be the case. (c) No creditor would be materially prejudiced if the extension is granted (Sections 50.4(9)(c) and 50.4(11)(d)) 54. CFI is not aware of any creditors that would be materially prejudiced if the extension is granted. Sections 50.4(9)(c) and 50.4(11)(d) require not simply establishing prejudice, but material prejudice. 49 55. A proposal proceeding will always create simple prejudice by staying the rights that persons may otherwise take against the debtor company, however such prejudice of this nature is not sufficient. There must be evidence of substantial or considerable prejudice that has been quantified. 50 Mere assertions of prejudice generally are insufficient. 56. Neither NYK nor NSU have asserted that they would be prejudiced by the extension and neither party has provided any evidence of same. 57. CFI s sole source of funding is Biomass, its parent company, 51 which does not oppose the extension. 58. Accordingly, no creditor will be materially prejudiced by the requested extension of the time to file a proposal. 49 Cantrail Coach Lines, para 21. 50 Cantrail Coach Lines, para 21; Cumberland Trading, para 11. 51 Mantrop Affidavit, para 6.

- 14 - SCHEDULE A LIST OF AUTHORITIES 1. N.T.W. Management Group Ltd., Re, 1993 CarswellOnt 208, 19 C.B.R. (3d) 162 (Ct. J. (Gen. Div.)). 2. Cantrail Coach Lines Ltd., Re, 2005 CarswellBC 581, 2005 BCSC 351. 3. Quality Meat Packers, Re, 2014 CarswellOnt 5007, 2014 ONSC 2296. 4. Magasin Coop Degelis, Re, 1993 CarswellQue 42, 24 C.B.R. (3d) 49 (C. S.). 5. Cumberland Trading Inc., Re, 1994 CarswellOnt 255, 23 C.B.R. (3d) 225 (Ct. J. (Gen. Div. [Commercial List])). 6. Triangle Drugs Inc., Re, 1993 CarswellOnt 173, 16 C.B.R. (3d) 1 (Ct. J. (Gen. Div.). 7. Enirgi Group Corp. v. Andover Mining Corp., 2013 CarswellBC 3026, 2013 BCSC 1833. 8. National Bank of Canada v. Dutch Industries Ltd., 1996 CarswellSask 631, 149 Sask. R. 317 (Q.B.). 9. Baldwin Valley Investors Inc., Re, [1994] O.J. No. 271 (Ct. J. (Gen. Div. [Commercial List])). 10. Com/Mit Hitech Services Inc., Re, [1997] O.J. No. 3360 (Ct. J. (Gen. Div. [Commercial List])). 11. 1512759 Ontario Ltd., [2002] O.J. No. 4457 (S.C.J).

- 15 - SCHEDULE B RELEVANT STATUTES Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended 50.4(9) The insolvent person may, before the expiry of the 30-day period referred to in subsection (8) or of any extension granted under this subsection, apply to the court for an extension, or further extension, as the case may be, of that period, and the court, on notice to any interested persons that the court may direct, may grant the extensions, not exceeding 45 days for any individual extension and not exceeding in the aggregate five months after the expiry of the 30-day period referred to in subsection (8), if satisfied on each application that: (a) the insolvent person has acted, and is acting, in good faith and with due diligence; (b) the insolvent person would likely be able to make a viable proposal if the extension being applied for were granted; and (c) no creditor would be materially prejudiced if the extension being applied for were granted. 50.4(8) Where an insolvent person fails to comply with subsection (2), or where the trustee fails to file a proposal with the official receiver under subsection 62(1) within a period of thirty days after the day the notice of intention was filed under subsection (1), or within any extension of that period granted under subsection (9), (a) the insolvent person is, on the expiration of that period or that extension, as the case may be, deemed to have thereupon made an assignment; (b) the trustee shall, without delay, file with the official receiver, in the prescribed form, a report of the deemed assignment; (b.1) the official receiver shall issue a certificate of assignment, in the prescribed form, which has the same effect for the purposes of this Act as an assignment filed under section 49; and (c) the trustee shall, within five days after the day the certificate mentioned in paragraph (b) is issued, send notice of the meeting of creditors under section 102, at which meeting the creditors may by ordinary resolution, notwithstanding

- 16 - section 14, affirm the appointment of the trustee or appoint another licensed trustee in lieu of that trustee. 50.4(11) The court may, on application by the trustee, the interim receiver, if any, appointed under section 47.1, or a creditor, declare terminated, before its actual expiration, the thirty day period mentioned in subsection (8) or any extension thereof granted under subsection (9) if the court is satisfied that (a) the insolvent person has not acted, or is not acting, in good faith and with due diligence, (b) the insolvent person will not likely be able to make a viable proposal before the expiration of the period in question, (c) the insolvent person will not likely be able to make a proposal, before the expiration of the period in question, that will be accepted by the creditors, or (d) the creditors as a whole would be materially prejudiced were the application under this subsection rejected, and where the court declares the period in question terminated, paragraphs (8)(a) to (c) thereupon apply as if that period had expired.

IN THE MATTER OF THE PROPOSAL OF COGENT FIBRE INC. Court File No: 31-2016058 Estate No.: 31-2016058 ONTARIO SUPERIOR COURT OF JUSTICE (IN BANKRUPTCY AND INSOLVENCY) [COMMERCIAL LIST] Proceeding commenced at Toronto FACTUM OF COGENT FIBRE INC. DENTONS CANADA LLP 77 King Street West, Suite 400 Toronto-Dominion Centre Toronto, ON M5K 0A1 Fax: (416) 863-4592 Kenneth Kraft LSUC No. 31919P Tel: (416) 863-4374 Email: kenneth.kraft@dentons.com Sara-Ann Van Allen LSUC No. 56016C Tel: (416) 863-4402 Email: sara.vanallen@dentons.com Lawyers for Cogent Fibre Inc.