Court File No. ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C 36, AS AMENDED AND IN THE MATTER OF TK HOLDINGS INC., AND THOSE OTHER COMPANIES LISTED ON SCHEDULE “A” HERETO (collectively, the "Chapter 11 Debtors") APPLICATION OF TK HOLDINGS INC. UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT APPLICATION RECORD (re: Interim Recognition Order and Supplemental Recognition Order) (Returnable June 28, 2017) June 27, 2017 McCarthy Tétrault LLP Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Fax: (416) 868-0673 Heather Meredith LSUC#: 48354R Tel: (416) 601-8342 Email: [email protected] Eric S. Block LSUC#: 47479K Tel: 416-601-7792 Email: [email protected] Paul Davis LSUC#: 65471L Tel: 416-601-8125 Email: [email protected] Trevor Courtis LSUC#: 67715A Tel: (416) 601-7643 Email: [email protected] Lawyers for the U.S. Foreign Representative TO: The Service List Index Tab Court File No. ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C 36, AS AMENDED AND IN THE MATTER OF TK HOLDINGS INC., AND THOSE OTHER COMPANIES LISTED ON SCHEDULE “A” HERETO (collectively, the "Chapter 11 Debtors") APPLICATION OF TK HOLDINGS INC. UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT APPLICATION RECORD (re: Interim Recognition Order and Supplemental Recognition Order) (Returnable June 28, 2017) INDEX Tab No. Documents 1. Notice of Application 2. Affidavit of Scott E. Caudill, sworn June 27, 2017 A. First Day Declaration B. Organizational Structure of the Debtors C. 2016 TKJP Corporate Brochure D. Transport Canada – Takata Recalls in Canada E. Summary of Canadian Class Actions F. Pleadings in McIntosh v. Takata Corporation et al., Court File No. CV-16-543833-00CP G. Summary of Canadian Personal Injury Actions Tab No. Documents 3. Draft Initial Recognition Order 4. Blackline of Initial Recognition Order to Model Order 5. Draft Supplemental Recognition Order 6. Blackline of Supplemental Recognition Order to Model Order 1 2 Court File No.: ONTARIO SUPERIOR COURT OF JUSTICE (COMMERCIAL LIST) IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C 36, AS AMENDED AND IN THE MATTER OF TK HOLDINGS INC., AND THOSE OTHER COMPANIES LISTED ON SCHEDULE “A” HERETO (the "Chapter 11 Debtors") APPLICATION OF TK HOLDINGS INC. UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT NOTICE OF APPLICATION TO THE RESPONDENT: A LEGAL PROCEEDING HAS BEEN COMMENCED by the applicant. The claim made by the applicant appears on the following page. THIS APPLICATION will come on for a hearing on June 28, 2017, at 2:30 p.m. or such other time as the Court may direct, at 361 University Avenue, Toronto, Ontario. IF YOU WISH TO OPPOSE THIS APPLICATION, to receive notice of any step in the application or to be served with any documents in the application, you or an Ontario lawyer acting for you must forthwith prepare a notice of appearance in Form 38A prescribed by the Rules of Civil Procedure, serve it on the applicant’s lawyer or, where the applicant does not have a lawyer, serve it on the applicant, and file it, with proof of service, in this court office, and you or your lawyer must appear at the hearing. IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER DOCUMENTARY EVIDENCE TO THE COURT OR TO EXAMINE OR CROSS-EXAMINE WITNESSES ON THE APPLICATION, you or your lawyer must, in addition to serving your notice of appearance, serve a copy of the evidence on the applicant’s lawyer or, where the applicant does not have a lawyer, serve it on the applicant, and file it, with proof of service, in the court office where the application is to be heard as soon as possible, but at least four days before the hearing. IF YOU FAIL TO APPEAR AT THE HEARING, JUDGMENT MAY BE GIVEN IN YOUR ABSENCE AND WITHOUT FURTHER NOTICE TO YOU. IF YOU WISH TO OPPOSE THIS APPLICATION BUT ARE UNABLE TO PAY LEGAL FEES, LEGAL AID MAY BE AVAILABLE TO YOU BY CONTACTING A LOCAL LEGAL AID OFFICE. - 2 - 3 Date: June ______, 2017 Issued by Local registrar Address of 330 University Avenue court office 7th Floor Toronto,ON M5G 1R7 TO: THE SERVICE LIST - 3 - 4 APPLICATION 1. TK Holdings Inc. (“TKH”) in its capacity as foreign representative of the Chapter 11 Debtors (the “U.S. Foreign Representative”), makes this application seeking the following orders: (a) an Initial Recognition Order (Foreign Main Proceeding), among other things: (i) abridging and validating the time for service; (ii) ordering and declaring that the U.S. Foreign Representative is a “foreign representative” as defined in s. 45 of the CCAA in respect of the petitions commenced by the Chapter 11 Debtors in the United States Bankruptcy Court, District of Delaware (the “Chapter 11 Proceedings"); (iii) recognizing the Chapter 11 Proceedings as a "foreign main proceeding" as defined in section 45 of the CCAA; and (iv) ordering the other mandatory relief set out in section 48(1) of the CCAA. (b) a Supplemental Recognition Order (Foreign Main Proceeding), among other things: (i) recognizing and giving full force and effect in all provinces and territories of Canada to certain U.S. First Day Orders (as defined below) made in the Chapter 11 Proceedings; (ii) appointing FTI Consulting Canada Inc. as information officer; and - 4 - 5 (iii) granting additional stays and protections consistent with the Model Supplemental Recognition Order in Ontario. 2. The grounds for the application are: Background and Foreign Proceedings (a) Takata Corporation (“TJKP”), together with its direct and indirect subsidiaries, including TKH (“Takata”), is a global leader in the manufacture of automotive safety components, including seatbelts and airbags. For well over 50 years, Takata has been a pioneer in the development and production of safety systems and its cutting edge and innovative products have saved countless lives; (b) While Takata has no assets (other than retainers with professionals, including counsel) or operations in Canada, its products appear in vehicles in Canada since Takata sells its products to original equipment manufacturer customers (the “OEMs” or the “Customers”), who in turn manufacture and sell automobiles in Canada; (c) Recently, despite its long history of leadership and excellence, Takata has experienced financial distress due to issues relating to certain of its airbag inflators containing phase-stabilized ammonium nitrate (“PSAN Inflators”), which have ruptured during deployment of the airbag. This has led to wide-ranging recalls of vehicles in Canada, the United States and elsewhere; (d) Takata has been named as a defendant in a number of actions in Canada relating to the PSAN Inflators, including fourteen (14) uncertified class actions in Canada (four of which have been dismissed, five of which are currently in abeyance and five of which have been consolidated into national class actions proceeding in Ontario (collectively, the “Canadian - 5 - 6 Class Actions”)) and two personal injury actions (collectively the “Canadian Personal Injury Actions” and collectively with the Canadian Class Actions, the “Canadian Actions”). Although several of the Canadian Actions allege personal injuries, there have been no known instances of inflator rupture in Canada to date; (e) Takata also faces significant liabilities relating to the PSAN Inflators in the United States and elsewhere including: (i) A USD $25 million criminal fine and USD $975 million in restitution payments arising out of a plea agreement with the United States Department of Justice, Criminal Division, Fraud Section, and the United States Attorney’s Office for the Eastern District of Michigan, USD $850 million of which remains outstanding and must be satisfied in full be February 27, 2018; (ii) An up to USD $200 million civil penalty owed by TKH to the United States National Highway Traffic Safety Administration (“NHTSA”) in the U.S. in connection with recalls, which consists of USD$70 million in non-contingent penalties (USD $50 million of which is outstanding and due by October 2020) and USD$130 million in penalties that are deferred and held in abeyance pending TKH’s compliance with certain provisions of a consent order with NHTSA; (iii) Recall-related indemnification and warranty liabilities, in the billions of dollars, owed to OEM customers who purchased and installed the affected components into vehicles that were then sold globally, which, based on the results of the marketing and sale process, exceed the enterprise value of the Debtors and their affiliates; and - 6 - 7 (iv) Significant ongoing and potential future litigation claims in the United States and Mexico (in addition to the Canadian Actions) asserting damages claims for personal injury, wrongful death and economic losses, among other things, relating to the affected airbags; (f) Despite the complexities and risks resulting from the unprecedented product recalls and the impending liquidity risks, Takata is close to finalizing the terms of a global transaction with Key Safety Systems, Inc. ("KSS" and, collectively with one or more of its current or newly formed subsidiaries or designated affiliates, the “Plan Sponsor”) for the sale of substantially all of Takata’s global operations (the “Global Transaction”) after an expansive sale and marketing process; (g) The Global Transaction is expected to have the support of a significant majority of Takata’s OEM Customers (the “Consenting OEMs”) and to produce a better result for the Chapter 11 Debtors’ stakeholders than a liquidation (which, among other things, would potentially impact ongoing product recalls by putting the stable and continuous supply of parts to the OEMs, including replacement parts for vehicles subject to recall, at significant risk); (h) While the Chapter 11 Debtors are close to finalizing the Global Transaction, they determined that the Chapter 11 Debtors’ liquidity position was not sustainable without an insolvency filing in light of vendor reaction to news of a pending bankruptcy filing; (i) On June 25, 2017, the Chapter 11 Debtors filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code.