EX-99.T3E1 10 ex99_t3e1.htm EXHIBIT T3E.1

Exhibit T3E.1
 
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
 
------------------------------------------------------
x
 
 
:
 
In re
:
Chapter 11
 
:
 
AMERICAN GILSONITE
:
Case No. 16-______ (___)
COMPANY, et al.,
:
 
 
:
Joint Administration Requested
Debtors.1
:
 
------------------------------------------------------ x  

DISCLOSURE STATEMENT FOR JOINT PREPACKAGED PLAN OF
REORGANIZATION OF AMERICAN GILSONITE COMPANY AND ITS AFFILIATED
DEBTORS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
 
 
WEIL, GOTSHAL & MANGES LLP
Matthew S. Barr
Sunny Singh
Jessica Diab
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
Facsimile: (212) 310-8007

Proposed Counsel for Debtors and
Debtors in Possession
RICHARDS, LAYTON & FINGER, P.A.
Mark D. Collins (No. 2981)
John H. Knight (No. 3848)
Amanda R. Steele (No. 5530)
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Telephone: (302) 651-7700
Facsimile:  (302) 651-7701
 
Proposed Counsel for Debtors and
Debtors in Possession
 
Dated:
October 19, 2016
Wilmington, Delaware


1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, as applicable, are: American Gilsonite Holding Company (2164), American Gilsonite Company (1788), DPC Products, Inc. (7329), Lexco Acquisition Corp. (9699), and Lexco Holding, LLC (9699).  The Debtors’ mailing address is 16200 Park Row Drive, Suite 250, Houston, Texas 77084.
 

THIS SOLICITATION OF VOTES (THE “SOLICITATION”) IS BEING CONDUCTED TO OBTAIN SUFFICIENT ACCEPTANCES OF THE PLAN (AS DEFINED HEREIN) BEFORE THE FILING OF VOLUNTARY CASES UNDER CHAPTER 11 OF TITLE 11 OF THE UNITED STATES CODE (THE “BANKRUPTCY CODE”).  BECAUSE THE CHAPTER 11 CASES HAVE NOT YET BEEN COMMENCED, THIS DISCLOSURE STATEMENT HAS NOT, AS OF THE DATE HEREOF, BEEN APPROVED BY THE BANKRUPTCY COURT AS CONTAINING ADEQUATE INFORMATION WITHIN THE MEANING OF SECTION 1125(a) OF THE BANKRUPTCY CODE.  FOLLOWING THE COMMENCEMENT OF THE CHAPTER 11 CASES, THE DEBTORS EXPECT TO PROMPTLY SEEK (I) BANKRUPTCY COURT APPROVAL OF (A) THIS DISCLOSURE STATEMENT AS CONTAINING ADEQUATE INFORMATION, AND (B) THE SOLICITATION OF VOTES AS BEING IN COMPLIANCE WITH SECTIONS 1125 AND 1126(b) OF THE BANKRUPTCY CODE, AND (II) CONFIRMATION OF THE PLAN.
 
DISCLOSURE STATEMENT, DATED OCTOBER 19, 2016
 
Solicitation of Votes on the
Prepackaged Plan of Reorganization of
 
AMERICAN GILSONITE COMPANY, ET AL.,
 
from the holders of outstanding
 
SECOND LIEN NOTES CLAIMS
 
AGHC INTERESTS
 
THE VOTING DEADLINE TO ACCEPT OR REJECT THE PLAN IS 5:00 P.M., PREVAILING EASTERN TIME, ON NOVEMBER 16, 2016, UNLESS EXTENDED BY THE DEBTORS (AS DEFINED HEREIN).  THE RECORD DATE FOR DETERMINING WHICH HOLDERS OF CLAIMS OR INTERESTS MAY VOTE ON THE PLAN IS OCTOBER 13, 2016 (THE “VOTING RECORD DATE”).
 
RECOMMENDATION BY THE DEBTORS
The Board of Directors of American Gilsonite Company and the board of directors, managers, or members, as applicable, of each of its affiliated Debtors (as of the date hereof) have unanimously approved the transactions contemplated by the Solicitation and the Plan and recommend that all creditors and interest holders whose votes are being solicited submit ballots to accept the Plan.  Holders of more than 66 2/3% of the Second Lien Notes Claims and approximately 98% of the AGHC Interests (as defined herein) have already agreed to support the Plan.

HOLDERS OF CLAIMS OR INTERESTS SHOULD NOT CONSTRUE THE CONTENTS OF THIS DISCLOSURE STATEMENT AS PROVIDING ANY LEGAL, BUSINESS, FINANCIAL, OR TAX ADVICE AND SHOULD CONSULT WITH THEIR OWN ADVISORS BEFORE VOTING ON THE PLAN.
 
THE ISSUANCE OF AND THE DISTRIBUTION UNDER THE PLAN OF (I) NEW COMMON STOCK TO HOLDERS OF ALLOWED SECOND LIEN NOTES CLAIMS AND ALLOWED AGHC INTERESTS AND (II) SUBORDINATED NOTES TO HOLDERS OF ALLOWED SECOND LIEN NOTES CLAIMS SHALL, IN EACH CASE, BE EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND ANY OTHER APPLICABLE SECURITIES LAWS PURSUANT TO SECTION 1145 OF THE BANKRUPTCY CODE.  THE AVAILABIILITY OF THE EXEMPTION UNDER SECTION 1145 OF THE BANKRUPTCY CODE OR ANY OTHER APPLICABLE SECURITIES LAWS SHALL NOT BE A CONDITION TO THE OCCURRENCE OF THE EFFECTIVE DATE.
 
THE SOLICITATION OF VOTES ON THE PLAN WITH RESPECT TO THE SECOND LIEN NOTES CLAIMS AND THE AGHC INTERESTS IS BEING MADE PURSUANT TO SECTION 4(A)(2) AND REGULATION D OF THE SECURITIES ACT AND ONLY FROM HOLDERS OF SUCH CLAIMS WHO ARE ELIGIBLE SECOND LIEN NOTEHOLDERS AND ELIGIBLE HOLDERS OF AGHC INTERESTS (I.E., ACCREDITED INVESTORS AS DEFINED IN RULE 501 OF THE SECURITIES ACT); PROVIDED, HOWEVER, THAT ALL HOLDERS OF ALLOWED SECOND LIEN NOTES CLAIMS AND ALLOWED AGHC INTERESTS WILL BE ENTITLED TO RECEIVE DISTRIBUTIONS UNDER THE PLAN.
 
THE NEW COMMON STOCK TO BE ISSUED ON THE EFFECTIVE DATE HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) OR BY ANY STATE SECURITIES COMMISSION OR SIMILAR PUBLIC, GOVERNMENTAL, OR REGULATORY AUTHORITY, AND NEITHER THE SEC NOR ANY SUCH AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT OR UPON THE MERITS OF THE PLAN.  ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
CERTAIN STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT, INCLUDING STATEMENTS INCORPORATED BY REFERENCE, PROJECTED FINANCIAL INFORMATION, AND OTHER FORWARD-LOOKING STATEMENTS, ARE BASED ON ESTIMATES AND ASSUMPTIONS.  THERE CAN BE NO ASSURANCE THAT SUCH STATEMENTS WILL BE REFLECTIVE OF ACTUAL OUTCOMES.  FORWARD-LOOKING STATEMENTS ARE PROVIDED IN THIS DISCLOSURE STATEMENT PURSUANT TO THE SAFE HARBOR ESTABLISHED UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES, ASSUMPTIONS, UNCERTAINTIES, AND RISKS DESCRIBED HEREIN.
 
FURTHER, READERS ARE CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS HEREIN ARE BASED ON ASSUMPTIONS THAT ARE BELIEVED TO BE REASONABLE, BUT ARE SUBJECT TO A WIDE RANGE OF RISKS IDENTIFIED IN THIS DISCLOSURE STATEMENT.  DUE TO THESE UNCERTAINTIES, READERS CANNOT BE ASSURED THAT ANY FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT.  THE DEBTORS ARE UNDER NO OBLIGATION TO (AND EXPRESSLY DISCLAIM ANY OBLIGATION TO) UPDATE OR ALTER ANY FORWARD-LOOKING STATEMENTS

WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE, UNLESS INSTRUCTED TO DO SO BY THE BANKRUPTCY COURT.
 
HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS WILL NOT BE IMPAIRED BY THE PLAN AND, AS A RESULT, THEIR RIGHT TO RECEIVE PAYMENT IN FULL ON ACCOUNT OF VALID OBLIGATIONS IS NOT ALTERED BY THE PLAN.  DURING THE CHAPTER 11 CASES, THE DEBTORS INTEND TO OPERATE THEIR BUSINESS IN THE ORDINARY COURSE AND WILL SEEK AUTHORIZATION FROM THE BANKRUPTCY COURT TO MAKE PAYMENT IN FULL ON A TIMELY BASIS TO ALL TRADE CREDITORS, EMPLOYEES, AND LEASE COUNTERPARTIES OF ALL AMOUNTS DUE PRIOR TO AND DURING THE CHAPTER 11 CASES.
 
NO INDEPENDENT AUDITOR OR ACCOUNTANT HAS REVIEWED OR APPROVED THE FINANCIAL PROJECTIONS OR THE LIQUIDATION ANALYSIS HEREIN.
 
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT ARE MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED.  THE TERMS OF THE PLAN GOVERN IN THE EVENT OF ANY INCONSISTENCY WITH THE SUMMARIES IN THIS DISCLOSURE STATEMENT.
 
THE INFORMATION IN THIS DISCLOSURE STATEMENT IS BEING PROVIDED SOLELY FOR PURPOSES OF VOTING TO ACCEPT OR REJECT THE PLAN OR IN CONNECTION WITH CONFIRMATION OF THE PLAN.  NOTHING IN THIS DISCLOSURE STATEMENT MAY BE USED BY ANY PARTY FOR ANY OTHER PURPOSE.
 
ALL EXHIBITS TO THE DISCLOSURE STATEMENT ARE INCORPORATED INTO AND ARE A PART OF THIS DISCLOSURE STATEMENT AS IF SET FORTH IN FULL HEREIN.

TABLE OF CONTENTS
       
I. INTRODUCTION
 
4
     
II. OVERVIEW OF DEBTORS’ OPERATIONS
 
8
A.
Debtors’ Business
 
8
B.
Debtors’ Organizational Structure
 
9
C.
Directors and Officers
 
10
D.
Regulation of Debtors’ Business
 
10
E.
Debtors’ Capital Structure
 
10
     
III. Key Events Leading TO COMMENCEMENT OF chapter 11 cases
 
12
A.
Collapse in Oil Prices
 
12
B.
Prepetition Negotiations with Consenting  RSA Parties and Restructuring Support Agreement
 
13
     
IV. Anticipated Events During Chapter 11 Cases
 
15
A.
Commencement of Chapter 11 Cases and First-Day Motions
 
15
B.
Procedural Motions and Retention of Professionals
 
18
C.
Solicitation Procedures
 
19
D.
Timetable for Chapter 11 Cases
 
19
     
V. Pending litigation
 
19
     
VI. SUMMARY OF Plan
 
20
A.
Administrative Expense and Priority Claims
 
20
B.
Classification of Claims and Interests
 
22
C.
Treatment of Claims and Interests
 
23
D.
Means for Implementation
 
26
E.
Distributions
 
32
F.
Procedures for Disputed Claims and Interests
 
37
G.
Executory Contracts and Unexpired Leases
 
38
H.
Conditions Precedent to Confirmation of Plan and Effective Date
 
42
I.
Effect of Confirmation of Plan
 
44
J.
Retention of Jurisdiction
 
48
K.
Miscellaneous Provisions
 
50
     
VII. FINANCIAL INFORMATION AND PROJECTIONS
 
55
A.
Consolidated Condensed Projected Financial Information
 
55
B.
Assumptions to Projected EBITDA and Cash Flow Projections
 
60

C.
Assumptions with Respect to Projected Consolidated Emergence Balance Sheet
 
62
     
VIII. VALUATION ANALYSIS
 
63
A.
Discounted Cash Flow Analysis
 
64
B.
Peer Group Trading Analysis
 
65
C.
Total Enterprise Value
 
65
     
IX. TRANSFER RESTRICTIONS AND CONSEQUENCES UNDER FEDERAL SECURITIES LAWS
 
66
     
X. Certain U.S. Tax Consequences of PlaN
 
67
A.
Consequences to Debtors
 
68
B.
Consequences to Holders of Second Lien Notes Claims
 
69
C.
Consequences of Merger to Holders of AGHC Interests
 
75
D.
Information Reporting and Backup Withholding
 
76
E.
Importance of Obtaining Professional Tax Assistance
 
76
     
XI. Certain Risk Factors to be Considered
 
76
A.
Certain Bankruptcy Law Considerations
 
76
B.
Additional Factors Affecting Value of Reorganized Debtors
 
78
C.
Risks Relating to Debtors’ Business and Financial Condition
 
78
D.
Factors Relating to Securities to Be Issued Under Plan, Generally
 
80
E.
Risks Related to Investment in Exit Facility
 
81
F.
Risks Related to an Investment in the New Common Stock
 
83
G.
Additional Factors
 
83
     
XII. Voting Procedures and Requirements
 
84
A.
Parties Entitled to Vote
 
84
B.
Voting Deadline
 
85
C.
Voting Procedures
 
86
D.
Waivers of Defects, Irregularities, etc.
 
90
     
XIII. Confirmation of Plan
 
91
A.
Confirmation Hearing
 
91
A.
Objections to Confirmation
 
91
B.
Requirements for Confirmation of Plan
 
93
     
XIV. Alternatives To Confirmation and consummation of Plan
 
96
A.
Alternative Plan of Reorganization
 
97
B.
Sale Under Section 363 of Bankruptcy Code
 
97
C.
Liquidation Under Chapter 7 or Applicable Non-Bankruptcy Law
 
97
ii

XV. Conclusion and Recommendation
 
98
 
EXHIBIT A:
Restructuring Support Agreement
EXHIBIT B:
Prepackaged Plan
EXHIBIT C:
DIP Facility Term Sheet
EXHIBIT D:
DIP Commitment Letter
EXHIBIT E:
Management Incentive Plan Term Sheet
EXHIBIT F:
Exit Facility Term Sheet
EXHIBIT G:
Subordinated Notes Term Sheet
EXHIBIT H:
Shareholders Agreement Term Sheet
EXHIBIT I:
Liquidation Analysis
iii

I.
INTRODUCTION
 
American Gilsonite Company (“AGC”), American Gilsonite Holding Company (“AGHC”), DPC Products, Inc., Lexco Acquisition Corp. and Lexco Holding, LLC (collectively, the “Debtors,” “American Gilsonite” or the “Company”) submit this Disclosure Statement in connection with the Solicitation of votes on the Joint Prepackaged Chapter 11 Plan of Reorganization of American Gilsonite Company and its Affiliated Debtors, dated October 19, 2016 (the “Plan,” attached hereto as Exhibit B).  Capitalized terms used in this Disclosure Statement, but not herein defined, have the meanings ascribed to such terms in the Plan.  To the extent any inconsistencies exist between this Disclosure Statement and the Plan, the Plan governs.
 
After extensive arm’s-length negotiations over the past several months, the Debtors are pleased to commence the solicitation of votes on the Plan to implement their balance sheet restructuring (the “Restructuring”) with the support and commitment of their secured noteholders holding more than 67% in amount of AGC’s 11.5% Senior Secured Notes due 2017 (the “Consenting Second Lien Noteholders”) and the Company’s existing equity sponsor (the “Consenting AGHC Interest Holders”).  The Consenting Second Lien Noteholders and the Consenting AGHC Interest Holders (together, the “Consenting RSA Parties”) have executed a restructuring support agreement (the “Restructuring Support Agreement”) with the Debtors, a copy of which is attached hereto as Exhibit A.
 
The Plan will de-lever American Gilsonite’s balance sheet and set it on a path to emerge from bankruptcy as a leaner, healthier enterprise, thereby positioning American Gilsonite for the future growth of its brand and business.  The Plan implements a deleveraging transaction that that will impair only the Second Lien Noteholders and holders of AGHC Interests, with the consent of the Consenting RSA Parties.  Specifically, pursuant to the Plan, the Debtors’ second lien notes will be cancelled in exchange for 98% of the reorganized equity and $100 million in subordinated unsecured debt.  General unsecured creditors are not impaired by the Plan and will be satisfied in full in the ordinary course of business.  In addition, certain of the Consenting Second Lien Noteholders are providing debtor in possession financing (the “DIP Facility”) to the Debtors in the amount of $30 million, which will be used, subject to Court approval, to refinance the Company’s outstanding obligations of approximately $20 million under its prepetition secured revolver and to support the Company’s working capital needs during and after these chapter 11 cases.  Eligible Second Lien Noteholders will be offered the opportunity to participate as lenders under the DIP Facility.2  Upon emergence from bankruptcy, all borrowings under the DIP Facility will be converted into a secured exit facility.  The Company is projected to have approximately $9.3 million of cash and cash equivalents on its balance sheet upon emergence from bankruptcy.  The deleveraging transaction coupled with the financing to be provided by the Consenting Second Lien Noteholders will enable the Company to maintain its operations and satisfy its obligations in the ordinary course of business, and position the Company to achieve long term success.
 
The Restructuring, as set forth in the Plan, will provide substantial benefits to the Debtors and all of their stakeholders, including:
 
§
All trade vendors, employees, and mining lease counterparties will be unimpaired by the bankruptcy and will be satisfied in full in the ordinary course of business.  Trade contracts and terms will be maintained.  Employee arrangements will be honored.  And mining leases will be assumed.
 

2 Additional notice will be provided to the Second Lien Noteholders with respect to when they will be required to submit their election to opt into the DIP Facility.
4

§
The Restructuring will leave the Company’s business intact and substantially delevered, providing for the reduction of approximately $160 million of the Debtors’ existing net debt and an annual cash debt service reduction of approximately $27 million in 2017.  This de-leveraging will enhance the Debtors’ long-term growth prospects and competitive position and allow the Debtors to emerge from their chapter 11 cases with opportunities to invest and grow their business in light of currently depressed oil and natural gas prices.
 
§
The Restructuring will allow the Debtors’ management team to focus on operational performance and value creation. A significantly-improved balance sheet will enable the reorganized Debtors to pursue value-creating opportunities.
 
Accomplishing a speedy and efficient chapter 11 process is essential to maximizing value and successfully reorganizing the Debtors.  In accordance with the Restructuring Support Agreement, the Debtors are obligated to meet certain milestones.  Specifically, the Restructuring Support Agreement may be terminated by the Requisite Noteholders (as defined in the Restructuring Support Agreement) if, among other things, the Debtors fail to satisfy the below milestones:
 
Milestone
Deadline
Commence Chapter 11 Cases
11:59 p.m. (Prevailing Eastern Time) on October 24, 2016
Complete Solicitation
Thirty (30) calendar days after commencement of Solicitation
Obtain Bankruptcy Court Approval of Disclosure Statement and Confirmation of Plan
Fifty-five (55) calendar days after the Commencement Date
Occurrence of Effective Date
Seventy (70) calendar days after the Commencement Date
 
THE DEBTORS AND THE CONSENTING RSA PARTIES (COLLECTIVELY, THE “PLAN SUPPORT PARTIES”) SUPPORT CONFIRMATION OF THE PLAN AND URGE ALL HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO VOTE ON THE PLAN TO VOTE TO ACCEPT THE PLAN. THE PLAN SUPPORT PARTIES BELIEVE THAT THE PLAN PROVIDES THE HIGHEST AND BEST RECOVERY FOR ALL STAKEHOLDERS.
 
WHO IS ENTITLED TO VOTE: Under the Bankruptcy Code, only holders of claims or interests in “impaired” Classes are entitled to vote on the Plan (unless, for reasons discussed in more detail below, such holders are deemed to reject the Plan pursuant to section 1126(g) of the Bankruptcy Code).  Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be “impaired” unless (i) the Plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the Plan, among other things, cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default.
 
There are two Classes whose acceptances of the Plan are being solicited:
 
1.
Holders of Second Lien Notes Claims (Class 3); and
 
2.
Holders of AGHC Interests (Class 6).
5

THE PLAN PROVIDES THAT THE FOLLOWING HOLDERS ARE DEEMED TO HAVE GRANTED THE RELEASES THEREIN: (1) HOLDERS OF IMPAIRED CLAIMS OR INTERESTS EXCEPT THOSE (A)  DEEMED TO REJECT THE PLAN OR (B) WHO VOTED TO REJECT, OR ABSTAIN FROM VOTING ON, THE PLAN AND HAVE ALSO CHECKED THE BOX ON THE APPLICABLE BALLOT OR NOTICE INDICATING THAT THEY OPT OUT OF GRANTING THE RELEASES PROVIDED IN THE PLAN; PROVIDED THAT, SUBJECT TO THE TERMS OF THE RSA, THE CONSENTING SECOND LIEN NOTEHOLDERS AND CONSENTING AGHC INTEREST HOLDERS MAY NOT OPT OUT OF THE RELEASES; AND (2) THE HOLDERS OF UNIMPAIRED CLAIMS OR INTERESTS WHO DO NOT TIMELY OBJECT TO THE RELEASES PROVIDED IN THE PLAN.
 
The following table summarizes, assuming an Effective Date of December 31, 2016, (i) the treatment of Claims and Interests under the Plan, (ii) which Classes are impaired by the Plan, (iii) which Classes are entitled to vote on the Plan, and (iv) the estimated recoveries for holders of Claims and Interests.  The table is qualified in its entirety by reference to the full text of the Plan.  For a more detailed summary of the terms and provisions of the Plan, see Article VI—Summary of the Plan below.  A detailed discussion of the analysis underlying the estimated recoveries, including the assumptions underlying such analysis, is set forth in the Valuation Analysis in Article VIII hereof.
 
Class
Claim or
Equity Interest
Treatment
Impaired or Unimpaired
Entitlement to
Vote on the Plan
Approx. Recovery3
1
Priority Non-Tax Claims
Except to the extent that a holder of an Allowed Priority Non-Tax Claim against any of the Debtors agrees to a less favorable treatment of such Claim, in full and final satisfaction of such Allowed Priority Non-Tax Claim, at the sole option of the Debtors or the Reorganized Debtors, as applicable (i) each such holder shall receive payment in Cash in an amount equal to such Claim, payable on the later of the Effective Date and the date that is ten (10) Business Days after the date on which such Priority Non-Tax Claim becomes an Allowed Priority Non-Tax Claim, in each case, or as soon as reasonably practicable thereafter, (ii) such holder’s Allowed Priority Non-Tax Claim shall be Reinstated, or (iii) such holder shall receive such other treatment so as to render such holder’s Allowed Priority Non-Tax Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code.
Unimpaired
No (Deemed to accept)
100%
2
Other Secured Claims
Except to the extent that a holder of an Allowed Other Secured Claim against any of the Debtors agrees to a less favorable treatment of such Claim, in full and final satisfaction of such Allowed Other Secured Claim, at the option of the Debtors (with the reasonable consent of the Requisite Noteholders) or the Reorganized Debtors, as applicable (i) each such holder shall receive payment in Cash in an amount equal to
Unimpaired
No (Deemed to accept)
100%
 

3 The amounts and/or percentages set forth under Approximate Recovery are based on the range of reorganized equity value of the Debtors as described in the Valuation Analysis described herein.  They represent the midpoint within the Debtors’ range of estimated recoveries.
6

   
such Claim, payable on the later of the Effective Date and the date that is ten (10) Business Days after the date on which such Other Secured Claim becomes an Allowed Other Secured Claim, in each case, or as soon as reasonably practicable thereafter, (ii) such holder’s Allowed Other Secured Claim shall be Reinstated, or (iii) such holder shall receive such other treatment so as to render such holder’s Allowed Other Secured Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code; provided, however, that to the extent any obligations remain outstanding under the Prepetition Credit Agreement, the Debtors shall pay such obligations in full in Cash on the Effective Date.
     
3
Second Lien Notes Claims
In full and final satisfaction of each Allowed Second Lien Notes Claim, on the Effective Date, or as soon as reasonably practicable thereafter, each holder of an Allowed Second Lien Notes Claim will be entitled to receive its Pro Rata share of (i) ninety-eight percent (98 %) of the New Common Stock issued and outstanding on the Effective Date and (ii) the Subordinated Notes.  Any holder of Second Lien Notes may designate that some or all of the New Common Stock and/or Subordinated Notes to which such holder of Second Lien Notes is entitled should be issued in the name of, and delivered to, one or more of its affiliates or designees, subject to the Debtors and the Requisite Noteholders agreeing on procedures to implement such issuance.
Impaired
Yes
51%
4
General Unsecured Claims
Except to the extent that a holder of an Allowed General Unsecured Claim against any of the Debtors agrees to a less favorable treatment of such Claim or has been paid before the Effective Date, at the sole option of the Debtors or the Reorganized Debtors, as applicable, on and after the Effective Date, (i) the Reorganized Debtors shall continue to pay or treat each Allowed General Unsecured Claim in the ordinary course of business or (ii) such holder shall receive such other treatment so as to render such holder’s Allowed General Unsecured Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code, in each case, subject to all defenses or disputes the Debtors and Reorganized Debtors may assert as to the validity or amount of such Claims, including as provided in Section 10.8 of the Plan.
Unimpaired
No (Deemed to accept)
100%
5
Intercompany Claims
On the Effective Date, or as soon as practicable thereafter, all Intercompany Claims shall be adjusted, Reinstated, or discharged to the extent determined to be appropriate by the Debtors (with the reasonable consent of the Requisite Noteholders) or the Reorganized Debtors, as applicable.
Unimpaired
No (Deemed to accept)
100%
7

6
AGHC Interests
Prior to the Effective Date, and without the need for any further corporate or limited liability company action or approval of any board of directors, management, or shareholders of any Debtor or Reorganized Debtor, as applicable, AGHC shall be merged into AGC pursuant to Section 5.2(a) of the Plan, and all AGHC Interests shall be exchanged pursuant to the Merger for common stock in AGC.  On the Effective Date, the common stock in AGC so received by holders of AGHC Interests pursuant to the Merger shall be exchanged for two percent (2%) of the New Common Stock, which shall be distributed to each holder of AGHC Interests on a Pro Rata basis, subject to Section 6.15 of the Plan.
Impaired
Yes
$1,000,000
7
AGC Interests
Prior to the Effective Date, and without the need for any further corporate or limited liability company action or approval of any board of directors, management, or shareholders of any Debtor or Reorganized Debtor, as applicable, all AGC Interests shall be transferred to AGC pursuant to the Merger and thereafter shall be cancelled.
Impaired
No (Deemed to reject)
0%
8
Other Debtor Interests
On the Effective Date, and without the need for any further corporate or limited liability company action or approval of any board of directors, management, or shareholders of any Debtor or Reorganized Debtor, as applicable, all Other Debtor Interests shall be unaffected by the Plan and continue in place following the Effective Date, solely for the administrative convenience of maintaining the existing corporate structure of the Debtors.
Unimpaired
No (Deemed to accept)
100%
 
II.
OVERVIEW OF DEBTORS’ OPERATIONS
 
A.
Debtors’ Business
 
American Gilsonite is the world’s principal commercial miner and processor of uintaite, a unique mineral which is marketed under its trademarked name “Gilsonite.”  Gilsonite is a nonhazardous, naturally occurring hydrocarbon resin that has only been found in economically viable quantities in northeastern Utah, where the Company controls the largest known reserves.  The Company holds mineral rights to approximately 11,191 acres containing approximately 7 million tons of Gilsonite reserves located exclusively in northeastern Utah.  The Company holds its Gilsonite reserves through directly-owned mineral rights and lease interests.
 
Gilsonite is primarily used in oil and gas well drilling muds, oil and gas well cements, asphalts, printing inks, foundry sands, building materials, paints and protective coatings.  Gilsonite’s unique physical and chemical properties, including low specific gravity, its tendency to soften and smear at high-temperatures, and its superior binding properties, make it an important component in many highly manufactured products.
 
The Company serves a diversified, global customer base with an average tenure of 15 years among its top ten customers.  The Company’s four core markets include: (i) oil and gas, (ii) inks and paints, (iii)
8

foundry, and (iv) asphalt.  In the oil and gas industry, customers use Gilsonite to plug micro-pores in wellbores, to lower torque, and to minimize stuck pipe.  With respect to inks and paints, Gilsonite is the only natural additive that can be used to make high quality, no-rub inks.  In addition, Gilsonite has advanced lithographic and gravure printing properties that customers use in publication and in paint and coatings production.  Customers in the foundry industry use Gilsonite because it imparts a smoother casting surface and finish in sand casting, and improves mold release and the overall finish of iron casting.  Finally, for asphalt products, Gilsonite is easier to use and provides enhanced binding characteristics and long-term durability.
 
B.
Debtors’ Organizational Structure.
 
The Debtors consist of five (5) entities organized in Delaware, Oklahoma, and Utah.  AGC was organized as a corporation under the laws of the State of Oklahoma on October 18, 1988.  AGC is a wholly-owned subsidiary of AGHC, a corporation organized under the laws of Delaware.  DPC Products, Inc. is a wholly-owned subsidiary of AGC that was organized as a corporation under the laws of the State of Delaware on June 6, 2002.  Lexco Acquisition Corp. is a wholly-owned subsidiary of AGC that was organized under the laws of the State of Delaware on July 20, 2009.  Lexco Holdings, LLC is a wholly-owned subsidiary of Lexco Acquisition Corp. and is a limited liability company that was organized under the laws of the state of Utah.
 
The following chart illustrates the Debtors’ organizational structure, as of the date hereof:
 
(FLOW CHART)
 
Pursuant to the Plan and prior to the Effective Date, AGHC will merge with and into AGC, with AGC being the surviving corporation, and AGC will reincorporate as a corporation organized under the laws of the State of Delaware.
9

C.
Directors and Officers
 
The following table sets forth the names of the members of AGC’s current board of directors:
 
Name
 
Director Since
 
Position
J. Willson Ropp 
March 2008
 
Chairman of the Board
David Gallagher 
March 2016
 
Director
David Perez 
March 2008
 
Director
Adam Shebitz 
January 2011
 
Director
Alan Miller 
March 2016
 
Director
Alan Carr 
March 2016
 
Director
George Couto 
June 2016
 
Director
 
AGC’s current senior management team is comprised of the following individuals:
 
Name
 
Position
David G. Gallagher 
President and Chief Executive Officer
Steven A. Granda 
Vice President and Chief Financial Officer
Nicholas Lott 
Chief Operating Officer
 
The composition of the board of directors of each Reorganized Debtor will be disclosed prior to the entry of the order confirming the Plan in accordance with section 1129(a)(5) of the Bankruptcy Code.
 
D.
Regulation of Debtors’ Business
 
The Company’s operations are conducted in the United States and are subject to the local, state, and federal laws, regulations, and treaties in the jurisdictions in which they operate.  The laws, regulations, and treaties that impact the Debtors’ operations include those relating to the operation of mines, environmental protection, and health and safety, and restrictions on uintaite mine development and production.
 
For example, the Company must provide security, in the form of surety bonds, escrow accounts, treasury bonds, letters of credit, or certificates of deposit, to the Utah Division of Oil, Gas, and Mining, and the United States Department of the Interior – Bureau of Land Management to secure certain reclamation obligations that the Company is subject to in connection with its mining operations.
 
E.
Debtors’ Capital Structure
 
1.
Equity Ownership
 
AGHC is a private held company.  As of the Commencement Date, AGC (Delaware), LP, a subsidiary of Palladium Equity Partners III, LP and Palladium Equity Partners III, LLC, holds approximately 98% of the existing equity in AGHC (the “AGHC Interests”).  The remaining approximately 2% of AGHC Interests is owned by AGC/PEP LLC, which is jointly owned by Palladium Equity Partners III, LLC (0.0001%) and Prospect Capital Corporation (99.9999%).  The remaining Debtors are all wholly-owned direct or indirect subsidiaries of AGHC.
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2.
Prepetition Indebtedness
 
The following description is for informational purposes only and is qualified in its entirety by reference to the documents setting forth the specific terms of such obligations and their respective related agreements.
 
As of the date hereof, the Debtors have outstanding secured debt obligations in the aggregate principal amount of approximately $290 million, which amount consists of (i) approximately $20 million in secured borrowings under the Debtors’ Prepetition Credit Agreement (as described below), and (ii) approximately $270 million in principal amount of Second Lien Notes (as described below).
 
(a)
Prepetition Credit Agreement
 
AGC, as borrower, and each of the other Debtors, as guarantors, are parties to that certain Credit and Guaranty Agreement, dated as of August 28, 2012 (as amended, restated, modified, or supplemented from time to time, the “Prepetition Credit Agreement”), with KeyBank National Association, as administrative agent (“KeyBank”).  As of the date hereof, the aggregate principal amount outstanding under the Prepetition Credit Agreement is approximately $20 million, plus any applicable interest, fees, and other amounts due thereunder.  The Prepetition Credit Agreement matures on May 28, 2017.
 
Pursuant to the Prepetition Credit Agreement, each of the Debtors guaranteed the Obligations (as defined in the Prepetition Credit Agreement) of AGC under the Prepetition Credit Agreement and each Debtor was required to secure such guaranty by entering into that certain First Lien Security and Pledge Agreement, dated as of August 28, 2012, by and among the Debtors and KeyBank in order to grant a first-priority lien on substantially all of each Debtor’s property, including all accounts, chattel paper, commercial tort claims, deposit accounts (other than payroll, withholding tax and other fiduciary deposit accounts), documents, general intangibles (including, without limitation, rights in and under any swap agreements), goods (including all inventory and equipment), pledged securities, and proceeds of any collateral (the “Prepetition Collateral”), in favor of KeyBank.
 
(b)
Second Lien Notes
 
The Debtors are party to that certain Indenture (as amended, modified, or otherwise supplemented from time to time, the “Second Lien Notes Indenture”), dated as of August 28, 2012, by and among AGC, as issuer, each of the guarantors named therein, and Wilmington Trust, National Association, as trustee and collateral agent (the “Second Lien Notes Trustee”), pursuant to which AGC issued 11.5% Senior Secured Notes due 2017 in the aggregate principal amount of $260 million (the “Initial Second Lien Notes”).  The Initial Second Lien Notes mature on September 1, 2017.  On September 24, 2012, AGC issued additional Second Lien Notes (the “Additional Second Lien Notes” and, collectively with the Initial Second Lien Notes, the “Second Lien Notes”) pursuant to the Second Lien Notes Indenture, in the aggregate principal amount of $10 million.  The Additional Second Lien Notes were issued at 99.9% of their principal amount, plus accrued interest from September 3, 2016, and mature on September 1, 2017.  The Additional Second Lien Notes are identical to and are treated together with the Initial Second Lien Notes as a single class of debt securities under the Second Lien Indenture.  Pursuant to that certain Second Lien Security and Pledge Agreement, dated as of August 28, 2012, as amended, modified, or supplemented from time to time, the Second Lien Notes are secured by liens on the Prepetition Collateral.  The Second Lien Notes are jointly and severally and fully and unconditionally guaranteed by all of the Debtors.  As of the date hereof, the aggregate amount outstanding under the Second Lien Notes is approximately $290 million, which includes unpaid principal, interest, fees, and other amounts due thereunder.
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(c)
Intercreditor Agreement
 
The Debtors, KeyBank, as the administrative agent under the Prepetition Credit Agreement, and the Second Lien Notes Trustee, on behalf of the holders of Second Lien Notes, are parties to an Intercreditor Agreement, dated as of August 28, 2012, between the Debtors, KeyBank, and the Second Lien Notes Trustee (as amended, modified, or supplemented from time to time, the “Intercreditor Agreement”).  Pursuant to the Intercreditor Agreement, the Second Lien Notes Trustee, on behalf of the Second Lien Noteholders, agreed, among other things and subject to the terms thereof, that the security interests and liens granted by the Debtors in favor of the Second Lien Notes Trustee to secure the Debtors’ obligations under the Second Lien Notes shall be junior to the security interest and liens granted in favor of KeyBank to secure the Debtors’ obligations under the Prepetition Credit Agreement.
 
(d)
Trade Claims
 
In the ordinary course of business, the Debtors incur various fixed, liquidated, and undisputed payment obligations (the “Trade Claims”) to various third-party providers of goods and services (the “Trade Creditors”) that facilitate the Debtors’ business operations.  As of the date hereof, the Debtors estimate that the aggregate amount of Trade Claims outstanding is approximately $325,000.  A majority of the Debtors’ General Unsecured Claims are Trade Claims.  Certain of the Trade Claims may be entitled to statutory priority, such as under section 503(b)(9) of the Bankruptcy Code, or may give rise to shippers, warehouseman, or mechanics liens against the Debtors’ property if unpaid (collectively, the “Priority Trade Claims”).  Excluding the likely Priority Trade Claims, the Debtors estimate that the total Trade Claims equal approximately $135,000 (the “Non-Priority Trade Claims”).
 
III.
KEY EVENTS LEADING TO COMMENCEMENT OF CHAPTER 11 CASES
 
A.
Collapse in Oil Prices
 
The Company’s business benefits from strong operating margins and low capital requirements.  The Company also enjoys a significant market share for its product due to the scarcity of Gilsonite reserves.  Recently, however, the prices of crude oil and natural gas have declined dramatically, having reached multiyear lows, as a result of robust non Organization of the Petroleum Exporting Countries’ (OPEC) supply growth led by unconventional production in the United States, weakening demand in emerging markets, and OPEC’s decision to continue to produce at high levels.  The Company derives the majority of its revenue from sales to companies in the oil and gas services industry (oil and gas drilling products have historically represented 75% of the company’s revenues, prior to the downturn in oil and gas prices).  Demand for oil and gas drilling products has diminished commensurate with the drop in oil and gas prices.  Therefore, the Company’s earnings have diminished substantially due to reduced demand for its oil and gas drilling products.
 
For the six months ended June 30, 2016, the Company’s net sales were approximately $15.6 million.  This represents a 39% decrease from its net sales for the same period a year prior.  The Company’s declining revenues have impacted its ability to service its long-term debt obligations.
 
Based on current market conditions, the Debtors believe that a reduction in their long-term debt and cash interest obligations is needed to improve their financial position and flexibility.  In 2016, the Debtors attempted to manage their reduced financial position through several cost-cutting measures, including the implementation of employee rationalization programs, an aggressive inventory reduction program, as well as taking measures to decrease the Company’s operating expense obligations.  In total, the Debtors were able to lower their annualized cash expenditures by approximately $2.5 million.
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Ultimately, however, those efforts proved insufficient to address the pressures on the Company’s business.
 
B.
Prepetition Negotiations with Consenting
RSA Parties and Restructuring Support Agreement
 
In March 2016, the Company appointed two independent directors, Alan Miller and Alan Carr, to its board of directors.  Commencing in June 2016, the Company began working closely with its advisors, Weil, Gotshal & Manges LLP (“Weil”), as counsel, Evercore Group L.L.C. (“Evercore”), as financial advisor, and FTI Consulting, Inc. (“FTI”), as restructuring advisor, to develop and implement a comprehensive restructuring strategy.  In that connection, a subset of the board worked closely with management and the Company’s advisors to explore and evaluate the various strategic alternatives that were available to the Company.
 
The Company also began discussions with their largest Second Lien Noteholders, who organized into an ad hoc group (the “Ad Hoc Group”).  Soon after formation, the Ad Hoc Group retained its own advisors, Stroock & Stroock & Lavan LLP, as legal advisor, and Houlihan Lokey Capital, Inc. (“Houlihan”) as financial advisor.  The Company also contacted KeyBank.
 
During the next several weeks, the Ad Hoc Group and KeyBank engaged in confidential due diligence with the assistance of the Company and its advisors.  The parties had constructive discussions and dialogue regarding potential strategies that were being considered by the Company, including a potential sale of assets or refinancing of indebtedness.  After evaluation and some market outreach, it became clear that a sale or refinancing transaction that would generate proceeds exceeding the existing secured indebtedness of the Company was unlikely and a more comprehensive restructuring was needed.
 
Given these and other considerations, the Company determined, in the exercise of its business judgment and as fiduciaries for all of the Debtors’ stakeholders, that the best and only viable path to maximize the value of American Gilsonite’s business and preserve many jobs was a strategic chapter 11 filing to implement the Plan, which equitizes the Company’s Second Lien Notes.  Accordingly, the parties focused on negotiating a fair and value-maximizing deleveraging transaction.
 
To allow discussions to continue and preserve liquidity, on September 1, 2016, the Company elected to exercise a 30-day grace period and not make its semi-annual interest payment on the Second Lien Notes of approximately $15.5 million.  The grace period expired on October 1, 2016 and the failure to make the interest payment constituted an event of default under the Second Lien Notes Indenture and a cross-default under the Prepetition Credit Agreement.  On September 30, 2016, the Company entered into forbearance agreements with KeyBank and the Ad Hoc Group, pursuant to which each of KeyBank and the Ad Hoc Group to forbear from exercising remedies under the Prepetition Credit Agreement and Second Lien Notes Indenture, respectively, arising from the defaults specified therein.  Such forbearance agreements are subject to termination on October 24, 2016.
 
After good faith and arm’s length negotiations, on October 19, 2016, the Debtors, the Ad Hoc Group, and the Consenting AGHC Interest Holders agreed on the terms of a financial restructuring that is embodied in the Plan and described herein.
 
Under the Restructuring Support Agreement, each of the Consenting RSA Parties has agreed to, among other things: (i) vote any Claim or Interests it holds against, or in, the Debtors to accept the Plan and not (a) change or withdraw (or cause to be changed or withdrawn) its vote to accept the Plan, (b) object to, delay, impede, or take any other action to interfere with acceptance or implementation of the Plan, or (c) directly or indirectly solicit, encourage, propose, file, support, participate in the formulation of, or vote
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for, any restructuring, sale of assets, merger, workout or plan of reorganization for any of the Debtors other than the Plan; (ii) subject to certain exceptions, condition any transfer of its Claims against, or Interests in, the Debtors to the transferee thereof being an existing Consenting RSA Party or becoming party to the Restructuring Support Agreement; and (iii) to the extent any Consenting RSA Party acquires any additional Claims against, or Interests in, the Debtors, vote any such additional Claims or other Claims or Interests entitled to vote on the Plan in a manner consistent with the Restructuring Support Agreement, in each case, subject to the terms and conditions of the Restructuring Support Agreement.
 
In exchange, the Debtors agreed to, among other things, (i) commence the Chapter 11 Cases, (ii) prosecute the Plan and Disclosure Statement and (iii) continue their operations in the ordinary course until the Restructuring is consummated and not take various actions related to the business, in each case subject to the terms and conditions of the Restructuring Support Agreement.
 
The Restructuring Support Agreement also provides for various termination events.  Depending on the termination event, the Requisite Noteholders under the Restructuring Support Agreement or the Debtors may terminate the Restructuring Support Agreement.  The Restructuring Support Agreement may be terminated by the Requisite Noteholders upon the occurrence of various events or the Debtors’ failure to satisfy certain milestones in the Chapter 11 Cases, including, but not limited to, if:
 
i.
on the Commencement Date, the Debtors have not filed the Plan and the Disclosure Statement;
 
ii.
an interim order and final order approving the DIP Facility has not been approved within five (5) business days and thirty-five (35) days after the Commencement Date, respectively;
 
iii.
the Disclosure Statement has not been approved within fifty-five (55) days after the Commencement Date;
 
iv.
the Plan has not been approved within fifty-five (55) days after the Commencement Date; or
 
v.
the Plan has not become effective within seventy (70) days after the Commencement Date.
 
The Requisite Noteholders can also terminate the Restructuring Support Agreement if the Debtors fail to comply with the operational covenants set forth therein.  For example, the Debtors have agreed not to take the following actions, among others, subject to the consent of the Requisite Noteholders:
 
i.
directly or indirectly seek or solicit any discussions relating to, or enter into any agreements relating to an alternative transaction (subject to the exercise of the Debtors’ fiduciary duties);
 
ii.
move to assume or reject a material contract other than in accordance with the Plan;
 
iii.
enter into or amend any executive employment agreements or any management compensation or incentive plans except as provided in the Plan;
 
iv.
acquire any other business; and
 
v.
incur additional indebtedness for borrowed money in excess of $100,000, except for indebtedness arising in the ordinary course and as permitted by the DIP Facility.
 
The Restructuring Support Agreement and the obligations of all parties thereto may also be terminated by mutual agreement among the Debtors and the Requisite Noteholders.
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In addition to the support of the Consenting Second Lien Noteholders, Palladium Equity Partners, LLC as equity sponsor, also supports the restructuring embodied in the Plan and has executed the Restructuring Support Agreement as the Consenting AGHC Interest Holders.
 
The Debtors believe that the deleveraging transaction contemplated by the Restructuring Support Agreement and the Plan is the best approach for relieving American Gilsonite from the constraints that currently restrict profitability.  The proposed transaction will allow American Gilsonite to focus on stabilizing the business and reaching profitability rather than on managing burdensome debt and debt service payments.  Most importantly, American Gilsonite will have the capital needed to invest in its business, effectively compete in the oil services market, and preserve jobs.  Below is a chart illustrating how the transaction contemplated will lower the Company’s debt load:
 
Prepetition
 
During Chapter 11 Cases
After Effective Date
 
DIP Facility - $30M Term Loan
$30M Exit Facility (Secured)4
$20M Drawn Under Prepetition Credit Agreement with KeyBank
Paid in cash in full upon interim approval of DIP Facility
 
$270M Second Lien Notes
$270M Second Lien Notes
· 98% of new equity in Reorganized AGC
· $100M of Subordinated Notes
Total Debt = $290M
(All Secured)
Total Debt = $300M
(All Secured)
Total Debt = $130M
$30M Secured
$100M Unsecured
General Unsecured Claims
Paid in full in the ordinary course
Unimpaired
 
AGHC Interests
 
2% of new equity of Reorganized AGC
 
IV.
ANTICIPATED EVENTS DURING CHAPTER 11 CASES
 
The Debtors agreed to file voluntary petitions for relief under chapter 11 of the Bankruptcy Code on or before October 24, 2016 (the “Commencement Date”) and file the Plan and this Disclosure Statement on the Commencement Date.  The filing of the petitions will commence the Chapter 11 Cases, at which time the Debtors will be afforded the benefits, and become subject to the limitations, of the Bankruptcy Code.
 
A.
Commencement of Chapter 11 Cases and First-Day Motions
 
The Debtors intend to continue to operate their business in the ordinary course during the pendency of the Chapter 11 Cases as they had prior to the Commencement Date.  To facilitate the prompt and efficient implementation of the Plan through the Chapter 11 Cases, the Debtors intend to seek to have the Chapter 11 Cases assigned to the same bankruptcy judge and administered jointly.  The Debtors also intend to file various motions seeking relief from the Bankruptcy Court which, if granted, will ensure a seamless transition between the Debtors’ prepetition and postpetition business operations, facilitate a smooth reorganization through the Chapter 11 Cases, and minimize any disruptions to the Debtors’ operations. 
 

4 The Exit Facility includes a senior secured debt basket of $20 million.
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The following is a brief overview of the relief the Debtors intend to seek on the Commencement Date to maintain their operations in the ordinary course.
 
1.
Cash Management System
 
In the ordinary course of business, the Company utilizes an integrated, centralized cash management system to collect, transfer, and disburse funds generated by its operations (the “Cash Management System”).  The Cash Management System is comprised of seven (7) bank accounts at various financial institutions (the “Banks”) to accommodate different business divisions and to collect, organize and track various forms of customer receipts (collectively, the “Bank Accounts”).  The Cash Management System is tailored to meet the Company’s operating needs.  The Cash Management System enables the Company to efficiently collect and disburse cash generated by their business, pay their financial obligations, centrally control and monitor corporate funds and available cash, comply with the requirements of their financing agreements, reduce administrative expenses, and efficiently obtain accurate account balances and other financial data.  It is critical that the Cash Management System remain intact to ensure seamless continuation of transactions and uninterrupted collection of revenues.  On the Commencement Date, the Debtors intend to seek authority from the Bankruptcy Court to continue the use of their existing cash management system, bank accounts, and related business forms, to avoid a disruption in the Company’s operations and to facilitate the efficient administration of the Chapter 11 Cases.  The Debtors also intend to seek an extension of the time to comply with section 345(b) of the Bankruptcy Code, which requires that the Banks provide the Debtors with a bond to secure the safety of the Debtors’ cash and cash equivalents that the Banks hold, unless the court for cause orders otherwise.
 
2.
DIP Financing
 
To address their working capital needs and fund their reorganization efforts, on or immediately after the Commencement Date, the Debtors intend to seek Bankruptcy Court approval of an agreement with certain of the Second Lien Noteholders (the “DIP Lenders”) to receive a senior secured super-priority priming DIP Facility in an aggregate principal amount of up to $30 million, with approximately $22.5 million available to the Debtors on an interim basis.5  The interim amounts provided under the DIP Facility will be used to satisfy all outstanding obligations under the Debtors Prepetition Credit Agreement with KeyBank, and $7.5 million will be made available to the Debtors upon entry of a final order of the Bankruptcy Court approving the DIP Facility.  The agreement will also establish the terms under which the Debtors may use Cash Collateral (as defined in the Bankruptcy Code).  The DIP Facility will have an interest rate of LIBOR plus 9% per annum (subject to a LIBOR floor of 1% per annum), with an original issue discount of 4%.  All eligible Second Lien Noteholders will be offered the opportunity to participate as DIP Lenders, in accordance with syndication procedures to be agreed upon with the Consenting Second Lien Noteholders.  In exchange for agreeing to backstop the DIP Facility, the Consenting Second Lien Noteholders will receive a fee of 3.5% of the principal amount borrowed under the DIP Facility ($1.05 million).  The DIP Facility will contain representations, warranties, covenants, conditions, and events of default that are customary for debtor in possession credit facilities.
 
The Debtors’ obligations under the DIP Facility will be secured by a first priority perfected senior priming lien on all pre- and postpetition assets of the Debtors and the Debtors’ estates.  The DIP Facility will be entitled to super-priority administrative expense status.
 
Upon emergence from bankruptcy, all principal borrowings under the DIP Facility will be converted into the Exit Facility6 leaving an estimated $9.3 million of cash and cash equivalents on the Company’s
 

5 A summary of the material terms of the DIP Facility are set forth in the term sheet attached as Exhibit C.
 
6 A summary of the material terms of the Exit Facility are set forth in the term sheet attached as Exhibit F.
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balance sheet that will allow it to maintain its operations and satisfy its obligations in the ordinary course of business.
 
3.
Taxes
 
Pursuant to the Plan, the Debtors intend to pay all taxes and regulatory obligations in full.  To minimize any disruption to the Debtors’ operations and ensure the efficient administration of the Chapter 11 Cases, on the Commencement Date, the Debtors intend to seek authority from the Bankruptcy Court to pay all taxes, fees, and similar charges and assessments, whether arising pre- or postpetition, to the appropriate taxing, regulatory, or other governmental authority in the ordinary course of the Debtors’ business.  This includes certain royalties that the Debtors must pay to the federal government in connection with its extraction of Gilsonite from the ground.
 
4.
Insurance and Surety Bond and Collateral Program
 
In connection with the operation of the Company’s business, the Company maintains various insurance policies related to, among other things, directors’ and officers’ liability, workers’ compensation, property, crime, automobile, personal injury, theft, business interruption, excess policies, and various other general liability- and property-related programs.  The maintenance of certain insurance coverage is essential to the Debtors’ operations and is required by laws, various regulations, financing agreements, and contracts.  The Debtors believe that the satisfaction of their insurance obligations, whether arising pre- or postpetition, is necessary to maintain the Debtors’ relationships with their insurance providers and ensure the continued availability and commercially reasonable pricing of such insurance coverage.  In addition, the Debtors are also required, pursuant to applicable law and contracts, to provide security, in the form of a surety bond or other collateral to various third parties, including municipalities, state and federal government units or public agencies, and contractual counterparties, relating to, among other things, reclamation costs and royalty obligations.  The Debtors are obligated to post approximately $2.6 million in surety bonds and other forms of collateral for the benefit of various third parties.  A failure to continue providing such security as required by applicable law or contract may hinder the Debtors’ ability to continue operating in the ordinary course. Accordingly, on the Commencement Date, the Debtors intend to seek authority from the Bankruptcy Court to continue to honor their insurance obligations and any obligations relating to the posting of surety bonds or other collateral in the ordinary course.
 
5.
Employee Wages and Benefits
 
The majority of the Company’s workforce relies on the Company’s compensation, benefits and reimbursement of expenses to satisfy daily living expenses.  The workforce would be exposed to significant financial difficulties if the Debtors are not permitted to honor obligations for unpaid compensation, benefits, and reimbursable expenses in the ordinary course.  Moreover, if the Debtors are unable to satisfy such obligations, morale and loyalty will be jeopardized at a time when support is critical.  In the absence of such payments, the workforce may seek alternative employment opportunities, including with the Debtors’ competitors, hindering the Debtors’ ability to meet their customer obligations and likely diminishing customer confidence.  Loss of valuable employees would distract from the Debtors’ focus on their operations and administering the Chapter 11 Cases.  To minimize the uncertainty and potential distractions associated with the Chapter 11 Cases and the potential disruption of the Debtors’ operations resulting therefrom, on the Commencement Date, the Debtors intend to seek authority from the Bankruptcy Court to continue to honor their obligations to their workforce in the ordinary course of business, including (i) the payment of pre- and postpetition wages, salaries, and reimbursable employee expenses, (ii) the payment of pre- and postpetition accrued and unpaid employee benefits, and (iii) the continuation of the Debtors’ benefit programs and policies.
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American Gilsonite is heavily dependent on the unique skills and experience of its employees.  Accordingly, to incentivize certain key employees and focus their efforts on the Company’s exploration and pursuit of a deleveraging transaction, the Company developed and adopted an employee bonus program (the “Employee Bonus Plan”) with input from its advisors for sixteen (16) critical employees (the “Key Employees”), including the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer.  The Company was particularly concerned about employee morale and motivation because the Company had deferred payment of its normal annual 2015 bonuses, which typically would have been paid in March 2016.  The Employee Bonus Plan was approved by the Company’s board, and implemented in August 2016. In the aggregate, the bonus payments to Key Employees under the Employee Bonus Plan do not exceed $1.36 million (excluding payroll taxes, 401(k) matching, etc.), with only fifty (50%) of that amount remaining outstanding. Under the Employee Bonus Plan, each key employee (a “Key Employee”) is entitled to a cash bonus payable in two installments, subject to the terms and conditions of each Key Employee’s bonus letter under the Employee Bonus Plan. Fifty percent (50%) of the bonus amount was already paid to the Key Employees on August 30, 2016 and the remaining fifty percent (50%) is to be paid on a date that is sixty (60) days after the date a change in control transaction is consummated (which includes the Effective Date under the Plan), subject to the terms and conditions of each Key Employee’s bonus letter under the Employee Bonus Plan. 
 
The Debtors do not intend to make any payments under the Employee Bonus Plan during the pendency of the Chapter 11 Cases.  Accordingly, the Debtors do not intend to seek any relief from the Bankruptcy Court with respect to the Employee Bonus Plan, but it will be assumed as part of the Plan and honored by the Reorganized Debtors after the conclusion of the Chapter 11 Cases in accordance with the description above.
 
6.
Trade Payables
 
In the ordinary course of business, the Company relies upon a variety of Trade Creditors to conduct operations.  Certain Trade Creditors may seek to terminate or alter trade terms with the Debtors if the Debtors fail to honor their obligations as they become due.  Moreover, in the event the Debtors default on their trade obligations, certain Trade Creditors have special statutory rights, have the right to assert liens against the Debtors, may refuse to ship goods that the Debtors have already ordered, or may take other actions harmful to the Debtors’ operations.  To avoid the detrimental effects of potential actions taken by the Debtors’ Trade Creditors, and to minimize any disruption to the Debtors’ operations on the Commencement Date, the Debtors intend to seek authority from the Bankruptcy Court to satisfy all Trade Claims in full in the ordinary course, provided that the Trade Creditors continue to provide the Debtors with ordinary course trade terms prior to any unilateral contraction.  This unimpaired treatment is consistent with the treatment of all General Unsecured Claims under the Plan.
 
7.
Utilities
 
In the ordinary course of business, the Company incurs certain expenses related to essential utility services, such as electricity, gas, water, and telecommunications.  Accordingly, on the Commencement Date, the Debtors intend to seek (i) authority from the Bankruptcy Court to continue payments to such utility providers in the ordinary course, and (ii) approval of procedures to provide such utility providers with adequate assurance that the Debtors will continue to honor their obligations in the ordinary course.
 
B.
Procedural Motions and Retention of Professionals
 
The Debtors intend to file several other motions that are common to chapter 11 proceedings of similar size and complexity as the Chapter 11 Cases, including applications to retain various professionals to assist the Debtors in the Chapter 11 Cases.
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C.
Solicitation Procedures
 
Contemporaneously with the filing of the Petitions, the Debtors will seek an order of the Bankruptcy Court scheduling the Confirmation Hearing to consider (i) the adequacy of the Disclosure Statement and the Solicitation in connection therewith and (ii) confirmation of the Plan.  The Debtors anticipate that notice of these hearings will be published and mailed to all known holders of Claims and Interests at least 28 days before the date by which objections must be filed with the Bankruptcy Court.
 
D.
Timetable for Chapter 11 Cases
 
In accordance with the Restructuring Support Agreement, the Debtors are obligated to proceed with the implementation of the Plan through the Chapter 11 Cases.  Among the milestones contained in the Restructuring Support Agreement are the following:
 
Milestone
Deadline
Commence Chapter 11 Cases
October 24, 2016
File Solicitation Procedures Motion
Commencement Date
Obtain Entry of Interim DIP Order
Five (5) business days after Commencement Date
Obtain Entry of Order Approving Solicitation Motion
Seven (7) calendar days after Commencement Date
Complete Solicitation
Thirty (30) calendar days after commencement of Solicitation
Obtain Entry of Final DIP Order
Thirty-five (35) calendar days after Commencement Date
Obtain Approval of Disclosure Statement and Confirmation of Plan
Fifty-five (55) calendar days after the Commencement Date
Occurrence of Effective Date
Seventy (70) calendar days after the Commencement Date
 
Achieving the various milestones under the Restructuring Support Agreement is crucial to reorganizing the Debtors successfully.
 
V.
PENDING LITIGATION
 
On November 10, 2015, AGC was named as a defendant in Chemject International, Inc. d/b/a Chemjet, Inc. and La Tigra, LLC v. American Gilsonite Company, filed in the United States District Court for the Southern District of Texas, Houston Division, Civ. No. 15-CV-3385 (the “Chemjet Action”).  Plaintiffs in the Chemjet Action asserted federal antitrust and tortious interference with contract claims against AGC.  AGC has executed a settlement with the plaintiffs in the Chemjet Action and the dispute is now resolved, subject to certain payments to be made which have been escrowed by AGC.  All payments from the escrow are anticipated to be made prior to the Commencement Date.
 
On September 29, 2016, the Utah Department of Transportation ("UDOT") asserted a claim against the Company arising out of the Company’s prior mining activities in Uintah County, Utah, which, according to UDOT, has caused subsidence of an area of State Road 45.  UDOT has asserted damages of almost $3
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million.  The Company intends to dispute the claim on its merits.  There may be insurance available to satisfy any judgment against the Company.
 
The Company is addressing a de minimis request from the Environmental Protection Agency (“EPA”) relating to potential water discharge violations. A remedy has been agreed upon with the EPA and will be executed soon.
 
VI.
SUMMARY OF PLAN
 
This section of the Disclosure Statement summarizes the Plan, a copy of which is annexed hereto as Exhibit B.
 
A.
Administrative Expense and Priority Claims
 
1.
Treatment of Administrative Expense Claims
 
Except to the extent that a holder of an Allowed Administrative Expense Claim agrees to less favorable treatment, each holder of an Allowed Administrative Expense Claim (other than a Fee Claim or a DIP Claim) shall receive, in full and final satisfaction of such Claim, Cash in an amount equal to such Allowed Administrative Expense Claim on, or as soon thereafter as is reasonably practicable, the later of (a) the Effective Date and (b) the first Business Day after the date that is thirty (30) calendar days after the date such Administrative Expense Claim becomes an Allowed Administrative Expense Claim; provided, however, Allowed Administrative Expense Claims representing liabilities incurred in the ordinary course of business by the Debtors, as Debtors in Possession, shall be paid by the Debtors or the Reorganized Debtors in the ordinary course of business, consistent with past practice and in accordance with the terms and subject to the conditions of any course of dealing or agreements governing, instruments evidencing, or other documents relating to such transactions.
 
2.
Treatment of Fee Claims
 
All Entities seeking an award by the Bankruptcy Court of Fee Claims shall file and serve on counsel to the Reorganized Debtors, the U.S. Trustee, counsel to the Initial Consenting Noteholders, and such other entities who are designated by the Bankruptcy Rules, the Confirmation Order, or other order of the Court, on or before the date that is forty-five (45) days after the Effective Date, their respective final applications for allowance of compensation for services rendered and reimbursement of expenses incurred from the Commencement Date through the Effective Date.  Objections to any Fee Claims must be filed and served on counsel to the Reorganized Debtors, counsel to the Initial Consenting Noteholders, and the requesting party no later than twenty-one (21) calendar days after the filing of the final applications for compensation or reimbursement (unless otherwise agreed by the party requesting compensation of a Fee Claim).
 
Allowed Fee Claims shall be paid in full, in Cash, in such amounts as are Allowed by the Bankruptcy Court (i) upon the later of (A) the Effective Date and (B) the date upon which a Final Order relating to any such Allowed Fee Claim is entered, in each case, as soon as reasonably practicable, or (ii) upon such other terms as may be mutually agreed upon between the holder of such an Allowed Fee Claim and the Debtors or the Reorganized Debtors, as applicable.
 
The Reorganized Debtors are authorized to pay compensation for services rendered or reimbursement of expenses incurred after the Effective Date in the ordinary course and without the need for Bankruptcy Court approval.  On or about the Effective Date, holders of Fee Claims shall provide a reasonable
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estimate of such Fee Claims to the Debtors or the Reorganized Debtors and the Debtors or Reorganized Debtors shall separately reserve for such estimated amounts for the benefit of the holders of the Fee Claims until the fee applications related thereto are resolved by Final Order or agreement of the parties.
 
3.
Treatment of Fees and Expenses of Second Lien Trustee
 
All fees and expenses of the Second Lien Notes Trustee shall be paid in full in Cash on the Effective Date to the extent provided for under the Second Lien Notes Indenture.  The Second Lien Notes Trustee shall retain all rights under the Second Lien Notes Indenture to exercise its charging lien against the distributions to the holders of Second Lien Notes Claims.
 
4.
Treatment of Priority Tax Claims
 
Except to the extent that a holder of an Allowed Priority Tax Claim agrees to less favorable treatment, each holder of an Allowed Priority Tax Claim shall receive, in full and final satisfaction of such Allowed Priority Tax Claim, at the sole option of the Debtors or the Reorganized Debtors, as applicable (a) Cash in an amount equal to such Allowed Priority Tax Claim on, or as soon thereafter as is reasonably practicable, the later of (i) the Effective Date, to the extent such Claim is an Allowed Priority Tax Claim on the Effective Date, (ii) the first Business Day after the date that is thirty (30) calendar days after the date such Priority Tax Claim becomes an Allowed Priority Tax Claim, and (iii) the date such Allowed Priority Tax Claim is due and payable in the ordinary course as such obligation becomes due, or (b) equal annual Cash payments in an aggregate amount equal to such Allowed Priority Tax Claim, together with interest at the applicable rate under section 511 of the Bankruptcy Code, over a period not exceeding five (5) years from and after the Commencement Date, provided, that the Debtors reserve the right to prepay all or a portion of any such amounts at any time under this option.
 
5.
DIP Claims
 
On the Effective Date, subject to the satisfaction or waiver of all conditions precedent to effectiveness in the Plan and in the Exit Facility Documents, (i) the DIP Lenders will surrender all claims for payment of principal of the DIP Facility as of the Effective Date in exchange for the Exit Facility in an aggregate principal amount equal to the aggregate principal amount of the DIP Facility as of the Effective Date, in full and final satisfaction of the principal portion of the DIP Loan Claims, (ii) the balance of the DIP Loan Claims, including accrued but unpaid interest and any other amounts due under the DIP Loan Agreement, will be satisfied in Cash on the Effective Date, and (iii) in consideration for the DIP Lenders’ agreement to exchange of the principal portion of the DIP Facility for the Exit Facility, as set forth above, the DIP Lenders will receive, on the Effective Date, payment of the Exit Facility Commitment Fee.  Any DIP Lender may designate that some or all of the Exit Facility to which such DIP Lender is entitled should be issued in the name of, and delivered to, one or more of its Affiliates.
 
Unless otherwise provided in the Exit Facility Documents, upon satisfaction of the Allowed DIP Claims, all Liens and security interests granted to secure the DIP Facility shall be deemed cancelled and shall be of no further force and effect and the Allowed DIP Claims shall be deemed to be fully satisfied, settled, released, and compromised.
 
6.
Restructuring Expenses
 
On the Effective Date, the Reorganized Debtors shall pay in full in Cash any outstanding Restructuring Expenses in accordance with the terms of any applicable engagement letters or other contractual arrangements without the requirement for the filing of retention applications, fee applications, or any
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other applications in the Chapter 11 Cases, and without any requirement for further notice or Bankruptcy Court review or approval.
 
B.
Classification of Claims and Interests
 
1.
Classification in General
 
A Claim or Interest is placed in a particular Class for all purposes, including voting, confirmation, and distribution under the Plan and under sections 1122 and 1123(a)(1) of the Bankruptcy Code; provided, that a Claim or Interest is placed in a particular Class for the purpose of receiving distributions pursuant to the Plan only to the extent that such Claim or Interest is an Allowed Claim or Allowed Interest in that Class and such Allowed Claim or Allowed Interest has not been satisfied, released, or otherwise settled prior to the Effective Date.
 
2.
Formation of Debtor Groups for Convenience Only
 
The Plan groups the Debtors together solely for the purpose of describing treatment under the Plan, confirmation of the Plan, and making distributions in accordance with the Plan in respect of Claims against and Interests in the Debtors under the Plan.  Such groupings shall not affect any Debtor’s status as a separate legal Entity, change the organizational structure of the Debtors’ business enterprise, constitute a change of control of any Debtor for any purpose, cause a merger or consolidation of any legal Entities, or cause the transfer of any assets; and, except as otherwise provided by or permitted under the Plan, all Debtors shall continue to exist as separate legal Entities after the Effective Date.
 
3.
Summary of Classification
 
The following table designates the Classes of Claims against and Interests in each of the Debtors and specifies which of those Classes are (a) Impaired or Unimpaired by the Plan, (b) entitled to vote to accept or reject the Plan in accordance with section 1126 of the Bankruptcy Code, and (c) deemed to accept or reject the Plan.  In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Expense Claims, including DIP Claims, and Priority Tax Claims have not been classified.  The classification of Claims and Interests set forth herein shall apply separately to each of the Debtors.  All of the potential Classes for the Debtors are set forth herein.  Certain of the Debtors may not have holders of Claims or Interests in a particular Class or Classes, and such Classes shall be treated as set forth in Section 3.5 of the Plan.
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Class
Designation
Treatment
Entitled to Vote
1
Priority Non-Tax Claims
Unimpaired
No (Deemed to accept)
2
Other Secured Claims
Unimpaired
No (Deemed to accept)
3
Second Lien Notes Claims
Impaired
Yes
4
General Unsecured Claims
Unimpaired
No (Deemed to accept)
5
Intercompany Claims
Unimpaired
No (Deemed to accept)
6
AGHC Interests
Impaired
Yes
7
AGC Interests
Impaired
No (Deemed to reject)
8
Other Debtor Interests
Unimpaired
No (Deemed to accept)
 
4.
Special Provision Governing Unimpaired Claims
 
Except as otherwise provided in the Plan, nothing under the Plan shall affect the rights of the Debtors or the Reorganized Debtors, as applicable, in respect of any Unimpaired Claims, including all rights in respect of legal and equitable defenses to, or setoffs or recoupments against, any such Unimpaired Claims.
 
5.
Elimination of Vacant Classes
 
Any Class of Claims against or Interests in a Debtor that, as of the commencement of the Confirmation Hearing, does not have at least one holder of a Claim or Interest that is Allowed in an amount greater than zero for voting purposes shall be considered vacant, deemed eliminated from the Plan of such Debtor for purposes of voting to accept or reject such Debtor’s Plan, and disregarded for purposes of determining whether such Debtor’s Plan satisfies section 1129(a)(8) of the Bankruptcy Code with respect to that Class.
 
C.
Treatment of Claims and Interests
 
1.
Class 1: Priority Non-Tax Claims
 
Class 1 is Unimpaired, and the holders of Priority Non-Tax Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, holders of Priority Non-Tax Claims are not entitled to vote to accept or reject the Plan, and the votes of such holders will not be solicited with respect to Priority Non-Tax Claims.
 
Except to the extent that a holder of an Allowed Priority Non-Tax Claim against any of the Debtors agrees to a less favorable treatment of such Claim, in full and final satisfaction of such Allowed Priority Non-Tax Claim, at the sole option of the Debtors or the Reorganized Debtors, as applicable (i) each such holder shall receive payment in Cash in an amount equal to such Claim, payable on the later of the Effective Date and the date that is ten (10) Business Days after the date on which such Priority Non-Tax Claim becomes an Allowed Priority Non-Tax Claim, in each case, or as soon as reasonably practicable thereafter, (ii) such holder’s Allowed Priority Non-Tax Claim shall be Reinstated, or (iii) such holder shall receive such other treatment so as to render such holder’s Allowed Priority Non-Tax Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code.
 
2.
Class 2: Other Secured Claims
 
Class 2 is Unimpaired, and the holders of Other Secured Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, holders of Other
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Secured Claims are not entitled to vote to accept or reject the Plan, and the votes of such holders will not be solicited with respect to such Other Secured Claims.
 
Except to the extent that a holder of an Allowed Other Secured Claim against any of the Debtors agrees to a less favorable treatment of such Claim, in full and final satisfaction of such Allowed Other Secured Claim, at the option of the Debtors (with the reasonable consent of the Requisite Noteholders) or the Reorganized Debtors, as applicable (i) each such holder shall receive payment in Cash in an amount equal to such Claim, payable on the later of the Effective Date and the date that is ten (10) Business Days after the date on which such Other Secured Claim becomes an Allowed Other Secured Claim, in each case, or as soon as reasonably practicable thereafter, (ii) such holder’s Allowed Other Secured Claim shall be Reinstated, or (iii) such holder shall receive such other treatment so as to render such holder’s Allowed Other Secured Claim Unimpaired pursuant to section 1124 of the Bankruptcy Code; provided, however, that to the extent any obligations remain outstanding under the Prepetition Credit Agreement, the Debtors shall pay such obligations in full in Cash on the Effective Date.
 
3.
Class 3: Second Lien Notes Claims
 
Class 3 is Impaired, and the holders of Second Lien Notes Claims in Class 3 are entitled to vote to accept or reject the Plan.
 
The Second Lien Notes Claims are Allowed pursuant to section 506(a) of the Bankruptcy Code against each of the Debtors in the aggregate principal amount of Two Hundred and Seventy Million Dollars ($270,000,000) plus accrued but unpaid interest (including default interest), plus any other premiums, fees, costs, or other amounts due under the Second Lien Notes Indenture.  Second Lien Notes Lenders and the Second Lien Notes Trustee shall not be required to file proofs of Claim on account of their Second Lien Notes Claims.
 
In full and final satisfaction of each Allowed Second Lien Notes Claim, on the Effective Date, or as soon as reasonably practicable thereafter, each holder of an Allowed Second Lien Notes Claim will be entitled to receive its Pro Rata share of (i) ninety-eight percent (98 %) of the New Common Stock issued and outstanding on the Effective Date and (ii) the Subordinated Notes.7  Any holder of Second Lien Notes may designate that some or all of the New Common Stock and/or Subordinated Notes to which such holder of Second Lien Notes is entitled should be issued in the name of, and delivered to, one or more of its affiliates or designees, subject to the Debtors and the Requisite Noteholders mutually agreeing on procedures to implement such issuance.
 
4.
General Unsecured Claims
 
Class 4 is Unimpaired, and the holders of General Unsecured Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, holders of General Unsecured Claims are not entitled to vote to accept or reject the Plan, and the votes of such holders will not be solicited with respect to such General Unsecured Claims.
 
Except to the extent that a holder of an Allowed General Unsecured Claim against any of the Debtors agrees to a less favorable treatment of such Claim or has been paid before the Effective Date, at the sole option of the Debtors or the Reorganized Debtors, as applicable, on and after the Effective Date, (i) the Reorganized Debtors shall continue to pay or treat each Allowed General Unsecured Claim in the ordinary course of business or (ii) such holder shall receive such other treatment so as to render such holder’s Allowed General Unsecured Claim Unimpaired pursuant to section 1124 of the Bankruptcy
 

7 A summary of the material terms of the Subordinated Notes are set forth in the term sheet attached as Exhibit G.
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Code, in each case, subject to all defenses or disputes the Debtors and Reorganized Debtors may assert as to the validity or amount of such Claims, including as provided in Section 10.8 of the Plan.
 
5.
Class 5: Intercompany Claims
 
Class 5 is Unimpaired, and the holders of Intercompany Claims are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, holders of Intercompany Claims are not entitled to vote to accept or reject the Plan, and the votes of such holders will not be solicited with respect to such Intercompany Claims.
 
On the Effective Date, or as soon as practicable thereafter, all Intercompany Claims shall be adjusted, Reinstated, or discharged to the extent determined to be appropriate by the Debtors (with the reasonable consent of the Requisite Noteholders) or the Reorganized Debtors, as applicable.
 
6.
Class 6: AGHC Interests
 
Class 6 is Impaired, and the holders of AGHC Interests are entitled to vote to accept or reject the Plan.
 
Prior to the Effective Date, and without the need for any further corporate or limited liability company action or approval of any board of directors, management, or shareholders of any Debtor or Reorganized Debtor, as applicable, AGHC shall be merged into AGC pursuant to Section 5.2(a) of the Plan, and all AGHC Interests shall be exchanged pursuant to the Merger for common stock in AGC.  On the Effective Date, the common stock in AGC so received by holders of AGHC Interests pursuant to the Merger shall be exchanged for two percent (2%) of the New Common Stock, which shall be distributed to each holder of AGHC Interests on a Pro Rata basis, subject to Section 6.15 of the Plan.
 
7.
Class 7: AGC Interests
 
Class 7 is Impaired, and the holders of AGC Interests are conclusively presumed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code.  Therefore, holders of AGC Interests are not entitled to vote to accept or reject the Plan, and the votes of such holders will not be solicited with respect to such AGC Interests.
 
Prior to the Effective Date, and without the need for any further corporate or limited liability company action or approval of any board of directors, management, or shareholders of any Debtor or Reorganized Debtor, as applicable, all AGC Interests shall be transferred to AGC pursuant to the Merger and thereafter shall be cancelled.
 
8.
Class 8: Other Debtor Interests
 
Class 8 is Unimpaired, and the holders of Other Debtor Interests are conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code.  Therefore, holders of Other Debtor Interests are not entitled to vote to accept or reject the Plan, and the votes of such holders will not be solicited with respect to such Other Debtor Interests.
 
On the Effective Date, and without the need for any further corporate or limited liability company action or approval of any board of directors, management, or shareholders of any Debtor or Reorganized Debtor, as applicable, all Other Debtor Interests shall be unaffected by the Plan and continue in place following the Effective Date, solely for the administrative convenience of maintaining the existing corporate structure of the Debtors.
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D.
Means for Implementation
 
1.
Compromise and Settlement of Claims, Interests and Controversies
 
Pursuant to section 363 and 1123(b)(2) of the Bankruptcy Code and Bankruptcy Rule 9019 and in consideration for the distributions and other benefits provided pursuant to the Plan, the provisions of the Plan shall constitute a good faith compromise of Claims, Interests, and controversies relating to the contractual, legal, and subordination rights that a creditor or an Interest holder may have with respect to any Allowed Claim or Interest or any distribution to be made on account of such Allowed Claim or Interest.  The entry of the Confirmation Order shall constitute the Bankruptcy Court’s approval of the compromise or settlement of all such Claims, Interests, and controversies, as well as a finding by the Bankruptcy Court that such compromise or settlement is in the best interests of the Debtors, their Estates, and holders of such Claims and Interests, and is fair, equitable, and reasonable.
 
2.
Continued Corporate Existence
 
(a)
Subject to entry of the Confirmation Order, prior the Effective Date, without the need for any further corporate or limited liability company action or approval of any board of directors, management, or shareholders of any Debtor or Reorganized Debtor, as applicable, AGHC shall merge with and into AGC (the “Merger”) under section 368(a)(1)(A) and (G) of the Internal Revenue Code of 1986 (the “Tax Code”), as amended, pursuant to which all outstanding AGHC Interests shall be exchanged for common stock in AGC, all AGC Interests shall be transferred to AGC and thereafter shall be cancelled, and all assets and liabilities of AGHC shall be deemed assets or liabilities of AGC.  The timing, form, and substance of the Merger shall be satisfactory to the Requisite Noteholders.  During the period from the Confirmation Date through and until the Effective Date, the Debtors may continue to operate their businesses as debtors in possession, subject to all applicable orders of the Bankruptcy Court, the Bankruptcy Code, and any limitations set forth in the Plan or in the Confirmation Order, the DIP Documents, and the Restructuring Support Agreement.
 
(b)
On or after the Effective Date, each Reorganized Debtor may take such action that may be necessary or appropriate as permitted by applicable law and such Reorganized Debtor’s organizational documents, as such Reorganized Debtor may determine is reasonable and appropriate to effect any transaction described in, approved by, or necessary or appropriate to effectuate the Plan, including, without limitation, causing: (i) a Reorganized Debtor to be merged into another Reorganized Debtor or an affiliate of a Reorganized Debtor; (ii) a Reorganized Debtor to be dissolved; (iii) the legal name of a Reorganized Debtor to be changed; or (iv) the closure of a Reorganized Debtor’s Chapter 11 Case on the Effective Date or any time thereafter.  The Debtors shall continue to exist after the Effective Date as Reorganized Debtors in accordance with the applicable laws of the respective jurisdictions in which they are incorporated or organized and pursuant to the Shareholders Agreement and the Amended Organizational Documents, except that, before the Effective Date, AGC shall be converted to a corporation organized under the laws of the State of Delaware or merged into a new corporation organized under the laws of the State of Delaware, in each case in accordance with applicable law.
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3.
Exit Facility
 
(a)
On the Effective Date, in accordance with, and subject to, the terms and conditions of the Exit Facility Documents, the Debtors will enter into the Exit Facility without the need for any further corporate action and without further action by the holders of Claims or Interests.  The proceeds issued or deemed issued under the Exit Facility shall be used to (i) fund distributions under the Plan, (ii) pay the Allowed Fee Claims and the Restructuring Expenses in full in accordance with Article II of the Plan, (iii) fund other distributions, costs, and expenses contemplated by the Plan, and (iv) fund general working capital and for general corporate purposes of the Reorganized Debtors, in each case subject to the terms of the Exit Facility Documents.
 
(b)
On the Effective Date, the Exit Facility Documents shall be executed and delivered substantially on the terms and conditions set forth in the Exit Facility Term Sheet, with such modifications to which the Debtors (with the consent of the Requisite Noteholders) may agree.  All Liens and security interests granted pursuant to the Exit Facility Documents shall be (i) valid, binding, perfected, and enforceable Liens and security interests in the personal and real property described in and subject to such document, with the priorities established in respect thereof under applicable non-bankruptcy law and (ii) not subject to avoidance, recharacterization, or subordination under any applicable law.  The Debtors, the Reorganized Debtors, and the Entities granted such Liens and security interests are authorized to make all filings and recordings, and to obtain all governmental approvals and consents necessary to establish, attach and perfect such Liens and security interests under any applicable law, and will thereafter cooperate to make all other filings and recordings that otherwise would be necessary under applicable law to give notice of such Liens and security interest to third parties.
 
(c)
The Debtors shall be authorized to execute, deliver, and enter into and perform under the Exit Facility Documents without the need for any further corporate or limited liability company action and without further action by the holders of Claims or Interests.
 
4.
Shareholders Agreement
 
(a)
On the Effective Date, Reorganized AGC and all of the holders of New Common Stock shall be deemed to be parties to the Shareholders Agreement, which shall be on terms consistent with the Shareholders Agreement Term Sheet, without the need for execution by any such holder.  The Shareholders Agreement shall be binding on Reorganized AGC and all parties receiving, and all holders of, New Common Stock; provided, that, regardless of whether such parties execute the Shareholders Agreement, such parties will be deemed to have signed the Shareholders Agreement, which shall be as binding on such parties as if they had actually signed it; provided, further, however, that the Reorganized Debtors may require, that each such holder be required to execute the Shareholders Agreement as a condition to receipt of such New Common Stock.
 
(b)
Any direct or beneficial recipient of the New Common Stock, including all parties to whom such recipients may sell their New Common Stock in the future
27

and all Entities who purchase or acquire such equity in future transactions, shall be party to, or shall be deemed to be bound by, the Shareholders Agreement regardless of whether they are a signatory thereto; provided, however, that the Reorganized Debtors may require that each such holder be required to execute the Shareholders Agreement as a condition to receipt of such New Common Stock.
 
5.
Authorization and Issuance of New Common Stock
 
On the Effective Date, the Debtors or the Reorganized Debtors, as applicable, are authorized to issue or cause to be issued and shall issue the New Common Stock, in accordance with the terms of the Plan and the Shareholders Agreement without the need for any further corporate, limited liability company, or shareholder action.  All of the New Common Stock, issuable under the Plan, when so issued, shall be duly authorized, validly issued, fully paid, and non-assessable.
 
Upon the Effective Date, (i) the New Common Stock shall not be registered under the Securities Act, and shall not be listed for public trading on any securities exchange and (ii) none of the Reorganized Debtors shall be a reporting company under the Exchange Act.  The distribution of New Common Stock pursuant to the Plan may be made by means of book-entry registration on the books of a transfer agent for shares of New Common Stock or by means of book-entry exchange through the facilities of a transfer agent reasonably satisfactory to the Debtors and the Requisite Noteholders in accordance with the customary practices of such agent, as and to the extent practicable.
 
6.
Section 1145 Exemption
 
(a)
The offer, issuance, and distribution of the New Common Stock and the Subordinated Notes hereunder to holders of the Second Lien Notes Claims or AGHC Interests, as applicable, under Sections 4.3 and 4.6, respectively, of the Plan shall be exempt, pursuant to section 1145 of the Bankruptcy Code, without further act or action by any Entity, from registration under (i) the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder and (ii) any state or local law requiring registration for the offer, issuance, or distribution of Securities.
 
(b)
The New Common Stock and the Subordinated Notes will be freely tradable by the recipients thereof, subject to (i) the provisions of section 1145(b)(1) of the Bankruptcy Code relating to the definition of an underwriter in section 2(a)(11) of the Securities Act of 1933; (ii) compliance with any rules and regulations of the Securities and Exchange Commission, if any, applicable at the time of any future transfer of such securities or instruments; (iii) the restrictions, if any, on the transferability of the New Common Stock contained in the Shareholders Agreement; and (iv) applicable regulatory approval.
 
7.
Cancellation of Existing Securities and Agreements
 
Except for the purpose of evidencing a right to a distribution under the Plan and except as otherwise set forth in the Plan, including with respect to executory contracts or unexpired leases that shall be assumed by the Reorganized Debtors, on the Effective Date, all agreements, instruments, and other documents evidencing any Claim or Interest (other than Other Debtor Interests that are not modified by the Plan) and any rights of any holder in respect thereof shall be deemed cancelled, discharged, and of no force or effect and the obligations of the Debtors thereunder shall be deemed fully satisfied, released, and discharged. 
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Notwithstanding such cancellation and discharge, the Second Lien Notes Indenture and the DIP Loan Agreement shall continue in effect solely to (a) the extent necessary to allow the holders of Allowed Second Lien Notes Claims and Allowed DIP Claims to receive distributions under the Plan, (b) the extent necessary to allow the Debtors, Reorganized Debtors, Second Lien Notes Trustee, Disbursing Agent, and/or DIP Agent to make post-Effective Date distributions or take such other action pursuant to the Plan on account of the Allowed Second Lien Notes Claims and/or DIP Claims and to otherwise exercise their rights and discharge their obligations relating to the interests of the holders of such Claims, and (c) appear in the Chapter 11 Cases, provided, however, that nothing in Section 5.7 of the Plan shall affect the discharge of Claims pursuant to the Bankruptcy Code, the Confirmation Order, or the Plan or result in any liability or expense to the Reorganized Debtors.  Notwithstanding the foregoing, any provision in any document, instrument, lease, or other agreement that causes or effectuates, or purports to cause or effectuate, a default, termination, waiver, or other forfeiture of, or by, the Debtors or their interests, as a result of the cancellations, terminations, satisfaction, releases, or discharges provided for in Section 5.7 of the Plan shall be deemed null and void and shall be of no force and effect, and the Debtors shall be entitled to continue to use, lease, or mine (in accordance with the remaining provisions of such document, instrument, lease, or other agreement) any land, facilities, improvements, or equipment with the proceeds of the Second Lien Notes and the DIP Loan Agreement.  Nothing contained in the Plan shall be deemed to cancel, terminate, release, or discharge the obligation of the Debtors or any of their counterparties under any executory contract or lease to the extent such executory contract or lease has been assumed by the Debtors pursuant to a Final Order of the Bankruptcy Court or under the Plan.
 
8.
Officers and Boards of Directors
 
(a)
On the Effective Date, the initial directors of the New Board shall consist of five (5) directors, as selected in accordance with the Shareholders Agreement Term Sheet.  The identities of the members of each board of directors or managers of a Reorganized Debtor, as applicable, and, to the extent applicable, the officers of each Reorganized Debtor, shall be disclosed prior to the Confirmation Hearing in accordance with section 1129(a)(5) of the Bankruptcy Code.
 
(b)
Except as otherwise provided in the Plan Supplement, the officers of the respective Reorganized Debtors immediately before the Effective Date, as applicable, shall serve as the initial officers of each of the respective Reorganized Debtors on and after the Effective Date and in accordance with Section 5.11 of the Plan and applicable non-bankruptcy law.  After the Effective Date, the selection of officers of the Reorganized Debtors shall be as provided by their respective organizational documents.
 
(c)
Except to the extent that a member of the board of directors or a manager, as applicable, of a Debtor continues to serve as a director or manager of such Debtor on and after the Effective Date, the members of the board of directors or managers of each Debtor prior to the Effective Date, in their capacities as such, shall have no continuing obligations to the Reorganized Debtors on or after the Effective Date and each such director or manager will be deemed to have resigned or shall otherwise cease to be a director or manager of the applicable Debtor on the Effective Date.  Commencing on the Effective Date, each of the directors and managers of each of the Reorganized Debtors shall be elected and serve pursuant to the terms of the applicable organizational documents of such Reorganized Debtor and may be replaced or removed in accordance with such organizational documents.
29

9.
Effectuating Documents; Further Transactions
 
(a)
After the Confirmation Date, but prior to the Effective Date, the Reorganized Debtors (in consultation with the Requisite Noteholders) shall take such actions as may be or become necessary or appropriate to effect the Merger, subject to Section 5.2(a) of the Plan.
 
(b)
On or as soon as practicable after the Effective Date, the Reorganized Debtors shall take such actions as may be or become necessary or appropriate to effect any transaction described in, approved by, contemplated by, or necessary to effectuate the Plan, including (i) the execution and delivery of appropriate agreements or other documents of merger, consolidation, restructuring, financing, conversion, disposition, transfer, dissolution, or liquidation containing terms that are consistent with the terms of the Plan and that satisfy the applicable requirements of applicable law and any other terms to which the applicable Entities may determine, (ii) 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 Plan and having other terms to which the applicable parties agree, (iii) the filing of appropriate certificates or articles of incorporation, reincorporation, merger, consolidation, conversion, or dissolution and the Amended Organizational Documents pursuant to applicable state law, (iv) the issuance of securities, all of which shall be authorized and approved in all respects in each case without further action being required under applicable law, regulation, order, or rule, and (v) all other actions that the applicable Entities determine to be necessary or appropriate, including making filings or recordings that may be required by applicable law, subject, in each case, to the Amended Organizational Documents.
 
(c)
Each officer, member of the board of directors, or manager of the Debtors is (and each officer, member of the board of directors, or manager of the Reorganized Debtors shall be) authorized and directed to issue, execute, deliver, file, or record such contracts, securities, instruments, releases, indentures, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate, implement, and further evidence the terms and conditions of the Plan and the securities issued pursuant to the Plan in the name of and on behalf of the Reorganized Debtors, all of which shall be authorized and approved in all respects, in each case, without the need for any approvals, authorization, consents, or any further action required under applicable law, regulation, order, or rule (including, without limitation, any action by the stockholders or directors or managers of the Debtors or the Reorganized Debtors) except for those expressly required pursuant to the Plan.
 
(d)
All matters provided for herein involving the corporate structure of the Debtors or Reorganized Debtors, including the mergers and conversion described in Section 5.2 of the Plan, to the extent applicable, or any corporate, limited liability company, or related action required by the Debtor or Reorganized Debtor in connection herewith shall be deemed to have occurred and shall be in effect, without any requirement of further action by the stockholders, members, or directors or managers of the Debtors or Reorganized Debtors, and with like effect as though such action had been taken unanimously by the stockholders,
30

members, directors, managers, or officers, as applicable, of the Debtors or Reorganized Debtors.
 
10.
Cancellation of Liens
 
Except as otherwise specifically provided in the Plan, upon the Effective Date, any Lien securing a Secured Claim (including any Second Lien Notes Claim) shall be deemed released, and the holder of such Secured Claim (or any agent for such holder) shall be authorized and directed to release any collateral or other property of the Debtors (including any Cash collateral) held by such holder and to take such actions as may be requested by the Debtors, Reorganized Debtors, or Exit Facility Agent to cancel, extinguish, and release such Liens, if they have been or will be satisfied or discharged in full pursuant to the Plan.
 
Upon the payment or other satisfaction of an Allowed Other Secured Claim, the holder of such Allowed Other Secured Claim shall deliver to the Debtors or Reorganized Debtors (as applicable) any Collateral or other property of the Debtors held by such holder, and any termination statements, instruments of satisfactions, or releases of all security interests with respect to its Allowed Other Secured Claim that may be required in order to terminate any related financing statements, mortgages, mechanic’s liens, or lis pendens.
 
11.
Employee Matters
 
(a)
Except as provided in Section 5.11(d) of the Plan, on the Effective Date, the Reorganized Debtors shall be deemed to have assumed the Employee Bonus Plan and all letter agreements entered into in connection with the Employee Bonus Plan as listed on Schedule 1 to the Plan, and each other existing employment, services, separation, or related agreements or arrangements with employees or individual independent contractors of the Debtors listed on Schedule 2 to the Plan (collectively, the “Employment Arrangements”).
 
(b)
All Benefit Plans existing as of the Commencement Date shall be deemed assumed as of the Effective Date.  None of the Benefit Plans provide for retiree benefits (as such term is defined in section 1114 of the Bankruptcy Code) or is a defined benefit pension plan or multi-employer pension plan.  Other than with respect to the Employee Bonus Plan, the consummation of the Plan shall not be treated as a change in control or change of control or other similar transaction under any Benefits Plan or Employment Arrangement.
 
(c)
Within sixty (60) days following the Effective Date, the Management Incentive Plan shall be adopted by the New Board.
 
(d)
Any Interests granted to a current or former employee, officer, director or contractor under an Employment Arrangement or otherwise, shall be deemed cancelled on the Effective Date.  For the avoidance of doubt, if a Benefit Plan or an Employee Arrangement is assumed and the Benefit Plan or Employment Arrangement provides in part for an award or potential award of Interests in the Debtors, such Benefit Plan or Employment Arrangement shall be assumed in all respects other than the provisions of such agreement relating to Interest awards.
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12.
Nonconsensual Confirmation
 
The Debtors intend to undertake to have the Bankruptcy Court confirm the Plan under section 1129(b) of the Bankruptcy Code as to any Classes that reject or are deemed to reject the Plan.
 
13.
Closing of Chapter 11 Cases
 
After an Estate has been fully administered, the Reorganized Debtors shall seek authority from the Bankruptcy Court to close the applicable Chapter 11 Case in accordance with the Bankruptcy Code and Bankruptcy Rules.
 
14.
Notice of Effective Date
 
On the Effective Date, the Debtors shall file a notice of the occurrence of the Effective Date with the Bankruptcy Court.
 
15.
Separability
 
Notwithstanding the combination of separate plans of reorganization for the Debtors set forth in the Plan for purposes of economy and efficiency, the Plan constitutes a separate chapter 11 plan for each Debtor.  Accordingly, if the Bankruptcy Court does not confirm the Plan with respect to one or more Debtors, it may still confirm the Plan with respect to any other Debtor that satisfies the confirmation requirements of section 1129 of the Bankruptcy Code with the consent of the Requisite Noteholders.
 
E.
Distributions
 
1.
Distributions Generally
 
One or more Disbursing Agents shall make all distributions under the Plan to the appropriate holders of Allowed Claims in accordance with the terms of the Plan.
 
2.
Distribution Record Date
 
As of the close of business on the Effective Date, the various transfer registers for each of the Classes of Claims or Interests as maintained by the Debtors or their respective agents, shall be deemed closed, and there shall be no further changes in the record holders of any of the Claims or Interests.  The Debtors or the Reorganized Debtors shall have no obligation to recognize any transfer of the Claims or Interests occurring on or after the Effective Date.  In addition, with respect to payment of any Cure amounts or disputes over any Cure amounts, neither the Debtors nor the Disbursing Agent shall have any obligation to recognize or deal with any party other than the non-Debtor party to the applicable executory contract or unexpired lease as of the Effective Date, even if such non-Debtor party has sold, assigned, or otherwise transferred its Claim for a Cure amount.
 
3.
Date of Distributions
 
Except as otherwise provided in the Plan, any distributions and deliveries to be made under the Plan shall be made on the Effective Date or as otherwise determined in accordance with the Plan, including, without limitation, the treatment provisions of Article IV of the Plan, or as soon as practicable thereafter; provided that the Reorganized Debtors may implement periodic distribution dates to the extent they determine them to be appropriate.
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4.
Disbursing Agent
 
All distributions under the Plan shall be made by Reorganized AGC (or such other Entity designated by Reorganized AGC), as Disbursing Agent, on or after the Effective Date or as otherwise provided in the Plan.  Distributions on account of the Second Lien Notes Claims shall be made to or at the direction of the Second Lien Notes Trustee; provided, however, that the Second Lien Notes Trustee shall not be responsible for effecting the distribution of any securities issued to holders of Second Lien Notes Claims unless designated as a Disbursing Agent. A Disbursing Agent shall not be required to give any bond or surety or other security for the performance of its duties, and all reasonable and documented fees and expenses incurred by such Disbursing Agents directly related to distributions under the Plan shall be reimbursed by the Reorganized Debtors.  The Reorganized Debtors shall use all commercially reasonable efforts to provide the Disbursing Agent (if other than the Reorganized Debtors) with the amounts of Claims and the identities and addresses of holders of Claims, in each case, as set forth in the Debtors’ or Reorganized Debtors’ books and records.  The Reorganized Debtors shall cooperate in good faith with the applicable Disbursing Agent (if other than the Reorganized Debtors) to comply with the reporting and withholding requirements outlined in Section 6.20 of the Plan.
 
5.
Surrender of Instruments
 
If the record holder of the Second Lien Notes is the DTC or its nominee or another securities depository or custodian thereof, and such Second Lien Notes are represented by a global note held by or on behalf of the DTC or such other securities depository or custodian, then each such holder of the Second Lien Notes shall be deemed to have surrendered its notes or other evidence of indebtedness upon surrender of such global note by DTC or such other securities depository or custodian thereof.
 
6.
Rights and Powers of Disbursing Agent
 
(a)
From and after the Effective Date, the Disbursing Agent, solely in its capacity as Disbursing Agent, shall be exculpated by all Entities, including, without limitation, holders of Claims against and Interests in the Debtors and other parties in interest, from any and all Claims, Causes of Action, and other assertions of liability arising out of the discharge of the powers and duties conferred upon such Disbursing Agent by the Plan or any order of the Bankruptcy Court entered pursuant to or in furtherance of the Plan, or applicable law, except for actions or omissions to act arising out of the gross negligence or willful misconduct, fraud, malpractice, criminal conduct, or ultra vires acts of such Disbursing Agent.  No holder of a Claim or Interest or other party in interest shall have or pursue any claim or Cause of Action against the Disbursing Agent, solely in its capacity as Disbursing Agent, for making payments in accordance with the Plan or for implementing provisions of the Plan, except for actions or omissions to act arising out of the gross negligence or willful misconduct, fraud, malpractice, criminal conduct, or ultra vires acts of such Disbursing Agent.
 
(b)
A Disbursing Agent shall be empowered to (i) effect all actions and execute all agreements, instruments, and other documents necessary to perform its duties hereunder, (ii) make all distributions contemplated hereby, and (iii) exercise such other powers as may be vested in the Disbursing Agent by order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the Disbursing Agent to be necessary and proper to implement the provisions of the Plan.
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7.
Expenses of Disbursing Agent.
 
Except as otherwise ordered by the Bankruptcy Court, any reasonable and documented fees and expenses incurred by the Disbursing Agent acting in such capacity (including reasonable documented attorneys’ fees and expenses) on or after the Effective Date shall be paid in Cash by the Reorganized Debtors in the ordinary course of business.
 
8.
No Postpetition Interest on Claims
 
Except to the extent that payments to Allowed General Unsecured Claims are not timely made pursuant to Section 4.4 of the Plan or as otherwise provided in the Plan, the Confirmation Order, or another order of the Bankruptcy Court or required by the Bankruptcy Code, interest shall not accrue or be paid on any Claims on or after the Commencement Date, provided, however, if interest is payable pursuant to the preceding sentence, interest shall accrue at the federal judgment rate pursuant to 28 U.S.C. § 1961 on a non-compounded basis from the date the obligation underlying the Claim becomes due and is not timely paid through the date of payment.  For the avoidance of doubt, DIP Claims shall accrue and be paid interest in accordance with the terms set forth in the agreements governing the DIP Claims.
 
9.
Delivery of Distributions
 
Subject to Bankruptcy Rule 9010, all distributions to any holder of an Allowed Claim shall be made to a Disbursing Agent, who shall transmit such distribution to the applicable holders of Allowed Claims.  In the event that any distribution to any holder is returned as undeliverable, no further distributions shall be made to such holder unless and until such Disbursing Agent is notified in writing of such holder’s then-current address, at which time all currently-due, missed distributions shall be made to such holder as soon as reasonably practicable thereafter without interest.  Nothing in the Plan shall require the Disbursing Agent to attempt to locate holders of undeliverable distributions and, if located, assist such holders in complying with Section 6.20 of the Plan.
 
10.
Distributions after Effective Date
 
Distributions made after the Effective Date to holders of Disputed Claims that are not Allowed Claims as of the Effective Date but which later become Allowed Claims shall be deemed to have been made on the Effective Date.
 
11.
Unclaimed Property
 
Undeliverable distributions or unclaimed distributions shall remain in the possession of the Debtors until such time as a distribution becomes deliverable or holder accepts distribution, or such distribution reverts back to the Debtors or Reorganized Debtors, as applicable, and shall not be supplemented with any interest, dividends, or other accruals of any kind.  Such distributions shall be deemed unclaimed property under section 347(b) of the Bankruptcy Code at the expiration of one hundred and eighty (180) days from the date of distribution.  After such date all unclaimed property or interest in property shall revert to the Reorganized Debtors, and the Claim of any other holder to such property or interest in property shall be discharged and forever barred.
 
12.
Time Bar to Cash Payments
 
Checks issued by the Disbursing Agent in respect of Allowed Claims shall be null and void if not negotiated within one hundred and eighty (180) days after the date of issuance thereof.  Thereafter, the amount represented by such voided check shall irrevocably revert to the Reorganized Debtors, and any
34

Claim in respect of such voided check shall be discharged and forever barred, notwithstanding any federal or state escheat laws to the contrary.  Requests for re-issuance of any check shall be made to the Disbursing Agent by the holder of the Allowed Claim to whom such check was originally issued.
 
13.
Manner of Payment under Plan
 
Except as otherwise specifically provided in the Plan, at the option of the Debtors or the Reorganized Debtors, as applicable, any Cash payment to be made under the Plan may be made by a check or wire transfer or as otherwise required or provided in applicable agreements or customary practices of the Debtors.
 
14.
Satisfaction of Claims
 
Except as otherwise specifically provided in the Plan, any distributions and deliveries to be made on account of Allowed Claims under the Plan shall be in complete and final satisfaction, settlement, and discharge of and exchange for such Allowed Claims.
 
15.
Fractional Stock
 
If any distributions of New Common Stock pursuant to the Plan would result in the issuance of a fractional share of New Common Stock, then the number of shares of New Common Stock to be issued in respect of such distribution will be calculated to one decimal place and rounded up or down to the closest whole share (with a half share or greater rounded up and less than a half share rounded down).  The total number of shares of New Common Stock to be distributed in connection with the Plan shall be adjusted as necessary to account for the rounding provided for in Section 6.15 of the Plan.  No consideration shall be provided in lieu of fractional shares that are rounded down.  Neither the Reorganized Debtors nor the Disbursing Agent shall have any obligation to make a distribution that is less than one (1) share of New Common Stock.
 
16.
Minimum Cash Distributions
 
The Disbursing Agent shall not be required to make any distribution of Cash less than One Hundred Dollars ($100) to any holder of an Allowed Claim; provided, however, that if any distribution is not made pursuant to Section 6.16 of the Plan, such distribution shall be added to any subsequent distribution to be made on behalf of the holder’s Allowed Claim.
 
17.
Setoffs and Recoupments
 
The Debtors and the Reorganized Debtors, as applicable, or such entity’s designee (including, without limitation, the Disbursing Agent) may, but shall not be required to, set off or recoup against any Claim, and any distribution to be made on account of such Claim, any and all claims, rights, and Causes of Action of any nature whatsoever that the Debtors or the Reorganized Debtors may have against the holder of such Claim pursuant to the Bankruptcy Code or applicable nonbankruptcy law; provided, however, that neither the failure to do so nor the allowance of any Claim under the Plan shall constitute a waiver or release by a Debtor or Reorganized Debtor or its successor of any claims, rights, or Causes of Action that a Debtor or Reorganized Debtor or its successor or assign may possess against the holder of such Claim.
 
18.
Allocation of Distributions between Principal and Interest
 
Except as otherwise required by law (as reasonably determined by the Reorganized Debtors), distributions with respect to an Allowed Second Lien Notes Claim shall be allocated first to the principal portion of
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such Allowed Claim (as determined for United States federal income tax purposes) and, thereafter, to the remaining portion of such Allowed Claim, if any.
 
19.
No Distribution in Excess of Amount of Allowed Claim
 
Notwithstanding anything in the Plan to the contrary, no holder of an Allowed Claim shall receive, on account of such Allowed Claim, distributions in excess of the Allowed amount of such Claim.
 
20.
Withholding and Reporting Requirements
 
(a)
Withholding Rights.  In connection with the Plan, any party issuing any instrument or making any distribution described in the Plan shall comply with all applicable withholding and reporting requirements imposed by any federal, state, or local taxing authority, and all distributions pursuant to the Plan and all related agreements shall be subject to any such withholding or reporting requirements.  In the case of a non-Cash distribution that is subject to withholding, the distributing party may withhold an appropriate portion of such distributed property and either (i) sell such withheld property to generate Cash necessary to pay over the withholding tax (or reimburse the distributing party for any advance payment of the withholding tax), or (ii) pay the withholding tax using its own funds and retain such withheld property.  Any amounts withheld pursuant to the preceding sentence shall be deemed to have been distributed to and received by the applicable recipient for all purposes of the Plan.  Notwithstanding the foregoing, each holder of an Allowed Claim or any other Entity that receives a distribution pursuant to the Plan shall have responsibility for any taxes imposed by any governmental unit, including, without limitation, income, withholding, and other taxes, on account of such distribution.  Any party issuing any instrument or making any distribution pursuant to the Plan has the right, but not the obligation, to not make a distribution until such holder has made arrangements satisfactory to such issuing or disbursing party for payment of any such tax obligations.
 
(b)
Forms.  Any party entitled to receive any property as an issuance or distribution under the Plan shall, upon request, deliver to the Disbursing Agent or such other Entity designated by the Reorganized Debtors (which Entity shall subsequently deliver to the Disbursing Agent any applicable IRS Form W-8 or Form W-9 received) an appropriate Form W-9 or (if the payee is a foreign Entity) Form W-8.  If such request is made by the Reorganized Debtors, the Disbursing Agent, or such other Entity designated by the Reorganized Debtors or Disbursing Agent and the holder fails to comply before the date that is one hundred and eighty (180) days after the request is made, the amount of such distribution shall irrevocably revert to the applicable Reorganized Debtor and any Claim in respect of such distribution shall be discharged and forever barred from assertion against such Reorganized Debtor or its respective property.
 
21.
Hart-Scott-Rodino Antitrust Improvements Act
 
Any New Common Stock to be distributed under the Plan to an Entity required to file a premerger notification and report form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, to the extent applicable, shall not be distributed until the notification and waiting periods applicable under such Act to such Entity have expired or been terminated.
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F.
Procedures for Disputed Claims and Interests
 
1.
Disputed Claims Process
 
Notwithstanding section 502(a) of the Bankruptcy Code, and in light of the Unimpaired status of all General Unsecured Claims under the Plan, holders of Claims need not file proofs of Claim with the Bankruptcy Court, and the Reorganized Debtors and the holders of Claims shall determine, adjudicate, and resolve any disputes over the validity and amounts of such Claims in the ordinary course of business provided, that (unless expressly waived pursuant to the Plan) the Allowed amount of such Claims shall be subject to and shall not exceed the limitations under or maximum amounts permitted by the Bankruptcy Code, including sections 502 or 503 of the Bankruptcy Code, to the extent applicable.  If a holder of a Claim elects to file a proof of Claim with the Bankruptcy Court, such holder shall be deemed to have consented to the jurisdiction of the Bankruptcy Court for all purposes with respect to the Claim, and the Bankruptcy Court shall retain nonexclusive jurisdiction over all such Claims, which shall be resolved on a case-by-case basis through settlements, Claim objections (or, if necessary, through adversary proceedings), adjudication in a forum other than the Bankruptcy Court, or by withdrawal of the Claims by the holders of such Claims.  From and after the Effective Date, the Reorganized Debtors may satisfy, dispute, settle, or otherwise compromise any Claim without approval of the Bankruptcy Court.
 
2.
Objections to Claims
 
Except insofar as a Claim is Allowed under the Plan, only the Debtors or the Reorganized Debtors shall be entitled to object to Claims.  Any objections to proofs of Claim shall be served and filed (a) on or before the ninetieth (90th) day following the later of (i) the Effective Date and (ii) the date that a proof of Claim is filed or amended or a Claim is otherwise asserted or amended in writing by or on behalf of a holder of such Claim, or (b) such later date as ordered by the Bankruptcy Court upon motion filed by the Debtors or the Reorganized Debtors.  The expiration of such period shall not limit or affect the Debtors’ or the Reorganized Debtors’ rights to dispute Claims asserted other than through a proof of Claim.
 
3.
Estimation of Claims
 
The Debtors or the Reorganized Debtors, as applicable, may at any time request that the Bankruptcy Court estimate any contingent, unliquidated, or Disputed Claim pursuant to section 502(c) of the Bankruptcy Code regardless of whether the Debtors previously objected to such Claim or whether the Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will retain jurisdiction to estimate any Claim at any time during litigation concerning any objection to any Claim, including, without limitation, during the pendency of any appeal relating to any such objection.  In the event that the Bankruptcy Court estimates any contingent, unliquidated, or Disputed Claim, the amount so estimated shall constitute either the Allowed amount of such Claim or a maximum limitation on such Claim, as determined by the Bankruptcy Court.  If the estimated amount constitutes a maximum limitation on the amount of such Claim, the Debtors or the Reorganized Debtors may pursue supplementary proceedings to object to the allowance of such Claim.
 
4.
No Distributions Pending Allowance
 
If an objection, motion to estimate, or other challenge to a Claim is filed, no payment or distribution provided under the Plan shall be made on account of such Claim unless and until (and only to the extent that) such Claim becomes an Allowed Claim.
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5.
Distributions after Allowance
 
To the extent that a Disputed Claim ultimately becomes an Allowed Claim, distributions (if any) shall be made to the holder of such Allowed Claim in accordance with the provisions of the Plan, including the treatment provisions provided in Article IV of the Plan.
 
6.
Claim Resolution Procedures Cumulative
 
All of the objection, estimation, and resolution procedures in the Plan are intended to be cumulative and not exclusive of one another.  Claims may be estimated and subsequently settled, compromised, withdrawn, or resolved in accordance with the Plan without further notice or Bankruptcy Court approval.
 
7.
Insured Claims
 
If any portion of an Allowed Claim is an Insured Claim, no distributions under the Plan shall be made on account of such Allowed Claim until the holder of such Allowed Claim has exhausted all remedies with respect to any applicable insurance policies.  To the extent that the Debtors’ insurers agree to satisfy a Claim in whole or in part, then immediately upon such agreement, the portion of such Claim so satisfied may be expunged without an objection to such Claim having to be filed and without any further notice to or action, order or approval of the Court.
 
G.
Executory Contracts and Unexpired Leases
 
1.
General Treatment
 
(a)
As of and subject to the occurrence of the Effective Date and the payment of any applicable Cure amount, all executory contracts and unexpired leases to which any of the Debtors are parties, and which have not expired by their own terms on or prior to the Confirmation Date, including the Employment Arrangements, the letter agreements entered into in connection with the Employee Bonus Plan, and the Benefit Plans, shall be deemed assumed except for any executory contract or unexpired lease that (a) previously has been assumed or rejected pursuant to a Final Order of the Bankruptcy Court, (b) is the subject of a separate (i) assumption motion filed by the Debtors (with the consent of the Requisite Noteholders) or (ii) rejection motion filed by the Debtors (with the consent of the Requisite Noteholders) under section 365 of the Bankruptcy Code before the Confirmation Date, or (c) is the subject of a pending Cure Dispute.  Subject to the occurrence of the Effective Date, entry of the Confirmation Order by the Bankruptcy Court shall constitute approval of the assumptions provided for in the Plan pursuant to sections 365(a) and 1123 of the Bankruptcy Code.  Each executory contract and unexpired lease assumed pursuant to the Plan shall vest in and be fully enforceable by the applicable Reorganized Debtor in accordance with its terms, except as modified by the provision of the Plan, any order of the Bankruptcy Court authorizing and providing for its assumption or applicable law.
 
(b)
Notwithstanding Section 8.1(a) of the Plan, on the Effective Date, any agreements by and between the Debtors and AGC (Delaware) LP, AGC/PEP, LLC, AGC (Cayman) LP, Palladium Equity Partners III, LP, and Palladium Equity Partners III, LLC (and/or any affiliates or related funds of each of the foregoing) shall be deemed terminated and of no further force or effect, with no liability payable by the Debtors or the Reorganized Debtors thereunder.
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2.
Determination of Cure Disputes and Deemed Consent
 
(a)
Any monetary amounts by which any executory contract or unexpired lease to be assumed under the Plan is in default shall be satisfied, under section 365(b)(1) of the Bankruptcy Code, by the Reorganized Debtors upon assumption thereof in the ordinary course.  Following the Commencement Date, the Debtors shall serve a notice on parties to executory contracts and unexpired leases to be assumed reflecting the Debtors’ intention to assume the contract or unexpired lease in connection with the Plan and setting forth the proposed Cure amount (if any).  If the counterparty believes any Cure amounts are due by the Debtors in connection with the assumption, it shall assert such Cure amounts against the Debtors in the ordinary course of business.
 
(b)
Upon assumption, Cure amounts shall be paid by the Debtors or Reorganized Debtors in the ordinary course, subject to all defenses and disputes the Debtors or the Reorganized Debtors may have with respect to such executory contracts or unexpired leases, which the Debtors or Reorganized Debtors may assert in the ordinary course.  If there is a Cure Dispute pertaining to assumption of an executory contract or unexpired lease, such dispute shall be heard by the Bankruptcy Court prior to such assumption being effective, provided, however, before the Effective Date, the Debtors (with the consent of the Requisite Noteholders) or the Reorganized Debtors, as applicable, may settle any dispute regarding the Cure amount or the nature thereof without any further notice to any party or any action, order, or approval of the Bankruptcy Court.  To the extent a Cure Dispute relates solely to the Cure amount, the applicable Debtor may assume and/or assume and assign the applicable contract or lease prior to the resolution of the Cure Dispute provided that such Debtor or proposed assignee reserves Cash in an amount sufficient to pay the full amount reasonably asserted as the required cure payment by the non-Debtor party to such contract or lease (or such smaller amount as may be fixed or estimated by the Bankruptcy Court or otherwise agreed to by such non-Debtor party and the applicable Reorganized Debtor).  To the extent the Cure Dispute is resolved or determined unfavorably to the applicable Debtor or Reorganized Debtor, as applicable, such Debtor or Reorganized Debtor, as applicable, may reject the applicable Executory Contract after such determination.
 
(c)
Any counterparty to an executory contract or unexpired lease that fails to object timely to the notice of the proposed assumption of such executory contract or unexpired lease within ten (10) days of the service thereof, shall be deemed to have assented to assumption of the applicable executory contract or unexpired lease notwithstanding any provision thereof that purports to (i) prohibit, restrict, or condition the transfer or assignment of such contract or lease, (ii) terminate or modify, or permit the termination or modification of, a contract or lease as a result of any direct or indirect transfer or assignment of the rights of the Debtors under such contract or lease or a change, if any, in the ownership or control to the extent contemplated by the Plan, (iii) increase, accelerate, or otherwise alter any obligations or liabilities of the Debtors or the Reorganized Debtors, under such executory contract or unexpired lease, or (iv) create or impose a Lien upon any property or asset of the Debtors or the Reorganized Debtors, as applicable.  Each such provision shall be deemed to not apply to the assumption of such executory contract or unexpired lease pursuant to the Plan and counterparties to assumed
39

executory contracts or unexpired leases that fail to object to the proposed assumption in accordance with the terms set forth in this Section 8.2(c), shall forever be barred and enjoined from objecting to the proposed assumption or to the validity of such assumption, or taking actions prohibited by the foregoing on account of transactions contemplated by the Plan.
 
3.
Payments Related to Assumption of Contracts and Leases
 
Subject to resolution of any Cure Dispute, all Cures shall be satisfied by the Debtors or Reorganized Debtors, as the case may be, upon assumption of the underlying contracts and unexpired leases.  Assumption of any executory contract or unexpired lease pursuant to the Plan, or otherwise, shall result in the full release and satisfaction of any Claims or defaults, subject to satisfaction of the Cure amount, whether monetary or nonmonetary, including defaults of provisions restricting the change in control or ownership interest composition or other bankruptcy-related defaults, arising under any assumed executory contract or unexpired lease at any time before the effective date of the assumption.  Any proofs of Claim filed with respect to an executory contract or unexpired lease that has been assumed shall be deemed disallowed and expunged, without further notice to or action, order or approval of the Bankruptcy Court or any other Entity, upon the deemed assumption of such contract or unexpired lease.
 
4.
Rejection Claims
 
In the event that the rejection of an executory contract or unexpired lease by any of the Debtors results in damages to the other party or parties to such contract or lease, a Claim for such damages shall be classified and treated in Class 4 (General Unsecured Claims).
 
5.
Survival of the Debtors’ Indemnification Obligations
 
(a)
Any obligations of the Debtors pursuant to their corporate charters, bylaws, limited liability company agreements, or other organizational documents to indemnify current and former officers, directors, agents, and/or employees with respect to all present and future actions, suits, and proceedings against the Debtors or such directors, officers, agents, and/or employees, based upon any act or omission for or on behalf of the Debtors, shall not be discharged or impaired by confirmation of the Plan; provided, however, that the Reorganized Debtors shall not indemnify directors of the Debtors for any Claims or Causes of Action arising out of or relating to any act or omission that constitutes intentional fraud, gross negligence, or willful misconduct.  All such obligations shall be deemed and treated as executory contracts to be assumed by the Debtors under the Plan and shall continue as obligations of the Reorganized Debtors.  Any claim based on the Debtors’ obligations herein shall not be a Disputed Claim or subject to any objection in either case by reason of section 502(e)(1)(B) of the Bankruptcy Code.
 
(b)
In addition, after the Effective Date, the Reorganized Debtors shall not terminate or otherwise reduce the coverage under any directors’ and officers’ insurance policies (including any “tail policy”) in effect or purchased as of the Commencement Date, and all members, managers, directors, and officers who served in such capacity at any time before the Effective Date shall be entitled to the full benefits of any such policy for the full term of such policy regardless of whether such members, managers, directors, and/or officers remain in such
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positions after the Effective Date, in each case, to the extent set forth in such policies.
 
6.
Insurance Policies
 
All insurance policies pursuant to which any Debtor has any obligations in effect as of the date of the Confirmation Order shall be deemed and treated as executory contracts pursuant to the Plan and shall be assumed by the respective Debtors and Reorganized Debtors and shall continue in full force and effect thereafter in accordance with their respective terms.  All other insurance policies shall vest in the Reorganized Debtors.
 
7.
Intellectual Property Licenses and Agreements
 
All intellectual property contracts, licenses, royalties, or other similar agreements to which the Debtors have any rights or obligations in effect as of the date of the Confirmation Order shall be deemed and treated as executory contracts pursuant to the Plan and shall be assumed by the respective Debtors and Reorganized Debtors and shall continue in full force and effect unless any such intellectual property contract, license, royalty, or other similar agreement otherwise is specifically rejected pursuant to a separate order of the Bankruptcy Court or is the subject of a separate rejection motion filed by the Debtors (with the reasonable consent of the Requisite Noteholders) in accordance with Section 8.1 of the Plan.  Unless otherwise noted under the Plan, all other intellectual property contracts, licenses, royalties, or other similar agreements shall vest in the Reorganized Debtors and the Reorganized Debtors may take all actions as may be necessary or appropriate to ensure such vesting as contemplated herein.
 
8.
Modifications, Amendments, Supplements, Restatements, or Other Agreements
 
Unless otherwise provided in the Plan or by separate order of the Bankruptcy Court, each executory contract and unexpired lease that is assumed shall include any and all modifications, amendments, supplements, restatements, or other agreements made directly or indirectly by any agreement, instrument, or other document that in any manner affects such executory contract or unexpired lease, without regard to whether such agreement, instrument, or other document is listed in the notice of assumed contracts.
 
9.
Reservation of Rights
 
(a)
Neither the exclusion nor inclusion of any contract or lease by the Debtors on any exhibit, schedule, or other annex to the Plan or in the Plan Supplement, nor anything contained in the Plan, will constitute an admission by the Debtors that any such contract or lease is or is not in fact an executory contract or unexpired lease or that the Debtors or the Reorganized Debtors or their respective affiliates have any liability thereunder.
 
(b)
Except as otherwise provided in the Plan, nothing in the Plan will waive, excuse, limit, diminish, or otherwise alter any of the defenses, Claims, Causes of Action, or other rights of the Debtors and the Reorganized Debtors under any executory or non-executory contract or any unexpired or expired lease.
 
(c)
Nothing in the Plan will increase, augment, or add to any of the duties, obligations, responsibilities, or liabilities of the Debtors or the Reorganized Debtors under any executory or non-executory contract or any unexpired or expired lease.
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(d)
If there is a Cure Dispute or a dispute regarding whether a contract or lease is or was executory or unexpired at the time of assumption or rejection under the Plan, the Debtors or Reorganized Debtors, as applicable, shall have sixty (60) days following entry of a Final Order resolving such Cure Dispute to alter their treatment of such contract or lease by filing a notice indicating such altered treatment.
 
H.
Conditions Precedent to Confirmation of Plan and Effective Date
 
1.
Conditions Precedent to Confirmation of Plan
 
The following are conditions precedent to confirmation of the Plan:
 
(a)
the Plan and the Plan Supplement and all of the schedules, documents, and exhibits contained therein shall have been filed, and shall be in form and substance reasonably acceptable to the Debtors and the Requisite Noteholders; provided, however, that the Exit Facility Documents shall be acceptable to the Debtors and the Required Lenders in their discretion;
 
(b)
the Restructuring Support Agreement shall not have been terminated and shall be in full force and effect;
 
(c)
the Bankruptcy Court shall have entered the Confirmation Order in form and substance reasonably satisfactory to the Debtors and the Requisite Noteholders; and
 
(d)
the DIP Orders and the DIP Agreement shall be in full force and effect under the DIP Facility in accordance with their terms, and no Termination Event (as defined in the DIP Orders) or Event of Default (as defined in the DIP Agreement) shall have occurred or be continuing.
 
2.
Conditions Precedent to Effective Date
 
The following are conditions precedent to the Effective Date of the Plan:
 
(a)
the Merger shall have been consummated;
 
(b)
the Definitive Documents shall (i) be in form and substance reasonably satisfactory in all respects to the Debtors and the Requisite Noteholders; provided, however, that the Exit Facility Documents shall be acceptable to the Debtors and the Required Lenders in their discretion, and (ii) have been executed and delivered, and any conditions precedent contained to effectiveness therein having been satisfied or waived in accordance therewith and the foregoing documents shall be in full force and effect and binding upon the relevant parties;
 
(c)
the Amended Organizational Documents shall have been filed with the appropriate governmental authority, as applicable;
 
(d)
an Event of Default under the DIP Facility having not occurred and an acceleration of the obligations or termination of commitments under the DIP Facility having not occurred;
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(e)
all actions, documents, and agreements necessary to implement and consummate the Plan shall have been effected or executed and binding on all parties thereto;
 
(f)
the Bankruptcy Court shall have entered the Confirmation Order and such order shall have become a Final Order and shall not have been stayed, modified or vacated;
 
(g)
all governmental and third-party approvals and consents, including Bankruptcy Court approval, necessary in connection with the transactions contemplated by the Plan shall have been obtained, not be subject to unfulfilled conditions, and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent, or otherwise impose materially adverse conditions on such transactions;
 
(h)
the Restructuring Support Agreement shall not have been terminated and shall be in full force and effect; and
 
(i)
all unpaid Restructuring Expenses shall have been paid in Cash pursuant to the applicable fee arrangements of such professionals.
 
3.
Waiver of Conditions Precedent
 
(a)
Except as otherwise provided in the Plan, all actions required to be taken on the Effective Date shall take place and shall be deemed to have occurred simultaneously and no such action shall be deemed to have occurred prior to the taking of any other such action.  Each of the conditions precedent in Section 9.1 and Section 9.2 of the Plan may be waived in writing by the Debtors with the prior written consent of the Requisite Noteholders without leave of or order of the Bankruptcy Court.  If the Plan is confirmed for fewer than all of the Debtors as provided for in Section 5.15 of the Plan, only the conditions applicable to the Debtor or Debtors for which the Plan is confirmed must be satisfied or waived for the Effective Date to occur.
 
(b)
The stay of the Confirmation Order pursuant to Bankruptcy Rule 3020(e) shall be deemed waived by and upon the entry of the Confirmation Order, and the Confirmation Order shall take effect immediately upon its entry.
 
4.
Effect of Failure of a Condition
 
If the conditions listed in Section 9.2 of the Plan are not satisfied or waived in accordance with Section 9.3 of the Plan on or before the first Business Day that is more than sixty (60) days after the date on which the Confirmation Order is entered or by such later date as set forth by the Debtors in a notice filed with the Bankruptcy Court prior to the expiration of such period, the Plan shall be null and void in all respects and nothing contained in the Plan or the Disclosure Statement shall (a) constitute a waiver or release of any Claims by or against or any Interests in the Debtors, (b) prejudice in any manner the rights of any Entity, or (c) constitute an admission, acknowledgement, offer, or undertaking by the Debtors, any of the Consenting RSA Parties or any other Entity.
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I.
Effect of Confirmation of Plan
 
1.
Vesting of Assets
 
On the Effective Date, pursuant to sections 1141(b) and (c) of the Bankruptcy Code, all property of the Debtors’ Estates shall vest in the Reorganized Debtors free and clear of all Claims, Liens, encumbrances, charges, and other interests, except as provided pursuant to the Plan, the Confirmation Order or the Exit Facility Documents.  On and after the Effective Date, the Reorganized Debtors may take any action, including, without limitation, the operation of their businesses; the use, acquisition, sale, lease and disposition of property; and the entry into transactions, agreements, understandings, or arrangements, whether in or other than in the ordinary course of business, and execute, deliver, implement, and fully perform any and all obligations, instruments, documents, and papers or otherwise in connection with any of the foregoing, free of any restrictions of the Bankruptcy Code or Bankruptcy Rules and in all respects as if there were no pending cases under any chapter or provision of the Bankruptcy Code, except as expressly provided in the Plan. Without limiting the foregoing, the Reorganized Debtors may pay the charges that they incur on or after the Effective Date for professional fees, disbursements, expenses, or related support services without application to the Bankruptcy Court.
 
2.
Binding Effect
 
As of the Effective Date, the Plan shall bind all holders of Claims against and Interests in the Debtors and their respective successors and assigns, notwithstanding whether any such holders were (a) Impaired or Unimpaired under the Plan, (b) deemed to accept or reject the Plan, (c) failed to vote to accept or reject the Plan, or (d) voted to reject the Plan.
 
3.
Discharge of Claims and Termination of Interests
 
Upon the Effective Date and in consideration of the distributions to be made under the Plan, except as otherwise expressly provided in the Plan, each holder (as well as any representatives, trustees, or agents on behalf of each holder) of a Claim or Interest and any affiliate of such holder shall be deemed to have forever waived, released, and discharged the Debtors, to the fullest extent permitted by section 1141 of the Bankruptcy Code, of and from any and all Claims, Interest, rights, and liabilities that arose prior to the Effective Date.  Upon the Effective Date, all such Entities shall be forever precluded and enjoined, pursuant to section 524 of the Bankruptcy Code, from prosecuting or asserting any such discharged Claim against or terminated Interest in the Debtors against the Debtors, the Reorganized Debtors, or any of its or their assets or property, whether or not such holder has filed a proof of Claim and whether or not the facts or legal bases therefor were known or existed prior to the Effective Date.
 
4.
Term of Injunctions or Stays
 
Unless otherwise provided in the Plan or in a Final Order of the Bankruptcy Court, all injunctions or stays arising under or entered during the Chapter 11 Cases under section 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect until the later of the Effective Date and the date indicated in the order providing for such injunction or stay.
 
5.
Injunction
 
(a)
Upon entry of the Confirmation Order, all holders of Claims and Interests and other parties in interest, along with their respective present or former employees, agents, officers, directors, principals, and affiliates, shall be enjoined from taking any actions to interfere with the implementation or consummation of the Plan.
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(b)
Except as expressly provided in the Plan, the Confirmation Order, or a separate order of the Bankruptcy Court or as agreed to by the Debtors and a holder of a Claim against or Interest in the Debtors, all Entities who have held, hold, or may hold Claims against or Interests in any or all of the Debtors (whether proof of such Claims or Interests has been filed or not and whether or not such Entities vote in favor of, against or abstain from voting on the Plan or are presumed to have accepted or deemed to have rejected the Plan) and other parties in interest, along with their respective present or former employees, agents, officers, directors, principals, and affiliates are permanently enjoined, on and after the Effective Date, solely with respect to any Claims, Interests, and Causes of Action that will be or are extinguished, discharged, or released pursuant to the Plan from (i) commencing, conducting, or continuing in any manner, directly or indirectly, any suit, action, or other proceeding of any kind (including, without limitation, any proceeding in a judicial, arbitral, administrative or other forum) against or affecting the Released Parties or the property of any of the Released Parties, (ii) enforcing, levying, attaching (including, without limitation, any prejudgment attachment), collecting, or otherwise recovering by any manner or means, whether directly or indirectly, any judgment, award, decree, or order against the Released Parties or the property of any of the Released Parties, (iii) creating, perfecting, or otherwise enforcing in any manner, directly or indirectly, any encumbrance of any kind against the Released Parties or the property of any of the Released Parties, (iv) asserting any right of setoff, directly or indirectly, against any obligation due the Released Parties or the property of any of the Released Parties, except as contemplated or allowed by the Plan; and (v) acting or proceeding in any manner, in any place whatsoever, that does not conform to or comply with the provisions of the Plan.
 
(c)
By accepting distributions pursuant to the Plan, each holder of an Allowed Claim or Interest will be deemed to have affirmatively and specifically consented to be bound by the Plan, including, without limitation, the injunctions set forth in Section 10.5 of the Plan.
 
(d)
The injunctions in Section 10.5 of the Plan shall extend to any successors of the Debtors and the Reorganized Debtors and their respective property and interests in property.
 
6.
Releases
 
(a)
Releases by Debtors.
 
As of the Effective Date, except (i) for the right to enforce the Plan or any right or obligation arising under the Definitive Documents that remain in effect or become effective after the Effective Date or (ii) as otherwise expressly provided in the Plan or in the Confirmation Order, in exchange for good and valuable consideration, including the obligations of the Debtors under the Plan and the contributions of the Released Parties to facilitate and implement the Plan, on and after the Effective Date, the Released Parties shall be deemed released and discharged by the Debtors, the Reorganized Debtors, and the Estates from any and all Claims and Causes of Action, including any derivative claims, asserted or assertable on behalf of the Debtors, whether known or unknown, foreseen or unforeseen, existing or hereinafter arising, in law, equity or otherwise, that the Debtors, the Reorganized Debtors, the Estates, or their affiliates would have been legally entitled to assert in their own right (whether individually or collectively) or on behalf of the holder of any Claim or Interest or other Entity, based on or relating to, or in any manner
45

arising from, in whole or in part, the Debtors, the Chapter 11 Cases, the purchase, sale or rescission of the purchase or sale of any security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the business or contractual arrangements between any Debtor and any Released Party, the restructuring of Claims and Interests before or during the Chapter 11 Cases, the negotiation, formulation, preparation or consummation of the Plan (including the Plan Supplement), the Restructuring Support Agreement, the Definitive Documents or related agreements, instruments or other documents, or the solicitation of votes with respect to the Plan, in all cases based upon any act or omission, transaction, agreement, event, or other occurrence taking place on or before the Effective Date; provided, that nothing in Section 10.6(a) of the Plan shall be construed to release any party or Entity from gross negligence, willful misconduct, or intentional fraud as determined by Final Order.
 
(b)
Releases by Holders of Claims or Interests.
 
As of the Effective Date, except (i) for the right to enforce the Plan or any right or obligation arising under the Definitive Documents that remain in effect or become effective after the Effective Date or (ii) as otherwise expressly provided in the Plan or in the Confirmation Order, in exchange for good and valuable consideration, including the obligations of the Debtors under the Plan and the contributions of the Released Parties to facilitate and implement the Plan, to the fullest extent permissible under applicable law, as such law may be extended or integrated after the Effective Date, the Released Parties shall be deemed conclusively, absolutely, unconditionally, irrevocably and forever, released, and discharged by:
 
(1) the holders of Impaired Claims or Interests except those (A) deemed to reject the Plan or (B) who voted to reject, or abstain from voting on, the Plan and have also checked the box on the applicable ballot or notice indicating that they opt out of granting the releases provided in the Plan; provided that the Consenting Second Lien Noteholders and the Consenting AGHC Interest Holders may not opt out of granting the releases provided in the Plan in accordance with and subject to the terms and conditions of the Restructuring Support Agreement;
 
(2) the holders of Unimpaired Claims or Interests who do not timely object to the releases provided in the Plan; and
 
(3) with respect to any Entity in the foregoing clauses (1) and (2), such Entity’s predecessors, successors and assigns, subsidiaries, affiliates, managed accounts or funds, current or former officers, directors, principals, shareholders, members, partners, employees, agents, advisory board members, financial advisors, attorneys, accountants, investment bankers, consultants, representatives, management companies, fund advisors and other professionals, and such Entity’s respective heirs, executors, estates, servants and nominee;
 
in each case, from any and all Claims, interests or Causes of Action whatsoever, including any derivative Claims asserted on behalf of a Debtor, whether known or unknown, foreseen or unforeseen, existing or hereafter arising, in law, equity or otherwise, that such Entity would have been legally entitled to assert (whether individually or collectively), based on, relating to, or arising from, in whole or in part, the Debtors, the Debtors’ restructuring, the Chapter 11 Cases, the purchase, sale or rescission of the purchase or sale of any security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the business or contractual arrangements between any Debtor and any Released Party, the restructuring of Claims and Interests before or during the Chapter 11 Cases, the negotiation, formulation, preparation, or consummation of the Plan (including the Plan Supplement), the Restructuring Support Agreement, the Definitive Documents, or any related agreements, instruments, or other documents, the solicitation of votes with respect to the Plan, in all cases based upon any act or omission, transaction, agreement, event
46

or other occurrence taking place on or before the Effective Date; provided that nothing in Section 10.6(b) of the Plan shall be construed to release the Released Parties from gross negligence, willful misconduct, or intentional fraud as determined by a Final Order.
 
7.
Exculpation
 
Notwithstanding anything in the Plan to the contrary, and to the maximum extent permitted by applicable law, the Exculpated Parties shall neither have nor incur any liability to any holder of a Claim or Interest or any other party in interest, or any of their respective predecessors, successors and assigns, subsidiaries, affiliates, managed accounts or funds, current or former officers, directors, principals, shareholders, members, partners, employees, agents, advisory board members, financial advisors, attorneys, accountants, investment bankers, consultants, representatives, management companies, fund advisors and other professionals, and such Entity’s respective heirs, executors, estates, servants or nominees for any act or omission (both prior to and subsequent to the Commencement Date) in connection with, related to, or arising out of, in whole or in part, the Debtors, the Debtors’ restructuring, the Chapter 11 Cases, the purchase, sale or rescission of the purchase or sale of any security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the business or contractual arrangements between any Debtor and any Released Party, the restructuring of Claims and Interests before or during the Chapter 11 Cases, the negotiation, formulation, preparation, or consummation of the Plan (including the Plan Supplement), the Restructuring Support Agreement, the Definitive Documents, or any related agreements, instruments, or other documents, the solicitation of votes with respect to the, any settlement or agreement in the Chapter 11 Cases, the offer, issuance, and distribution of any securities issued or to be issued pursuant to the Plan, whether or not such distribution occurs following the Effective Date, negotiations regarding or concerning any of the foregoing, or the administration of the Plan or property to be distributed under the Plan, except for actions determined by Final Order to constitute gross negligence, willful misconduct, or intentional fraud.
 
8.
Retention of Causes of Action/Reservation of Rights
 
Except as otherwise provided in the Plan, including in Sections 10.5, 10.6, and 10.7 of the Plan, nothing contained in the Plan or the Confirmation Order shall be deemed to be a waiver or relinquishment of any rights, Claims, Causes of Action, rights of setoff or recoupment, or other legal or equitable defenses that the Debtors had immediately prior to the Effective Date on behalf of the Estates or of themselves in accordance with any provision of the Bankruptcy Code or any applicable nonbankruptcy law, including, without limitation, any affirmative Causes of Action against parties with a relationship with the Debtors.  The Reorganized Debtors shall have, retain, reserve, and be entitled to assert all such Claims, Causes of Action, rights of setoff or recoupment, and other legal or equitable defenses as fully as if the Chapter 11 Cases had not been commenced, and all of the Debtors’ legal and equitable rights in respect of any Unimpaired Claim may be asserted after the Confirmation Date and Effective Date to the same extent as if the Chapter 11 Cases had not been commenced.  Notwithstanding the foregoing, the Debtors and the Reorganized Debtor shall not retain any Claims or Causes of Action released pursuant to Sections 10.5, 10.6, and 10.7 of the Plan against the Released Parties or arising under chapter 5 of the Bankruptcy Code (except that such Claims or Causes of Action may be asserted as a defense to a Claim in connection with the claims reconciliation and objection procedures pursuant to section 502(d) of the Bankruptcy Code or otherwise).
 
9.
Solicitation of Plan
 
As of and subject to the occurrence of the Confirmation Date:  (a) the Debtors shall be deemed to have solicited acceptances of the Plan in good faith and in compliance with the applicable provisions of the
47

Bankruptcy Code, including without limitation, sections 1125(a) and (e) of the Bankruptcy Code, and any applicable non-bankruptcy law, rule, or regulation governing the adequacy of disclosure in connection with such solicitation and (b) the Debtors, the Consenting RSA Parties, and each of their respective directors, officers, employees, affiliates, agents, financial advisors, investment bankers, professionals, accountants, and attorneys shall be deemed to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code in the offer and issuance of any securities under the Plan, and therefore are not, and on account of such offer, issuance, and solicitation will not be, liable at any time for any violation of any applicable law, rule, or regulation governing the solicitation of acceptances or rejections of the Plan or the offer and issuance of any securities under the Plan.
 
Notwithstanding anything in the Plan to the contrary, as of the Effective Date, pursuant to section 1125(e) of the Bankruptcy Code, the Solicitation Parties upon appropriate findings of the Bankruptcy Court will be deemed to have solicited acceptance of the Plan in good faith and in compliance with the applicable provisions of the Bankruptcy Code, and to have participated in good faith and in compliance with the applicable provisions of the Bankruptcy Code, in the offer, issuance, sale, or purchase of a security, offered or sold under the Plan of a Reorganized Debtor, and shall not be liable to any Person on account of such solicitation or participation.
 
10.
Corporate and Limited Liability Company Action
 
Upon the Effective Date, all actions contemplated by the Plan shall be deemed authorized and approved in all respects, including (a) those set forth in Section 5.11 of the Plan, (b) the selection of the managers, directors, and officers for the Reorganized Debtors, (c) the distribution or issuance of the New Common Stock (d) the entry into the Exit Facility and the Exit Facility Documents, (e) the issuance of the Subordinated Notes and entry into the Subordinated Notes Documents, (f) the entry into the Shareholders Agreement, (g) the approval of the Restructuring Support Agreement, (h) mergers or conversions as contemplated by Section 5.2 of the Plan, and (i) all other actions contemplated by the Plan (whether to occur before, on, or after the Effective Date), in each case, in accordance with and subject to the terms of the Plan.  All matters provided for in the Plan involving the corporate or limited liability company structure of the Debtors or the Reorganized Debtors, and any corporate or limited liability company action required by the Debtors or the Reorganized Debtors in connection with the Plan shall be deemed to have occurred and shall be in effect, without any requirement of further action by the Security holders, directors, managers, or officers of the Debtors or the Reorganized Debtors.  On or (as applicable) before the Effective Date, the appropriate officers of the Debtors or the Reorganized Debtors, as applicable, shall be authorized and directed to issue, execute, and deliver the agreements, documents, securities, and instruments, certificates of merger, certificates of conversion, certificates of incorporation, or comparable documents, or franchise tax reports contemplated by the Plan (or necessary or desirable to effect the transactions contemplated by the Plan) in the name of and on behalf of the Reorganized Debtors, including, but not limited to, (i) the Amended Organizational Documents, (ii) the Exit Facility, (iii) the Exit Facility Credit Agreement, (iv) the Subordinated Notes Indenture, (v) the Shareholders Agreement, and (vi) any and all other agreements, documents, securities, and instruments relating to the foregoing.  The authorizations and approvals contemplated by Section 10.10 of the Plan shall be effective notwithstanding any requirements under non-bankruptcy law.
 
J.
Retention of Jurisdiction
 
1.
Retention of Jurisdiction
 
On and after the Effective Date, the Bankruptcy Court shall retain jurisdiction over all matters arising in, arising under, and related to the Chapter 11 Cases for, among other things, the following purposes:
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(a)
to hear and determine motions and/or applications for the assumption or rejection of executory contracts or unexpired leases, including Cure Disputes, and the allowance, classification, priority, compromise, estimation, or payment of Claims resulting therefrom;
 
(b)
to determine any motion, adversary proceeding, application, contested matter, and other litigated matter pending on or commenced after the Confirmation Date;
 
(c)
to ensure that distributions to holders of Allowed Claims are accomplished as provided for in the Plan and Confirmation Order and to adjudicate any and all disputes arising from or relating to distributions under the Plan;
 
(d)
to consider the allowance, classification, priority, compromise, estimation, or payment of any Claim;
 
(e)
to enter, implement, or enforce such orders as may be appropriate in the event the Confirmation Order is for any reason stayed, reversed, revoked, modified, or vacated;
 
(f)
to issue injunctions, enter and implement other orders, and take such other actions as may be necessary or appropriate to restrain interference by any Entity with the consummation, implementation, or enforcement of the Plan, the Confirmation Order, or any other order of the Bankruptcy Court;
 
(g)
to hear and determine any application to modify the Plan in accordance with section 1127 of the Bankruptcy Code, to remedy any defect or omission or reconcile any inconsistency in the Plan, or any order of the Bankruptcy Court, including the Confirmation Order, in such a manner as may be necessary to carry out the purposes and effects thereof;
 
(h)
to hear and determine all Fee Claims;
 
(i)
to hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan, the Plan Supplement, or the Confirmation Order, or any agreement, instrument, or other document governing or relating to any of the foregoing;
 
(j)
to take any action and issue such orders as may be necessary to construe, interpret, enforce, implement, execute, and consummate the Plan;
 
(k)
to determine such other matters and for such other purposes as may be provided in the Confirmation Order;
 
(l)
to hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code (including any requests for expedited determinations under section 505(b) of the Bankruptcy Code);
 
(m)
to hear, adjudicate, decide, or resolve any and all matters related to Article X of the Plan, including, without limitation, the releases, discharge, exculpations, and injunctions issued thereunder;
49

(n)
to resolve disputes concerning Disputed Claims or the administration thereof;
 
(o)
to hear and determine any other matters related hereto and not inconsistent with the Bankruptcy Code and title 28 of the United States Code;
 
(p)
to enter a final decree closing the Chapter 11 Cases;
 
(q)
to recover all assets of the Debtors and property of the Debtors’ Estates, wherever located;
 
(r)
to hear and determine any rights, Claims, or Causes of Action held by or accruing to the Debtors pursuant to the Bankruptcy Code or pursuant to any federal statute or legal theory; and
 
(s)
to hear and resolve any dispute over the application to any Claim of any limit on the allowance of such Claim set forth in sections 502 or 503 of the Bankruptcy Code, other than defenses or limits that are asserted under non-bankruptcy law pursuant to section 502(b)(1) of the Bankruptcy Code.
 
2.
Courts of Competent Jurisdiction
 
If the Bankruptcy Court abstains from exercising, or declines to exercise, jurisdiction or is otherwise without jurisdiction over any matter arising out of the Plan, such abstention, refusal, or failure of jurisdiction shall have no effect upon and shall not control, prohibit, or limit the exercise of jurisdiction by any other court having competent jurisdiction with respect to such matter.
 
K.
Miscellaneous Provisions
 
1.
Payment of Statutory Fees
 
On the Effective Date and thereafter as may be required, the Reorganized Debtors shall pay all fees incurred pursuant to sections 1911 through 1930 of chapter 123 of title 28 of the United States Code, together with interest, if any, pursuant to § 3717 of title 31 of the United States Code for each debtor’s case, or until such time as a final decree is entered closing a particular Debtor’s case, a Final Order converting such Debtor’s case to a case under chapter 7 of the Bankruptcy Code is entered, or a Final Order dismissing such Debtor’s case is entered.
 
2.
Substantial Consummation of the Plan
 
On the Effective Date, the Plan shall be deemed to be substantially consummated under sections 1101 and 1127(b) of the Bankruptcy Code.
 
3.
Plan Supplement
 
The Plan Supplement shall be filed with the Clerk of the Bankruptcy Court.  Upon its filing with the Bankruptcy Court, the Plan Supplement may be inspected in the office of the Clerk of the Bankruptcy Court during normal court hours.  Documents included in the Plan Supplement will be posted at the website of the Debtors’ notice, claims, and solicitation agent.
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4.
Request for Expedited Determination of Taxes
 
The Debtors shall have the right to request an expedited determination under section 505(b) of the Bankruptcy Code with respect to tax returns filed, or to be filed, for any and all taxable periods ending after the Commencement Date through the Effective Date.
 
5.
Exemption from Certain Transfer Taxes
 
Pursuant to section 1146 of the Bankruptcy Code, (a) the issuance, transfer or exchange of any securities, instruments or documents, (b) the creation of any Lien, mortgage, deed of trust, or other security interest, (c) the making or assignment of any lease or sublease or the making or delivery of any deed or other instrument of transfer under, pursuant to, in furtherance of, or in connection with the Plan, including, without limitation, any deeds, bills of sale, or assignments executed in connection with any of the transactions contemplated under the Plan or the reinvesting, transfer, or sale of any real or personal property of the Debtors pursuant to, in implementation of or as contemplated in the Plan (whether to one or more of the Reorganized Debtors or otherwise), (d) the grant of collateral under the Exit Facility Documents, and (e) the issuance, renewal, modification, or securing of indebtedness by such means, and the making, delivery or recording of any deed or other instrument of transfer under, in furtherance of, or in connection with, the Plan, including, without limitation, the Confirmation Order, shall not be subject to any document recording tax, stamp tax, conveyance fee, or other similar tax, mortgage tax, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, regulatory filing or recording fee, sales tax, use tax, or other similar tax or governmental assessment.  Consistent with the foregoing, each recorder of deeds or similar official for any county, city, or governmental unit in which any instrument hereunder is to be recorded shall, pursuant to the Confirmation Order, be ordered and directed to accept such instrument without requiring the payment of any filing fees, documentary stamp tax, deed stamps, stamp tax, transfer tax, intangible tax, or similar tax.
 
6.
Amendments
 
(a)
Plan Modifications.  Subject to the terms of the Restructuring Support Agreement, (i) the Debtors reserve the right, in accordance with the Bankruptcy Code and the Bankruptcy Rules, to amend or modify the Plan prior to the entry of the Confirmation Order, including amendments or modifications to satisfy section 1129(b) of the Bankruptcy Code, and (ii) after entry of the Confirmation Order, the Debtors may, upon order of the Court, amend, modify or supplement the Plan in the manner provided for by section 1127 of the Bankruptcy Code or as otherwise permitted by law, in each case without additional disclosure pursuant to section 1125 of the Bankruptcy Code.
 
(b)
Other Amendments.  Subject to the Restructuring Support Agreement, before the Effective Date, the Debtors may make appropriate technical adjustments and modifications to the Plan and the documents contained in the Plan Supplement without further order or approval of the Bankruptcy Court.
 
7.
Effectuating Documents and Further Transactions
 
Each of the officers of the Reorganized Debtors is authorized, in accordance with his or her authority under the resolutions of the applicable board of directors or managers, to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan, provided, however, to the extent any such agreements or documents are material, they shall be in
51

form and substance reasonably (except as otherwise provided in the Plan) satisfactory to the Requisite Noteholders.
 
8.
Revocation or Withdrawal of Plan
 
Subject to the terms of the Restructuring Support Agreement, the Debtors reserve the right to revoke or withdraw the Plan prior to the Effective Date as to any or all of the Debtors; provided, however, that the Debtors may revoke or withdraw the Plan without such consent in the exercise of the Debtors’ fiduciary duty to the extent permitted under the Restructuring Support Agreement.  If, with respect to a Debtor, the Plan has been revoked or withdrawn prior to the Effective Date, or if confirmation or the occurrence of the Effective Date as to such Debtor does not occur on the Effective Date, then, with respect to such Debtor: (a) the Plan shall be null and void in all respects; (b) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount any Claim or Interest or Class of Claims or Interests), assumption of executory contracts or unexpired leases affected by the Plan, and any document or agreement executed pursuant to the Plan shall be deemed null and void; and (c) nothing contained in the Plan shall (i) constitute a waiver or release of any Claim by or against, or any Interest in, such Debtor or any other Entity; (ii) prejudice in any manner the rights of such Debtor or any other Entity; or (iii) constitute an admission of any sort by any Debtor, any of the Consenting RSA Parties or any other Entity.  This provision shall have no impact on the rights of the Consenting Noteholders or the Debtors, as set forth in the Restructuring Support Agreement, in respect of any such revocation or withdrawal.
 
9.
Dissolution of Creditors’ Committee
 
If any statutory committee of unsecured creditors (the “Creditors’ Committee”) was formed in the Chapter 11 Cases, the Creditors’ Committee shall be automatically dissolved on the Effective Date and, on the Effective Date, each member (including each officer, director, employee, or agent thereof) of the Creditors’ Committee and each professional retained by the Creditors’ Committee shall be released and discharged from all rights, duties, responsibilities, and obligations arising from, or related to, the Debtors, their membership on the Creditors’ Committee, the Plan, or the Chapter 11 Cases, except with respect to any matters concerning any Fee Claims held or asserted by any professional retained by the Creditors’ Committee.
 
10.
Severability of Plan Provisions
 
If, before the entry of the Confirmation Order, any term or provision of the Plan is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court, at the request of the Debtors, shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void, or unenforceable, and such term or provision shall then be applicable as altered or interpreted.  Notwithstanding any such holding, alteration, or interpretation, the remainder of the terms and provisions of the Plan will remain in full force and effect and will in no way be affected, impaired or invalidated by such holding, alteration, or interpretation.  The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is (a) valid and enforceable pursuant to its terms, (b) integral to the Plan and may not be deleted or modified without the consent of the Debtors or the Reorganized Debtors (as the case may be), and (c) nonseverable and mutually dependent.
 
11.
Governing Law
 
Except to the extent that the Bankruptcy Code or other federal law is applicable, or to the extent an exhibit to the Plan or a schedule in the Plan Supplement or a Definitive Document provides otherwise, the
52

rights, duties, and obligations arising under the Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without giving effect to the principles of conflict of laws thereof.
 
12.
Time
 
In computing any period of time prescribed or allowed by the Plan, unless otherwise set forth in the Plan or determined by the Bankruptcy Court, the provisions of Bankruptcy Rule 9006 shall apply.
 
13.
Dates of Actions to Implement the Plan
 
In the event that any payment or act under the Plan is required to be made or performed on a date that is on a Business Day, then the making of such payment or the performance of such act may be completed on or as soon as reasonably practicable after the next succeeding Business Day, but shall be deemed to have been completed as of the required date.
 
14.
Immediate Binding Effect
 
Notwithstanding Bankruptcy Rules 3020(e), 6004(h), 7062, or otherwise, upon the occurrence of the Effective Date, the terms of the Plan and Plan Supplement shall be immediately effective and enforceable and deemed binding upon and inure to the benefit of the Debtors, the holders of Claims and Interests, the Released Parties, and each of their respective successors and assigns, including, without limitation, the Reorganized Debtors.
 
15.
Deemed Acts
 
Subject to and conditioned on the occurrence of the Effective Date, whenever an act or event is expressed under the Plan to have been deemed done or to have occurred, it shall be deemed to have been done or to have occurred without any further act by any party, by virtue of the Plan and the Confirmation Order.
 
16.
Successor and Assigns
 
The rights, benefits, and obligations of any Entity named or referred to in the Plan shall be binding on, and shall inure to the benefit of any heir, executor, administrator, successor, or permitted assign, if any, of each Entity.
 
17.
Entire Agreement
 
On the Effective Date, the Plan, the Plan Supplement, and the Confirmation Order shall supersede all previous and contemporaneous negotiations, promises, covenants, agreements, understandings, and representations on such subjects, all of which have become merged and integrated into the Plan.
 
18.
Exhibits to Plan
 
All exhibits, schedules, supplements, and appendices to the Plan (including the Plan Supplement) are incorporated into and are a part of the Plan as if set forth in full in the Plan.
 
19.
Notices
 
All notices, requests, and demands to or upon the Debtors to be effective shall be in writing (including by electronic or facsimile transmission) and, unless otherwise expressly provided in the Plan, shall be
53

deemed to have been duly given or made when actually delivered or, in the case of notice by facsimile transmission, when received and telephonically confirmed, addressed as follows:
 
(a)           if to the Debtors or the Reorganized Debtors:
 
American Gilsonite Company
16200 Park Row Drive, Suite 250
Houston, TX 77084
Attn:       David G. Gallagher
 Steven A. Granda
Email:      david@americangilsonite.com
 sgranda@amgc.com
 
- and -
 
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attn:       Matthew S. Barr, Esq.
 Sunny Singh, Esq.
 Jessica Diab, Esq.
Telephone:  (212) 310-8000
Facsimile:  (212) 310-8007
Email:      matt.barr@weil.com
 sunny.singh@weil.com
 jessica.diab@weil.com
 
-and-
 
Richards, Layton & Finger, P.A.
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Attn:       Mark D. Collins, Esq.
John H. Knight, Esq.
Amanda R. Steele , Esq.
Telephone:  (302) 651-7700
Facsimile:  (302) 651-7701
Email:     Collins@rlf.com
Knight@rlf.com
Steele@rlf.com
 
(b)           if to the Initial Consenting Noteholders, the DIP Lenders, or the Exit Facility Lenders:
 
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attn:       Kristopher M. Hansen, Esq.
 Erez E. Gilad, Esq.
54

Telephone:  (212) 806-5400
Facsimile:  (212) 806-6006
Email:      khansen@stroock.com
egilad@stroock.com
 
-and-
 
Young Conaway Stargatt & Taylor LLP
1000 N. King Street
Rodney Square
Wilmington, Delaware 19801
Attn:       Matthew B. Lunn, Esq.
Telephone:  (302) 571-6600
Facsimile:  (302) 571-1253
Email:      mlunn@ycst.com

After the Effective Date, the Debtors have authority to send a notice to Entities providing that, to continue to receive documents pursuant to Bankruptcy Rule 2002, they must file a renewed request to receive documents pursuant to Bankruptcy Rule 2002.  After the Effective Date, the Debtors and the Reorganized Debtors, as applicable, are authorized to limit the list of Entities receiving documents pursuant to Bankruptcy Rule 2002 to those Entities who have filed such renewed requests.
 
VII.
FINANCIAL INFORMATION AND PROJECTIONS
 
A.
Consolidated Condensed Projected Financial Information
 
The Debtors believe that the Plan meets the feasibility requirement set forth in section 1129(a)(11) of the Bankruptcy Code (See Article XIV hereof), as confirmation is not likely to be followed by liquidation or the need for further financial reorganization of the Debtors or any successor under the Plan.  In connection with the development of the Plan and for the purposes of determining whether the Plan satisfies the feasibility standard, the Debtors analyzed their ability to satisfy their financial obligations while maintaining sufficient liquidity and capital resources.  The Debtors prepared financial projections (the “Projections”) for the month ending December 31, 2016 and for the years 2017 through 2020, as set forth below.
 
The Company does not, as a matter of course, publish their business plans or strategies, projections or anticipated financial position.  Accordingly, the Debtors do not anticipate that they will, and disclaim any obligation to, furnish updated business plans or Projections to holders of Claims or other parties in interest after the Confirmation Date.  In connection with the planning and development of the Plan, the Projections were prepared by the Debtors, with the assistance of their professionals, to present the anticipated impact of the Plan.  The Projections assume that the Plan will be implemented in accordance with its stated terms.  The Projections are based on forecasts of key economic variables and may be significantly impacted by, among other factors, changes in demand for the Company’s products, further competition within the Company’s current markets, changes in interest rates and inflation, changes in terms with material suppliers and/or a variety of other factors.  Consequently, the estimates and assumptions underlying the Projections are inherently uncertain and are subject to material business, economic, and other uncertainties.  Therefore, such Projections, estimates, and assumptions are not necessarily indicative of current values or future performance, which may be significantly less or more favorable than set forth herein.  The Projections included herein were last updated on October 15, 2016.
55

The Projections should be read in conjunction with the significant assumptions, qualifications, and notes set forth below.
 
THE DEBTORS PREPARED THE PROJECTIONS WITH THE ASSISTANCE OF THEIR ADVISERS.  THE DEBTORS DID NOT PREPARE SUCH PROJECTIONS TO COMPLY WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS AND THE RULES AND REGULATIONS OF THE SEC.  EXCEPT FOR PURPOSES OF THIS DISCLOSURE STATEMENT, THE DEBTORS DO NOT PUBLISH PROJECTIONS OF THEIR ANTICIPATED FINANCIAL POSITION OR RESULTS OF OPERATIONS.
 
MOREOVER, THE PROJECTIONS CONTAIN CERTAIN STATEMENTS THAT ARE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.  THESE STATEMENTS ARE SUBJECT TO A NUMBER OF ASSUMPTIONS, RISKS, AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE DEBTORS, INCLUDING THE IMPLEMENTATION OF THE PLAN, THE CONTINUING AVAILABILITY OF SUFFICIENT BORROWING CAPACITY OR OTHER FINANCING TO FUND OPERATIONS, ACHIEVING OPERATING EFFICIENCIES, EXISTING AND FUTURE GOVERNMENTAL REGULATIONS AND ACTIONS OF GOVERNMENTAL BODIES, INDUSTRY-SPECIFIC RISK FACTORS, AND OTHER MARKET AND COMPETITIVE CONDITIONS.  HOLDERS OF CLAIMS AND INTERESTS ARE CAUTIONED THAT THE FORWARD-LOOKING STATEMENTS SPEAK AS OF THE DATE MADE AND ARE NOT GUARANTEES OF FUTURE PERFORMANCE.  ACTUAL RESULTS OR DEVELOPMENTS MAY DIFFER MATERIALLY FROM THE EXPECTATIONS EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS, AND THE DEBTORS UNDERTAKE NO OBLIGATION TO UPDATE ANY SUCH STATEMENTS.
 
THE PROJECTIONS, WHILE PRESENTED WITH NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF ESTIMATES AND ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY THE DEBTORS, MAY NOT BE REALIZED AND ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, INDUSTRY, REGULATORY, LEGAL, MARKET, AND FINANCIAL UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE REORGANIZED DEBTORS’ CONTROL.  THE DEBTORS CAUTION THAT NO REPRESENTATIONS CAN BE MADE OR ARE MADE AS TO THE ACCURACY OF THE PROJECTIONS OR TO THE REORGANIZED DEBTORS’ ABILITY TO ACHIEVE THE PROJECTED RESULTS.  SOME ASSUMPTIONS INEVITABLY WILL BE INCORRECT.  MOREOVER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO THE DATE ON WHICH THE DEBTORS PREPARED THESE PROJECTIONS MAY BE DIFFERENT FROM THOSE ASSUMED, OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS THE OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIALLY ADVERSE OR MATERIALLY BENEFICIAL MANNER.  EXCEPT AS OTHERWISE PROVIDED IN THE PLAN OR THIS DISCLOSURE STATEMENT, THE DEBTORS AND REORGANIZED DEBTORS, AS APPLICABLE, DO NOT INTEND AND UNDERTAKE NO OBLIGATION TO UPDATE OR OTHERWISE REVISE THE PROJECTIONS TO REFLECT EVENTS OR CIRCUMSTANCES EXISTING OR ARISING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.  THEREFORE, THE PROJECTIONS MAY NOT BE RELIED UPON AS A GUARANTEE OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.  IN DECIDING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN, HOLDERS OF CLAIMS AND INTERESTS MUST MAKE THEIR OWN DETERMINATIONS AS TO THE REASONABLENESS OF SUCH
56

ASSUMPTIONS AND THE RELIABILITY OF THE PROJECTIONS AND SHOULD CONSULT WITH THEIR OWN ADVISERS.
 
The Projections assume that the Debtors will emerge from chapter 11 on December 31, 2016 (the “Assumed Effective Date”).
 
The Projections herein include:
 
1.
Pro forma consolidated EBITDA & cash flow projections of the Company for fiscal years 2016 through 2020; and
 
2.
Pro forma projected consolidated balance sheet of the Company as of the end of fiscal year 2016 reflecting the estimated effect of the Plan on the capitalization of the Debtors after emerging from chapter 11.
 
The Projections should be read in conjunction with the assumptions, qualifications, and explanations set forth in this Disclosure Statement, the Plan, and the Plan Supplement, in their entirety, and the Company’s historical consolidated financial statements (including the notes and schedules thereto).
57

PRO FORMA CONSOLIDATED EBITDA AND CASH FLOW PROJECTIONS
 
EBITDA & Cash Flow Projections
                     
(US$ in mm)
                     
   
2016E
 
2017E
 
2018E
 
2019E
 
2020E
 
Net Revenue
 
$32.1
 
$30.1
 
$36.1
 
$51.2
 
$67.0
 
COGS
 
(14.3
(10.5
)
(11.9
)
(15.4
)
(17.2
)
Gross Profit
 
$17.8
 
$19.6
 
$24.3
 
$35.8
 
$49.8
 
SG&A
 
(28.4
(13.4
)
(12.0
)
(12.8
)
(14.0
)
EBITDA
 
($10.6
) 
$6.2
 
$12.3
 
$23.0
 
$35.8
 
Non-Operating SG&A
 
20.9
 
6.2
 
3.6
 
3.9
 
4.2
 
Adj. EBITDA
 
$10.3
 
$12.4
 
$15.8
 
$26.8
 
$40.0
 
Capital Expenditures
 
(1.3
(2.1
)
(2.6
)
(3.4
)
(4.0
)
Non-Operating SG&A
 
(21.6
(6.2
)
(3.6
)
(3.9
)
(4.2
)
Cash Income Taxes
 
2.7
 
-
 
-
 
-
 
-
 
Change in Working Capital
 
1.1
 
2.4
 
(2.9
)
(2.2
)
(1.9
)
Bonding and Other Costs
 
(0.9
(0.1
)
(0.1
)
(0.1
)
-
 
Unlevered Free Cash Flow
 
($9.7
)
$6.3
 
$6.6
 
$17.3
 
$29.9
 
DIP Proceeds
 
7.5
 
-
 
-
 
-
 
-
 
Cash Interest and Fees
 
(17.5
(5.6
)
(6.6
)
(17.3
)
(28.4
)
Levered Free Cash Flow
 
($19.7
)
$0.7
 
$ -
 
$ -
 
$1.5
 
Beginning Cash
 
29.0
 
9.3
 
10.0
 
10.0
 
10.0
 
Ending Cash
 
$9.3
 
$10.0
 
$10.0
 
$10.0
 
$11.5
 
                       
Capitalization
                     
Senior Debt
 
$30.0
 
$30.0
 
$30.4
 
$30.4
 
$30.4
 
Subordinated Debt
 
100.0
 
116.5
 
134.7
 
145.4
 
146.4
 
Total Debt
 
$130.0
 
$146.5
 
$165.2
 
$175.8
 
$176.8
 
Net Debt
 
120.7
 
136.5
 
155.2
 
165.8
 
165.3
 
Credit Metrics
                     
Senior Debt / LTM Adj. EBITDA
 
2.9x
 
2.4x
 
1.9x
 
1.1x
 
0.8x
 
Total Debt / LTM Adj. EBITDA
 
12.6x
 
11.8x
 
10.4x
 
6.6x
 
4.4x
 
LTM Adj. EBITDA / LTM Cash Interest
 
0.6x
 
2.2x
 
2.4x
 
1.6x
 
1.4x
 
                       
Revenue Assumptions
                     
Tons Sold
 
26,337
 
25,824
 
29,701
 
38,745
 
46,656
 
Average Selling Price
 
$1,217
 
$1,165
 
$1,216
 
$1,321
 
$1,435
 
58

PROJECTED CONSOLIDATED EMERGENCE BALANCE SHEET
 
   
Pre-Restructuring
as of 12/31/16
   
Record Effects
of Plan
     
Fresh Start
Adjustments
     
Post-Restructuring
as of 12/31/16
 
ASSETS
 
(Forecast)
                   
(Forecast)
 
Current assets:
                           
Cash
 
$
9,287,380
                        
$
9,287,380
 
Accounts receivable, net
   
4,440,511
                     
4,440,511
 
Inventory - Product
   
5,683,089
                     
5,683,089
 
Inventory - M&S
   
4,028,069
                     
4,028,069
 
Prepaid and other current assets
   
2,182,609
                     
2,182,609
 
Deferred finance fee
   
2,630,727
     
(2,630,727
)
(b)
           
-
 
Income tax refund receivable
   
14,800,246
     
(14,800,246
)
(d)
           
-
 
Deferred tax assets
   
1,981,368
     
(951,814
)
(d)
           
1,029,554
 
Total current assets
   
45,033,999
     
(18,382,787
)
             
26,651,212
 
Property and equipment:
                                 
Land and reserves
   
59,071,430
               
98,539,380
 
(f)
   
157,610,810
 
Mine development costs
   
41,018,769
               
(41,018,769
)
(f)
   
-
 
Asset retirement obligation
   
526,847
                         
526,847
 
Plant & equipment
   
26,939,113
                         
26,939,113
 
Total property and equipment
   
127,556,159
     
-
       
57,520,611
       
185,076,770
 
Less: Accumulated depreciation
   
(28,779,340
)
   
-
       
28,779,340
       
-
 
Property and equipment, net
   
98,776,819
     
-
       
86,299,951
       
185,076,770
 
Noncurrent assets:
                                   
Inventories - pond long term
   
3,055,601
                         
3,055,601
 
Long term investments
   
2,164,822
                         
2,164,822
 
Deferred financing fees - bonds
   
2,550,000
                         
2,550,000
 
Total noncurrent assets
   
106,547,242
     
-
       
86,299,951
       
192,847,193
 
TOTAL ASSETS
 
$
151,581,241
   
$
(18,382,787
)
   
$
86,299,951
     
$
219,498,405
 
                                     
LIABILITIES AND EQUITY
                                   
Current liabilities:
                                   
Accounts payable
 
$
400,000
                            
$
400,000
 
Accrued liabilities
   
6,612,574
                         
6,612,574
 
Short term debt
   
30,000,000
     
(30,000,000
)
(c)
             
-
 
Premium finance
   
288,982
                         
288,982
 
Interest payable
   
18,112,500
     
(18,112,500
)
(a)
             
-
 
Current portion of obligations
   
46,602
                         
46,602
 
Total current liabilities
   
55,460,658
     
(48,112,500
)
     
-
       
7,348,158
 
Long term liabilities:
                                   
Long-term debt, senior secured
           
30,000,000
 
(c)
             
30,000,000
 
Long-term debt, unsecured
           
100,000,000
 
(a)
             
100,000,000
 
Other long term liabilities
   
8,262,146
                         
8,262,146
 
Deferred tax liabilities
   
22,877,137
                         
22,877,137
 
Asset retirement obligations
   
1,010,964
                         
1,010,964
 
Liabilities subject to compromise
   
270,033,843
     
(270,033,843
)
(a)
             
-
 
TOTAL LIABILITIES
 
$
357,644,748
   
$
(188,146,343
)
   
$
-
     
$
169,498,405
 
EQUITY
                                   
Common stock - predecessor
 
$
84
   
$
(84
)
(a)
 
$
-
     
$
-
 
Common stock - successor
   
-
     
1,000
 
(a)
             
1,000
 
Additional paid in capital
   
19,506,471
     
(19,506,471
)
(a)
   
49,999,000
 
(e)
   
49,999,000
 
Retained earnings
   
(225,570,062
)
   
189,269,111
 
(a) (b)
   
36,300,951
 
(e) (f)
   
0
 
TOTAL EQUITY
 
$
(206,063,507
)
 
$
169,763,556
     
$
86,299,951
     
$
50,000,000
 
TOTAL LIABILITIES & EQUITY
 
$
151,581,241
   
$
(18,382,787
)
   
$
86,299,951
     
$
219,498,405
 
 
59

B.
Assumptions to Projected EBITDA and Cash Flow Projections
 
1.
General Assumptions
 
The Projections assume that the Debtors’ business strategy will not change as a result of their reorganization and change of ownership.  Management reports and uses the Adjusted EBITDA metric to assess the ongoing performance of the Company’s core operations, adjusted for certain non-operating costs.  This metric also presents more fairly year-on-year results by adjusting for the costs of the Chapter 11 Cases, litigation costs incurred during 2016, state property taxes that are derived on an income basis, and other non-operational costs that are assumed to be either eliminated or inconsistent with future periods.
 
2.
Revenue Assumptions
 
The Company has five distinct business segments: (i) drilling fluids, (ii) cementing, (iii) asphalt, (iv) inks & paints, and (v) foundry.  All product is ex-works Bonanza, Utah and, as a result, the Company has little direct exposure to exchange rates, shipping costs, and other revenue-offsetting expenses.
 
Drilling Fluids: The drilling fluids segment is most affected by worldwide rig count, which itself is affected by the price of oil.  The Debtors used WTI and rig count data available at the time the Projections were made in August 2016 to forecast results for the drilling fluids segment for the periods 2017 through 2020.  The Debtors used internally developed data to derive the revenue assumptions for the September to December 2016 forecast period.  Drilling fluids command the best average sales price for any of the Company’s business segments.
 
Cementing:  While most of the Company’s customers who use Gilsonite in cementing applications do so in the context of oil and gas production, cementing is not as heavily tied to rig counts and WTI as the Company’s drilling fluids business segment.  Additionally, the Company has recently expanded its customer base to include cementing applications outside of oilfield.  As a result, although cementing sales will track oilfield sales, and rig count and WTI forecasts inform the Debtors’ projections with respect to cementing, the Debtors did not key their cementing projections to rig count and WTI forecasts to the same extent that they did their drilling fluids projections.  Cementing is a relatively small business sector and has the least sales volume and lowest average sales prices, but is considered a growth segment.
 
Asphalt:  While asphalt is the third largest business segment for the Company, it is considered a growth segment and tonnage sales forecasts grow by more than 10% year-on-year.
 
Inks & Paints and Foundry:  These two segments are declining business segments for the Company.  Less print media results in an average 5% year-on-year decline in the inks & paints segment.  Likewise, the Company must compete with lower-cost substitutes in the foundry segment which is expected to see a 10% reduction in volume in the outer years.
 
3.
Cost of Goods Sold
 
The Company assigns all of its direct and indirect production costs and a portion of its SG&A and depreciation to inventory and, as a result, these costs ultimately flow through to cost of goods sold.  The Company’s direct costs of production include mining and processing costs and its indirect production costs include maintenance, health & safety, quality assurance and control, drilling and exploration, reclamation, and human resources.  The Company also allocates to the cost of inventory certain SG&A costs that serve to support operations, as it does depreciation of machinery and equipment associated with direct and indirect operations.
60

The Company prepares five-year mine development plans to fulfill projected sales for each business segment.  The Company elects to mine different veins depending upon the properties needed the applications of Gilsonite contemplated by the sales projections.  Processing operations can differ for each segment based on customer application and packaging and transportation requirements.
 
4.
SG&A
 
The Company has a small but effective sales and marketing team primarily located in Houston, Texas.  The Houston office also contains a laboratory and small innovations staff which supports current sales efforts and seeks new applications for Gilsonite.  The CEO and CFO are both located in Houston.  SG&A also includes certain support functions in Bonanza, Utah.  Professional fees such as legal, tax and accounting, third-party technical advisory, property taxes, and other typical support and overhead costs are captured within SG&A.
 
5.
Non-Operating SG&A
 
The Company tracks non-operating SG&A and other extraordinary items or costs not considered part of core operations to better measure the results of its business if unaffected for these items.  For 2016, these costs include the costs of the Chapter 11 Cases, litigation costs, state property taxes that are derived on an income basis, and other non-operational costs.  For the forecast period 2017 through 2020, these costs are limited to state property taxes and costs associated with the servicing of debt and other corporate matters.
 
6.
Capital Expenditures
 
The Company divides capital expenditures into three categories: (i) mine development, (ii) sustaining/compliance, and (iii) opportunity.
 
Mine Development:  These costs include surface setup, shaft development and continuation, escape routes, and water well.  In prior years, the Company incurred significantly more mine development costs than is contemplated in the Projections because equipment needed at each shaft site were improved during the 2012 to 2014 period and the Debtors do not anticipate the need to purchase or significantly improve the associated equipment.
 
Sustaining/Compliance:  The Company is required to incur certain costs to sustain future production within a given vein and ensure that their operations are in compliance with relevant laws and regulations.
 
Opportunity:  These are costs associated with developing new areas.
 
7.
Cash Income Taxes
 
The Projections assume no cash income taxes during the period by virtue of the interest expense incurred under the Exit Facility and the Subordinated Notes.
 
8.
Bonding and Other Costs
 
The Company’s mining operations give rise to reclamation obligations and the Company must provide a form of security to support its performance obligations thereunder.  Most of the Company’s security requirements are backstopped with financial instruments such as certificates of deposit or treasury notes.  The Company also has a $673,000 security obligation with the Bureau of Land Management for the payment of royalties and has obtained consent to bond this amount over a five-year period and provided the first bond in 2015.  The Projections provide for the annual satisfaction of this obligation.
61

9.
DIP Proceeds
 
The Company has received commitments for debtor in possession financing from the DIP Lenders in an aggregate principal amount of up to $30 million.  The terms of the DIP Facility provide for an interim and final draw.  Following approval of an interim order of the Bankruptcy Court, $22.5 million, less original issue discount, will be funded and used (i) to repay the amounts owed under the Prepetition Credit Agreement, and (ii) to fund backstop fees under the DIP Facility.  Upon entry of a final order of the Bankruptcy Court, the remaining $7.5 million will be drawn and used for general corporate purposes.
 
10.
Cash Interest and Fees
 
The principal portion of the DIP Facility will convert dollar-for-dollar on the Effective Date to the Exit Facility.  Cash interest will be paid against the Exit Facility at 10% annually, with an additional 5% paid to the extent the Company has available cash in excess of $10 million.  Additionally, the Company will incur additional cash interest against the Subordinated Notes at 17% annually, but only to the extent the Company has excess cash above $10 million after interest has been paid on the Exit Facility.
 
C.
Assumptions with Respect to Projected Consolidated Emergence Balance Sheet
 
The projected consolidated emergence balance sheet includes certain of the basic principles of “fresh start” reporting, which will be required for financial reporting following confirmation of the Plan.  Under “fresh start” reporting, which is required by Topic 852, Reorganizations, of the FASB Accounting Standards Codification, the reorganization value is assigned to assets and liabilities based upon their fair values.  For purposes of the projected balance sheet at the time of emergence, the Projections assume that equity value is approximately $50 million.  The reported values of specific assets and liabilities are based on assumptions that are subject to material change pending the completion of the valuation of such individual assets and liabilities.  The determination of specific asset and liability fair values will be completed post-emergence, and each asset and liability will be stated at their respective fair values.  If the fair value of all identifiable assets exceeds the fair value of all identifiable assets, a goodwill intangible asset will be established for the excess.
 
1.
Anticipated Plan Transactions and “Fresh Start” Adjustments
 
(a)
The projected balance sheet reflects (1) the conversion of the Second Lien Notes to (i) 98% of the equity of reorganized AGC, and (ii) $100 million of Subordinated Notes, and (2) the provision of 2% of the equity of reorganized AGC to holders of AGHC Interests;
 
(b)
The projected balance sheet reflects the elimination of certain assets and liabilities associated with the initial issuance of the Second Lien Notes;
 
(c)
The projected balance sheet reflects the replacement of the DIP Facility with the Exit Facility upon emergence;
 
(d)
The Company must eliminate tax basis net operating loss carryforward and alternative minimum tax credits.
 
(e)
The projected balance sheet includes adjustments needed to reflect the deemed equity value of $50 million.
62

For the purpose of preparing the projected balance sheet on a “fresh start” basis and using an equity value of $50 million, the Projections assum there will be an increase in asset value of approximately $57.5 million.  Management determined that the most likely asset requiring adjustment will be reserves.  When recognizing an adjustment to reserves, it is likely that much of the mine development costs will be rolled into the reserves valuation.
 
VIII.
VALUATION ANALYSIS
 
The Debtors have been advised by Evercore with respect to the reorganization value of the Reorganized Debtors on a going concern basis.
 
THE VALUATION INFORMATION CONTAINED HEREIN IS NOT A PREDICTION OR GUARANTEE OF THE ACTUAL MARKET VALUE THAT MAY BE REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE ISSUED PURSUANT TO THE PLAN OR OF THE PRICES AT WHICH ANY SUCH SECURITIES MAY TRADE AFTER GIVING EFFECT TO THE TRANSACTIONS CONTEMPLATED BY THE PLAN.  THIS VALUATION IS PRESENTED SOLELY FOR THE PURPOSE OF PROVIDING ADEQUATE INFORMATION AS REQUIRED BY SECTION 1125 OF THE BANKRUPTCY CODE TO ENABLE THE HOLDERS OF CLAIMS ENTITLED TO VOTE TO ACCEPT OR REJECT THE PLAN TO MAKE AN INFORMED JUDGMENT ABOUT THE PLAN AND SHOULD NOT BE USED OR RELIED UPON FOR ANY OTHER PURPOSE, INCLUDING THE PURCHASE OR SALE OF CLAIMS AGAINST THE DEBTORS.
 
Solely for purposes of the Plan and the Disclosure Statement, Evercore, as financial advisor to the Debtors and at their request, has estimated the total enterprise value (the “Total Enterprise Value”) of the Reorganized Debtors on a going concern basis as of the Assumed Effective Date. The valuation analysis is based on the Projections for the years 2017 through 2020 (the “Valuation Period”).
 
In estimating the Total Enterprise Value of the Debtors, Evercore met with the Debtors’ senior management team to discuss the Debtors’ assets, operations and future prospects, reviewed the Debtors’ historical financial information, reviewed certain of the Debtors’ internal financial and operating data, reviewed the Projections, reviewed publicly available third-party information and conducted such other studies, analyses, and inquiries Evercore deemed appropriate. Further, with the consent of the Debtors, Evercore has relied upon the accuracy, completeness, and fairness of such financial and other information furnished by the Debtors. At the direction of the Debtors, Evercore did not attempt to independently audit or verify such information, nor did it seek or perform an independent appraisal of the assets or liabilities of the Reorganized Debtors. Evercore did not conduct an independent investigation into any of the legal, tax, pension or accounting matters affecting the Debtors, and therefore takes no responsibility for and makes no representation as to their impact on the Debtors or the Reorganized Debtors from a financial point of view.
 
The valuation information set forth in this section represents a valuation of the Reorganized Debtors based on the application of standard valuation techniques, subject to the assumptions and qualifications set forth herein. The estimated values set forth in this section: (i) do not purport to constitute an appraisal of the assets of the Reorganized Debtors; (ii) do not constitute an opinion on the terms and provisions or fairness from a financial point of view to any person of the consideration to be received by such person under the Plan; and (iii) do not necessarily reflect the actual market value that might be realized through a sale or liquidation of the Reorganized Debtors.  The actual value of an operating business such as the Reorganized Debtors’ is subject to uncertainties and contingencies that are difficult to predict and will
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fluctuate with changes in various factors affecting the financial conditions and prospects of such a business.
 
The Projections are included in Article VII of this Disclosure Statement. The estimated values set forth herein assume that the Reorganized Debtors will achieve the results set forth in their Projections in all material respects and will continue as an operating business. Evercore has relied on the Debtors’ representation and warranty that the Projections: (i) have been prepared in good faith; (ii) are based on fully disclosed assumptions, which, in light of the circumstances under which they were made, are reasonable; (iii) reflect the Debtors’ best currently available estimates; and (iv) reflect the Debtors’ good faith judgments. Evercore does not offer an opinion as to the attainability of the Projections. As disclosed in the Disclosure Statement, the future results of the Reorganized Debtors are dependent upon various factors, many of which are beyond the control or knowledge of the Debtors and Evercore, and consequently are inherently difficult to project.  The Reorganized Debtors’ actual future results may differ materially (positively or negatively) from the Projections, and as a result, the actual total enterprise value of the Reorganized Debtors may be significantly higher or lower than the range estimated herein.
 
This valuation report contemplates facts and conditions known and existing as of October 12, 2016. Events and conditions subsequent to this date, including updated projections, as well as other factors, could have a substantial effect upon the Total Enterprise Value. Among other things, failure to consummate the Plan in a timely manner may have a materially negative effect on the Total Enterprise Value. For purposes of this valuation, Evercore has assumed that no material changes that would affect the Total Enterprise Value will occur between October 12, 2016 and the Assumed Effective Date.  Neither Evercore nor the Debtors has any obligation to update, revise or reaffirm this valuation.
 
The following is a brief summary of analyses performed by Evercore to arrive at its recommended range of estimated Total Enterprise Value for the Reorganized Debtors and does not purport to be a complete description of all of the analyses and factors undertaken to support Evercore’s conclusions. The preparation of a valuation is a complex process involving various determinations as to the most appropriate analyses and factors to consider, and the application of those analyses and factors under the particular circumstances.  As a result, the process involved in preparing a valuation report is not readily summarized.
 
In arriving at its valuation estimate, Evercore did not consider any one analysis or factor to the exclusion of any other analyses or factors. Accordingly, Evercore believes that its analysis and views must be considered as a whole and that selecting portions of its analysis and factors could create a misleading or incomplete view of the processes underlying the preparation of the valuation. Reliance on only one of the methodologies used or portions of the analysis performed could create a misleading or incomplete conclusion as to the estimated Total Enterprise Value.
 
In performing its analysis, Evercore applied the following valuation methodologies as applicable to the operations of the Debtors: (i) a discounted cash flow analysis; and (ii) a peer group trading analysis.
 
A.
Discounted Cash Flow Analysis
 
The discounted cash flow (“DCF”) analysis estimates the value of the Debtors’ business by calculating the present value of expected future cash flows to be generated by that asset or business assuming that the Projections are realized as of the Assumed Effective Date. Under this methodology, projected future cash flows are discounted by a range of discount rates above and below the Debtor’s weighted average cost of capital (the “Discount Rate”), as estimated by Evercore based on the capital asset pricing model as of October 12, 2016. The Total Enterprise Value of the Reorganized Debtors is determined by calculating the present value of the Reorganized Debtors’ unlevered after-tax free cash flows over the course of the
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Valuation Period plus an estimate for the value of the Reorganized Debtors beyond the Valuation Period, known as the terminal value. The terminal value is calculated using a range of estimated earnings before interest, taxes and depreciation and amortization expense (“EBITDA”) multiples and perpetuity growth rates.
 
Although formulaic methods are used to derive the key estimates for the DCF methodology, their application and interpretation still involve complex considerations and judgments concerning potential variances in the projected financial and operating characteristics of the Reorganized Debtors, which in turn affect its cost of capital and terminal multiples.
 
B.
Peer Group Trading Analysis
 
The peer group trading analysis estimates the value of a company based on a relative comparison with other publicly traded entities with generally similar operating and financial characteristics. Under this methodology, the enterprise value for each selected public entity is determined by examining the trading prices for the equity securities of such entity in the public markets and adding the aggregate amount of outstanding net debt for such entity. Such enterprise values are commonly expressed as multiples of various measures of financial and operating statistics, such as EBITDA. The Total Enterprise Value is then calculated by applying these multiples to the Reorganized Debtors’ projected financial and operational metrics. Although the peer group was compared to the Reorganized Debtors for purposes of this analysis, no entity used in the peer group trading analysis is identical or directly comparable to the Reorganized Debtors. In order to calculate peer group trading multiples, Evercore relied on publicly available filings with the SEC and equity research analyst consensus estimates. The selection of public comparable entities for this purpose was based upon characteristics that were deemed relevant based on Evercore’s professional judgment.
 
The selection of appropriate comparable entities is often difficult, a matter of judgment and subject to limitations due to sample size and the availability of meaningful market-based information. Accordingly, Evercore’s comparison of the selected entities to the business of the Reorganized Debtors and analysis of the results of such comparisons was not purely mathematical, but instead necessarily involved complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the relative values of the selected companies and the Reorganized Debtors.
 
C.
Total Enterprise Value
 
As a result of the analysis described herein, Evercore estimates the Total Enterprise Value of the Reorganized Debtors to be approximately $150 million to $210 million, with a mid-point of $180 million, as of the Assumed Effective Date. Based on assumed pro forma net debt (assuming no excess cash) of $130 million as of the Assumed Effective Date, the Total Enterprise Value of $180 million implies an Equity Value range of $20 to $80 million with a midpoint of $50 million.
 
Depending on the actual financial results of the Debtors or changes in the financial markets, and due to the assumptions and other uncertainties described above, the enterprise value of the Debtors may differ from the estimated Total Enterprise Value as of the Assumed Effective Date set forth herein.  Accordingly, none of the Debtors, Evercore, or any other person assumes responsibility for the accuracy of the estimated Total Enterprise Value.  In addition, the market prices, to the extent there is a market, of the Reorganized Debtors’ securities will depend upon, among other things, prevailing interest rates, conditions in the financial markets, the investment decisions of the prepetition creditors receiving such securities under the Plan (some of whom may prefer to liquidate their investment rather than hold it on a long-term basis), and other factors that generally influence the prices of securities.
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IX.
TRANSFER RESTRICTIONS AND CONSEQUENCES
UNDER FEDERAL SECURITIES LAWS
 
The Solicitation is being made prior to the Commencement Date pursuant Section 4(a)(2) and Regulation D of the Securities Act and only from Holders of Second Lien Notes Claims and AGHC Interests who are Accredited Investors (as defined in Rule 501 of the Securities Act).
 
The issuance of and the distribution under the Plan of New Common Stock and Subordinated Notes, to holders of Allowed Second Lien Notes Claims and Allowed AGHC Interests, as applicable, shall be exempt from registration under the Securities Act and any other applicable securities laws pursuant to section 1145 of the Bankruptcy Code.
 
Section 1145 of the Bankruptcy Code generally exempts from registration under the Securities Act the offer or sale under a chapter 11 plan of a security of the debtor, of an affiliate participating in a joint plan with the debtor, or of a successor to the debtor under a plan, if such securities are offered or sold in exchange for a claim against, or an interest in, the debtor or such affiliate, or principally in such exchange and partly for cash.  In reliance upon this exemption, the New Common Stock and Subordinated Notes issued to holders of Allowed Second Lien Notes Claims and Allowed AGHC Interests, as applicable, will be exempt from the registration requirements of the Securities Act, and state and local securities laws.  These securities may be resold without registration under the Securities Act or other federal or state securities laws pursuant to the exemption provided by Section 4(a)(1) of the Securities Act, unless the holder is an “underwriter” with respect to such securities, as that term is defined in section 1145(b) of the Bankruptcy Code.  In addition, such section 1145 exempt securities generally may be resold without registration under state securities laws pursuant to various exemptions provided by the respective laws of the several states.
 
Section 1145(b) of the Bankruptcy Code defines “underwriter” for purposes of the Securities Act as one who, except with respect to ordinary trading transactions, (a) purchases a claim with a view to distribution of any security to be received in exchange for the claim, (b) offers to sell securities issued under a plan for the holders of such securities, (c) offers to buy securities issued under a plan from persons receiving such securities, if the offer to buy is made with a view to distribution or (d) is an issuer, as used in Section 2(a)(11) of the Securities Act, with respect to such securities, which includes control persons of the issuer.
 
Notwithstanding the foregoing, control person underwriters may be able to sell securities without registration pursuant to the resale limitations of Rule 144 of the Securities Act which, in effect, permit the resale of securities received by such underwriters pursuant to a chapter 11 plan, subject to applicable volume limitations, notice and manner of sale requirements, and certain other conditions.  Parties who believe they may be statutory underwriters as defined in section 1145 of the Bankruptcy Code are advised to consult with their own legal advisers as to the availability of the exemption provided by Rule 144.
 
In any case, recipients of New Common Stock and Subordinated Notes issued under the Plan are advised to consult with their own legal advisers as to the availability of any such exemption from registration under state law in any given instance and as to any applicable requirements or conditions to such availability.
 
Legends.  To the extent certificated, certificates evidencing the New Common Stock or Subordinated Notes held by holders of 10% or more of the outstanding New Common Stock, or who are otherwise underwriters as defined in Section 1145(b) of the Bankruptcy Code, will bear a legend substantially in the form below:
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THE [SHARES OF COMMON STOCK][NOTES] REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS REGISTERED OR QUALIFIED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS THE DEBTORS RECEIVE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
 
X.
CERTAIN U.S. TAX CONSEQUENCES OF PLAN
 
The following discussion summarizes certain material U.S. federal income tax consequences of the implementation of the Plan to the Debtors and to certain holders of Allowed Second Lien Notes Claims and AGHC Interests.  This summary does not address the U.S. federal income tax consequences to holders of claims who are deemed to have rejected the Plan or whose Claims are entitled to payment in full in cash or are otherwise unimpaired under the Plan.  This discussion does not purport to be a complete analysis or listing of all potential tax considerations.
 
This summary is based on the Tax Code, existing and proposed Treasury Regulations promulgated thereunder, judicial decisions, and published administrative rules and pronouncements of the Internal Revenue Service (“IRS”) as in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis.  Any such change could significantly affect the U.S. federal income tax consequences described below.
 
The U.S. federal income tax consequences of the Plan are complex and due to a lack of definitive judicial or administrative authority or interpretation, are subject to significant uncertainties.  The Debtors have not requested a ruling from the IRS, or an opinion of counsel, with respect to any of the tax aspects of the Plan.  The discussion below is not binding on the IRS.  Thus, no assurance can be given that the IRS would not assert, or that a court would not sustain, a different position from any discussed herein.  In addition, this summary does not address any estate or gift tax consequences of the Plan or the consequences of the Plan under any state, local or foreign income or other tax laws, nor does it purport to address the U.S. federal income tax consequences of the Plan (including the ownership and disposition of any consideration received pursuant to the Plan) to special classes of taxpayers (such as persons who are related to the Debtors within the meaning of the Tax Code, non-U.S. holders, broker-dealers, banks, mutual funds, insurance companies, financial institutions, thrifts, small business investment companies, regulated investment companies, tax-exempt organizations, retirement plans, holders of claims who are themselves in bankruptcy, U.S. persons whose functional currency is not the U.S. dollar, dealers in securities or foreign currency, traders that mark-to-market their securities, certain expatriates or former long-term residents of the United States, persons subject to the alternative minimum tax (“AMT”) or the “Medicare” tax on unearned income, persons holding claims that are part of a straddle, hedging, constructive sale or conversion transaction, or holders that are pass-through entities or investors in pass-through entities).
 
As indicated, the following discussion generally does not address the U.S. federal income tax consequences to non-U.S. holders.  For purposes of this discussion, the term “non-U.S. holder” means a holder of a claim that is for U.S. federal income tax purposes an individual or entity that is not (i) an individual citizen or resident of the United States, (ii) a corporation, or entity treated as a corporation, organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax
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purposes or (iv) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.
 
The U.S. federal income tax consequences to a member in an entity or arrangement treated as a pass-through entity for U.S. federal income tax purposes that holds an Allowed Claim generally will depend on the status of the member and the activities of the pass-through entity.  A member in a pass-through entity holding an Allowed Second Lien Notes Claim should consult its own tax advisors about the U.S. federal income tax consequences applicable to it under the Plan (including the ownership and disposition of any consideration received pursuant to the Plan).
 
This discussion assumes, except as otherwise indicated herein, that Claims are held as “capital assets” (generally, property held for investment) within the meaning of Section 1221 of the Tax Code, and that the various debt and other arrangements to which the Debtors are parties (including the Subordinated Notes) will be respected for U.S. federal income tax purposes in accordance with their form.  In addition, this discussion does not apply to persons who acquire Subordinated Notes or New Common Stock from the original holder.
 
THE FOLLOWING SUMMARY OF CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND ADVICE BASED UPON THE PARTICULAR CIRCUMSTANCES PERTAINING TO A HOLDER OF A CLAIM OR INTEREST.  EACH HOLDER OF A CLAIM OR INTEREST IS URGED TO CONSULT ITS OWN TAX ADVISOR FOR U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES APPLICABLE TO IT UNDER THE PLAN.
 
A.
Consequences to Debtors
 
For U.S. federal income tax purposes, the Debtors are members of an affiliated group of corporations (or disregarded entities wholly-owned by members of such group) of which AGHC is the common parent, which files a single consolidated U.S. federal income tax return (the “AG Group”).  The Debtors estimate that the AG Group has net operating loss (“NOL”) carryforwards together with NOLs for the current taxable year of approximately $9 million for U.S. federal income tax purposes as of June 30, 2016, and expects to incur additional NOLs for the period through the Effective Date.  In addition, the Debtors estimate that the AG Group has an aggregate adjusted tax basis in its operating assets (inclusive of cash on hand) of $77 million for U.S. federal income tax purposes as of December 31, 2015.  The amount of any such NOL carryforwards and other tax attributes, and the extent to which any limitations apply, remain subject to audit and adjustment by the IRS.  In addition, as discussed below, the amount of the Debtors’ NOLs (including those incurred through the Effective date of the Plan) are expected to be eliminated, and certain other tax attributes may be reduced, in connection with the implementation of the Plan.
 
1.
Merger of AGHC into AGC
 
In accordance with the Plan, but prior to the Effective Date of the Plan, AGHC will merge with and into AGC with the holders of equity interests in AGHC receiving equity interests in AGC.  For U.S. federal income tax purposes, the Merger has been structured to qualify as a “reorganization.”  Accordingly, the Debtors believe that neither AGHC nor AGC should likely recognize gain or loss for U.S. income tax purposes as a result of the merger.  As a result of the Merger, AGC will become the common parent of the AG Group.
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2.
Cancellation of Indebtedness and Attribute Reduction
 
In general, the Tax Code provides that a debtor in a bankruptcy case must reduce certain of its tax attributes—such as NOL carryforwards and current year NOLs, capital loss carryforwards, tax credits, and tax basis in assets—by the amount of any cancellation of debt (“COD”) incurred pursuant to a confirmed chapter 11 plan.  The amount of COD incurred is generally the amount by which the indebtedness discharged exceeds the value of any consideration given in exchange therefor.  Certain statutory or judicial exceptions may apply to limit the amount of COD incurred for U.S. federal income tax purposes.  In addition, a debtor generally is not required to reduce its tax basis by an amount greater than the amount by which (if at all) the aggregate tax basis of its assets exceeds the amount of its liabilities, as determined immediately after the debt discharge.  If advantageous, the debtor can elect to reduce the basis of depreciable property prior to any reduction in its NOL carryforwards or other tax attributes.  Where the debtor joins in the filing of a consolidated U.S. federal income tax return, applicable Treasury Regulations require, in certain circumstances, that the tax attributes of the other members of the group also be reduced.
 
The Debtors will incur substantial COD as a result of the implementation of the Plan. The amount of COD incurred will depend on the fair market value of the New Common Stock and the “issue price” of the Subordinated Notes. Nevertheless, the Debtors' expect that its existing NOL carryforwards and any NOLs incurred through the end of the taxable year in which the Plan goes effective will be eliminated as a result of the attendant attribute reduction.  Due to the limitation on the amount of tax basis reduction based on the amount of its post-discharge liabilities, the Debtors’ expect to incur minimal, if any, reduction in its tax basis.  Although the Debtors have certain other tax attributes, the Debtors do not expect the reduction or elimination of such tax attributes to have a material future cash impact.
 
3.
Net Operating Loss Limitation
 
Following the Effective Date and after applying the cancellation of debt rules discussed above, any remaining NOL carryforwards and other tax attributes allocable to periods prior to the Effective Date including certain built-in losses (collectively, “Pre-Change Losses”) will be subject to limitation under Section 382 of the Tax Code.  Section 382 generally limits the amount of Pre-Change Losses a corporate taxpayer can utilize in the years following an “ownership change” and also may limit the Debtors’ ability to use “net unrealized built-in losses” (i.e., certain losses and deductions that have economically accrued prior to, but remain unrecognized as of, the Effective Date) to offset future income.  Although the implementation of the plan will result in an ownership change of the Debtors, the Debtors do not expect there to be a material adverse tax impact as a result of such ownership changes because the Debtors expect their NOLs to be eliminated as a result of the implementation of the Plan and they will not expect to have a net unrealized built-in loss in their assets as of the Effective Date.
 
B.
Consequences to Holders of Second Lien Notes Claims
 
Pursuant to the Plan, and in complete and final satisfaction of their Claims, holders of Allowed Second Lien Notes Claims will receive the Subordinated Notes and 98% of the New Common Stock.
 
1.
Gain or Loss – Generally
 
The U.S. federal income tax consequences of the Plan to a holder of a Second Lien Notes Claim will depend, in part, on whether such Claim constitutes a “security” of AGC for U.S. federal income tax purposes and whether the Subordinated Notes constitute a “security” of Reorganized AGC for U.S. federal income tax purposes.  If a Second Lien Notes Claim does not constitute a security of AGC, the holder’s receipt of New Common Stock and other consideration in satisfaction of its Claim would be a
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fully taxable transaction, with the consequences described below in “Fully Taxable Exchange.”  If, on the other hand, a Second Lien Notes Claim is a security of AGC, the holder’s receipt of the New Common Stock and the remaining consideration should be treated as part of a “recapitalization” for U.S. federal income tax purposes, with the consequences described below in “Recapitalization Treatment.”  The status of the Subordinated Notes as a “security” does not impact this initial determination.
 
The term “security” is not defined in the Tax Code or in the Treasury Regulations promulgated thereunder and has not been clearly defined by judicial decisions.  The determination of whether a particular debt obligation constitutes a “security” depends on an overall evaluation of the nature of the debt, including whether the holder of such debt obligation is subject to a material level of entrepreneurial risk and whether a continuing proprietary interest is intended or not.  One of the most significant factors considered in determining whether a particular debt obligation is a security is its original term.  In general, debt obligations issued with a weighted average maturity at issuance of less than five (5) years do not constitute securities, whereas debt obligations with a weighted average maturity at issuance of ten (10) years or more do constitute securities.  Additionally, the IRS has ruled that new debt obligations with a term of less than five (5) years issued in exchange for, and bearing substantially the same terms (e.g., other than interest rate) as, outstanding securities should also be classified as securities for this purpose, since the new debt represents a continuation of the holder’s investment in the corporation in substantially the same form.  The Second Lien Notes had an original term to maturity of a few days less than five (5) years, and, accordingly, there is a greater likelihood that the Second Lien Notes do not constitute securities than if they had a term of five (5) years or more.  Holders of Second Lien Notes Claims are urged to consult their own tax advisors regarding the appropriate status for U.S. federal income tax purposes of their Second Lien Notes Claims and the consideration to be received.
 
(a)
Fully Taxable Exchange
 
In general, if the satisfaction of a Second Lien Notes Claim pursuant to the Plan is a fully taxable exchange, the holder will recognize gain or loss in an amount equal to the difference, if any, between (i) the “issue price” of such holder’s share of the Subordinated Notes (as discussed below, under B.2.—“Ownership of Subordinated Notes”) and the aggregate fair market value of New Common Stock received (other than any exchange consideration received in respect of a Claim for accrued but unpaid interest) and (ii) the holder’s adjusted tax basis in the Second Lien Notes Claim exchanged (other than any tax basis attributable to accrued but unpaid interest).  See B.3.—“Character of Gain or Loss” below.  In addition, a holder of a Second Lien Notes Claim will have interest income to the extent of any exchange consideration allocable to accrued but unpaid interest not previously included in income.  See B.4.—“Distributions in Respect of Accrued but Unpaid Interest” below.  Each holder is urged to consult its own tax advisor regarding the possible application of (or ability to elect out of) the “installment method” of reporting any gain.
 
In the case of a taxable exchange, a holder’s tax basis in the New Common Stock and the Subordinated Notes received should equal the fair market value of such stock and the issue price of such debt on the Effective Date.  The holder’s holding period in the New Common Stock and the Subordinated Notes received should begin on the day following the Effective Date.
 
(b)
Recapitalization Treatment
 
If a Second Lien Notes Claim constitutes a “security” of AGC for U.S. federal income tax purposes, the receipt of New Common Stock in exchange therefor will qualify for tax “recapitalization” exchange treatment.  Classification as a recapitalization exchange generally serves to defer the recognition of any gain or loss by the holder.  However, if the Subordinated Notes do not constitute a security for this purpose, a holder of a Second Lien Notes Claim generally would still have to recognize any gain (as
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computed in the preceding section), if any, to the extent of the issue price of the Subordinated Notes received, other than any portion allocable to accrued but unpaid interest, which portion will be includable as interest income to the extent not previously included in income.  See B.4.—“Distributions in Respect of Accrued but Unpaid Interest” below.
 
In a recapitalization exchange, a holder’s aggregate tax basis in the New Common Stock and, if they constitute a security, the Subordinated Notes will equal such holder’s aggregate adjusted tax basis in the Second Lien Notes Claims exchanged therefor, increased by any gain or interest income recognized in the exchange, and decreased by any deductions claimed in respect of any previously accrued but unpaid interest.  If the Subordinated Notes do not constitute a security, the aggregate tax basis of the New Common Stock received as so computed would be reduced by the issue price of the Subordinated Notes.  If the Subordinated Notes constitute securities, the aggregate tax basis presumably should be allocated between the stock and the Subordinated Notes in accordance with their relative fair market values.  A holder’s holding period for the New Common Stock and, if they constitute a security, the Subordinated Notes will include its holding period in the Second Lien Notes Claim exchanged therefor, except to the extent of any exchange consideration received in respect of accrued but unpaid interest.  If the Subordinated Notes do not constitute a security, a holder’s tax basis in the Subordinated Notes should equal the issue price of the Subordinated Notes, and the holder’s holding period for the Subordinated Notes should begin on the day following the Effective Date.
 
2.
Ownership of Subordinated Notes
 
(a)
Issuance With Original Issue Discount
 
In general, a debt instrument will be treated as issued with original issue discount (“OID”) to the extent that its “stated redemption price at maturity” exceeds its “issue price” by more than a de minimis amount.  An instrument’s “stated redemption price at maturity” includes all payments required to be made over the term of the instrument other than payments of “qualified stated interest,” defined as interest required to be paid in cash at fixed periodic intervals of one year or less.  Since it is possible that in any given year, no portion of that year’s interest would be required to be paid in cash, none of the interest with respect to the Subordinated Notes would be qualified stated interest.  The effect of this is to include such interest within the amount of OID on the instrument, which amount is then amortized and generally includable in the holder’s income (as discussed below) over the term of the debt, rather than a holder separately including such interest in income in accordance with the holder’s normal method of tax accounting.
 
Since the timing of the interest payments under the Subordinated Notes is contingent upon the amount of available cash of the Reorganized Debtors during the applicable year, it is uncertain whether or not the determination of OID on the Subordinated Notes will be governed by certain Treasury Regulations applicable to debt instruments with one or more contingent payments (the “Contingent Payment Regulations”).  The Contingent Payment Regulations would not apply to the Subordinated Notes if the timing of payments on the notes would not change the yield on such notes for OID purposes, which should be the case if the “issue price” of the Subordinated Notes, as discussed below (see B.2(a)—“Consequences to Holders of Second Lien Notes Claims—Ownership of Subordinated Notes—Issuance with Original Issue Discount—Issue Price of Subordinated Notes”), is equal to their stated principal amount.  Additionally, to date, the Treasury Department has reserved on issuing rules under the Contingent Payment Regulations that address the treatment of debt instruments that are only subject to timing contingencies such as the Subordinated Notes.  The Reorganized Debtors intend to take the position, and the discussion herein assumes, that the Subordinated Notes are not subject to the Contingent Payment Regulations even if the issue price of the Subordinated Notes does not equal their stated principal amount.  There can be no assurance, however, that the IRS will not challenge this position and would not ultimately prevail if it asserted that the Subordinated Notes should be governed by the
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Contingent Payment Regulations, which may have a material adverse impact on holders.  The Reorganized Debtors will also treat the Subordinated Notes as not having contingent interest described in Section 871(h)(4) of the Tax Code.  Holders of Subordinated Notes are urged to consult their own tax advisors regarding the potential application of the Contingent Payment Regulations to the Subordinated Notes and the consequences thereof.
 
Issue Price of Subordinated NotesThe determination of the “issue price” of the Subordinated Notes will depend on whether the Second Lien Notes Claims are considered traded on an “established market” as determined for U.S. federal income tax purposes.  In general, such Claims will be treated as traded on an “established market” for these purposes if, at any time during the 31-day period ending 15 days after the issue date (i) there is a sales price for the Claims that is reasonably available, (ii) there are one or more firm quotes for the Claims or (iii) there are one or more indicative quotes for the Claims, each as determined under applicable Treasury Regulations.  If the Second Lien Notes Claims are considered traded on an established market, the Subordinated Notes’ issue price will be based on the fair market value of the Second Lien Notes Claims adjusted for the fair market value of the New Common Stock also issued with respect to such Claims, as determined by Reorganized AGC.  Such determination will be binding on a U.S. holder unless such holder discloses, on a timely filed U.S. federal income tax return for the taxable year that includes the Effective Date, that its determination differs from Reorganized AGC’s determination.  If the Second Lien Notes Claims are not considered traded on an established market, the issue price of the Subordinated Notes will be their stated principal amount.
 
Amortization and Inclusion in Income of OID.  A holder generally must include OID in gross income as it accrues over the term of the Subordinated Notes using the “constant yield method” without regard to its regular method of accounting for U.S. federal income tax purposes, and in advance of the receipt of cash payments attributable to that income.  The amount of OID includible in income for a taxable year by a holder generally will equal the sum of the “daily portions” of the total OID on the debt for each day during the taxable year (or portion thereof) on which such holder held the debt.  Generally, the daily portion of the OID is determined by allocating to each day during an accrual period a ratable portion of the OID that is allocable to the accrual period in which such day is included.  The amount of OID allocable to each accrual period generally will be an amount equal to the product of the “adjusted issue price” of the respective tranche of the Subordinated Notes at the beginning of such accrual period and its “yield to maturity.”  The “adjusted issue price” of the Subordinated Notes at the beginning of any accrual period will equal their issue price, increased by the total OID accrued for each prior accrual period, less any cash payments made on the debt on or before the first day of the accrual period.  The “yield to maturity” of the Subordinated Notes will be computed on the basis of a constant annual interest rate and compounded at the end of each accrual period. If the issue price of the Subordinated Notes is more or less than their stated principal amount and the timing of any payments under the Subordinated Notes differs from the payment schedule that was used to determine OID accruals on the Subordinated Notes, then solely for purposes of determining the amortization and inclusion of OID on the Subordinated Notes, the Subordinated Notes will be treated as retired and reissued on the date of the change in circumstances for an amount equal to the adjusted issue price of the Subordinated Notes on such date.
 
Any OID that a holder includes in income will increase the holder’s tax basis in the Subordinated Notes.  A holder generally will not be required to include separately in income any cash payments received on the Subordinated Notes (including with respect to the payment of any stated interest, since the stated interest was included in the determination of the amount of OID); instead, such payments will reduce the holder’s tax basis in the Subordinated Notes by the amount of the payment.
 
The rules regarding the determination of issue price and OID are complex, and the OID rules described above may not apply in all cases.  Accordingly, holders are urged to consult their own tax advisors
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regarding the determination of the issue price of the Subordinated Notes and the application of the OID rules.
 
(b)
Acquisition and Bond Premium
 
The amount of OID includible in a holder’s gross income with respect to the Subordinated Notes received will be reduced if the obligation is acquired (or deemed to be acquired) at an “acquisition premium” or with “bond premium.”  A holder may have an “acquisition premium” or “bond premium” only if an exchange qualifies as a recapitalization exchange and the Subordinated Notes constitute securities for U.S. federal income tax purposes.
 
A debt instrument is acquired at an “acquisition premium” if the holder’s tax basis in the debt is greater than the adjusted issue price of the debt at the time of the acquisition, but is less than or equal to the stated redemption price at maturity of the debt.  If a holder has acquisition premium, the amount of any OID includible in its gross income in any taxable year with respect to such debt generally will be reduced by an allocable portion of the acquisition premium (generally determined by multiplying the annual OID accrual with respect to such debt by a fraction, the numerator of which is the amount of the acquisition premium, and the denominator of which is the total OID).
 
If a holder has a tax basis in a debt instrument that exceeds the stated redemption price at maturity of such debt, the debt will be treated as having “bond premium” and the holder generally will not include any of the OID in income.  A holder may elect to amortize any bond premium over the period from its acquisition of the debt to the maturity of the debt, in which case the holder should have an ordinary deduction (and a corresponding reduction in tax basis in the debt for purposes of computing gain or loss) in the amount of such bond premium upon the sale or other disposition of the debt, including the repayment of principal.  If such an election to amortize bond premium is not made, a holder will receive a tax benefit from the premium only in computing such holder’s gain or loss upon the sale or other taxable disposition of the debt, including the repayment of principal.
 
An election to amortize bond premium will apply to amortizable bond premium on all notes and other bonds the interest on which is includible in the holder’s gross income and that are held at, or acquired after, the beginning of the holder’s taxable year as to which the election is made.  The election may be revoked only with the consent of the IRS.
 
(c)
Disposition of Subordinated Notes
 
In the case of a Second Lien Notes Claim that was acquired at a “market discount” (as discussed below, see B.3.—“Character of Gain or Loss”) and subject to “recapitalization” exchange treatment, the Tax Code indicates that any accrued market discount in respect of any Second Lien Notes Claim that is not currently includible in income should carry over to any nonrecognition property received in exchange therefor (i.e., to the New Common Stock and, if they constitute securities, the Subordinated Notes).  Any gain recognized by a holder upon a subsequent disposition of such Subordinated Notes, if they constitute securities, would be treated as ordinary income to the extent of such Notes’ allocable portion of any accrued market discount not previously included in income.  To date, specific Treasury Regulations implementing this rule have not been issued.
 
3.
Character of Gain or Loss
 
Where gain or loss on the exchange of a Claim is recognized by a holder, the character of such gain or loss as long-term or short-term capital gain or loss or as ordinary income or loss will be determined by a number of factors, including the tax status of the holder, whether the Claim constitutes a capital asset in
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the hands of the holder and how long it has been held, whether the Claim was acquired at a market discount, and whether and to what extent the holder previously claimed a bad debt deduction.
 
A holder that purchased its Claim from a prior holder at a “market discount” (relative to the principal amount of the Claims at the time of acquisition) may be subject to the market discount rules of the Tax Code.  In general, a debt instrument is considered to have been acquired with “market discount” if its holder’s adjusted tax basis in the debt instrument is less than (i) its stated principal amount or (ii) in the case of a debt instrument issued with OID, its adjusted issue price, in each case, by at least a de minimis amount.
 
Under these rules, any gain recognized on the exchange of a Claim (other than in respect of a Claim for accrued but unpaid interest) generally will be treated as ordinary income to the extent of the market discount accrued (on a straight line basis or, at the election of the holder, on a constant yield basis) during the holder’s period of ownership, unless the holder elected to include the market discount in income as it accrued.  If a holder of a Claim did not elect to include market discount in income as it accrued and, thus, under the market discount rules, was required to defer all or a portion of any deductions for interest on debt incurred or maintained to purchase or carry its Claims, such deferred amounts would become deductible at the time of the exchange but, if the exchange is a recapitalization exchange, only up to the amount of gain that the holder recognizes in the exchange.
 
4.
Distributions in Respect of Accrued But Unpaid Interest
 
In general, to the extent that any consideration received pursuant to the Plan by a holder of a Claim is received in satisfaction of accrued interest during its holding period, such amount will be taxable to the holder as interest income (if not previously included in the holder’s gross income).  Conversely, a holder generally recognizes a deductible loss to the extent any accrued interest was previously included in its gross income and is not paid in full.
 
The Plan provides that, except as otherwise required by law (as reasonably determined by the Debtors), consideration received in respect of a Second Lien Notes Claim is allocable first to the principal amount of the Claim (as determined for U.S. federal income tax purposes) and then, to the extent of any excess, to the remainder of the Claim, including any Claim for accrued but unpaid interest (in contrast, for example, to a pro rata allocation of a portion of the exchange consideration received between principal and interest, or an allocation first to accrued but unpaid interest).  (See Section 6.18 of the Plan.)  There is no assurance that the IRS will respect such allocation for U.S. federal income tax purposes.  Holders are urged to consult their own tax advisors regarding the allocation of consideration and the inclusion and deductibility of accrued but unpaid interest for U.S. federal income tax purposes.
 
5.
Disposition of New Common Stock
 
Subject to the discussion below, any gain or loss recognized by a holder on the sale, exchange, or other disposition of the New Common Stock generally should be capital gain or loss in an amount equal to the difference, if any, between the amount realized by the holder and the holder’s adjusted tax basis in the New Common Stock immediately before the sale, exchange, or other disposition.  Any such gain or loss generally should be long-term if the holder’s holding period for its stock is more than one year at that time.  The use of capital losses is subject to limitations.
 
As discussed above (see B.2(c)—“Consequences to Holders of Second Lien Notes Claims—Ownership of Subordinated Notes—Disposition of Subordinated Notes”), in the case of a Second Lien Notes Claim that was acquired at a “market discount” and subject to “recapitalization” exchange treatment, the Tax Code indicates that any accrued market discount in respect of any Second Lien Notes Claim that is not
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currently includible in income should carry over to any nonrecognition property received in exchange therefor (i.e., to the New Common Stock and, if they constitute securities, the Subordinated Notes).  Any gain recognized by a holder upon a subsequent disposition of such New Common Stock would be treated as ordinary income to the extent of such stock’s allocable portion of any accrued market discount not previously included in income.  To date, specific Treasury Regulations implementing this rule have not been issued.
 
In addition, any gain recognized by the holder upon a subsequent taxable disposition of the stock (or any stock or property received for it in a later tax-free exchange) would be treated as ordinary income for U.S. federal income tax purposes to the extent of (i) any bad debt deductions (or additions to a bad debt reserve) claimed with respect to the Second Lien Notes Claim for which stock was received and any ordinary loss deductions incurred upon satisfaction of such Claim, less any income (other than interest income) recognized by the holder upon satisfaction of such Claim, and (ii) with respect to a cash-basis holder, also any amounts which would have been included in its gross income if the holder’s Claim had been satisfied in full but which was not included by reason of the cash method of accounting.
 
With respect to non-U.S. holders, see discussion below regarding the potential status of Reorganized AGC as a U.S. real property holding company.
 
6.
United States Real Property Holding Company Status of Reorganized AGC
 
Although the tax discussion herein generally does not apply to non-U.S. holders, such holders should be aware that Reorganized AGC could be a U.S. real property holding corporation (“USRPHC”).  If Reorganized AGC is or has been a USRPHC for U.S. federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the non-U.S. holder’s holding period of the New Common Stock, non-U.S. holders would be subject to withholding tax (currently at a rate of 15%) on the gross amount received upon the disposition of their shares of New Common Stock.  Although the Debtors have not performed a formal analysis and it is therefore not free from doubt, it is likely that Reorganized AGC will be a USRPHC as of the Effective Date.  Assuming Reorganized AGC meets the criteria for classification as a USRPHC, non-U.S. holders receiving New Common Stock (whether in exchange for their Allowed Second Lien Notes Claims or as a holder of AGHC Interests) are urged to consult their own tax advisors with respect to the U.S. tax consequences applicable to the exchange of their Claims or AGHC Interests pursuant to the Plan and the ownership of New Common Stock.
 
C.
Consequences of Merger to Holders of AGHC Interests
 
As discussed above (see A.1—“Consequences to the Debtors—Merger of AGHC into AGC”), the Merger is structured to qualify as a “reorganization” for U.S. federal income tax purposes.  So treated, any gain or loss realized as a result of the receipt of new equity interests in exchange for a holder’s AGHC Interests will generally be deferred.  In addition, on the Effective Date, the new equity interests so received will be exchanged for New Common Stock in a “recapitalization” exchange in which no gain or loss generally will be recognized.  Accordingly, a holder’s aggregate tax basis in its New Common Stock generally should equal such holder’s aggregate adjusted tax basis in the AGHC Interests exchanged in the Merger, and the holder’s holding period for the New Common Stock generally should include its holding period in the AGHC Interests exchanged. Additionally, in accordance with the Plan, the Debtors intend to reincorporate AGC as a corporation organized under the laws of the state of Delaware (by way of conversion or merger).  The reincorporation may occur following the Merger but prior to the Effective Date at a time when the holders of AGHC Interests hold new equity interests in AGC.  Such reincorporation should not alter the U.S. federal income tax consequences to holders of AGHC Interests described herein.   Holders of AGHC Interests are urged to consult their own tax advisors regarding the federal income tax consequences of the Plan to them (including the tax treatment of the Merger, the
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reincorporation and, in the case of non-U.S. holders, the potential status of AGC and/or Reorganized AGC as a USRPHC).
 
D.
Information Reporting and Backup Withholding
 
Certain payments, including the payments with respect to claims pursuant to the Plan or by the Reorganized Debtors, may be subject to information reporting by the payor to the IRS.  Moreover, such reportable payments may be subject to backup withholding (currently at a rate of 28%) under certain circumstances.  Backup withholding is not an additional tax.  Rather, amounts withheld under the backup withholding rules may be credited against a holder’s federal income tax liability, and a holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing an appropriate claim for refund with the IRS (generally a United States federal income tax return).  The Debtors intend to comply with all applicable reporting withholding and requirements of the Tax Code.
 
E.
Importance of Obtaining Professional Tax Assistance
 
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN INCOME TAX CONSEQUENCES OF THE PLAN AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL. THE ABOVE DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. THE TAX CONSEQUENCES ARE IN MANY CASES UNCERTAIN AND MAY VARY DEPENDING ON THE PARTICULAR CIRCUMSTANCES OF A HOLDER OF A CLAIM OR AGHC INTEREST.  ACCORDINGLY, HOLDERS OF CLAIMS AND AGHC INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE U.S. FEDERAL, STATE, AND LOCAL, AND APPLICABLE FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE PLAN.
 
XI.
CERTAIN RISK FACTORS TO BE CONSIDERED
 
Prior to voting to accept or reject the Plan, holders of Claims and Interests should read and carefully consider the risk factors set forth below, in addition to the information set forth in this Disclosure Statement together with any attachments, exhibits, or documents incorporated by reference hereto.  The factors below should not be regarded as the only risks associated with the Plan or its implementation.
 
A.
Certain Bankruptcy Law Considerations
 
1.
General
 
While the Debtors believe that the Chapter 11 Cases will be of short duration and will not be materially disruptive to their businesses, the Debtors cannot be certain that this will be the case.  Although the Plan is designed to minimize the length of the Chapter 11 Cases, it is impossible to predict with certainty the amount of time that one or more of the Debtors may spend in bankruptcy or to assure parties in interest that the Plan will be confirmed.  Even if confirmed on a timely basis, bankruptcy proceedings to confirm the Plan could have an adverse effect on the Debtors’ business.  Among other things, it is possible that bankruptcy proceedings could adversely affect the Debtors’ relationships with their key customers and employees.  The proceedings will also involve additional expense and may divert some of the attention of the Debtors’ management away from business operations.
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2.
Risk of Non-Confirmation of Plan
 
Although the Debtors believe that the Plan will satisfy all requirements necessary for confirmation by the Bankruptcy Court, there can be no assurance that the Bankruptcy Court will reach the same conclusion or that modifications to the Plan will not be required for confirmation or that such modifications would not necessitate re-solicitation of votes.  Moreover, the Debtors can make no assurances that they will receive the requisite acceptances to confirm the Plan, and even if all Voting Classes (as defined herein) voted in favor of the Plan or the requirements for “cramdown” are met with respect to any Class that rejected the Plan, the Bankruptcy Court, which may exercise substantial discretion as a court of equity, may choose not to confirm the Plan.  If the Plan is not confirmed, it is unclear what distributions holders of Claims or Interests ultimately would receive with respect to their Claims or Interests in a subsequent plan of reorganization.
 
3.
Non-Consensual Confirmation
 
In the event that any impaired class of claims or equity interests does not accept or is deemed not to accept a plan of reorganization, the Bankruptcy Court may nevertheless confirm such plan at the proponent’s request if at least one impaired class has accepted the plan (with such acceptance being determined without including the vote of any “insider” in such class), and as to each impaired class that has not accepted the plan, the bankruptcy court determines that the plan “does not discriminate unfairly” and is “fair and equitable” with respect to the dissenting impaired classes. Should any Class vote to reject the Plan, then these requirements must be satisfied with respect to such rejecting Classes. The Debtors believe that the Plan satisfies these requirements.
 
4.
Risk of Non-Occurrence of Effective Date
 
Although the Debtors believe that the Effective Date will occur soon after the Confirmation Date, there can be no assurance as to the timing of the Effective Date.  If the conditions precedent to the Effective Date set forth in the Plan have not occurred or have not been waived as set forth in Article IX of the Plan, then the Confirmation Order may be vacated, in which event no distributions would be made under the Plan, the Debtors and all holders of Claims or Interests would be restored to the status quo as of the day immediately preceding the Confirmation Date, and the Debtors’ obligations with respect to Claims and Interests would remain unchanged.
 
5.
Risk of Termination of Restructuring Support Agreement
 
The Restructuring Support Agreement contains certain provisions that give the parties the ability to terminate the Restructuring Support Agreement if various conditions are satisfied.  As noted above, termination of the Restructuring Support Agreement could result in protracted Chapter 11 Cases, which could significantly and detrimentally impact the Debtors’ relationships with vendors, suppliers, employees, and major customers.
 
6.
Conversion to Chapter 7 Cases
 
If no plan of reorganization can be confirmed, or if the Bankruptcy Court otherwise finds that it would be in the best interest of holders of Claims and Interests, the Chapter 11 Cases may be converted to cases under chapter 7 of the Bankruptcy Code, pursuant to which a trustee would be appointed or elected to liquidate the Debtors’ assets for distribution in accordance with the priorities established by the Bankruptcy Code.  See Article XIII hereof, as well as the Liquidation Analysis attached hereto as Exhibit I, for a discussion of the effects that a chapter 7 liquidation would have on the recoveries of holders of Claims and Interests.
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B.
Additional Factors Affecting Value of Reorganized Debtors
 
1.
Claims Could Be More than Projected
 
There can be no assurance that the estimated Allowed amount of Claims in certain Classes will not be significantly more than projected, which, in turn, could cause the value of distributions to be reduced substantially.  Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate results.  Therefore, the actual amount of Allowed Claims may vary from the Debtors’ Projections and feasibility analysis, and the variation may be material.
 
2.
Projections and Other Forward-Looking Statements Are Not Assured, and Actual Results May Vary
 
Certain of the information contained in this Disclosure Statement is, by nature, forward-looking, and contains (i) estimates and assumptions which might ultimately prove to be incorrect and (ii)  projections which may be materially different from actual future experiences.  There are uncertainties associated with any projections and estimates, and they should not be considered assurances or guarantees of the amount of funds or the amount of Claims in the various Classes that might be Allowed.
 
C.
Risks Relating to Debtors’ Business and Financial Condition
 
1.
Risks Associated with Debtors’ Business and Industry
 
Ore is economically recoverable when the price at which our ore can be sold exceeds the costs and expenses of mining and selling the ore.  The amount of the Company’s economically recoverable ore reserves depends upon a number of variable factors.  These factors and assumptions include:
 
·
Geologic and mining conditions, which may not be fully identified by available exploration data and may differ from our experience in areas we currently mine;
 
·
Future ore prices, operating costs and capital expenditures;
 
·
Severance and excise taxes, royalties and development and reclamation costs;
 
·
Future mining technology improvements;
 
·
The effects of regulation by governmental agencies;
 
·
Ability to obtain, maintain and renew all required permits;
 
·
Labor costs;
 
·
Employee health and safety; and
 
·
Historical production from the area compared with production from other producing areas.
 
In addition, the Company derives a substantial portion of their revenue from companies in the oil and gas services industry, a historically cyclical industry with levels of activity that are significantly affected by the levels and volatility of oil and gas prices. Many factors beyond the Company’s control affect oil and gas prices, including:

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·
The cost of exploring for, producing and delivering oil and gas;
 
·
The discovery rate of new oil and gas reserves;
 
·
The rate of decline of existing and new oil and gas reserves;
 
·
Available pipeline and other oil and gas transportation capacity;
 
·
The levels of oil and gas storage;
 
·
The ability of oil and gas companies to raise capital;
 
·
Economic conditions in the United States and elsewhere;
 
·
Actions by the Organization of Petroleum Exporting Countries;
 
·
Political instability in the Middle East and other major oil and gas producing regions;
 
·
Governmental regulations, both domestic and foreign;
 
·
Domestic and foreign tax policy;
 
·
Weather conditions in the United States and elsewhere;
 
·
The pace adopted by foreign governments for the exploration, development and production of their national reserves;
 
·
The price of foreign imports of oil and gas; and
 
·
The overall supply and demand for oil and gas.
 
Other factors that affect the Company’s business include:
 
·
The Company’s ability to continually replace reserves depleted by production;
 
·
The Company’s ability to maintain and/or acquire necessary mineral ownership rights;
 
·
The Company’s ability to continue to operate their processing facility;
 
·
Whether there is any disruption within the Uintah Basin in northeastern Utah;
 
·
The Company’s ability to obtain equipment, parts, and raw materials in a timely manner, in sufficient quantities and at reasonable costs;
 
·
The availability and reliability of transportation facilities and fluctuations in transportation costs;
 
·
The cost of compliance with environmental, health and safety laws or permits;
 
·
The Company’s ability to obtain necessary permits;
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·
Any penalties, fines, or sanctions levied by the U.S. Mine Safety and Health Administration; and
 
·
The imposition of new taxes or the significant increase in taxes, particularly by Utah taxing authorities.
 
2.
DIP Facility
 
The DIP Facility is intended to provide liquidity to the Debtors during the pendency of the Chapter 11 Cases. There can be no assurance that the Bankruptcy Court will approve the DIP Facility on the terms requested by the Debtors, which could endanger the funding of the Chapter 11 Cases. Moreover, if the Chapter 11 Cases take longer than expected to conclude, the Debtors may exhaust or lose access to their financing. There is no assurance that they will be able to obtain additional financing from their existing lenders or otherwise. In either such case, the liquidity necessary for the orderly functioning of the Debtors’ business may be materially impaired.
 
3.
Post-Effective Date Indebtedness
 
Following the Effective Date, the Reorganized Debtors expect to have outstanding indebtedness of at least $130 million, which includes amounts expected to be outstanding under the Exit Facility and the Subordinated Notes.  The Reorganized Debtors’ ability to service their debt obligations will depend on, among other things, the Company’s compliance with affirmative and negative covenants, their future operating performance, which depends partly on economic, financial, competitive, and other factors beyond the Reorganized Debtors’ control.  The Reorganized Debtors may not be able to generate sufficient cash from operations to meet their debt service obligations as well as fund necessary capital expenditures.  In addition, if the Reorganized Debtors need to refinance their debt, obtain additional financing, or sell assets or equity, they may not be able to do so on commercially reasonable terms, if at all.
 
D.
Factors Relating to Securities to Be Issued Under Plan, Generally
 
1.
No Current Public Market for Securities
 
There is currently no market for the New Common Stock, and there can be no assurance as to the development or liquidity of any market for any such securities. The Reorganized Debtors are under no obligation to list any securities on any national securities exchange.  The New Common Stock also will not be issued through the Depository Trust Company.  Therefore, there can be no assurance that any of the foregoing securities will be tradable or liquid at any time after the Effective Date. If a trading market does not develop or is not maintained, holders of the foregoing securities may experience difficulty in reselling such securities or may be unable to sell them at all. Even if such a market were to exist, such securities could trade at prices higher or lower than the estimated value set forth in this Disclosure Statement depending upon many factors including, without limitation, prevailing interest rates, markets for similar securities, industry conditions, and the performance of, and investor expectations for, the Reorganized Debtors. Accordingly, holders of these securities may bear certain risks associated with holding securities for an indefinite period of time.
 
2.
Potential Dilution
 
The ownership percentage represented by the New Common Stock distributed on the Effective Date under the Plan will be subject to dilution from the conversion of any options, warrants, convertible securities, exercisable securities, or other securities that may be issued post-emergence.
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In the future, similar to all companies, additional equity financings or other share issuances by any of the Reorganized Debtors could adversely affect the value of the New Common Stock issuable upon such conversion.  The amount and dilutive effect of any of the foregoing could be material.
 
E.
Risks Related to Investment in Exit Facility
 
1.
Insufficient Cash Flow to Meet Debt Obligations
 
On the Effective Date, on a consolidated basis, it is expected that the Reorganized Debtors will have total indebtedness of approximately $130 million, which is expected to consist of the $30 million Exit Facility plus $100 million in Subordinated Notes. The interest rates under the Exit Facility and the Subordinated Notes are 15% and 17% respectively.  Up to five percent (5%) of the Exit Facility interest and all of the Subordinated Notes may be paid-in-kind to the extent the Company would have less than $10 million of available cash on hand pro forma for the applicable interest payment.  This level of expected indebtedness and the funds required to service such debt could, among other things, make it more difficult for the Reorganized Debtors to satisfy their obligations under such indebtedness, and could increase the risk of default on such debt obligations.
 
The Reorganized Debtors’ earnings and cash flow may vary significantly from year to year. Additionally, the Reorganized Debtors’ future cash flow may be insufficient to meet their debt obligations and commitments. Any insufficiency could negatively impact the Reorganized Debtors’ business. A range of economic, competitive, business, and industry factors will affect the Reorganized Debtors’ future financial performance and, as a result, their ability to generate cash flow from operations and to pay their debt. Many of these factors are beyond the Reorganized Debtors’ control.
 
If the Reorganized Debtors do not generate enough cash flow from operations to satisfy their debt obligations, they may have to undertake alternative financing plans, such as:
 
·
Refinancing or restructuring debt;
 
·
Selling assets;
 
·
Reducing or delaying capital investments; or
 
·
Seeking to raise additional capital.
 
It cannot be assured, however, that undertaking alternative financing plans, if necessary, would allow the Reorganized Debtors to meet their debt obligations. An inability to generate sufficient cash flow to satisfy their debt obligations or to obtain alternative financing could materially and adversely affect (i) the Reorganized Debtors’ ability to make payments on the Exit Facility and (ii) their business, financial condition, results of operations, and prospects.  Moreover, to the extent that the Debtors cash flow only minimally exceeds its debt service obligations under the Exit Facility and other post-Restructuring debt, the value of the equity of Reorganized AGC may be diminished.
 
2.
Defects in Collateral Securing Exit Facility
 
The indebtedness under the Exit Facility will be secured, subject to certain exceptions and permitted liens, on a first-priority basis by security interests in the Collateral (as defined in the DIP Credit Agreement) The Collateral securing the Exit Facility may be subject to exceptions, permitted encumbrances, and liens. Further, the Debtors have not conducted appraisals of any of their assets constituting Collateral to determine if the value of the Collateral upon foreclosure or liquidation equals or exceeds the amount of
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the Exit Facility or such other obligation secured by the Collateral. Accordingly, it cannot be assured that the remaining proceeds from a sale of the Collateral would be sufficient to repay holders of the debt under the Exit Facility all amounts owed under them. The fair market value of the Collateral is subject to fluctuations based on factors that include, among others, the ability to sell Collateral in an orderly manner, general economic conditions, the availability of buyers, the Reorganized Debtors’ failure to implement their business strategy, and similar factors. The amount received upon a sale of Collateral would be dependent on numerous factors, including, but not limited to, the actual fair market value of the Collateral at such time, and the timing and manner of the sale. By its nature, portions of the Collateral may be illiquid and may have no readily ascertainable market value. In the event of a subsequent foreclosure, liquidation, bankruptcy, or similar proceeding, it cannot be assured that the proceeds from any sale or liquidation of the Collateral will be sufficient to pay the Reorganized Debtors’ obligations under the Exit Facility, in full or at all. There can also be no assurance that the Collateral will be saleable, and, even if saleable, the timing of its liquidation would be uncertain. Accordingly, there may not be sufficient Collateral to pay all or any of the amounts due on the Exit Facility.
 
3.
Failure to Perfect Security Interests in Collateral
 
The failure to properly perfect liens on the Collateral could adversely affect the Collateral agent’s ability to enforce its rights with respect to the Collateral for the benefit of the holders of the Exit Facility. In addition, applicable law requires that certain property and rights acquired after the grant of a general security interest or lien can only be perfected at the time such property and rights are acquired and identified. There can be no assurance that the Collateral agent will monitor, or that Reorganized AGC will inform the trustee or the Collateral agent of, the future acquisition of such property and rights that constitute Collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired Collateral.  Such failure may result in the loss of the practical benefits of the liens thereon or of the priority of the liens securing the notes against third parties.
 
4.
Casualty Risk of Collateral
 
The Reorganized Debtors will be obligated by the Exit Facility to maintain adequate insurance or otherwise insure against hazards as is customarily done by companies having assets of a similar nature in the same or similar localities. There are, however, certain losses that may either be uninsurable or not economically insurable, in whole or in part. As a result, it is possible that the insurance proceeds will not compensate the Reorganized Debtors fully for their losses. If there is a total or partial loss of any of the pledged Collateral, the insurance proceeds received may be insufficient to satisfy the secured obligations of the Reorganized Debtors, including the Exit Facility.
 
5.
Any Future Pledge of Collateral Might Be Avoidable in a Subsequent Bankruptcy by Reorganized Debtors
 
Any future pledge of Collateral in favor of the Collateral agent, including pursuant to security documents delivered after the date of the Exit Facility, might be avoidable by the pledgor (as a subsequent debtor in possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur, including, among others, if the pledgor is insolvent at the time of the pledge, the pledge permits the holders of the securities under the Exit Facility to receive a greater recovery than if the pledge had not been given, and a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.
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F.
Risks Related to an Investment in the New Common Stock
 
1.
Significant Holders
 
Certain holders of Allowed Second Lien Notes Claims are expected to acquire a significant ownership interest in the New Common Stock pursuant to the Plan. Such ownership concentration could, under certain circumstances, result in certain holders being in a position to influence or control the outcome of actions requiring stockholder approval, including the election of directors, without the approval of other stockholders. This concentration of ownership could also facilitate or hinder a negotiated change of control of the Reorganized Debtors and, consequently, have an impact upon the value of the New Common Stock.
 
2.
Equity Interests Subordinated to Reorganized Debtors’ Indebtedness
 
In any subsequent liquidation, dissolution, or winding up of the Reorganized Debtors, the New Common Stock would rank below all debt claims against the Reorganized Debtors.  As a result, holders of the New Common Stock will not be entitled to receive any payment or other distribution of assets upon the liquidation, dissolution, or winding up of the Reorganized Debtors until after all the Reorganized Debtors’ obligations to their debt holders have been satisfied.
 
3.
Implied Valuation of New Common Stock Not Intended to Represent Trading Value of New Common Stock
 
The valuation of the Reorganized Debtors is not intended to represent the trading value of New Common Stock in public or private markets and is subject to additional uncertainties and contingencies, all of which are difficult to predict.  Actual market prices of such securities at issuance will depend upon, among other things: (1) prevailing interest rates; (2) conditions in the financial markets; (3) the anticipated initial securities holdings of prepetition creditors, some of whom may prefer to liquidate their investment rather than hold it on a long-term basis; and (4) other factors that generally influence the prices of securities.  The actual market price of the New Common Stock is likely to be volatile.  Many factors, including factors unrelated to the Reorganized Debtors’ actual operating performance and other factors not possible to predict, could cause the market price of the New Common Stock to rise and fall, including the Debtors post-reorganization debt service obligations.  Accordingly, the implied value, stated herein and in the Plan, of the securities to be issued does not necessarily reflect, and should not be construed as reflecting, values that will be attained for the New Common Stock in the public or private markets.
 
4.
No Intention to Pay Dividends
 
Upon the Effective Date, Reorganized AGC does not anticipate paying any dividends on the New Common Stock as it expects to retain any future cash flows for debt reduction and to support its operations. As a result, the success of an investment in the New Common Stock could depend upon, among other things, the future appreciation in the value of the New Common Stock. There is, however, no guarantee that the New Common Stock will appreciate in value or even maintain their initial value.
 
G.
Additional Factors
 
1.
Debtors Could Withdraw Plan
 
Subject to the terms of, and without prejudice to, the rights of any party to the Restructuring Support Agreement, the Plan may be revoked or withdrawn prior to the Confirmation Date by the Debtors.
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2.
Debtors Have No Duty to Update
 
The statements contained in this Disclosure Statement are made by the Debtors as of the date hereof, unless otherwise specified herein, and the delivery of this Disclosure Statement after that date does not imply that there has been no change in the information set forth herein since that date.  The Debtors have no duty to update this Disclosure Statement unless otherwise ordered to do so by the Bankruptcy Court.
 
3.
No Representations Outside Disclosure Statement Are Authorized
 
No representations concerning or related to the Debtors, the Chapter 11 Cases, or the Plan are authorized by the Bankruptcy Court or the Bankruptcy Code, other than as set forth in this Disclosure Statement.  Any representations or inducements made to secure your acceptance or rejection of the Plan that are other than those contained in, or included with, this Disclosure Statement should not be relied upon in making the decision to accept or reject the Plan.
 
4.
No Legal or Tax Advice Is Provided by Disclosure Statement
 
The contents of this Disclosure Statement should not be construed as legal, business, or tax advice.  Each Creditor or Interest holder should consult their own legal counsel and accountant as to legal, tax, and other matters concerning their Claim or Interest.
 
This Disclosure Statement is not legal advice to you.  This Disclosure Statement may not be relied upon for any purpose other than to determine how to vote on the Plan or object to confirmation of the Plan.
 
5.
No Admission Made
 
Nothing contained herein or in the Plan will constitute an admission of, or will be deemed evidence of, the tax or other legal effects of the Plan on the Debtors or holders of Claims or Interests.
 
6.
Certain Tax Consequences
 
For a discussion of certain tax considerations to the Debtors and certain holders of Claims in connection with the implementation of the Plan, see Article X hereof.
 
XII.
VOTING PROCEDURES AND REQUIREMENTS
 
A.
Parties Entitled to Vote
 
Under the Bankruptcy Code, only holders of claims or interests in “impaired” classes are entitled to vote on a plan.  Under section 1124 of the Bankruptcy Code, a class of claims or interests is deemed to be “impaired” under a plan unless (i) the plan leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder thereof or (ii) notwithstanding any legal right to an accelerated payment of such claim or interest, the plan cures all existing defaults (other than defaults resulting from the occurrence of events of bankruptcy) and reinstates the maturity of such claim or interest as it existed before the default.
 
If, however, the holder of an impaired claim or interest will not receive or retain any distribution under the plan on account of such claim or interest, the Bankruptcy Code deems such holder to have rejected the plan, and, accordingly, holders of such claims and interests do not actually vote on the plan.  If a claim or interest is not impaired by the plan, the Bankruptcy Code deems the holder of such claim or interest to
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have accepted the plan and, accordingly, holders of such claims and interests are not entitled to vote on the Plan.
 
A vote may be disregarded if the Bankruptcy Court determines, pursuant to section 1126(e) of the Bankruptcy Code, that it was not solicited or procured in good faith or in accordance with the provisions of the Bankruptcy Code.
 
The Bankruptcy Code defines “acceptance” of a plan by a class of: (i) claims as acceptance by creditors in that class that hold at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the claims that cast ballots for acceptance or rejection of the plan; and (ii) interests as acceptance by interest holders in that class that hold at least two-thirds (2/3) in dollar amount of the interests that cast ballots for acceptance or rejection of the plan.
 
The claims and interests in the following classes are impaired under the Plan and entitled to vote to accept or reject the Plan (“Voting Classes” or “Voting Claims”):
 
·
Class 3 – Second Lien Notes Claims
·
Class 6 – AGHC Interests

The solicitation of votes on the Plan with respect to the Second Lien Notes Claims and the AGHC Interests is being made pursuant to Section 4(a)(2) and Regulation D of the Securities Act and only from holders of such Claims or Interests who are eligible Second Lien Noteholders or eligible holders of AGHC Interests (i.e., Accredited Investors as defined in Rule 501 of the Securities Act) (collectively, “Eligible Holders”); provided, however, that all holders of Allowed Second Lien Notes Claims and Allowed AGHC Interests will be entitled to receive distributions under the Plan.

B.
Voting Deadline
 
Before voting to accept or reject the Plan, each Eligible Holder of an Allowed AGHC Interest or Allowed Second Lien Notes Claim as of the Voting Record Date should carefully review the Plan attached hereto as Exhibit A.  All descriptions of the Plan set forth in this Disclosure Statement are subject to the terms and conditions of the Plan.
 
Ballots will be provided for holders of Voting Claims as of the Voting Record Date (October 13, 2016) to vote to accept or reject the Plan (a “Ballot”).  Because Classes 1, 2, 4, 5, 8 are unimpaired and deemed to accept, and Class 7 is conclusively deemed to reject, only Classes 3 and 6 are entitled to vote.
 
Each Ballot contains detailed voting instructions and sets forth in detail, among other things, the deadlines, procedures, and instructions for voting to accept or reject the Plan, the Voting Record Date for voting purposes, and the applicable standards for tabulating Ballots.
 
The Debtors have engaged Epiq Bankruptcy Solutions, LLC as their voting agent (the “Voting Agent”) to assist in the transmission of voting materials and in the tabulation of votes with respect to the Plan.
 
THE VOTING DEADLINE IS 5:00 P.M., PREVAILING EASTERN TIME, ON NOVEMBER 16, 2016, UNLESS EXTENDED BY THE DEBTORS (THE “VOTING DEADLINE”).
 
CLASS 3:  IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR VOTE (WHETHER ON A MASTER BALLOT SUBMITTED BY YOUR NOMINEE OR ON A PREVALIDATED BALLOT) MUST BE RECEIVED BY THE VOTING AGENT AT THE ADDRESS SET FORTH BELOW ON OR BEFORE THE VOTING DEADLINE.  IF YOU HOLD YOUR SECOND LIEN NOTES CLAIMS
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THROUGH A NOMINEE, PLEASE FOLLOW THE INSTRUCTIONS PROVIDED BY YOUR NOMINEE FOR RETURNING YOUR BALLOT.
 
CLASS 6:  IN ORDER FOR YOUR VOTE TO BE COUNTED, YOUR VOTE MUST BE RECEIVED BY THE VOTING AGENT AT THE ADDRESS SET FORTH BELOW ON OR BEFORE THE VOTING DEADLINE.
 
Delivery of a Ballot by facsimile, e-mail, or any other electronic means will not be accepted.  Ballots must be returned by the Voting Deadline with an original signed copy to:
 
By First Class Mail, Overnight Courier, or Personal Delivery:
 
AGC BALLOT PROCESSING
C/O EPIQ BANKRUPTCY SOLUTIONS, LLC
777 THIRD AVENUE, 12TH FLOOR
NEW YORK, NY 10017
TELEPHONE: +1 (646) 282-2500 OR (866) 734-9393 (TOLL FREE)

FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE ACTUALLY RECEIVED BY THE VOTING AGENT NO LATER THAN THE VOTING DEADLINE.
 
ANY BALLOT THAT IS EXECUTED AND RETURNED BUT WHICH DOES NOT INDICATE EITHER AN ACCEPTANCE OR REJECTION OF THE PLAN OR INDICATES BOTH AN ACCEPTANCE AND A REJECTION OF THE PLAN WILL NOT BE COUNTED.  THE DEBTORS, IN THEIR SOLE DISCRETION, MAY REQUEST THAT THE VOTING AGENT ATTEMPT TO CONTACT SUCH VOTERS TO CURE ANY SUCH DEFECTS IN THE BALLOTS.  THE FAILURE TO VOTE DOES NOT CONSTITUTE A VOTE TO ACCEPT OR REJECT THE PLAN.  AN OBJECTION TO THE CONFIRMATION OF THE PLAN, EVEN IF TIMELY SERVED, DOES NOT CONSTITUTE A VOTE TO ACCEPT OR REJECT THE PLAN.
 
C.
Voting Procedures
 
The Debtors are providing copies of this Disclosure Statement (including all exhibits and appendices) and related materials and a Ballot (collectively, a “Solicitation Package”) to record holders of the AGHC Interests and record holders of the Second Lien Notes Claims.8  Record holders of the Second Lien Notes Claims may include Nominees.  If such entities do not hold Second Lien Notes Claims for their own account, they must provide copies of the Solicitation Package to their customers that are the Eligible Holders thereof as of the Voting Record Date.  Any Eligible Holder of AGHC Interests or Second Lien Notes Claims who has not received a Ballot should contact his, her, or its Nominee, or the Voting Agent.  The Second Lien Notes Trustee will not vote on behalf of its respective holders.  Each Eligible Holder of the AGHC Interests and the Second Lien Notes Claims must submit its own Ballot.
 
Holders of the AGHC Interests or the Second Lien Notes Claims should provide all of the information requested by the Ballot.  Holders of the AGHC Interests and the Second Lien Notes Claims should complete and return all Ballots received in the enclosed, self-addressed, postage-paid envelope provided with each such Ballot either to the Voting Agent or their Nominee, as applicable.
 

8 The Consenting Second Lien Noteholders will also receive a Solicitation Package.  The Ballot included in such Solicitation Package must be validated by the applicable Nominee prior to returning such Ballot to the Voting Agent.
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1.
AGHC Interests
 
An Eligible Holder who holds AGHC Interests as record holder in its own name should vote on the Plan by completing and signing a Ballot and returning it directly to the Voting Agent on or before the Voting Deadline9 using the enclosed self-addressed, postage-paid envelope.
 
2.
Second Lien Notes Claims
 
An Eligible Holder who holds Second Lien Notes Claims as a record holder in its own name should vote on the Plan by completing and signing a Ballot (a “Beneficial Holder Ballot”) and returning it directly to the Voting Agent on or before the Voting Deadline10 using the enclosed self-addressed, postage-paid envelope.
 
An Eligible Holder holding Second Lien Notes Claims in “street name” through a Nominee may vote on the Plan by one of the following two methods (which election will depend on whether the Nominee has pre-validated the Beneficial Holder Ballot):11
 
·
If the Beneficial Holder Ballot is not pre-validated: Complete and sign the enclosed Beneficial Holder Ballot.  Return the Beneficial Holder Ballot to your Nominee, using the enclosed self-addressed, postage-paid envelope, as promptly as possible and in sufficient time to allow such Nominee to process your instructions and return a completed Master Ballot (as defined below) to the Voting Agent by the Voting Deadline.  If no self-addressed, postage-paid envelope to your Nominee was enclosed for this purpose, contact the Voting Agent for instructions; or
 
·
If the Beneficial Holder Ballot is pre-validated by the Nominee: Complete and sign the pre-validated Beneficial Holder Ballot (as described below) provided to you by your Nominee.  Your pre-validated Beneficial Holder Ballot will be complete except for Item 2, Item 3, and Item 4.  Return the pre-validated Beneficial Holder Ballot to the Voting Agent by the Voting Deadline or as otherwise instructed by the Nominee, using the self-addressed, postage-paid return envelope provided in the Solicitation Package.
 
Any Beneficial Holder Ballot returned to a Nominee by an Eligible Holder will not be counted for purposes of acceptance or rejection of the Plan until such Nominee properly (i) completes the Beneficial Holder Ballot (properly validated) and such Ballot is delivered to the Voting Agent or (ii) records the vote of such Eligible Holder on a Master Ballot delivered to the Voting Agent.
 
If any Eligible Holder owns the Second Lien Notes Claims through more than one Nominee, such Eligible Holder may receive multiple mailings containing the Beneficial Holder Ballots.  The Eligible Holder should execute a separate Beneficial Holder Ballot for each block of the Second Lien Notes Claims that it holds through any particular Nominee and return each Beneficial Holder Ballot to the respective Nominee in the return envelope provided therewith.  Eligible Holders who execute multiple Beneficial Holder Ballots with respect to the Second Lien Notes Claims held through more than one Nominee must indicate on each Beneficial Holder Ballot the names of all such other Nominees and the additional amounts of such Second Lien Notes Claims so held and voted.
 

9 The Consenting AGHC Interest Holders have agreed to submit a ballot by October 24, 2016 to the extent reasonably practicable.
10 The Consenting Second Lien Noteholders have agreed to submit a ballot by October 24, 2016 to the extent reasonably practicable.
11 The Consenting Second Lien Noteholders should request that their applicable Nominee validate their Beneficial Holder Ballot and, upon such validation, should submit such Ballot to the Voting Agent.
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3.
Nominees of Second Lien Noteholders
 
A Nominee that, on the Voting Record Date, is the record holder of the Second Lien Notes Claims for one or more Eligible Holders can obtain the votes of the Eligible Holders of such Second Lien Notes Claims consistent with customary practices for obtaining the votes of securities held in “street name,” in one of the following two ways:
 
(a)
Pre-Validated Ballots
 
The Nominee may “pre-validate” a Beneficial Holder Ballot by (i) signing the Beneficial Holder Ballot and indicating on the Beneficial Holder Ballot the name of the Nominee and DTC Participant Number, (ii) the amount and the account number of the Second Lien Notes Claims held by the Nominee for the Eligible Holder, and (iii) forwarding such Beneficial Holder Ballot, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope addressed to, and provided by, the Voting Agent, and other materials requested to be forwarded, to the Eligible Holder for voting.  The Eligible Holder must then complete the information requested in Item 2, Item 3, and Item 4 of the Beneficial Holder Ballot, and return the Beneficial Holder Ballot directly to the Voting Agent in the pre-addressed, postage-paid return envelope so that it is RECEIVED by the Voting Agent on or before the Voting Deadline.  A list of the Eligible Holders to whom “pre-validated” Beneficial Holder Ballots were delivered should be maintained by Nominees for inspection for at least one (1) year from the Voting Deadline.
 
(b)
Master Ballots
 
If the Nominee elects not to pre-validate Beneficial Holder Ballots, the Nominee may obtain the votes of Eligible Holders by forwarding to the Eligible Holders the unsigned Beneficial Holder Ballots, together with the Disclosure Statement, a pre-addressed, postage-paid return envelope provided by, and addressed to, the Nominee, and other materials requested to be forwarded.  Each such Eligible Holder must then indicate his, her, or its vote on the Beneficial Holder Ballot, complete the information requested on the Beneficial Holder Ballot, review the certifications contained on the Beneficial Holder Ballot, execute the Beneficial Holder Ballot, and return the Beneficial Holder Ballot to the Nominee.  After collecting the Beneficial Holder Ballots, the Nominee should, in turn, complete a Ballot compiling the votes and other information from the Beneficial Holder Ballots (the “Master Ballot”), execute the Master Ballot, and deliver the Master Ballot to the Voting Agent so that it is RECEIVED by the Voting Agent on or before the Voting Deadline.  All Beneficial Holder Ballots returned by Eligible Holders should either be forwarded to the Voting Agent (along with the Master Ballot) or retained by Nominees for inspection for at least one (1) year from the Voting Deadline.  EACH NOMINEE SHOULD ADVISE ITS ELIGIBLE HOLDERS TO RETURN THEIR BENEFICIAL HOLDER BALLOTS TO THE NOMINEE BY A DATE CALCULATED BY THE NOMINEE TO ALLOW IT TO PREPARE AND RETURN THE MASTER BALLOT TO THE VOTING AGENT SO THAT IT IS RECEIVED BY THE VOTING AGENT ON OR BEFORE THE VOTING DEADLINE.
 
Tabulation of Pre-Validated Ballots and Master Ballots:
 
(i)
Votes cast by a Beneficial Holder on a pre-validated ballot or on a Master Ballot through a Nominee will be applied against the positions held by such entities in the applicable security as of the Voting Record Date, as evidenced by the record and depository listings.  Votes submitted by a Nominee, pursuant to the master ballots or pre-validated beneficial ballots, will not be counted in excess of the amount of such securities held by such Nominee;
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(ii)
To the extent that conflicting votes or “overvotes” are submitted by a Nominee, the Voting Agent, in good faith, will attempt to reconcile discrepancies with the Nominee;
 
(iii)
To the extent that any overvotes are not reconcilable prior to the preparation of the vote certification, the Voting Agent will apply the votes to accept and to reject the Plan in the same proportion as the votes to accept and reject the Plan submitted on the Master Ballots or pre-validated beneficial ballots that contained the overvote, but only to the extent of the Nominee’s position in the applicable security;
 
(iv)
For the purposes of tabulating votes with respect to the Second Lien Notes, each Beneficial Holder will be deemed to have voted the principal amount relating to such security, although the Voting Agent may adjust such principal amount to reflect the applicable claim amount, including prepetition interest;
 
(v)
A single Nominee may complete and deliver to the Voting Agent multiple Master Ballots. Votes reflected on multiple Master Ballots shall be counted except to the extent that they are duplicative of other Master Ballots. If two or more Master Ballots are inconsistent, the last properly completed Master Ballot received prior to the Voting Deadline shall, to the extent of such inconsistency, supersede any prior Master Ballot.
 
4.
Miscellaneous
 
All Ballots must be signed by the holder of record of the AGHC Interests or the Second Lien Notes Claims, as applicable, or any person who has obtained a properly completed Ballot proxy from the record holder of the AGHC Interests or the Second Lien Notes Claims, as applicable, on such date. For purposes of voting to accept or reject the Plan, the Eligible Holders of the AGHC Interests and the Second Lien Notes Claims will be deemed to be the “holders” of the claims represented by such AGHC Interests and Second Lien Notes. If you return more than one Ballot voting different AGHC Interests or different Second Lien Notes Claims, the Ballots for a particular class are not voted in the same manner, and you do not correct this before the Voting Deadline, those Ballots will not be counted. An otherwise properly executed Ballot (other than a Master Ballot) that attempts to partially accept and partially reject the Plan will likewise not be counted. If you cast more than one Ballot voting the same Claim(s) or Interest(s) before the Voting Deadline, the last valid Ballot received on or before the Voting Deadline will be deemed to reflect your intent, and thus, to supersede any prior Ballot. If you cast Ballots received by the Voting Agent on the same day, but which are voted inconsistently, such Ballots will not be counted.
 
The Ballots provided to Eligible Holders will reflect the principal amount of such Eligible Holder’s Claim or Interest; however, when tabulating votes, the Voting Agent may adjust the amount of such Eligible Holder’s Claim or Interest by multiplying the principal amount by a factor that reflects all amounts accrued between the Voting Record Date and the Commencement Date including, without limitation, interest.
 
If you vote to accept the Plan, you shall be deemed to have consented to the release, injunction, and exculpation provisions set forth in sections 10.5, 10.6, and 10.7 of the Plan. If you (i) do not vote either to accept or reject the Plan or (ii) vote to reject the Plan and, in each case, do not check the box in Item 3 in your Ballot, you shall be deemed to have consented to the release provisions set forth in Section 10.6(b) of the Plan. Election to withhold consent is at your option.
 
Except as provided below, unless the Ballot is timely submitted to the Voting Agent before the Voting Deadline together with any other documents required by such Ballot, the Debtors may, in their sole
89

discretion, reject such Ballot as invalid, and therefore decline to utilize it in connection with seeking confirmation of the Plan.
 
5.
Fiduciaries And Other Representatives
 
If a Beneficial Holder Ballot is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or another acting in a fiduciary or representative capacity, such person should indicate such capacity when signing and, if requested, must submit proper evidence satisfactory to the Debtors of authority to so act. Authorized signatories should submit the separate Beneficial Holder Ballot of each Eligible Holder for whom they are voting.
 
UNLESS THE BALLOT OR THE MASTER BALLOT IS SUBMITTED TO THE VOTING AGENT ON OR PRIOR TO THE VOTING DEADLINE, SUCH BALLOT WILL BE REJECTED AS INVALID AND WILL NOT BE COUNTED AS AN ACCEPTANCE OR REJECTION OF THE PLAN; PROVIDED, HOWEVER, THAT THE DEBTORS RESERVE THE RIGHT, IN THEIR SOLE DISCRETION, TO REQUEST THE BANKRUPTCY COURT TO ALLOW SUCH BALLOT TO BE COUNTED.
 
6.
Agreements Upon Furnishing Ballots
 
The delivery of an accepting Ballot pursuant to one of the procedures set forth above will constitute the agreement of the creditor with respect to such Ballot to accept (i) all of the terms of, and conditions to, this Solicitation; and (ii) the terms of the Plan including the injunction, releases, and exculpations set forth in Sections 10.5, 10.6, and 10.7 therein. All parties in interest retain their right to object to confirmation of the Plan pursuant to section 1128 of the Bankruptcy Code, subject to any applicable terms of the Restructuring Support Agreement or Restructuring Term Sheet.
 
7.
Change of Vote
 
Any party who has previously submitted to the Voting Agent prior to the Voting Deadline a properly completed Ballot may revoke such Ballot and change its vote by submitting to the Voting Agent prior to the Voting Deadline a subsequent, properly completed Ballot for acceptance or rejection of the Plan; provided, however, that upon termination of the Restructuring Support Agreement by any Consenting RSA Party, any and all consents and ballots tendered by such Consenting RSA Party (or all Consenting RSA Parties, if the Restructuring Support Agreement is terminated by the Debtors), will be deemed, for all purposes, automatically null and void ab initio, will not be considered or otherwise used in any manner in connection with the Plan or otherwise, and such consents or ballots may be changed or resubmitted regardless of whether the Voting Deadline has passed (without the need to seek a court order or consent from the Debtors allowing such change or resubmission), and the Debtors will not oppose any such change or resubmission.
 
D.
Waivers of Defects, Irregularities, etc.
 
Unless otherwise directed by the Bankruptcy Court, all questions as to the validity, form, eligibility (including time of receipt), acceptance, and revocation or withdrawals of Ballots will be determined by the Voting Agent and/or the Debtors, as applicable, in their sole discretion, which determination will be final and binding. The Debtors reserve the right to reject any and all Ballots submitted by any of their respective creditors not in proper form, the acceptance of which would, in the opinion of the Debtors or their counsel, as applicable, be unlawful. The Debtors further reserve their respective rights to waive any defects or irregularities or conditions of delivery as to any particular Ballot by any of their creditors. The interpretation (including the Ballot and the respective instructions thereto) by the applicable Debtor,
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unless otherwise directed by the Bankruptcy Court, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with deliveries of Ballots must be cured within such time as the Debtors (or the Bankruptcy Court) determines. Neither the Debtors nor any other person will be under any duty to provide notification of defects or irregularities with respect to deliveries of Ballots nor will any of them incur any liabilities for failure to provide such notification. Unless otherwise directed by the Bankruptcy Court, delivery of such Ballots will not be deemed to have been made until such irregularities have been cured or waived. Ballots previously furnished (and as to which any irregularities have not theretofore been cured or waived) will be invalidated.
 
XIII.
CONFIRMATION OF PLAN
 
A.
Confirmation Hearing
 
Within one (1) day of the Commencement Date, the Debtors will seek an order of the Bankruptcy Court scheduling the Confirmation Hearing to consider (i) the adequacy of the Disclosure Statement and the Solicitation in connection therewith and (ii) confirmation of the Plan. The Debtors anticipate that notice of these hearings will be published and mailed to all known holders of Claims and Interests at least twenty-eight (28) days before the date by which objections must be filed with the Bankruptcy Court.
 
A.
Objections to Confirmation
 
Section 1128(b) of the Bankruptcy Code provides that any party in interest may object to the confirmation of a plan. Any objection to confirmation of the Plan must be in writing, must conform to the Bankruptcy Rules and the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware, must set forth the name of the objector, the nature and amount of Claims held or asserted by the objector against the Debtors’ estates or properties, the basis for the objection and the specific grounds therefore, and must be filed with the Bankruptcy Court, with a copy to the chambers of the United States Bankruptcy Judge appointed to the Chapter 11 Cases, together with proof of service thereof, and served upon the following parties, including such other parties as the Bankruptcy Court may order:
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(a) The Debtors at:
American Gilsonite Company
16200 Park Row Drive, Suite 250
Houston, Texas 77084
Attn:       David G. Gallagher
 Steven A. Granda
 
(b) Office of the U.S. Trustee at:
Office of the U.S. Trustee for the District of Delaware
844 King Street, Suite 2207, Lockbox 35
Wilmington, DE 19801
Attn:       Andy Vara, Esq.
 
(c) Counsel to the Debtors at:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn:       Matthew S. Barr, Esq.
                Sunny Singh, Esq.
 Jessica Diab, Esq.
 
- and-
 
Richards, Layton & Finger, P.A.
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Attn:   Mark D. Collins
John H. Knight
Amanda R. Steele

Counsel to the Consenting Second Lien Noteholders at:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attn:      Kristopher M. Hansen, Esq.
 Erez E. Gilad, Esq.

 - and-
 
Young Conaway Stargatt & Taylor LLP
1000 N. King Street
Rodney Square
Wilmington, Delaware 19801
Attn:       Matthew B. Lunn, Esq.
 
UNLESS AN OBJECTION TO CONFIRMATION IS TIMELY SERVED AND FILED, IT MAY
NOT BE CONSIDERED BY THE BANKRUPTCY COURT.
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B.
Requirements for Confirmation of Plan
 
1.
Requirements of Section 1129(a) of Bankruptcy Code
 
(a)
General Requirements.
 
At the Confirmation Hearing, the Bankruptcy Court will determine whether the confirmation requirements specified in section 1129(a) of the Bankruptcy Code have been satisfied including, without limitation, whether:
 
(i)
the Plan complies with the applicable provisions of the Bankruptcy Code;
 
(ii)
the Debtors have complied with the applicable provisions of the Bankruptcy Code;
 
(iii)
the Plan has been proposed in good faith and not by any means forbidden by law;
 
(iv)
any payment made or promised by the Debtors or by a person issuing securities or acquiring property under the Plan, for services or for costs and expenses in or in connection with the Chapter 11 Cases, or in connection with the Plan and incident to the Chapter 11 Cases, has been disclosed to the Bankruptcy Court, and any such payment made before confirmation of the Plan is reasonable, or if such payment is to be fixed after confirmation of the Plan, such payment is subject to the approval of the Bankruptcy Court as reasonable;
 
(v)
the Debtors have disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the Plan, as a director or officer of the Reorganized Debtors, an affiliate of the Debtors participating in a Plan with the Debtors, or a successor to the Debtors under the Plan, and the appointment to, or continuance in, such office of such individual is consistent with the interests of the holders of Claims and Interests and with public policy, and the Debtors have disclosed the identity of any insider who will be employed or retained by the Reorganized Debtors, and the nature of any compensation for such insider;
 
(vi)
with respect to each Class of Claims or Interests, each holder of an impaired Claim or impaired Interest has either accepted the Plan or will receive or retain under the Plan, on account of such holder’s Claim or Interest, property of a value, as of the Effective Date of the Plan, that is not less than the amount such holder would receive or retain if the Debtors were liquidated on the Effective Date of the Plan under chapter 7 of the Bankruptcy Code;
 
(vii)
except to the extent the Plan meets the requirements of section 1129(b) of the Bankruptcy Code (as discussed further below), each Class of Claims either accepted the Plan or is not impaired under the Plan;
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(viii)
except to the extent that the holder of a particular Claim has agreed to a different treatment of such Claim, the Plan provides that administrative expenses and priority Claims, other than Priority Tax Claims, will be paid in full on the Effective Date, and that Priority Tax Claims will receive either payment in full on the Effective Date or deferred cash payments over a period not exceeding five years after the Commencement Date, of a value, as of the Effective Date of the Plan, equal to the Allowed amount of such Claims;
 
(ix)
at least one Class of impaired Claims has accepted the Plan, determined without including any acceptance of the Plan by any insider holding a Claim in such Class;
 
(x)
confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtors or any successor to the Debtors under the Plan; and
 
(xi)
all fees payable under section 1930 of title 28 of the United States Code, as determined by the Bankruptcy Court at the Confirmation Hearing, have been paid or the Plan provides for the payment of all such fees on the Effective Date of the Plan.
 
(b)
Best Interests Test
 
As noted above, with respect to each impaired class of claims and equity interests, confirmation of a plan requires that each such holder either (i) accept the plan or (ii) receive or retain under the plan property of a value, as of the effective date of the plan, that is not less than the value such holder would receive or retain if the debtors were liquidated under chapter 7 of the Bankruptcy Code. This requirement is referred to as the “best interests test.”
 
This test requires a Bankruptcy Court to determine what the holders of allowed claims and allowed equity interests in each impaired class would receive from a liquidation of the debtor’s assets and properties in the context of a liquidation under chapter 7 of the Bankruptcy Code. To determine if a plan is in the best interests of each impaired class, the value of the distributions from the proceeds of the liquidation of the debtor’s assets and properties (after subtracting the amounts attributable to the aforesaid claims) is then compared with the value offered to such classes of claims and equity interests under the plan.
 
The Debtors believe that under the Plan all holders of impaired Claims and Interests will receive property with a value not less than the value such holder would receive in a liquidation under chapter 7 of the Bankruptcy Code. The Debtors’ belief is based primarily on (i) consideration of the effects that a chapter 7 liquidation would have on the ultimate proceeds available for distribution to holders of impaired Claims and Interests and (ii) the Liquidation Analysis attached hereto as Exhibit I.
 
The Debtors believe that any liquidation analysis is speculative, as it is necessarily premised on assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which would be beyond the control of the Debtors. The Liquidation Analysis provided in Exhibit I is solely for the purpose of disclosing to holders of Claims and Interests the effects of a hypothetical chapter 7 liquidation of the Debtors, subject to the assumptions set forth therein. There can be no assurance as to values that would actually be realized in a chapter 7 liquidation nor can there be any assurance that a bankruptcy court will accept the Debtors’ conclusions or concur with such assumptions in making its determinations under section 1129(a)(7) of the Bankruptcy Code.
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(c)
Feasibility
 
Also as noted above, section 1129(a)(11) of the Bankruptcy Code requires that a debtor demonstrate that confirmation of a plan is not likely to be followed by liquidation or the need for further financial reorganization. For purposes of determining whether the Plan meets this requirement, the Debtors have analyzed their ability to meet their obligations under the Plan. As part of this analysis, the Debtors have prepared the Projections provided in Section VII hereof. Based upon such Projections, the Debtors believe they will have sufficient resources to make all payments required pursuant to the Plan and that confirmation of the Plan is not likely to be followed by liquidation or the need for further reorganization. Moreover, Section XI hereof sets forth certain risk factors that could impact the feasibility of the Plan.
 
(d)
Equitable Distribution of Voting Power
 
On or before the Effective Date, pursuant to and only to the extent required by section 1123(a)(6) of the Bankruptcy Code, the organizational documents for the Debtors will be amended as necessary to satisfy the provisions of the Bankruptcy Code and will include, among other things, pursuant to section 1123(a)(6) of the Bankruptcy Code, (i) a provision prohibiting the issuance of non-voting equity securities and (ii) a provision setting forth an appropriate distribution of voting power among classes of equity securities possessing voting power.
 
2.
Additional Requirements for Non-Consensual Confirmation
 
In the event that any impaired Class of Claims or Interests does not accept or is deemed to reject the Plan, the Bankruptcy Court may still confirm the Plan at the request of the Debtors if, as to each impaired Class of Claims or Interests that has not accepted the Plan, the Plan “does not discriminate unfairly” and is “fair and equitable” with respect to such Classes of Claims or Interests, pursuant to section 1129(b) of the Bankruptcy Code. Both of these requirements are in addition to other requirements established by case law interpreting the statutory requirements.
 
(a)
Unfair Discrimination Test
 
The “unfair discrimination” test applies to Classes of Claims or Interests that are of equal priority and are receiving different treatment under the Plan. A chapter 11 plan does not discriminate unfairly, within the meaning of the Bankruptcy Code, if the legal rights of a dissenting Class are treated in a manner consistent with the treatment of other Classes whose legal rights are substantially similar to those of the dissenting Class and if no Class of Claims or Interests receives more than it legally is entitled to receive for its Claims or Interests. This test does not require that the treatment be the same or equivalent, but that such treatment is “fair.”
 
The Debtors believe the Plan satisfies the “unfair discrimination” test. Claims of equal priority are receiving comparable treatment and such treatment is fair under the circumstances.
 
(b)
Fair and Equitable Test
 
The “fair and equitable” test applies to classes of different priority and status (e.g., secured versus unsecured) and includes the general requirement that no class of claims receive more than 100% of the allowed amount of the claims in such class. As to dissenting classes, the test sets different standards depending on the type of claims in such class. The Debtors believe that the Plan satisfies the “fair and equitable” test as further explained below.
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(i)
Secured Creditors
 
The Bankruptcy Code provides that each holder of an impaired secured claim either (i) retains its liens on the property to the extent of the allowed amount of its secured claim and receives deferred cash payments having a value, as of the effective date, of at least the allowed amount of such claim, (ii) has the right to credit bid the amount of its claim if its property is sold and retains its liens on the proceeds of the sale or (iii) receives the “indubitable equivalent” of its allowed secured claim.
 
The Second Lien Notes Claims in Class 3 will be Allowed in the amount of $290,096,250 (including accrued and unpaid interest as of the Commencement Date), plus any other amounts and obligations payable under the Second Lien Notes Indenture as of the Commencement Date, and shall not be subject to any avoidance, reductions, setoff, offset, recoupment, recharacterization, subordination (whether equitable, contractual, or otherwise), counterclaims, cross-claims, defenses, disallowance, impairment, objection, or any other challenges under any applicable law or regulation by any person or entity. On the Effective Date, each holder of an Allowed Second Lien Notes Claim will be entitled to receive, in full and final satisfaction of such Allowed Second Lien Notes Claim, its Pro Rata share of: (i) the New Common Stock; and (ii) the Subordinated Notes.
 
Accordingly, the Plan meets the “fair and equitable” test with respect to secured creditors.
 
(ii)
Unsecured Creditors
 
The Bankruptcy Code provides that either (i) each holder of an impaired unsecured claim receives or retains under the plan of reorganization, property of a value equal to the amount of its allowed claim or (ii) the holders of claims and equity interests that are junior to the claims of the dissenting class will not receive any property under the plan of reorganization.
 
The Plan provides that the holders of General Unsecured Claims in Class 4 will receive a full recovery.
 
Accordingly, the Plan meets the “fair and equitable” test with respect to unsecured creditors.
 
(iii)
AGHC Interests
 
With respect to a class of equity interests, the Bankruptcy Code requires that either (i) each holder of an equity interest will receive or retain under the plan of reorganization property of a value equal to the greater of (a) the fixed liquidation preference or redemption price, if any, of such stock and (b) the value of the stock, or (ii) the holders of equity interests that are junior to any dissenting class of equity interests will not receive any property under the plan of reorganization.
 
Pursuant to the Plan, (i) all AGHC Interests will be cancelled, and (ii) the holders of AGHC Interests will receive New Common Stock representing, in the aggregate, 2% of the total outstanding shares of Reorganized AGC.
 
Accordingly, the Plan meets the “fair and equitable” test with respect to the AGHC Interests.
 
XIV.
ALTERNATIVES TO CONFIRMATION AND
CONSUMMATION OF PLAN
 
The Debtors have evaluated several alternatives to the Plan. After studying these alternatives, the Debtors have concluded that the Plan is the best alternative and will maximize recoveries to parties in interest,
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assuming confirmation and consummation of the Plan. If the Plan is not confirmed and consummated, the alternatives to the Plan are (i) the preparation and presentation of an alternative plan of reorganization, (ii) a sale of some or all of the Debtors’ assets pursuant to section 363 of the Bankruptcy Code, or (iii) a liquidation under chapter 7 of the Bankruptcy Code.
 
A.
Alternative Plan of Reorganization