UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

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1 Main Document Page 1 of 29 UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION ) In re: ) Chapter 11 ) MISSION COAL COMPANY, LLC, et al., 1 ) Case No TOM11 ) Debtors. ) (Jointly Administered) ) DECLARATION OF KEVIN NYSTROM IN SUPPORT OF CONFIRMATION OF THE SECONDED AMENDED JOINT CHAPTER 11 PLAN OF MISSION COAL COMPANY, LLC AND CERTAIN OF ITS DEBTOR AFFILIATES Under penalty of perjury pursuant to 28 U.S.C. 1746, I, Kevin Nystrom, hereby declare as follows: 1. Since August 22, 2018, I have served as Chief Restructuring Officer to the Debtors. I submit this declaration (the Declaration ) in support of the Debtors (I) Memorandum of Law in Support of the (A) Sale of Substantially All of the Debtors Assets and (B) Confirmation of the Second Amended Joint Chapter 11 Plan of Mission Coal Company, LLC and Certain of Its Debtor Affiliates, and (II) Response to Certain Objections Thereto (the Confirmation Brief ), 2 filed contemporaneously herewith, and in support of approval of the confirmation of the Second Amended Joint Chapter 11 Plan of Mission Coal Company, LLC and Certain of Its Debtor 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, include: Mission Coal Company, LLC (8465); Beard Pinnacle, LLC (0637); Oak Grove Land Company, LLC (6068); Oak Grove Resources, LLC (0300); Pinnacle Land Company, LLC (6070); Pinnacle Mining Company, LLC (7780); Seminole Alabama Mining Complex, LLC (6631); Seminole Coal Resources, LLC (1795); Seminole West Virginia Mining Complex, LLC (7858); Seneca Coal Resources, LLC (1816); and Seneca North American Coal, LLC (5102). The location of the Debtors service address is: 7 Sheridan Square, Suite 300, Kingsport, Tennessee Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Confirmation Brief.

2 Main Document Page 2 of 29 Affiliates [Docket No. 1140] (as may be amended, modified, or supplemented from time to time, the Plan ). 2. Except as otherwise indicated, all facts set forth in this Declaration are based upon my personal knowledge of the Debtors operations and finances, information I have learned from my review of relevant documents, and information I have received from other members of the Debtors management team and the Debtors advisors. If I were called to testify, I could and would testify competently to the facts set forth herein. Professional Qualifications 3. I am a Managing Director of AlixPartners, LLP ( Alix ), a global consulting firm headquartered in New York. In my capacity as Chief Restructuring Officer, I am familiar with the Debtors day-to-day operations, business and financial affairs, and books and records. 4. I am a graduate of the University of South Dakota with a degree in business administration. I have over 20 years of diversified business experience in restructuring, financial management, and accounting. I have extensive experience in the development of reorganization plans, creditor negotiations, business plan preparation and long-term forecasting, developing and implementing cost reduction programs, and financial management of public and private companies. I have advised companies, boards, investors, and lender groups, and have served in interim management roles and led assignments in numerous industries. I have served as the Chief Operating Officer of Hawaiian Telcom; the Chief Restructuring Officer of The Dolan Company, Barnes Bay Development, and American Home Mortgage; and the Chief Executive Officer of Boomerang Tube. 2

3 Main Document Page 3 of 29 The Plan I. Background. A. The Debtors Prepetition Difficulties. 5. Mission Coal Company, LLC ( Mission ) was formed on January 31, 2018, through a reorganization that combined and consolidated the operations of Seneca Coal Resources, LLC and its wholly-owned subsidiaries ( Seneca ) and Seminole Coal Resources, LLC and its wholly-owned subsidiaries ( Seminole ). Over the past several years, market forces in the industry have affected a number of coal companies, many of which have filed for chapter 11. It was through the opportunities presented by the marketing of these distressed coal assets that mining venture ERP Environmental Fund, a former corporate affiliate of Seneca and Seminole, came to acquire the high-potential operating assets at Seneca and Seminole that were eventually organized as Mission Coal in January Many of these acquired mining assets had either idled for a period of time or had otherwise fallen into disrepair, requiring enormous upfront capital infusions, including necessary equipment repairs and infrastructural investment that resulted in above-average capital and operating expenditures for the young company. B. Commencement of the Chapter 11 Cases. 7. Following multiple attempts to secure additional capital for the Debtors businesses and exploring other restructuring alternatives, the Debtors commenced these chapter 11 cases. Ultimately, the Debtors and their advisors determined that pursuing a sale of all or substantially all of the Debtors assets through a chapter 11 process would maximize the ultimate realized value for all of the Debtors stakeholders. 3

4 Main Document Page 4 of 29 C. The Settlements. 1. The Debtors Independent Investigation. 8. The independent directors of the board of directors or Mission Coal, Seneca, and Seminole Tony Horton and David Heiman (the Independent Directors ) launched the Independent Investigation in late October 2018, with the assistance of Kirkland as counsel and Alix as financial advisors. I attended or participated in certain meetings with the Independent Directors regarding the Independent Investigation. The Independent Investigation focused on certain transactions to determine whether they gave rise to potential claims. Specifically, the Independent Directors investigated causes of action (including, but not limited to, intentional fraudulent transfer, constructive fraudulent transfer, breach of fiduciary duty, equitable subordination, recharacterization, or preference) arising from the following sources: (i) the Debtors businesses; (ii) payments made to sponsors, affiliated entities, third parties, and other related entities; and (iii) loans made to insiders and affiliated parties (the Potential Claims ). 9. In connection with the Independent Investigation, I understand that the Debtors reviewed and produced over 119,000 documents in response to over a hundred document requests from the Committee. The Debtors also served discovery requests on numerous third parties and reviewed over 100,000 documents produced in response. In addition, the Debtors, along with the Committee, interviewed 15 current and former owners, employees, and representatives of certain parties associated with the Debtors or their current or former owners. The Independent Directors focus included, among other things, analyzing certain of the Debtors loans and business transactions. 10. In connection with the Independent Investigation, the Debtors engaged Richard Collura, a Managing Director at Alix, to provide forensic accounting and investigative services, including corresponding with key Debtor employees, attending interviews, and gathering and 4

5 Main Document Page 5 of 29 reviewing critical accounting and financial records relevant to the Investigations, including, but not limited to, the following: information prepared in the Cliffs Litigation; audited financial records; the Debtors general ledger; compensation information; promissory notes and debt agreements; consulting and other service agreements; coal sales data; correspondence; and other information related to transactions with affiliate entities. 11. Throughout the Independent Investigation, the Independent Directors provided multiple reports and updates to the Debtors and their counsel regarding developments and categories of transactions under review. 2. The Independent Directors Settlement. 12. The Debtors Independent Investigation concluded in late February 2019, and, quickly thereafter, the Independent Directors began engaging in extensive, good-faith negotiations with certain of the Debtors current and former equity owners and their affiliated non-debtor entities (collectively, the Settling Parties ) 3 and the Committee regarding a potential settlement of the Potential Claims. 13. Based upon a comprehensive review of information collected by the Independent Directors during the postpetition independent investigation (the Independent Directors Investigation ), the Independent Directors, with the assistance of their advisors, identified Potential Claims arising out of a several categories of transactions, which the Debtors now seek to 3 The Settling Parties include, but are not limited to, Kenneth McCoy, Jason McCoy, Thomas Clarke, Charles Ebetino, Jr., ERP Mineral Reserves, LLC, ERP Federal Mining Complex, LLC, Mission Coal Funding, LLC, ENCECo Inc., Coking Coal Leasing, LLC, Bay Point Capital Partners LP and its affiliates and/or successors ( Bay Point ), David Fortner, Robert McAtee, Michael Zervos, Mark Bartkoski, Iron Management, LLC, Iron Management II, LLC ( Iron Management II ), Iron Management III, LLC ( Iron Management III ), Iron Management IV, LLC, Iron Management V, LLC, Iron Group, Inc., Lara Natural Resources LLC, ERP Environmental Fund, Inc., ERP Compliant Fuels, LLC, ERP Steel Works LLC, ERP Compliant Coke LLC, ERP Aviation, LLC, ERP Steel Funding, LLC, Virginia Conservation Legacy Fund, Inc., VCLF Land Trust, Inc., VCLF Holdings, LLC, Blue Ridge Natural Mineral Resources, LLC ( Blue Ridge ), Merida Natural Resources, LLC, and Conuma Coal Resources, Ltd. 5

6 Main Document Page 6 of 29 settle pursuant to the Investigation Settlement. The Potential Claims and categories of transactions out of which Potential Claims arise identified by the Independent Directors generally align with those identified by the Committee. However, the Independent Directors and the Committee disagree over the litigation and collectability risks associated with pursuing the Potential Claims identified. 14. These negotiations culminated in a comprehensive settlement (the Investigation Settlement ) between the Debtors and the Settling Parties, together with the Debtors (the Settlement Parties ) that is fair, reasonable, and clearly and unambiguously in the best interests of the estates. The Investigation Settlement is embodied in the Plan and will be effectuated through the Plan. 15. In sum, in exchange for full releases by the Debtors of all Potential Claims against the Settling Parties, the Investigation Settlement will provide value to the Debtors Estates in excess of $25 million, consisting of (i) $15 million in cash consideration on the Plan Effective Date to be distributed pursuant to the terms of the Plan, (ii) $12 million in notes to be issued to the Debtors over the next five years to be used to pay certain Allowed Priority Claims, (iii) a $1 million note to be issued to the Debtors; (iv) more favorable lease terms related to the Oak Grove shields lease, (v) cancellation of the Second Lien Loan and all claims related thereto as to the Debtors, and (vi) a full release of the Debtors, including with respect to any claims filed in the chapter 11 cases or ongoing disputes pending in the chapter 11 cases. 16. The Investigation Settlement provides the key to maximizing value for the benefit of the Debtors creditors, avoids a value-destructive liquidation of the Debtors estates, and eliminates a costly, time-consuming detour through complex, uncertain litigation. Absent the Investigation Settlement, the Debtors tireless efforts to preserve hundreds of jobs through a sale 6

7 Main Document Page 7 of 29 of substantially all of their assets, achieve confirmation of a largely consensual Plan, and ensure administrative solvency of the estates, among other efforts, will be for naught, and the Debtors will be forced to immediately pivot to a value-destructive chapter 7 liquidation. D. The Debtors Auction Process and Going-Concern Sale. 17. As discussed extensively in the Declaration of Leon Szlezinger in Support of Confirmation of the Second Amended Joint Chapter 11 Plan of Mission Coal Company, LLC and Certain of Its Debtor Affiliates [Docket No. 1193], the Debtors ran a thorough auction process in the hopes of consummating a going-concern sale. 18. In light of the foregoing, the Plan is the product of extensive good-faith, arm s-length negotiations between the Debtors and all major stakeholder constituencies. The Plan is premised on a sale of substantially all of the Debtors assets, which will maximize value for the estates and, in turn, the Debtors stakeholders. 19. The Plan resolves certain Claims and Causes of Action that the Debtors, their stakeholders, and their advisors have thoroughly analyzed. Pursuit of the resolved Claims and Causes of Action would be highly uncertain to succeed and would introduce extensive delay, cost, and uncertainty in these chapter 11 cases. The resolution and settlement of these Claims and Causes of Action set forth in the Plan are critical to bringing closure to the Debtors and all parties in interest for the matters addressed therein and permits the maximum recovery available for all creditor constituents. E. The Committee and DIP Lender Stipulation. 20. The DIP Lenders and the Committee agreed to a resolution of any actual or potential Claims and Defenses that the Committee may have asserted against the First Lien Agent or the First Lien Lenders. The Court entered the Order Approving Stipulation and Agreed Order Among the Official Committee of Unsecured Creditors and the DIP Lenders [Docket No. 780] 7

8 Main Document Page 8 of 29 (the Committee and DIP Lenders Stipulation ) on February 11, The Committee and DIP Lenders Stipulation, in some respects, is incorporated into the Plan. II. The Plan Satisfies the Bankruptcy Code s Requirements for Confirmation. 21. It is my understanding that the Bankruptcy Code sets forth certain requirements with which any chapter 11 plan must comply in order to be confirmed. For the reasons detailed below, I believe that the Plan satisfies the applicable Bankruptcy Code requirements for confirming a chapter 11 plan. The reasons for this belief are set forth herein, except where such compliance is apparent on the face of the Plan, the Plan Supplement, or related documents, or where such reasons will be the subject of other testimony or evidence introduced at the Confirmation Hearing. A. The Plan Complies Fully with the Applicable Provisions of the Bankruptcy Code Section 1129(a)(1). 22. I understand that section 1129(a)(1) of the Bankruptcy Code requires a chapter 11 plan to comply with all applicable provisions of the Bankruptcy Code. 1. Proper Classification of Claims and Interests Section I understand that section 1122 of the Bankruptcy Code states that a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class. I understand that substantially similar does not require similar claims be grouped together but merely that the class be homogenous. 24. I believe that each of the Claims and Interests in each particular Class are substantially similar to the other Claims and Interests in such Class. Article III.A of the Plan provides for the following Classes: Class 1 (Other Priority Claims); Class 2 (Other Secured Claims); Class 3 (DIP Facility Claims); Class 4 (Second Lien Secured Claims); Class 5 (General 8

9 Main Document Page 9 of 29 Unsecured Claims); Class 6 (Intercompany Claims); Class 7 (Intercompany Interests); Class 8 (Section 510(b) Claims); and Class 9 (Interests). 25. In general, the Plan s classification scheme follows the Debtors capital structure and relates to the different legal or factual nature particular to each class. For example, debt and equity are classified separately, and different types of debt are also classified separately. In addition, Intercompany Interests (Class 7) are classified separately from Interests in the Debtors (Class 9) held by third parties. 26. I believe that each of the Claims or Interests in a particular Class are substantially similar to the other Claims or Interests in such Class, and there is a reasonable basis for separate classifications. The differences in classification are in the best interest of creditors, foster the Debtors restructuring efforts, do not violate the absolute priority rule, and do not needlessly increase the number of classes. Accordingly, I believe that the Plan fully complies with and satisfies section 1122 of the Bankruptcy Code. 2. Specification of Classes, Impairment, and Treatment Sections 1123(a)(1) (3). 27. It is my understanding that Article III of the Plan specifies in detail how Claims and Interests are classified, whether such Claims and Interests are impaired, and the treatment that each Class of Claims and Interests will receive under the Plan. 3. Equal Treatment of Similarly Situated Claims and Interests Section 1123(a)(4). 28. It is my understanding that the Plan provides for identical treatment within each Class of Claims or Interests. Except as otherwise provided in the Plan, all Holders of Allowed Claims or Interests will receive the same rights as other Holders of Allowed Claims or Interests within such Holders respective Class. 9

10 Main Document Page 10 of Means for Implementation Section 1123(a)(5). 29. I understand that section 1123(a)(5) of the Bankruptcy Code requires that a chapter 11 plan provide adequate means for a plan s implementation. I believe that the Plan provides adequate means for implementation as required under section 1123(a)(5) of the Bankruptcy Code. The Plan and the various documents included in the Plan Supplement provide adequate and proper means for implementation of the Plan, including, without limitation: (i) the establishment of the General Unsecured Claims Cash Pool Account to be funded in the amount of the General Unsecured Claims Amount; (ii) the execution and delivery of the Sale Transaction Documentation, as applicable, including those agreements or other documents of merger, amalgamation, consolidation, contribution, restructuring, conversion, disposition, transfer, arrangement, continuance, dissolution, sale, purchase, or liquidation containing terms that are consistent with the terms of the Plan; (iii) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, debt, or obligation on terms consistent with the terms of the Sale Transaction Documentation, the Plan, and the Plan Supplement (as may be modified pursuant to the terms of the Plan); (iv) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, contribution, conversion, amalgamation, arrangement, continuance, or dissolution pursuant to applicable state or local law; (v) the cancellation of certain existing agreements, obligations, instruments, and Interests; (vi) the transfer of certain assets to the Successful Bidder(s), (vii) the vesting of certain assets of the Debtors Estates; (viii) the Debtors entry into the Clarke/McCoy Notes; (ix) the Debtors entry into the Clarke Note; (x) issuance of the Non-Cash Consideration, and the grant of the liens by the Successful Bidder for the Oak Grove Mining Complex and Maple Eagle Mining Complex securing any such Non-Cash Consideration; (xi) the creation of the corporate structure of the Successful Bidder for the Oak Grove Mining Complex and Maple Eagle 10

11 Main Document Page 11 of 29 Mining Complex; (xii) funding of the Estate Retained Professional Fee Claim Escrow Account; (xiii) the distribution of the Settlement Proceeds; and (xiv) all other actions that the Debtors determine, with the consent of the Required Lenders or Successful Bidder, as applicable, not to be unreasonably withheld, conditioned, or delayed, to be necessary, including making filings or recordings that may be required by applicable law in connection with the Plan, thereby satisfying section 1123(a)(5) of the Bankruptcy Code. 30. As a result, I believe that the Plan satisfies section 1123(a)(5) of the Bankruptcy Code. 5. Prohibition of Issuance of Non-Voting Stock Section 1123(a)(6). 31. I am advised that section 1123(a)(6) of the Bankruptcy Code requires that a corporate debtor s chapter 11 plan provide that a reorganized debtor s charter is to include a prohibition against issuing non-voting equity securities and related protections for preferred shareholders. I believe that this provision is inapplicable to these chapter 11 cases, because, pursuant to the Plan, the Debtors are selling substantially all of their assets and will thereafter wind down their operations. 6. Selection of Officers and Directors Section 1123(a)(7). 32. I understand that section 1123(a)(7) of the Bankruptcy Code requires that a chapter 11 plan contain only provisions related to selecting directors and officers that are consistent with the interests of creditors and equity security holders and with public policy. I believe that the Plan satisfies the requirements of section 1123(a)(7) of the Bankruptcy Code. As of the Plan Effective Date, the Plan Administrator shall act as the Debtors sole officer, director, and manager, as applicable, with respect to the Debtors affairs other than matters substantially related to the Sale Transactions. The Debtors and the Required Lenders will agree prior to the 11

12 Main Document Page 12 of 29 Effective Date on the identification and compensation of the Plan Administrator and will be disclosed in subsequent Plan Supplement filings. B. The Court Has Approved the Debtors Disclosure Statement Section 1129(a)(2). 33. It is my understanding that the Bankruptcy Code requires that parties in interest receive the plan or a summary of the plan and a court-approved disclosure statement prior to or at the time of the solicitation period. I understand that this section principally reflects the disclosure and solicitation requirements of section 1125 of the Bankruptcy Code, which prohibits the solicitation of plan votes without a court-approved disclosure statement. 1. The Debtors Complied with Section 1125 of the Bankruptcy Code. 34. I understand that section 1125 of the Bankruptcy Code requires, among other things, court approval of a debtor s disclosure statement prior to soliciting votes on a plan. Before the Debtors solicited votes on the Plan, the Court approved the Disclosure Statement. The Debtors, through their Notice and Claims Agent, complied with the content and delivery requirements of the Disclosure Statement Order. Additionally, the Debtors transmitted the same disclosure statement to each holder of a Claim or Interest in a particular Class. I therefore believe that section 1125 of the Bankruptcy Code is satisfied. 2. The Debtors Complied with Section 1126 of the Bankruptcy Code. 35. I understand that, under section 1126 of the Bankruptcy Code, only holders of allowed claims and equity interests in impaired classes receiving or retaining property under a plan may vote to accept or reject a plan. The Debtors solicited votes only from Holders of Claims in the Voting Classes because, per Article III.A of the Plan, each of these Classes is impaired and entitled to receive a distribution under the Plan. The voting deadline was April 1, 2019, at 12:00 p.m. (prevailing Central Time). On April 2, 2019, the Debtors filed the Declaration of Paul 12

13 Main Document Page 13 of 29 H. Deutch Regarding the Solicitation of Votes and Analysis of Ballots for Accepting or Rejecting the Second Amended Joint Chapter 11 Plan of Mission Coal Company, LLC and Certain of Its Debtor Affiliates [Docket No. 1192] (the Voting Report ). The Voting Report reflects the results of the voting process in accordance with section 1126 of the Bankruptcy Code. I therefore believe that section 1126 of the Bankruptcy Code is satisfied. C. The Debtors Proposed the Plan in Good Faith Section 1129(a)(3). 36. I understand that section 1129(a)(3) of the Bankruptcy Code requires that a chapter 11 plan be proposed in good faith and not by any means forbidden by law. I believe that the Debtors have proposed the Plan in good faith and not by any means forbidden by law, with the legitimate and honest purpose of restructuring the Debtors estates to maximize stakeholder recoveries. The Plan is the culmination of these efforts and follows extensive arm s-length negotiations among the Debtors, the Committee, the DIP Lenders, and other interested parties to ensure that the Debtors stakeholders realize the highest and best possible recoveries under the circumstances. 37. The Debtors negotiated, drafted, and implemented their proposed restructuring in good faith. The Sale Transactions and related documents were negotiated, proposed, and entered into by the Debtors and the Successful Bidders in good faith and from arm s-length bargaining positions, without any collusion, fraud, or attempt to take grossly unfair advantage of any party, including any potential purchaser. The Plan provides the only avenue that allows the Debtors to complete their restructuring and exit chapter 11 in an expeditious manner, which would, among other things, reduce the estates future liability for Administrative Claims and permit the Debtors to make distributions to Holders of Allowed Claims 13

14 Main Document Page 14 of As such, I understand that the Plan will achieve a result consistent with the objectives and purposes of the Bankruptcy Code and can thus be implemented without violating applicable law. D. The Plan Provides that the Debtors Payment of Professional Fees and Expenses Are Subject to Bankruptcy Court Approval Section 1129(a)(4). 39. I understand that section 1129(a)(4) of the Bankruptcy Code requires a court to approve certain fees and expenses that either a plan proponent, debtor, or person receiving property distributions under the plan has paid as reasonable. It is my understanding that all payments made or to be made by the Debtors for services or for costs or expenses in connection with these chapter 11 cases prior to the Plan Effective Date, including all Estate Retained Professional Fee Claims, have been approved by, or are subject to approval of, the Court. Further, Article II.B of the Plan provides that all final requests for payment of Estate Retained Professional Fee Claims shall be filed and served no later than 30 days after the Plan Effective Date for determination by the Court, after notice and a hearing, in accordance with the procedures established by the Bankruptcy Code and prior Court orders. This provides interested parties with adequate time to review such Estate Retained Professional Fee Claims. Therefore, the requisite Court approval and reasonableness requirements are provided for under the Plan. E. The Plan Complies with Governance Disclosure Requirements Section 1129(a)(5). 40. I understand that section 1129(a)(5) of the Bankruptcy Code requires (a) that a plan proponent disclose the identity and affiliation of any individual proposed to serve as a director or officer of the debtor, or a successor thereto, under a chapter 11 plan; (b) that the appointment or continuance of such officers and directors be consistent with the interests of creditors and equity security holders and with public policy; and (c) that a plan proponent disclose the identities or affiliations of insiders to be employed or retained by the wind-down Estate as Plan 14

15 Main Document Page 15 of 29 Administrator and the nature of any compensation for such insider. I understand that the Plan provides that the Debtors existing board shall be dissolved, and any remaining officers and directors, managers, or managing members of the Debtors shall be dismissed without any further action required on the part of any such Debtor. In addition, I understand that, as of the Plan Effective Date, the Plan Administrator shall act as the Debtors sole officer, director, and manager. The Debtors and the Required Lenders will agree prior to the Effective Date on the identification and compensation of the Plan Administrator and will be disclosed in subsequent Plan Supplement filings. Accordingly, I believe that the Debtors have satisfied the requirements of section 1129(a)(5) of the Bankruptcy Code. F. The Plan Does Not Require Government Regulatory Approval of Rate Changes Section 1129(a)(6). 41. I understand that section 1129(a)(6) of the Bankruptcy Code permits confirmation only if any regulatory commission that has or will have jurisdiction over a debtor after confirmation has approved any rate change provided for in the plan. This provision is inapplicable to these chapter 11 cases. G. The Plan Satisfies the Best Interests Test Section 1129(a)(7). 42. I understand that section 1129(a)(7) of the Bankruptcy Code requires that any chapter 11 plan must satisfy the best interests of creditors test, which provides that holders of claims or interests in impaired, non-accepting classes must receive, under a chapter 11 plan, at least as much value as they would in a hypothetical chapter 7 liquidation. 43. A hypothetical chapter 7 liquidation would not result in any greater value to non-consenting Holders of Claims and Interests as compared to distributions contemplated under the Plan, because each Holder of Allowed Claims or Interests in each Class will recover as much 15

16 Main Document Page 16 of 29 or more value under the Plan than the amount such Holder would receive if the Debtors were liquidated on the Plan Effective Date under chapter 7 of the Bankruptcy Code. 44. To determine the value that a rejecting creditor would receive in a hypothetical liquidation of the Debtors estates under chapter 7 of the Bankruptcy Code, one must determine the aggregate dollar amount estimated to be generated from a liquidation of the Debtors assets by a chapter 7 trustee. This liquidation value would consist of the net proceeds from the disposition of the Debtors assets, plus Cash on hand, reduced by the costs and expenses relating to, and claims arising in connection with, among other things, (a) the compensation paid to the chapter 7 trustee, (b) the asset disposition, (c) taxes, (d) litigation, (e) chapter 7 operations, and (f) any unpaid administrative expense claims. 45. I understand that the Plan contemplates that Allowed Administrative Claims, Priority Tax Claims, and Estate Retained Professional Fee Claims will be paid in full in cash or receive other treatment rendering them unimpaired. Accordingly, the best interests test does not apply to Holders of Allowed Administrative Claims, Priority Tax Claims, and Estate Retained Professional Fee Claims. 46. Furthermore, I believe that all Holders of Claims and Interests in all Impaired Classes that voted against the Plan will recover at least as much under the Plan as they would in a hypothetical chapter 7 liquidation. 47. Each voting Holder of a Class 3 DIP Facility Claim and Class 4 Second Lien Secured Claims voted to accept the Plan. See Voting Report. Accordingly, I understand that the best interests of creditors test does not apply to Classes 3 and The Plan satisfies the best interests test with respect to Holders of Claims and Interests that did not vote to accept the Plan, including Holders in the Rejecting Classes. 16

17 Main Document Page 17 of 29 Specifically, with respect to Class 5 General Unsecured Claims, I understand that certain Holders of Class 5 General Unsecured Claims voted against the Plan, in addition to the deemed rejection by Class 8 Section 510(b) Claims and Class 9 (Interests) (collectively, the Deemed Rejecting Classes ). With respect to those creditors, I believe the Plan satisfies the best interests test. More specifically, I understand the proceeds of the Clarke Note will be used to provide for distributions to Holders of General Unsecured Claims. In contrast, under a chapter 7 liquidation, Allowed General Unsecured Claims would receive no distribution because Investigation Settlement would not occur or provide for the Clarke Note, meaning that there would be no amount to be distributed to Holders of Allowed General Unsecured Claims. The Deemed Rejecting Classes would also not be entitled to any recovery in a chapter 7 liquidation. 49. Additionally, among other things, if the chapter 11 cases were converted to cases under chapter 7, the Debtors estates would incur the costs of payment of a statutorily allowed sliding-scale commission to the chapter 7 trustee, as well as the additional costs of replacement counsel and other professionals retained by the trustee to get up to speed and assist with the liquidation. Such amounts, together with other wind-down costs, would likely exceed the amount of costs that the Plan Administrator and its professionals and agents would be expected to incur in connection with completing the liquidation of the estates. All of these expenses under a hypothetical chapter 7 liquidation would further diminish the recoveries to creditors. 50. Furthermore, the estates would continue to be obligated to pay all unpaid expenses incurred by the Debtors during the chapter 11 cases, which may constitute Allowed Claims in any chapter 7 case. Moreover, a chapter 7 case would trigger a new bar date for filing claims that would be more than 90 days following conversion of the case to chapter 7. Thus, the amount of 17

18 Main Document Page 18 of 29 Claims ultimately filed and Allowed against the Debtors could materially increase, thereby further reducing creditor recoveries versus those available under the Plan. 51. I believe that a chapter 7 liquidation would result in materially reduced sale proceeds, increased expenses, and the prospect of additional claims that were not asserted in the chapter 11 cases, which in turn would drain the Debtors estates resources to the detriment of all stakeholders. 52. Accordingly, I believe that the Plan is in the best interests of Holders of Claims and Interests, and the requirements of section 1129(a)(7) of the Bankruptcy Code are satisfied. H. The Plan Satisfies the Voting Requirements Section 1129(a)(8). 53. I have been advised that section 1129(a)(8) of the Bankruptcy Code requires that each class of claims or interests must either accept the plan or be unimpaired under the plan. If not, the plan must satisfy the cramdown requirements of section 1129(b) of the Bankruptcy Code with respect to the claims or interests in that class. 54. It is my understanding that Classes 1 and 2 are Unimpaired and are deemed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. It is also my understanding that the Plan has not been accepted by the Rejecting Classes, and, therefore, the Debtors seek Confirmation under section 1129(b), rather than section 1129(a)(8), of the Bankruptcy Code. Although section 1129(a)(8) has not been satisfied with respect to the Rejecting Classes, it is my understanding that the Plan is confirmable because the Plan does not discriminate unfairly and is fair and equitable with respect to the Rejecting Classes, thus satisfying section 1129(b) of the Bankruptcy Code with respect to such Classes. As a result, the requirements of section 1129(b) of the Bankruptcy Code are satisfied. 18

19 Main Document Page 19 of 29 I. The Plan Complies With Statutorily Mandated Treatment of Administrative and Priority Tax Claims Section 1129(a)(9). 55. I have been advised that section 1129(a)(9) of the Bankruptcy Code requires that persons holding claims entitled to administrative priority receive specified cash payments under a plan, unless they agree to different treatment. I understand that the Plan treats Allowed Administrative Claims, Estate Retained Professional Fee Claims, and Priority Tax Claims in accordance with the Bankruptcy Code, rendering them Unimpaired. I therefore believe that the Plan comports with the treatment requirements of section 1129(a)(9) of the Bankruptcy Code. J. At Least One Impaired Class of Claims Has Accepted the Plan, Excluding the Acceptances of Insiders Section 1129(a)(10). 56. I understand that section 1129(a)(10) of the Bankruptcy Code requires that, if a class of claims is impaired under a plan, at least one impaired class of claims must accept the plan, excluding acceptance by any insider, as an alternative to the requirement under section 1129(a)(8) of the Bankruptcy Code that each class of claims or interests must either accept the plan or be unimpaired under the plan. 57. I understand that acceptance of the Plan by either Class 3, 4, or 5 would satisfy section 1129(a)(10). Classes 3 and 4 have voted to accept the Plan, exclusive of any acceptances by insiders, as detailed in the Voting Report. Accordingly, I believe that the Plan satisfies the requirements of section 1129(a)(10) of the Bankruptcy Code, and no party has asserted otherwise. K. The Plan Is Feasible Section 1129(a)(11). 58. I understand that section 1129(a)(11) of the Bankruptcy Code requires a court to determine that a chapter 11 plan is feasible and that confirmation of such plan is not likely to be followed by the liquidation or further financial restructuring of the Debtors. 59. I believe that the Plan is feasible. The Plan is predicated on the Sale Transactions, pursuant to which the Debtors are selling substantially all of their remaining assets to the 19

20 Main Document Page 20 of 29 Successful Bidders. The Debtors are fully capable of consummating the proposed Sale Transactions, which in turn will convey the Debtors assets to a more stable and deleveraged entity that can better and more efficiently operate the Debtors businesses on a go-forward basis. 60. Moreover, the Investigation Settlement with the Settling Parties has dramatically increased the Plan s feasibility. By injecting approximately more than $25 million of value into the estates, the Investigation Settlement provides recoveries for creditor classes across the Debtors capital structure which would otherwise be unavailable. Moreover, the Investigation Settlement resolves a host of complex claims involving highly contested facts and legal principles that could otherwise generate costly, protracted litigation and significantly delay the Debtors emergence from bankruptcy. The Investigation Settlement thus allows the Debtors to effectuate a successful reorganization by removing obstacles that were potentially fatal to the Debtors Sale Transactions, without facing the risk of uncertain and value-destructive litigation. 61. Confirmation of the Plan will enable the Debtors to consummate the Sale Transactions and make distributions to Holders of Allowed Claims without delay depending on their respective treatment. Under the Plan, Allowed Administrative and Priority Claims shall be paid the full unpaid amount of their Allowed Administrative and Priority Claim in Cash, or from payments made directly by the Successful Bidders. In addition, while the Committee & DIP Lenders Stipulation does not yield any recovery to unsecured creditors, the Debtors have allocated the proceeds of the Clarke Note to the General Unsecured Claimants. Finally, the Plan contemplates the appointment of the Plan Administrator, who will administer the estates in accordance with the Wind-Down Budget. 62. Furthermore, I have performed an updated analysis of Projections and the Wind-Down Budget, demonstrating the Debtors ability to satisfy obligations under the Plan, 20

21 Main Document Page 21 of 29 which demonstrates that the Debtors will have sufficient liquidity to meet their obligations under the Plan until all remaining Claims are satisfied or otherwise addressed pursuant to the Plan. Accordingly, I believe the Plan satisfies the feasibility requirement of section 1129(a)(11) of the Bankruptcy Code. L. The Plan Provides for the Payment of All Fees Under 28 U.S.C Section 1129(a)(12). 63. I understand that section 1129(a)(12) of the Bankruptcy Code requires the payment of all fees payable under 28 U.S.C Article II.D of the Plan includes an express provision requiring payment of all such fees in compliance with the Bankruptcy Code. M. The Plan Complies with Section 1129(a)(13) of the Bankruptcy Code. 64. I understand that section 1129(a)(13) of the Bankruptcy Code requires that all retiree benefits continue post-confirmation at any levels established in accordance with section 1114 of the Bankruptcy Code. The Debtors have obtained entry of the Memorandum Opinion and Order Granting Debtors Motion for Entry of an Order (I) Authorizing, but Not Directing, the Debtors to (A) Reject Their Collective Bargaining Agreements, (B) Modify Certain Union-Related Retiree Benefits, and (C) Implement Terms of Their Section 1113 and Section 1114 Proposal, and (II) Granting Related Relief [Docket No. 902] (the 1113/1114 Order ), pursuant to which the Debtors do not have any remaining obligations to pay retiree benefits (as defined by the Bankruptcy Code) except as set forth in the Fourth Proposal (as defined in the 1113/1114 Order). As a result, I believe that the Plan satisfies the requirements of section 1129(a)(13) of the Bankruptcy Code. N. Section 1129(a)(14) Through Section 1129(a)(16) of the Bankruptcy Code Do Not Apply to the Plan. 65. I understand that sections 1129(a)(14) and 1129(a)(15) of the Bankruptcy Code apply only to debtors that are individuals and that section 1129(a)(16) of the Bankruptcy Code 21

22 Main Document Page 22 of 29 applies only to debtors that are nonprofit entities or trusts. The Debtors are not individuals or nonprofit entities or trusts. As a result, I believe that sections 1129(a)(6), 1129(a)(14), 1129(a)(15), and 1129(a)(16) of the Bankruptcy Code are not applicable to the Debtors Plan. O. The Plan Satisfies the Cramdown Requirements Section 1129(b). 66. I understand that if an impaired class does not vote to accept a plan, the plan must be fair and equitable and not unfairly discriminate with respect to that class. As described below, I believe that the Plan satisfies both of these cramdown requirements with respect to the Rejecting Classes. 1. The Plan Is Fair and Equitable with Respect to the Rejecting Classes. 67. I understand that a plan is fair and equitable with respect to an impaired class of claims or interests that rejects the plan (or is deemed to reject the plan) if, with respect to any dissenting classes of creditors, such creditors are fully satisfied before any junior creditor receives anything on account of its claim that is, payments must follow the absolute priority rule. I understand that the DIP Facility Claims are impaired, but that the DIP Lenders have nevertheless consented to their impaired treatment under the Plan. It is my understanding that the DIP Lenders consent to impairment permits junior creditors, in particular, the General Unsecured Claimants, to receive recovery of the Clarke Note under the Plan. I therefore believe that the Plan is fair and equitable with respect to any rejecting class. 2. The Plan Does Not Unfairly Discriminate Against the Rejecting Classes. 68. I understand that creditors and interest holders with similar legal rights may not receive materially different treatment under a proposed plan without compelling justifications for doing so. The Plan s treatment of the Rejecting Classes is proper because all similarly situated holders of Claims and Interests will receive substantially similar treatment. Moreover, no 22

23 Main Document Page 23 of 29 Objecting Party has asserted otherwise. I therefore believe that the Plan does not discriminate unfairly against Rejecting Classes and that the Plan may be confirmed notwithstanding their rejection. III. The Plan Complies with the Other Provisions of Section 1129 of the Bankruptcy Code Sections 1129(c), 1129(d), and 1129(e). 69. I understand that section 1129(c) of the Bankruptcy Code prohibits confirmation of multiple plans. Other than the Plan, no other plan has been filed in these chapter 11 cases. Accordingly, I believe that the requirements of section 1129(c) of the Bankruptcy Code are satisfied. 70. I understand that section 1129(d) of the Bankruptcy Code prohibits confirmation of a chapter 11 plan if it was designed and proposed to evade taxes or the requirements of section 5 of the Securities Act. I do not believe that the Plan was proposed for either of the proscribed purposes. Rather, I believe the Debtors filed the Plan to maximize creditor recoveries, consummate the Sale Transactions expeditiously, and to otherwise benefit the estates. Moreover, no party that is a governmental unit, or any other entity, has requested that the Court decline to confirm the Plan on the grounds that the principal purpose of the Plan is the avoidance of taxes or the avoidance of the application of section 5 of the Securities Act. 71. Furthermore, the chapter 11 cases are not small business cases. Accordingly, I understand that section 1129(e) of the Bankruptcy Code does not apply to the chapter 11 cases. 72. In light of the foregoing, I believe the Plan satisfies the Bankruptcy Code s mandatory confirmation requirements. IV. The Discretionary Contents of the Plan Are Appropriate. 73. I understand that, among other discretionary provisions, the Plan contains releases by the Debtors and certain third parties of Claims and Causes of Action, exculpation and injunction 23

24 Main Document Page 24 of 29 provisions, settlement of Claims and Causes of Action, Assumption and Rejection of Executory Contracts and Unexpired Leases, and the treatment of alleged liens, easements, and similar interests. Based on the below, it is my belief that all such discretionary provisions comply with section 1123(b) of the Bankruptcy Code. A. The Investigation Settlement. 74. I understand that the Investigation Settlement resolves substantially all Potential Claims for valuable consideration that allows the Plan to be confirmed. Moreover, it resolves a host of complex claims involving highly contested facts and legal principles that could otherwise generate costly and protracted litigation, significantly delaying emergence. Specifically, I understand that the Investigation Settlement recoups more than $25 million in value on an approximately $76 million in Potential Claims. This is a significant recovery for the Debtors estates as it provides both a substantial recovery during these chapter 11 cases and avoids the time and expense of protracted litigation that has an uncertain success rate. The Investigation Settlement thus allows the Debtors to effectuate a successful restructuring, without facing the risk of uncertain and value-destructive litigation. 75. The terms of the Investigation Settlement were negotiated at arm s-length, agreed upon after several weeks of intense negotiations, and supported by months of research and investigation by the Independent Directors, the Committee, and their advisors. The Investigation Settlement represents the best judgment of the Independent Directors and the Debtors as to the value of settling versus litigating the Potential Claims in light of an assessment of the Potential Claims merits if litigated, the cost and delay of litigating, the ability to collect on a judgment, and the impact on the Debtors creditors and other stakeholders. This result, achieved through a fair process, is substantively reasonable, fair, in the best interests of the Debtors estates and easily 24

25 Main Document Page 25 of 29 falls well above the lowest point in the range of reasonable recoveries for each creditor. This Court should therefore approve the Investigation Settlement with the Settling Parties. B. The Plan s Release, Exculpation, and Injunction Provisions Are Appropriate and Comply with the Bankruptcy Code. 76. The Plan includes certain Debtor releases, third-party releases, an exculpation provision, and an injunction provision. I understand that these provisions comply with the Bankruptcy Code and prevailing law because, among other reasons, they are the product of extensive good faith, arm s-length negotiations, were a material inducement for parties to enter into the Settlements embodied in the Plan and are supported by the Debtors and other key stakeholders, including the DIP Lenders, the Second Lien Lenders, and the Settling Parties. 1. The Debtor Release Is Appropriate and Complies with the Bankruptcy Code. 77. I believe the Debtor Release is fair and equitable and in the best interests of all creditors. In addition to the releases provided for in the Investigation Settlement, the Debtors provide a release for other parties that have provided significant value in these chapter 11 cases. In return for the Debtor Release, under the terms of the Plan, the Debtors will complete the Sale and sell their operating businesses to the Oak Grove and Maple Eagle Buyer and the Pinnacle Buyer and fund administrative and priority claims. This would not be possible without the good-faith negotiation of the Successful Bidder and the DIP Lender s agreement to subordinate its claim to allow the satisfaction of Administrative Claims and wind-down of the estates, both of which are necessary to confirm a chapter 11 plan. The other Released Parties similarly made substantial, valuable contributions to the efficient administration of the chapter 11 cases or are otherwise facilitating the Debtors successful emergence from the chapter 11 cases. In particular, the work of the Independent Directors provided the impetus for the consideration received through the Investigation Settlement and the Debtors employees ensured the continuing viability of the 25

26 Main Document Page 26 of 29 Debtors operations as a going-concern. Without the support and contributions of the Independent Directors and employees, the potential for a successful resolution of these chapter 11 cases would not be possible. 78. It is my understanding that the Released Parties made substantial, valuable contributions to the efficient administration of the chapter 11 cases, or are otherwise facilitating the Debtors successful emergence from the chapter 11 cases. Accordingly, I believe that the Debtor Release is fair, equitable, and in the best interests of the Debtors and their Estates. 2. The Third-Party Release Is Consensual, Appropriate, and Complies with the Bankruptcy Code. 79. The Third-Party Release, as with the Debtor Release, was a material inducement for the support of the Plan, and is therefore a necessary and integral element of the Plan. Moreover, it is my understanding that the Third-Party Release is consensual under the mechanisms provided for in connection with the Third-Party Release under the Plan. 80. Here, the Third-Party Release is consensual with respect to all of the Releasing Parties. I understand that Ballots were distributed to Holders of Claims and Interests entitled to vote on the Plan, quoted the entirety of the Third-Party Release and related provisions and definitions of the Plan, and clearly informed Holders of Claims and Interests entitled to vote on the steps they should take if they disagreed with the scope of the Third-Party Release. Likewise, all parties not entitled to vote to accept or reject the Plan, including unimpaired creditors who are deemed to accept the Plan, impaired creditors who are presumed to reject the Plan, and Holders of disputed Claims, were provided with an Opt-Out Form, allowing them to opt out of the Third-Party Release. I understand that these Opt-Out Forms also quoted the entirety of the Third-Party Release and related provisions and definitions of the Plan, clearly informing these Holders of Claims and Interests of the steps they should take if they disagreed with the scope of the Third-Party Release. 26