UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

--------------------------------------------------------------- In re AMES DEPARTMENT STORES, INC., et al.,

Debtors. ---------------------------------------------------------------

x : : : : : x

Chapter 11 Case No. 01-42217 (REG) (Jointly Administered)

DEBTORS’ DISCLOSURE STATEMENT FOR MODIFIED SECOND AMENDED CHAPTER 11 PLAN

PROSKAUER ROSE LLP Eleven Times Square New York, New York 10019 Tel: (212) 969-3000 Fax: (212) 969-2900

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STORCH AMINI & MUNVES PC 2 Grand Central Tower New York, New York 10017 Tel: (212) 490-4100 Fax: (212) 490-4208

Attorneys for the Debtors and Debtors in Possession

Dated: September 10, 2013 New York, New York

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Table of Contents

Page

I. Introduction ......................................................................................................................... 1

II. Financial Information/Description of Assets Available for Distribution ........................... 3

III. Voting ................................................................................................................................. 3

IV. Background Concerning the Debtors and Their Chapter 11 Cases .................................... 4 A. Prepetition Business Operations ..............................................................................4 B. Prepetition Capital Structure ....................................................................................5 C. Events Leading to the Chapter 11 Cases..................................................................5 D. Events During the Chapter 11 Cases .......................................................................5

1. Postpetition Financing .................................................................................5 2. Going Out of Business Sales........................................................................7 3. Employee Retention Program ......................................................................8 4. Efforts to Satisfy Secured and Administrative Claims ................................9 5. Sources of Recovery ..................................................................................10 6. Insurance Litigation ...................................................................................11 7. Cellmark Litigation ....................................................................................14

V. The Plan ............................................................................................................................ 14 A. Overall Structure of the Plan..................................................................................15 B. Treatment of Administrative Claims and Priority Tax Claims ..............................15 C. Treatment of Professional Fee Claims ...................................................................16

1. Final Fee Applications ...............................................................................17 2. Professional Fee Escrow Account .............................................................17 3. Professional Fee Reserve Amount .............................................................17

D. Indenture Trustee Fees ...........................................................................................16 E. Classification and Treatment of Claims and Equity Interests ................................16

1. Class 1 – Priority Non-Tax Claims ............................................................17 2. Class 2 – Note Claims ................................................................................17 3. Class 3 – General Unsecured Claims .........................................................17 4. Classes 4, 5, and 6 – Section 510(b) Claims, Intercompany Claims,

and Equity Interests....................................................................................18 F. Means for Implementing the Plan ..........................................................................19

1. Substantive Consolidation .........................................................................19 2. Liquidation of the Debtors .........................................................................20 3. Plan Administrator .....................................................................................21 4. Plan Committee ..........................................................................................21 5. No Liability ................................................................................................22 6. Indemnification ..........................................................................................22 7. State Street Escrow ....................................................................................22 8. Leesport Property Escrow ..........................................................................23 9. PIP and ERP Obligations ...........................................................................23

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10. Corporate Action ........................................................................................23 11. Continued Corporate Existence; Dissolution of the Debtors .....................23 12. Cancellation of Securities ..........................................................................24 13. Preservation of Causes of Action ...............................................................24

G. Executory Contracts and Unexpired Leases ..........................................................24 1. Assumed and Rejected Executory Contracts and Unexpired Leases.........24 2. Rejection Damages Bar Date .....................................................................25

H. Distribution Provisions ..........................................................................................25 1. Administrative and Disputed Claims Reserves..........................................25 2. Record Date for Distributions ....................................................................25 3. Delivery of Distributions ...........................................................................26 4. Manner of Distributions .............................................................................26 5. Minimum Distributions ..............................................................................26 6. Undeliverable Distributions .......................................................................27 7. Failure to Present Checks...........................................................................27

I. Claim Administration Provisions ...........................................................................27 1. Reservation of Rights to Object to Claims ................................................27 2. Claim Objection Deadline ..........................................................................28 3. Filing of Objections ...................................................................................28 4. Amendments to Claims ..............................................................................28 5. Setoff and Recoupment ..............................................................................28 6. No Interest ..................................................................................................28 7. Disallowance of Claims Payable by Third Parties .....................................28 8. Disallowance of Duplicative Note Claims .................................................29

J. Effect of Plan Confirmation ...................................................................................29 1. Injunction ...................................................................................................29 2. Exculpation ................................................................................................29 3. Release of Directors and Officers ..............................................................29 4. Terms of Stays and Injunctions..................................................................30

VI. Certain Factors to be Considered Regarding the Plan ...................................................... 30 A. Lumbermens Action...............................................................................................30 B. Cellmark Litigation ................................................................................................30 C. Risks Regarding the Amount of Allowed Administrative, Priority Tax, and

Priority Non-Tax Claims........................................................................................30 D. Bankruptcy Considerations ....................................................................................31 E. Overall Risks ..........................................................................................................31

VII. Certain Federal Income Tax Consequences of the Plan ................................................... 31 A. Federal Income Tax Consequences to the Debtors ................................................32

1. Overview of Current Year Tax Position and NOLs...................................32 2. Cancellation of Indebtedness Income ........................................................32

B. Federal Income Tax Consequences to Holders of Allowed Note and General Unsecured Claims ....................................................................................33

C. Federal Income Tax Consequences to Holders of Section 510(b) Claims and Equity Interests................................................................................................33

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D. Withholding and Reporting....................................................................................33

VIII. Alternatives to Confirmation of the Plan .......................................................................... 34

IX. Acceptance and Confirmation of the Plan ........................................................................ 34 A. General Confirmation Requirements .....................................................................34 B. Best Interest Test....................................................................................................34 C. Feasibility ...............................................................................................................36 D. Acceptance by an Impaired Class ..........................................................................36

I. Introduction

This disclosure statement (the “Disclosure Statement”) has been prepared by Ames Department Stores, Inc. (“Ames”), Ames Merchandising Corporation, Amesplace.com, Inc., Ames Realty II, Inc., and Ames Transportation Systems, Inc. (together, the “Debtors”) for use in the solicitation of votes to accept or reject their modified second amended chapter 11 plan, a copy of which is enclosed herewith (as amended or modified, the “Plan”). Unless otherwise defined herein, all capitalized terms in the Disclosure Statement have the meanings ascribed to them in the Plan.

On September 10, 2013, the Bankruptcy Court entered an order (a) approving the Disclosure Statement as containing adequate information of a kind and in sufficient detail to enable a hypothetical creditor to make an informed judgment whether to accept or reject the Plan, (b) establishing procedures for soliciting and tabulating votes on the Plan, and (c) scheduling a hearing at which the Bankruptcy Court shall consider confirmation of the Plan. Approval of the Disclosure Statement by the Bankruptcy Court does not constitute a determination by it as to the fairness or merits of the Plan.

The Disclosure Statement should not be considered financial or legal advice. Creditors and shareholders of the Debtors should consult their own advisors if they have questions about the Plan or Disclosure Statement.

The following is a summary of the treatment of Claims against and Equity Interests in the Debtors under the Plan:

• Each holder of an Allowed Administrative Claim, Priority Tax Claim,1 and Priority Non-Tax Claim will be paid in full in Cash on the Effective Date of the Plan, in full satisfaction of such Claim. For the avoidance of doubt, all Disputed Administrative Claims are identified on Schedule 2.1 of the Plan. Upon the Effective Date, all Disputed Administrative Claims shall be disallowed and expunged; provided, however, that no Disputed Administrative Claim that has not been resolved prior to the Confirmation Date shall be disallowed or expunged without notice to the holder of such Claim and an appropriate order of the Bankruptcy Court disallowing or expunging such Claim. Subject to limited exceptions, the Debtors shall not be required to pay any Administrative Claims not identified on Schedule 2.1 and which have not been Allowed prior to the Effective Date or are the subject of a pending objection.

• Each holder an Allowed Note Claim, i.e., a Claim against any of the Debtors arising under the Debtors’ 10% senior notes due 2006 and 12.5% senior notes due 2003, and General Unsecured Claim will receive, in full satisfaction of such Claim, its Pro Rata share of the Debtors’ Available Cash, i.e., the Debtors’ Cash and Cash proceeds of the Debtors’ other Assets remaining after the establishment

1 The Debtors estimate that there are approximately $4.19 million in Allowed Priority Tax Claims and $2.65 million in Disputed Priority Tax Claims.

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of certain reserves and a Professional Fee Escrow Account, and any excess Cash in such reserves and the Professional Fee Escrow Account.

Given the Debtors’ current position, the Debtors may be in a position to make Distributions to holders of Allowed Note and General Unsecured Claims, even in the absence of a favorable result in the Lumbermens Action, depending upon the number and amount of Allowed General Unsecured Claims. If the Debtors achieve a favorable result in the Lumbermens Action, the Debtors anticipate making one or more Distributions to holders of Allowed Note and General Unsecured Claims; provided, however, that such Distributions likely shall not exceed, in the aggregate, 1% of the Allowed amount of Note and General Unsecured Claims.

In order to maximize recoveries to holders of Allowed Note and General Unsecured Claims, and to reduce administrative costs, the Debtors will ask the Bankruptcy Court to approve certain procedures governing the delivery of Distributions set forth in Section 6.3 of the Plan and described below.

• Each holder of a Section 510(b) Claim and Equity Interest will receive nothing on account of such Claim or Equity Interest and all such Claims and Equity Interests will be cancelled.

Estimated distributions to creditors are summarized in the following table:2

Class Description Impairment Estimated Claim Amounts

Estimated Distribution

Amounts

Percentage Recovery

Class 1 Priority Non-Tax Claims Unimpaired $0 Paid in full 100%

Class 2 Note Claims Impaired $251.4 million Undetermined 0-1%

Class 3 General Unsecured Claims Impaired Not less than $111

million3 Undetermined 0-1%

Class 4 Section 510(b) Claims Impaired $0 $0 0%

Class 5 Intercompany Claims Impaired $0 $0 0%

2 These estimates are subject to revision in material ways and should not be considered a representation that actual Distributions will necessarily fall within this range.

3 There are approximately $1.008 billion in filed General Unsecured and Note Claims against the Debtors. The Debtors estimate that (a) many of these Claims can and will be disallowed and expunged pursuant to section 502(b) of the Bankruptcy Code and (b) many Claimholders will not be entitled to receive a Distribution even if their Claims are Allowed pursuant to the Plan’s minimum Distribution provisions. To date, approximately $111 million in General Unsecured Claims have been Allowed. The foregoing preliminary estimate values unliquidated General Unsecured Claims at $0 and does not include proofs of claim identified by the Claims Agent as asserting a Claim for Equity Interests.

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Class Description Impairment Estimated Claim Amounts

Estimated Distribution

Amounts

Percentage Recovery

Class 6 Equity Interests Impaired N/A $0 0%

II. Financial Information/Description of Assets Available for Distribution

As of June 23, 2013, the Debtors’ sole assets available for Distribution and satisfaction of the Administrative and Disputed Claims Reserve are:

• Cash in the amount of approximately $4.263 million.

• Approximately $5.9 million in the Professional Fee Escrow.4

• Receivables of approximately $124,000.

• State Street Escrow (as described below).

• Leesport Escrow (as described below) of approximately $133,750 plus interest.

In addition, the Debtors believe there may be additional funds available from the Lumbermens Action, which could potentially yield up to $8 million in Trust Funds and approximately $6.35 million in additional amounts due under a Surety Bond (each as defined below), subject to the proviso that the latter amounts are only recoverable from Lumbermens (as defined below), which is currently the subject of a liquidation proceeding.

Further, the Debtors may be entitled to retain proceeds of approximately $1.5 million (net of contingency fees) from preferential transfer litigation with Cellmark Paper Inc. (“Cellmark”), as described in greater detail below, if the United States Supreme Court either declines to hear Cellmark’s petition for writ of certiorari seeking review of the Second Circuit’s December 26, 2012 decision in favor of Ames Merchandising Corporation or otherwise declines to grant the relief sought by Cellmark.

The Debtors strongly recommend that all creditors entitled to vote on the Plan vote to accept the Plan. The Debtors believe that confirmation of the Plan will provide the greatest and earliest possible recovery to creditors.

III. Voting

The Plan divides Claims against and Equity Interests in the Debtors into various Classes and provides separate treatment for each Class. As provided in section 1123(a)(1) of the

4 As of June 23, 2013 the Debtors had approximately $5.9 million in an interest-bearing escrow account pursuant to a Bankruptcy Court-approved stipulation, dated as of September 30, 2002 (the “Professional Fee Escrow”). The Professional Fee Escrow was established at the commencement of the Chapter 11 Cases to satisfy any deficiency in the event there are insufficient funds at the close of such cases to satisfy Allowed Professional fees and expenses.

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Bankruptcy Code, Administrative Claims and Priority Tax Claims have not been classified under the Plan. All such Claims will be treated separately and will be paid in full, to the extent Allowed and provided in the Plan. Class 1 (Priority Non-Tax Claims) will also be paid in full, to the extent Claims in such Class are Allowed. Creditors in these Classes are unimpaired, conclusively presumed to have accepted the Plan, and are not entitled to vote on the Plan.

All other Classes of Claims and Equity Interests under the Plan are impaired. Holders of Allowed Claims in Classes 2 and 3 (Note Claims and General Unsecured Claims) are entitled to vote on the Plan, as they will be entitled to receive Distributions on account of their Claims if the Debtors have sufficient Available Cash to make Distributions to holders of such Claims. Holders of Claims in Classes 4, 5, and 6 (Section 510(b) Claims, Intercompany Claims, and Equity Interests) will not receive a Distribution on account of their Claims and Equity Interests and are not entitled to vote on the Plan.

The record date for determining a Claimholder’s eligibility to vote on the Plan shall be the date of the hearing on the Debtors’ motion for entry of the Disclosure Statement Order. Only those creditors entitled to vote on the Plan will receive a ballot to vote on the Plan. If you believe that you are a member of a voting Class for which you did not receive a ballot, if your ballot is damaged or lost, or if you have questions concerning voting procedures, please contact the Debtors’ Claims Agent, Donlin Recano & Company, Inc., at (212) 481-1411. The Claims Agent cannot provide you with legal advice.

In voting for or against the Plan, please use only the ballot or ballots sent to you with this Disclosure Statement. Please read the Disclosure Statement Order for a thorough explanation of voting procedures. In order to be counted, ballots must be actually received by the voting deadline of 5:00 p.m. (prevailing Eastern Time) on October 18, 2013. Therefore, Noteholders must deliver their ballots to their nominees with sufficient time for such nominees to complete and deliver master ballots to the Claims Agent prior to the voting deadline.

Your vote is important. The Bankruptcy Code defines acceptance by a Class of Claims as acceptance by holders of at least two-thirds in amount and a majority in number of Allowed Claims in that Class that vote. Only the Claims of those creditors that actually vote are counted for the purpose of determining whether a Class has voted to accept the Plan. Accordingly, your failure to vote will leave to others the decision to accept or reject the Plan.

IV. Background Concerning the Debtors and Their Chapter 11 Cases

A. Prepetition Business Operations

Prior to commencing their Chapter 11 Cases, the Debtors were the largest regional discount retailer in the United States. Through their subsidiaries, they operated over 450 stores in 19 states in the Northeast, Midwest, and Mid-Atlantic regions, as well as the District of Columbia. The Debtors also operated distribution facilities in Pennsylvania, Massachusetts, and Ohio. As of the Petition Date, the Debtors employed approximately 30,000 employees in their retail stores, distribution centers, and corporate offices.

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The Debtors’ stores offered a wide range of brand name and other quality merchandise for the home and family at prices below those of conventional department stores and specialty retailers. Specifically, the Debtors sold merchandise in three major categories: home lines (e.g., crafts, furniture, linens, home entertainment products, housewares, and small appliances), softlines (e.g., jewelry and apparel for women, men, and children), and hardlines (e.g., health and beauty care products, toys, stationery, gift wrap, and holiday decorations). In addition, all of the Debtors’ stores included a shoe department operated by an independent licensee.

As of the fiscal year ending February 3, 2001, the Debtors had net sales of approximately $4 billion. As of August 4, 2001, the Debtors’ books and records reflected assets totaling approximately $1.90 billion and liabilities totaling approximately $1.56 billion.

B. Prepetition Capital Structure

In addition to operating leases and trade debt, the Debtors’ prepetition consolidated capital structure consisted of a revolving credit and term facility secured by substantially all of the Debtors’ assets, a financing facility secured by certain real property interests and inventory, the 10% Notes, the 12.5% Notes, and a single class of common stock, as described in greater detail in the affidavit of Rolando de Aguiar, filed with the Bankruptcy Court on the Petition Date [Docket No. 2] (the “First Day Affidavit”).

The Debtors’ obligations in connection with the revolving credit and term facility and the financing facility were fully satisfied during the Chapter 11 Cases. As of the Petition Date, the Debtors owed approximately $200 million in principal amount in respect of the 10% Notes and $43.6 million in principal amount in respect of the 12.5% Notes.

C. Events Leading to the Chapter 11 Cases

By the Petition Date of August 20, 2001, general market conditions had led to a broad decline in the retail sector. As a result of such conditions, many retailers had suffered substantial losses resulting in numerous retailer bankruptcies, including Bradlees Stores, Inc., Caldor, Inc., Casual Male Corp., Montgomery Ward Holding Corp., Pergament Home Centers, Inc., and Wolf Camera, Inc., among others. The short-term cause of the Debtors’ Chapter 11 Cases was their inability to obtain the financing necessary to enable them to maintain an adequate supply of inventory going into the fall “back to school” and Christmas seasons, as described in the First Day Affidavit.

D. Events During the Chapter 11 Cases

Material events since the commencement of the Chapter 11 Cases are summarized below.

1. Postpetition Financing

As part of the preparation for the commencement of the Chapter 11 Cases, the Debtors negotiated the terms of debtor in possession financing facilities in the amounts of $700 million and $55 million from a group of lenders led by GE Capital Corporation (“GE”) and Kimco Funding, LLC (“Kimco”), respectively, to provide working capital during the Chapter 11 Cases.

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Specifically, on September 5, 2001, the Bankruptcy Court entered a final order approving that certain Debtor in Possession Credit Agreement, dated as of August 20, 2001 (the “GE DIP Agreement”), among the Debtors, GE, and other lenders party thereto (the “GE DIP Lenders”). The GE DIP Agreement provided the Debtors with a $700 million debtor in possession credit facility, consisting of (a) a Tranche A revolver of up to $575 million, with a letter of credit sublimit of $50 million, (b) a Tranche B revolver of up to $50 million, and (c) a term loan of up to $75 million.

The GE DIP Lenders were granted a superpriority claim against the Debtors’ estates except with respect to the Debtors’ right, title, and interest in all real property leases in which the lenders under the Initial Kimco DIP Agreement (as hereinafter defined) were granted a first priority lien. The GE DIP Agreement provided for an escrow account in the aggregate amount of $5 million to fund a carve-out reserve to satisfy any deficiency in the event there are insufficient funds at the close of the Chapter 11 Cases to satisfy allowed, accrued, and unpaid fees of Professionals. During the course of the Chapter 11 Cases, the Debtors’ obligations under the GE DIP Agreement were fully satisfied.

The carve-out reserve remains in escrow in an amount equal to the initial $5 million (plus accrued interest), and to the extent such escrowed funds are not needed to satisfy allowed, accrued, and unpaid fees of professionals, such funds will be available for distribution to creditors pursuant to the Plan.

On September 25, 2001, the Bankruptcy Court also entered a final order approving that certain Debtor in Possession Credit Agreement, dated as of August 20, 2001, among the Debtors and Kimco (the “Initial Kimco DIP Agreement”). The Initial Kimco DIP Agreement provided the Debtors with a $55 million term loan facility. The lenders under the Initial Kimco DIP Agreement were granted a priority claim against the Debtors’ estates which ranked junior to the superpriority claims of the GE DIP Lenders (except with respect to the Debtors’ right, title, and interest in all real property leases in which the lenders under the Initial Kimco DIP Agreement were granted a first priority lien). During the course of the Chapter 11 Cases, the Debtors’ obligations under the Initial Kimco DIP Agreement were fully satisfied.

On July 25, 2002, the Bankruptcy Court entered an order [Docket No. 1047] authorizing the Debtors to enter into an agreement with KRC Acquisition Corp. (“KRC”), a Kimco affiliate, dated as of June 14, 2002 (the “KRC Agreement”), pursuant to which the Debtors would sell and lease back certain of the Debtors’ fee-owned properties and assign three unexpired leases of nonresidential real property in consideration for a purchase price of $59 million to be paid by KRC to the Debtors.

Shortly after executing the KRC Agreement, the Debtors received a $20 million advance, to be applied to the purchase price upon the closing of the transaction with KRC. The KRC Agreement further provided that, in consideration for such advance, KRC would be afforded the identical protections granted to Kimco under the Initial Kimco DIP Agreement pursuant to section 364 of the Bankruptcy Code.

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2. Going Out of Business Sales

Several months prior to commencing the Chapter 11 Cases, through and including June 2002, the Debtors engaged in an extensive review of their store locations to determine whether or not each of the stores figured into the Debtors’ long term business plan. In connection with this review, the Debtors closed over 150 stores. By orders dated August 20, 2001, November 19, 2001, December 21, 2001, and June 11, 2002, the Debtors obtained Bankruptcy Court approval to conduct going out of business sales and enter into agency agreements with The Nassi Group, LLC to conduct such sales at 123 of the Debtors’ store locations.

Through July 2002, the Debtors weathered their anticipated low point in credit availability with the help of asset sales and additional financing. The Debtors, together with the Creditors’ Committee and the GE DIP Lenders, all wanted the Debtors to operate through the summer, after which the “back to school” and holiday seasons would generate substantial profits.

Although the Debtors made it to their projected low point in availability with slightly better credit availability than their business plan contemplated, particularly starting in late July 2002, sales dropped precipitously below plan despite significant paper and television advertising. In addition, the Debtors were increasingly unable to obtain merchandise from trade vendors, particularly from vendors that financed their businesses by assigning accounts receivable from the Debtors to commercial factors.

Before a default occurred under the GE DIP Agreement, the Debtors, the Creditors’ Committee, and the GE DIP Lenders weighed the risks to be incurred by continuing operations against the prospects of a prompt wind down. In the exercise of their fiduciary duties, the Debtors concluded, with the concurrence of the GE DIP Lenders and the Creditors’ Committee, to wind down operations in August 2002 in the hopes of paying all postpetition Allowed Claims.

On August 14, 2002, the Ames board of directors announced the value of the Debtors’ estates could best be maximized through an orderly wind down of the Debtors’ affairs. On August 16, 2002, the Bankruptcy Court entered an order [Docket No. 1096] authorizing the Debtors to, among other things, conduct going out of business sales at their remaining locations while the Debtors wound down their business (the “Wind Down”).

Contemporaneous with the decision to conduct the going out of business sales, the Debtors suspended payment of Administrative Claims of trade vendors. This decision was made to preserve the Debtors’ assets to ensure a fair distribution to holders of Administrative Claims.

Further, to conduct the Wind Down in an orderly fashion, the Debtors secured a new debtor in possession financing facility which permitted the Debtors to obtain up to $100 million in new working capital to preserve the value of the Debtors’ estates. Specifically, the Debtors entered into that certain Revolving Credit, Guaranty, and Security Agreement with Kimco, dated as of September 27, 2002, as amended (the “DIP Agreement”), pursuant to which Kimco committed to provide new debtor in possession financing in the aggregate amount of up to $100 million to be used to pay the Debtors’ obligations under the Initial Kimco DIP Agreement and the KRC Agreement, and fund the Employee Retention Program (described below) and operations during the Wind Down. All obligations arising under the GE DIP Agreement were

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scheduled to be paid before the Debtors could borrow under the DIP Agreement. By order dated October 23, 2002 [Docket No. 1283], the Bankruptcy Court authorized the Debtors to enter into the DIP Agreement, as further modified at the hearing held on October 23, 2002. A condition precedent to closing the transaction contemplated by the DIP Agreement was the discharge of all the Debtors’ obligations under their existing debtor in possession financing agreements (i.e., the GE DIP Agreement, the Initial Kimco DIP Agreement, and the KRC Agreement).

On November 21, 2003, the Bankruptcy Court issued an order authorizing, among other things, the Debtors to amend the borrowing base in the DIP Agreement to provide for up to $32.5 million in revolving credit, plus an additional $12.5 million in revolving credit on the terms set forth in such amendment, pursuant to section 364(c) of the Bankruptcy Code, which amounts were for the purpose of, among other things, funding the payment of certain Administrative Claims. The DIP Agreement has been paid in full, and all loan fees owed to Kimco in connection therewith have been satisfied.

3. Employee Retention Program

At the time the Debtors commenced the Wind Down, the Debtors reported that they had approximately $120.4 million in unpaid Administrative Claims in addition to substantial secured claims.

Following the Debtors’ determination to commence the Wind Down, the Debtors sought to secure employment services required while the Debtors wound down their business. In order to secure such services, the Debtors needed to provide their employees with an incentive to continue working for the Debtors. To this end, the Debtors, in concurrence with the Creditors’ Committee, formulated an employee severance, retention, and performance incentive program to provide incentives to retain key employees during the Wind Down (the “Employee Retention Program”), which they submitted to the Bankruptcy Court for approval by Motion dated October 22, 2003 [Docket No. 2383].

The Employee Retention Program had four major components: (a) accrued vacation and severance payments for approximately 21,000 store-level employees, home office employees, and field staff terminated on or after August 14, 2002, who would initially receive 100% of their accrued vacation and a severance payment equal to 40% of their severance amount calculated based on the Debtors’ historical severance policy for non-officers and 25% of their severance amount calculated based on the Debtors’ historical severance policy or contracts for officers, (b) accrued vacation and severance payments for approximately 120 key employees whose employment would be gradually terminated after November 1, 2002 until the conclusion of the Wind Down and Cash payments to such key employees ranging from 50% to 100% of each key employee’s base weekly salary multiplied by the number of weeks worked subsequent to November 1, 2002, to be paid upon termination, (c) incentive payments for a limited number of key employees who achieve predetermined, targeted recovery goals (the Performance Incentive Program), and (d) an executive incentive program (the “Expected Recovery Percentage Program”).

The Debtors’ President and Chief Wind Down Officer, Rolando de Aguiar, is the only participant in the Expected Recovery Percentage Program. Pursuant to such program, Mr. de

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Aguiar became entitled to an incentive award of $800,000 upon the Debtors’ payment or satisfaction of 89.78% of $120.4 million in Administrative Claims, i.e., $108.1 million. Upon the Debtors’ payment or satisfaction of 100% of $120.4 million in Administrative Claims, Mr. de Aguiar became entitled to an incentive award of $1.311 million, which amount was distributed following the Debtors’ achievement of this threshold. Further, pursuant to the Expected Recovery Percentage Program, in the event Administrative Claim recoveries exceed 100% of $120.4 million, accruals under such program are suspended, but after Allowed Priority Tax and Priority Non-Tax Claims are satisfied in full, such program may resume based upon a formula to be determined by the Debtors, in consultation with the Creditors’ Committee. Thus, additional compensation may be due to Mr. de Aguiar based upon actual creditor recoveries if such program is resumed.

During the course of the Chapter 11 Cases, the Debtors have significantly reduced employee headcount. At the commencement of the Debtors’ Chapter 11 Cases, they employed approximately 29,700 employees. When the Debtors announced the commencement of the Wind Down in August 2002, they had approximately 21,500 employees. Approximately six months later, in February 2003, the Debtors had only 65 employees. As of today, the Debtors have only two full-time employees, one of which is the Debtors’ sole officer, Mr. de Aguiar.

4. Efforts to Satisfy Secured and Administrative Claims

As noted above, concurrently with the decision to commence the Wind Down in August 2002, the Debtors suspended payments to all holders of Administrative Claims in the Chapter 11 Cases, including trade vendors and service providers.

Thereafter, the Debtors began a systematic campaign to reconcile, confirm, and satisfy Administrative Claims with proceeds from the Wind Down. The Debtors’ efforts were initiated in three distinct phases.

The first phase occurred between October 2002 and June 2003. During the first phase, the Debtors wrote to all potential Administrative Claimholders in an attempt to fix their Administrative Claims in anticipation of future distributions. By June 2003, the Debtors had contacted the majority of potential Administrative Claimholders and fixed the amount of their Administrative Claims.

The second phase began in November 2003. During this phase, the Debtors obtained an order from the Bankruptcy Court authorizing Ames to purchase Administrative Claims at 50% of their face value. The Debtors mailed letters to potential Administrative Claimholders offering to satisfy their Administrative Claims in full for a payment equal to 50% of the face value of such claims (the Debtors offered 40% to former employees).

During this second phase, a large number of Administrative Claimholders responded to the Debtors’ offer, and by the Fall of 2004, (a) the majority of Administrative Claimholders had been identified, (b) the amount of their Administrative Claims had been fixed, and (c) a number of Administrative Claimholders had accepted the Debtors’ offer for immediate payment of 50% of the face value of such claims (40% for former employees) in full and final satisfaction of their respective Administrative Claims.

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The third phase began in December 2004. During the third phase, the Debtors began making interim distributions to holders of Administrative Claims in an initial amount equal to 40% of the allowed amount of such claims, with certain exceptions.

To ensure an orderly process, the Debtors mailed to Administrative Claimholders a confirmation form. The Debtors requested that the recipient acknowledge the amount of its Administrative Claim by signing and returning the confirmation form to the Debtors. After receiving a signed confirmation form, the Debtors made distributions equal to 40% of the face amount of the relevant Administrative Claims. By 2005, the Debtors had identified the vast majority of holders of Administrative Claims and had commenced making distributions on account of such Claims, while maintaining an adequate reserve for Disputed Administrative Claims.

In December 2007, the Debtors made a subsequent distribution to confirmed Administrative Claimholders in an amount equal to 12% of the allowed amount of their claims; In December 2008, the Debtors made an additional distribution to confirmed Administrative Claimholders in an amount equal to 18% of the allowed amount of such claims; and in July 2009, the Debtors made an additional distribution to confirmed Administrative Claimholders in an amount equal to 20% of the allowed amount of such claims.

By April 2010, the Debtors had made distributions in an amount equal to 90% of the confirmed amount of undisputed Administrative Claims. However, despite the Debtors’ efforts to make distributions to Administrative Claimholders, the Debtors still held some cash reserved for Administrative Claimholders who had yet to make claims or confirm their entitlement to payment. Moreover, some Administrative Claimholders received initial distributions, but failed to cash subsequent distribution checks.

By order dated April 23, 2010 [Docket No. 3462], the Bankruptcy Court established June 15, 2010 at 5:00 p.m. (prevailing Eastern Time) as the final date for filing requests payment of Administrative Claims. As set forth in such order, the bar date also applied to holders of Claims under the Debtors’ Voluntary Employee Health Benefit Trust, which had been terminated by the Debtors in 2004. Approximately fifty non-duplicative Administrative Claims were filed in response to the Administrative Claim Bar Date.

By October 2012, the Debtors made distributions in an amount equal to 100% of the confirmed amount of undisputed Administrative Claims held by persons or entities other than Mr. de Aguiar. Certain Disputed Administrative Claims remain unpaid, as identified in Schedule 2.1 of the Plan.

5. Sources of Recovery

During the Wind Down, the Debtors concluded real estate transactions involving the designation rights, assumption and assignment, and rejection of over 300 unexpired leases. Sale of designation rights yielded significant recoveries for the Debtors.

The proceeds received by the Debtors from the Wind Down enabled the Debtors to fully satisfy their obligations under their outstanding postpetition financing agreements. Accordingly, as noted above, the Debtors have satisfied all of their secured claims.

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Moreover, the Debtors commenced approximately 1,800 preference actions during the Wind Down. The Debtors sent demand letters to, or commenced litigations against, 3,518 vendors seeking to recover payments made during the 90-day period preceding the Petition Date that were potentially avoidable transfers. All matters resulting in a net recovery to the Debtors’ estates have been resolved, yielding approximately $70 million for the Debtors’ estates either in cash or waiver of Administrative Claims. In addition, the Debtors report approximately $96 million in General Unsecured Claims have been waived as part of the resolution of the preference actions.

On April 6, 2012, the Debtors filed a motion to (a) release the Debtors from further Administrative Claim liability owed to certain non-responsive claimants and (b) establish procedures to expunge Administrative Claims held by certain other non-responsive claimants [Docket No. 3973]. As set forth more fully in such motion and the accompanying declaration in support thereof, the Debtors have endeavored to reconcile claims and make distributions to certain Administrative Claimholders who have not responded to the Debtors’ communications. The motion requested entry of an order establishing procedures whereby Administrative Claims held by unresponsive claimants were deemed abandoned and discharged in order to permit the Debtors to distribute approximately $3 million in funds held in reserve for such unresponsive claimants to known holders of Allowed Claims, without concern that depletion of the reserve would cause liquidity issues in the future.

By order dated April 20, 2012 [Docket No. 3976], the Bankruptcy Court authorized the Debtors to carry out the procedures set forth in the motion and, thereafter, the claims held by unresponsive claimants were deemed abandoned and discharged. The procedures established by the order approving the motion allowed the Debtors to move forward towards solicitation and confirmation of their Plan.

6. Insurance Litigation

On or about November 1, 2000, Ames contracted with Lumbermens Mutual Casualty Co. d/b/a Kemper Insurance Companies (“Lumbermens”) for a $14.35 million surety bond (the “Surety Bond”) to secure Ames’s obligations to its insurer, The St. Paul Travelers Companies, Inc. (“Travelers”). Pursuant to the transaction documents governing the Surety Bond, Lumbermens agreed to pay Travelers within seven days of a demand by Travelers, without any further condition, and Ames agreed to reimburse Lumbermens for payments made under the Surety Bond. On or about October 25, 2001, in connection with Ames’s insurance program, Ames also obtained for Travelers’ benefit two letters of credit in the amount of $14.6 million and $12.25 million, respectively, which letters of credit were fully cash collateralized by Ames.

In May 2003, Travelers made a demand for the full amount of the Surety Bond and Lumbermens refused to pay the $14.35 million to Travelers. Travelers then sued Lumbermens to compel payment in the United States District Court for the District of Connecticut (see The Travelers Indemnity Co. v. Lumbermens Mutual Ins. Co., Civ. A. No. 303-cv-989). Without seeking relief from the Bankruptcy Court, Lumbermens and Travelers entered into a purported modification of Ames’ Surety Bond (the “Surety Bond Modification”). The Surety Bond Modification, among other things, (a) prohibited Travelers from drawing on the $14.35 million until Travelers drew down the full $26.85 million under the letters of credit; (b) provided that

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instead of paying $14.35 million on demand, Lumbermens would pay only $8 million, with such funds to be held in trust (the “Trust Funds”), and that such Trust Funds would only be applied after Travelers exhausted the letters of credit; (c) provided that Lumbermens’s obligation on the remaining portion of the Surety Bond would only arise after the letters of credit and the Trust Funds were exhausted.

On November 3, 2006, Ames commenced an adversary proceeding against Lumbermens and Travelers requesting, among other things, that the Bankruptcy Court fix the amount of Ames’s obligations to Travelers under its insurance program, order the release of excess collateral provided by Ames, determine that Ames’s liability should be satisfied from the Surety Bond prior to any draw on the letters of credit, order the release of the letters of credit and a judgment for breach of contract claims, and award Ames interest, fees, and costs. Adv. Pro. No. 06-01890 [Adv. Pro. Docket No. 1] (the “Lumbermens Action”).

On November 15, 2007, the Bankruptcy Court entered an order approving a stipulation between Ames and Travelers whereby Travelers agreed to release the $12.25 million letter of credit and reduce the remaining letter of credit from $14.6 million to $13.35 million [Adv. Pro. Docket No. 22]. The Debtors used funds freed up in connection with the foregoing to satisfy outstanding Administrative Claims.

On November 25, 2008, the Bankruptcy Court entered an order approving a settlement between Ames and Travelers [Docket No. 3379], which order (a) fixed Ames’s remaining payment obligations under its insurance program to Travelers at $6,511,508; (b) provided that the foregoing obligations would be satisfied from the remaining $13.35 million letter of credit; and (c) provided that after satisfaction of the foregoing obligations the undrawn amount of the surviving letter of credit would be cancelled.

On March 31, 2009, Ames filed a second amended complaint seeking (a) damages from Lumbermens for breach of the Surety Bond, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and violation of the automatic stay under section 362 of the Bankruptcy Code; (b) an order directing the payment of the Trust Funds and remaining amounts due under the Surety Bond to Ames; and (c) an order directing Lumbermens and/or its affiliated property and casualty insurer, American Motorists Insurance Co. (“AMIC”), to release certain excess collateral held by Lumbermens in connection with its issuance of a bond for the benefit of the United States Department of the Treasury Customs Service in the amount of $1.2 million to secure Ames’s obligations to pay taxes and duties in connection with the importation of foreign goods (the “Customs Bond”) [Adv. Pro. Docket No. 30]. On May 28, 2009, Lumbermens and AMIC filed an answer to the second complaint and asserted several counterclaims against Ames [Adv. Pro. Docket No. 33].

Thereafter, the parties engaged in discovery. In addition, the Customs Bond claims asserted by Ames and related counterclaims were resolved by stipulation and order of the Bankruptcy Court, dated July 7, 2011 [Adv. Pro. Docket No. 49].

On July 2, 2012, a rehabilitation proceeding with respect to Lumbermens was commenced by Andrew Boron, Director of Insurance of the State of Illinois (in such capacity, the “Rehabilitator”) in the Circuit Court of Cook County, Illinois (Case No. 12-ch-24227).

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On August 2, 2012, the Bankruptcy Court entered a stipulation and order providing, among other things, that (a) prior to September 14, 2012 neither Ames nor the Rehabilitator would take any action in any forum concerning or affecting jurisdiction over or substantive rights with respect to the Trust Funds; and (b) during the 45 days following September 14, 2012, the same terms shall apply except Ames may move the Bankruptcy Court for relief regarding the jurisdiction of the Bankruptcy Court to hear and determine the Lumbermens Action [Adv. Pro. Docket No. 57] (the “August 2012 Standstill Order”).

On September 14, 2012, Ames filed a motion for an order confirming that the Bankruptcy Court holds exclusive jurisdiction over the Trust Funds and all matters relating to the Lumbermens Action [Adv. Pro. Docket No. 59], as amended by a subsequent motion filed October 25, 2012 [Adv. Pro. Docket No. 64] (the “Jurisdiction Motion”).

On October 19, 2012, the Rehabilitator filed a motion to withdraw the reference of the Lumbermens Action by the United States District Court for the Southern District of New York (the “District Court”) to the Bankruptcy Court on the grounds that resolution of the proceeding now requires consideration of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-1015, in addition to the Bankruptcy Code. Ames has filed an opposition to the Rehabilitator’s motion to withdraw the reference [District Ct. Docket No. 4] and the Rehabilitator’s motion is currently pending before the District Court (Case No. 12-cv-08365).

On November 27, 2012, the Bankruptcy Court entered a stipulation and order extending the August 2012 Standstill Order, which stipulation and order provided that until the Jurisdiction Motion is determined, there shall be a wholly mutual standstill by both Ames and the Rehabilitator of any and all legal action in any forum except the Bankruptcy and District Courts, such that neither Ames nor the Rehabilitator shall commence or take any unilateral action in any other forum concerning or affecting jurisdiction over, or substantive rights with respect to, the Lumbermens Action or the Trust Funds [Adv. Pro. Docket No. 69] (together with the August 2012 Standstill Order, the “Standstill Orders”).

On December 28, 2012, the Rehabilitator filed a memorandum of law in opposition to Ames’ Jurisdiction Motion [Adv. Pro. Docket No. 73] and a cross-motion to dismiss or stay the Lumbermens Action pursuant to, among other things, the McCarran Ferguson Act [Adv. Pro. Docket No. 70].

Ames’s Jurisdiction Motion and the Rehabilitator’s motion to withdraw the reference and cross-motion to dismiss or stay the Lumbermens Action are pending before the Bankruptcy or District Courts. The outcome of these contested proceedings will affect whether the Bankruptcy or District Court has jurisdiction to consider the Lumbermens Action. The Debtors believe jurisdiction lies with the Bankruptcy Court and that judgment should be entered in Ames’s favor by the Bankruptcy Court.

On May 8, 2013, the Circuit Court of Cook County, Illinois, entered Orders of Liquidation with Findings of Insolvency against Lumbermens. In connection therewith, the court ordered that effective May 10, 2013, Lumbermens be placed in liquidation with the Illinois Insurance Code (215 Ill. Comp. Stat. 5/187, et seq.). Lumbermens’s counsel in the Lumbermens Action has confirmed that Andrew Boron, Director of Insurance of the State of Illinois, as

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liquidator of the Lumbermens estate, shall continue to abide by the terms of the Standstill Orders. The Debtors likewise shall continue to abide by the terms of such orders, for so long as such orders remain in effect. To date, no deadline for filing proofs of claim against the Lumbermens estate has been established.

7. Cellmark Litigation

On July 21, 2003, Ames Merchandising Corporation commenced an adversary proceeding against Cellmark seeking to avoid, as preferential transfers, three payments made by check to Cellmark during the two-week period preceding the Petition Date in the aggregate amount of approximately $2 million.

On March 28, 2011, following a trial and a decision on the merits, the Bankruptcy Court entered judgment against Cellmark. On February 28, 2012, following an appeal from the Bankruptcy Court, the District Court entered an order affirming the Bankruptcy Court’s judgment against Cellmark. On December 26, 2012, following an appeal from the District Court, the Second Circuit affirmed the District Court’s order. On January 31, 2013, the Second Circuit denied Cellmark’s request for a rehearing. In addition, on February 14, 2013, the Second Circuit denied Cellmark’s motion for a stay pending appeal to the Supreme Court. On or about February 15, 2013, the Debtors received payment of approximately $2 million in satisfaction of the judgment entered against Cellmark (the “Judgment Payment”).

On April 23, 2013, Cellmark filed a petition for a writ of certiorari with the Supreme Court seeking appellate review of the Second Circuit’s decision affirming the District Court’s order. On August 14, 2013, Cellmark filed a motion with the Bankruptcy Court for an order granting Cellmark an Allowed Administrative Claim in the amount of the Judgment Payment and requiring that the Debtors reserve for the return of such payment, in each case in the event the Supreme Court grants Cellmark’s petition and Cellmark prevails in subsequent litigation [Docket No. 4107] (the “Cellmark Motion”). The Debtors oppose the Cellmark Motion and contend Cellmark is not entitled to an Allowed Administrative Claim and that the Debtors should not be required to reserve for the Judgment Payment [Docket Nos. 4121 and 4133]. At the hearing on the Cellmark Motion held September 9, 2013, the Bankruptcy Court held such hearing would be continued to a future date.

As of the date of this Disclosure Statement, Cellmark’s petition for a writ of certiorari remains pending with the Supreme Court. If the Supreme Court denies Cellmark’s petition or Cellmark does not prevail before the Supreme Court and in subsequent litigation, the Debtors will be entitled to retain proceeds of approximately $1.5 million (net of contingency fees from the Judgment Payment). Whether the Debtors can retain such proceeds will affect creditor recoveries under the Plan.

V. The Plan

The following summary of certain principal provisions of the Plan is qualified in its entirety by reference to the Plan. In the event of any discrepancy between the Disclosure Statement, including the following summary description, and the Plan, the terms of the Plan or the Confirmation Order confirming the Plan will control.

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A. Overall Structure of the Plan

The Plan is a straightforward mechanism for liquidating the Debtors’ Assets. Under the Plan, an initial Distribution will occur on the Effective Date or as soon as practicable thereafter to satisfy Allowed Administrative Claims, Allowed Priority Tax Claims, Allowed Priority Non-Tax Claims, and Indenture Trustee Fees, i.e., the reasonable and documented compensation, fees, expenses, disbursements, and indemnity claims of the Indenture Trustees and their attorneys, advisors, and agents (up to $125,000 per Indenture Trustee). Additional Distributions will be made to holders of Allowed Note and General Unsecured Claims to the extent the Debtors have sufficient Available Cash to make Distributions to such Claimholders. If the Debtors do not have sufficient Available Cash to make Distributions to such Claimholders, the balance of the Debtors’ Assets, once Professional Fee Claims are paid, will be distributed to one or more reputable charitable organization(s) pursuant to the Plan.

B. Treatment of Administrative Claims and Priority Tax Claims

Administrative Claims are Claims for costs and expenses incurred in administering the Debtors’ estates, as specified in sections 503(b) and 1114(e)(2) of the Bankruptcy Code, including, without limitation, (a) the actual and necessary costs and expenses incurred after the Petition Date of preserving the Debtors’ estates and operating their business, (b) Professional Fee Claims, and (c) Claims for outstanding obligations owing pursuant to the PIP and ERP Order (as described below).

Administrative Claims and Priority Tax Claims are entitled to priority Distribution from the Debtors’ estates under sections 507(a)(2) and 507(a)(8) of the Bankruptcy Code, respectively.

As provided in section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority Tax Claims are not classified for the purposes of voting or receiving Distributions. Rather, all such Claims are treated separately as unclassified Claims. Holders of Administrative Claims and Priority Tax Claims are not entitled to vote on the Plan. Accordingly, their votes will not be solicited and they will not receive ballots.

Pursuant to Section 2.1 of the Plan, except to the extent that a holder of an Allowed Administrative Claim agrees to less favorable treatment, and to the extent such Claim has not been previously satisfied, on the Effective Date or as soon as practicable thereafter, each holder of an Allowed Administrative Claim shall receive, in full satisfaction of such Claim, Cash in an amount equal to the Allowed amount of such Claim. For the avoidance of doubt, all Disputed Administrative Claims are identified on Schedule 2.1 of the Plan. Upon the Effective Date, all Disputed Administrative Claims shall be disallowed and expunged; provided, however, that no Disputed Administrative Claim that has not been resolved prior to the Confirmation Date shall be disallowed or expunged without notice to the holder of such Claim and an appropriate order of the Bankruptcy Court disallowing or expunging such Claim. Except as provided in Sections 2.4 and 4.9 of the Plan (concerning the payment of Allowed Professional Fee Claims and outstanding obligations owing pursuant to the PIP and ERP Order, respectively), the Debtors shall not be required to pay any Administrative Claims not identified on Schedule 2.1 and which have not been Allowed prior to the Effective Date or are the subject of a pending objection.

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Pursuant to Section 2.2 of the Plan, except to the extent that a holder of an Allowed Priority Tax Claim agrees to less favorable treatment, on the Effective Date or as soon as practicable thereafter, each holder of an Allowed Priority Tax Claim shall receive, in full satisfaction of such Claim, Cash in an amount equal to the Allowed amount of such Claim.

C. Treatment of Professional Fee Claims

1. Final Fee Applications

Pursuant to Section 2.3 of the Plan, all final requests for payment of Professional Fee Claims shall be filed no later than thirty (30) days after the Effective Date. After notice and a hearing in accordance with the procedures established by the Bankruptcy Code and prior orders of the Bankruptcy Court, the Allowed amounts of such Professional Fee Claims shall be determined by the Bankruptcy Court.

2. Professional Fee Escrow Account

Pursuant to Section 2.4 of the Plan, on or prior to the Effective Date, the Debtors shall establish the Professional Fee Escrow Account and fund such account with Cash equal to the Professional Fee Reserve Amount. The Professional Fee Escrow Account shall be maintained in trust for the Professionals. The Debtors shall pay Allowed Professional Fee Claims in Cash from the Professional Fee Escrow Account as soon as reasonably practicable after such Claims have been Allowed by the Bankruptcy Court. All amounts remaining in the Professional Fee Escrow Account after all Allowed Professional Fee Claims have been paid in full shall revert to the Debtors, become Available Cash, and be distributed pursuant to the Plan.

3. Professional Fee Reserve Amount

Pursuant to Section 2.5 of the Plan, Professionals shall provide good faith estimates of their unpaid Professional Fee Claims through the Effective Date for the purpose of determining the amount of the Professional Fee Escrow Account and shall deliver such estimates to the Debtors no later than ten (10) days prior to the Confirmation Hearing. If a Professional does not provide such an estimate, the Debtors may, in their reasonable discretion, estimate the unpaid Professional Fee Claims of such Professional.

D. Indenture Trustee Fees

Pursuant to Section 2.6 of the Plan, on the Effective Date or as soon as practicable thereafter, the Plan Administrator shall pay the Indenture Trustee Fees in Cash, in an amount not to exceed $125,000 per Indenture Trustee, without application to or approval of the Bankruptcy Court and without reduction to Noteholder recoveries. Notwithstanding the foregoing, each Indenture Trustee shall be entitled to exercise its Charging Lien with respect to any Distributions received in order to satisfy any Indenture Trustee Fees incurred, from time to time, which exceed the $125,000 amount set forth in the preceding sentence (or for any amount which otherwise has not been paid by the Plan Administrator).

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E. Classification and Treatment of Claims and Equity Interests

1. Class 1 – Priority Non-Tax Claims

Class 1 consists of Priority Non-Tax Claims against the Debtors.

Priority Non-Tax Claims are Claims entitled to priority under section 507(a) of the Bankruptcy Code, other than Administrative Claims and Priority Tax Claims. Pursuant to Section 3.2(a) of the Plan, except to the extent that a holder of an Allowed Priority Non-Tax Claim agrees to less favorable treatment, on the Effective Date or as soon as practicable thereafter, each holder of an Allowed Priority Non-Tax Claim shall receive, in full satisfaction of such Claim, Cash in an amount equal to the Allowed amount of such Claim.

Class 1 is unimpaired under the Plan and holders of Priority Non-Tax Claims are not entitled to vote on the Plan and will not receive ballots.

2. Class 2 – Note Claims

Class 2 consists of Note Claims, i.e., any Claim arising under (a) the 10% senior notes due 2006 issued pursuant to the Indenture, dated as of April 27, 1999, between Ames, as borrower, Ames Realty II, Inc., Ames FS, Inc., Ames Transportation Systems, Inc., AMD, Inc., and Ames Merchandising Corporation, as guarantors, and The Chase Manhattan Bank, as indenture trustee, as amended, and (b) the 12.5% senior notes due 2003 issued pursuant to the Indenture, dated as of April 19, 1996, between Hills Stores Company, as borrower, Hills Department Store Company, C.R.H. International, Inc., Canton Advertising, Inc., Corporate Vision, Inc., HDS Transport, Inc., and Hills Distributing Company, as guarantors, and Fleet National Bank, as trustee, as amended.

Pursuant to Section 3.2(b) of the Plan, except to the extent that a holder of an Allowed Note Claim agrees to less favorable treatment, on the Effective Date or as soon as practicable thereafter, each holder of an Allowed Note Claim shall receive, in full satisfaction of such Claim, its Pro Rata share of Available Cash. For the avoidance of doubt, the Indenture Trustees’ respective Claims under the Indentures for principal and interest outstanding as of the Petition Date shall be Allowed and each Indenture Trustee shall be paid its Indenture Trustee Fees in accordance with the Plan.

Class 2 is impaired under the Plan and holders of Note Claims are entitled to vote on the Plan and will receive ballots.

3. Class 3 – General Unsecured Claims

Class 3 consists of General Unsecured Claims, i.e., any Claim that is not an Administrative Claim, Priority Tax Claim, Professional Fee Claim, Priority Non-Tax Claim, Note Claim, Section 510(b) Claim, or Intercompany Claim.

Pursuant to Section 3.2(c) of the Plan, except to the extent that a holder of an Allowed General Unsecured Claim agrees to less favorable treatment, on the Effective Date or as soon as

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practicable thereafter, each holder of an Allowed General Unsecured Claim shall receive, in full satisfaction of such Claim, its Pro Rata share of Available Cash.

Section 6.3 of the Plan provides that the Debtors shall not make Distributions to holders of Allowed General Unsecured Claims if the Disclosure Statement Hearing Notice or Solicitation Package mailed to such creditors were returned as undeliverable; provided, however, that each holder of an Allowed General Unsecured Claim shall be entitled to receive Distributions, to the extent Distributions are made to holders of Allowed General Unsecured Claims under the Plan, provided (a) such holder provides the Debtors with updated contact information within thirty (30) days following the Effective Date; or (b) the Plan Administrator can, with reasonable effort, locate such holder within thirty (30) days following the Effective Date.

In addition, pursuant to Section 6.3 of the Plan, each Allowed General Unsecured Claim shall be subject to a $50 Administrative Charge and no Distribution will be made in respect of any Allowed General Unsecured Claim if the Administrative Charge reduces the Distribution such Claimant would receive to $0. For the avoidance of doubt, the Administrative Charge shall only be recoverable as an offset against an Allowed Class 3 Claim. Pursuant to Section 6.5 of the Plan, by application of the Administrative Charge, the Plan Administrator shall not be required to make Distributions to any holder of an Allowed General Unsecured Claim in an amount less than $50.

Class 3 is impaired under the Plan and holders of General Unsecured Claims are entitled to vote on the Plan and will receive ballots, provided such holders (a) received a Disclosure Statement Hearing Notice; or (b) provide the Debtors with updated contact information within thirty (30) days following entry of the Disclosure Statement Order.

4. Classes 4, 5, and 6 – Section 510(b) Claims, Intercompany Claims, and Equity Interests

Class 4 consists of Section 510(b) Claims, i.e., any securities fraud or other Claim that is subordinated to Note Claims and General Unsecured Claims pursuant to section 510(b) of the Bankruptcy Code.

Class 5 consists of Intercompany Claims, i.e., all Claims, as of the Petition Date, by a Debtor or an affiliate of a Debtor against another Debtor, resulting from intercompany transactions recorded on the Debtors’ books and records.

Class 6 consists of Equity Interests in the Debtors.

Pursuant to Section 3.2(d)-(f) of the Plan, on the Effective Date, all Section 510(b) Claims, Intercompany Claims, and Equity Interests shall be cancelled and each holder of a Section 510(b) Claim, Intercompany Claim, or Equity Interest shall not receive or retain any property on account of such Claim or Equity Interest.

Classes 4-6 are impaired under the Plan and holders of Section 510(b) Claims, Intercompany Claims, and Equity Interests are deemed to have rejected the Plan and will not receive ballots.

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F. Means for Implementing the Plan

1. Substantive Consolidation

The Debtors believe substantive consolidation is warranted in light of the degree to which the Debtors and their creditors depended upon the integration of the Debtors’ collective operations and the criteria established by the courts in ruling on the propriety of substantive consolidation in other cases. For example:

• Officers and directors of each of the subsidiaries simultaneously have been officers and/or directors of Ames and vice versa, and corporate policy for all of the Debtors has been established and implemented by Ames’s officers and board of directors. Thus, the Debtors have operated under unified management, direction, and control with the goal of a unified profitability of the enterprise, and without regard to the profitability of any individual legal entity in the corporate family;

• The Debtors’ federal income tax returns, financial statements, annual reports and other documents filed with the Securities and Exchange Commission were prepared on a consolidated basis;

• The Debtors have always operated under a consolidated cash management system, pursuant to which the Debtors’ funds were collected and transferred on a daily basis to a main concentration account. A disbursement account in the name of Ames Merchandising Corp. was used to cover disbursements and other operating expenses;

• Ames Merchandising Corp. has been responsible for payment of the day-to-day operating expenses of the other Debtors. Failure to substantively consolidate could require an allocation of such charges among the Debtors and the reconstruction and reallocation of those charges would take months, the costs would be enormous, and possibly, prohibitive, and there is no certainty that any such effort would be successful in producing a precise, or even meaningful, allocation; and

• By reason of the interrelationship and dependency of the Debtors upon the operations of each other, it is not realistic to expect that a feasible, confirmable plan of liquidation could be formulated unless the Plan encompassed all the Debtors as though they were a single economic unit.

As a result of the Debtors’ integrated and interdependent operations, substantial intercompany guarantees, common officers and directors, common control and decisionmaking, reliance on a consolidated cash management system, and dissemination of only consolidated financial information to the general public, the Debtors believe that they have operated, and creditors have dealt with the Debtors, as a single, integrated economic unit.

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In view of the foregoing, the Debtors believe that creditors would not be prejudiced in any significant degree by the Debtors’ substantive consolidation which is consistent with creditors’ having dealt with the Debtors as a single economic entity, and further believe that substantive consolidation will best utilize the Debtors’ assets and potential of all of the Debtors to pay to the creditors of each entity the distributions provided under the Plan.

Accordingly, Section 4.1 of the Plan calls for the substantive consolidation of the Debtors solely for purposes of voting on the Plan, confirmation of the Plan, and making Distributions, as further described in the Plan. The Plan does not contemplate the substantive consolidation of the Debtors for any other purposes. Pursuant to the Plan’s substantive consolidation provision, on and after the Effective Date, (a) all guaranties of any Debtor of any payment, performance, or collection of another Debtor shall be deemed eliminated and cancelled; (b) any obligation of one of the Debtors and all guarantees with respect thereto executed by another Debtor shall be treated as a single obligation and any obligation of the Debtors, and all multiple Claims against such entities on account of such joint obligations, shall be treated and Allowed only as a single Claim against the consolidated Debtors; (c) each Claim filed against any Debtor shall be deemed filed against the consolidated Debtors and shall be deemed a single Claim against and a single obligation of the consolidated Debtors; and (d) for the purposes of determining the availability of the right of setoff under section 553 of the Bankruptcy Code, the Debtors shall be treated as one entity so that, subject to the provisions of section 553 of the Bankruptcy Code, debts due to any of the Debtors may be setoff against the debts of any of the Debtors. On the Effective Date, and in accordance with the terms of the Plan and the consolidation of the assets and liabilities of the Debtors, all Claims based upon guarantees of collection, payment, or performance made by one Debtor as to the obligations of another Debtor shall be released and of no further force and effect. Except as set forth in the Plan, such substantive consolidation shall not (other than for purposes related to the Plan) affect the legal or corporate structures of the Debtors or cause any Debtor to be liable for any Claim under the Plan for which it otherwise is not liable, and the liability for any such Claim shall not be affected by such substantive consolidation. Notwithstanding the foregoing, all post-Effective Date Statutory Fees shall be calculated on a separate legal entity basis for each Debtor.

2. Liquidation of the Debtors

If the Plan becomes effective, the Debtors shall be liquidated in accordance with the Plan and applicable law, and the Debtors’ operations shall become the responsibility of the Plan Administrator, who shall thereafter have responsibility for the management, control, and operation of the Debtors and who may use, acquire, and dispose of property free and clear of any restrictions of the Bankruptcy Code or Bankruptcy Rules, in each instance in consultation with the Plan Committee. The Plan Administrator shall act as the Debtors’ liquidating agent and shall be authorized and obligated, as such, to take any and all actions necessary or appropriate to implement the Plan or wind down the Debtors, in each instance in consultation with the Plan Committee, including any and all actions necessary to (a) liquidate the Debtors’ Assets, (b) investigate and prosecute Causes of Action, including the Lumbermens Action, on the Debtors’ behalf in the Bankruptcy Court or any other court of competent jurisdiction, (c) defend, protect, and enforce any and all rights and interests of the Debtors, (d) make any and all Distributions required or permitted to be made, (e) file any and all reports, requests for relief, or objections thereto, (f) dissolve the Debtors and otherwise wind down the Debtors and any corporate entity

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owned by the Debtors, (g) file such post-Effective Date reports as may be required under applicable law, (h) pay all Statutory Fees, (i) object to Claims filed against the Debtors, and (j) pay any and all claims, liabilities, losses, damages, costs, and expenses incurred in connection therewith or as a result thereof, including all fees and expenses of the Plan Administrator’s attorneys and other professionals and the Creditors’ Committee’s Professionals. The Plan Administrator shall be authorized to execute such documents and take such other action as may be necessary to effectuate the Plan and perform his duties as liquidating agent. The Plan Administrator shall be authorized to retain attorneys and other professionals and may incur reasonable fees and expenses in the performance of his duties as the Debtors’ liquidating agent, which reasonable fees and expenses shall be paid from the Administrative Reserve.

3. Plan Administrator

As part of the Plan, the Debtors seek to appoint Mr. de Aguiar, the Debtors’ President and Chief Wind Down Officer, as Plan Administrator. Upon the Effective Date, the Plan Administrator shall be deemed the sole director of each Debtor for all purposes, with all necessary and appropriate power to act for, on behalf of, and in the name of the Debtors. The Plan Administrator may be removed for cause by order of the Bankruptcy Court following notice and a hearing. “Cause,” in this context, means a judicial determination that the Plan Administrator has engaged in actual fraud, gross negligence, or willful misconduct, or has otherwise materially and substantially failed to discharge his duties under the Plan, and such material and substantial failure has continued for sixty (60) days following the Plan Administrator’s receipt of written notice specifically asserting such failures. For the avoidance of doubt, the Plan Committee shall have standing to seek entry of an order removing the Plan Administrator for cause. The Plan Administrator may also voluntarily resign, upon notice filed with the Bankruptcy Court and served upon the Plan Committee; provided, however, that no voluntary resignation by the Plan Administrator shall be effective until a successor has been appointed by the Plan Committee. If the Plan Administrator is removed for cause, voluntarily resigns, or is otherwise unable to serve, the Plan Committee shall, upon notice filed with the Bankruptcy Court, appoint a qualified individual to replace the Plan Administrator.

4. Plan Committee

Upon the Effective Date, the Plan Committee shall be appointed, which shall be comprised of one or more members of the Creditors’ Committee as designated by the Creditors’ Committee at least three (3) days prior to the Confirmation Hearing. In the event of the death or resignation of any member of the Plan Committee, such committee’s remaining members shall be entitled to designate a successor member from among the holders of Allowed Note Claims or Allowed General Unsecured Claims. If a Plan Committee member assigns its Claim in full or releases the Debtors from payment of the balance of its Claim, such act shall constitute a resignation from the Plan Committee. Until a vacancy on the Plan Committee is filled, such committee shall function in its reduced number. Promptly following the establishment of the Plan Committee, the Plan Committee may enact bylaws governing its operating procedures and related matters, as deemed appropriate in the Plan Committee’s sole discretion. Following all payments being made to holders of Allowed Claims under the Plan, the Plan Committee shall be dissolved and the members thereof shall be released from any and all further authority, duties, responsibilities, and obligations related to their service as Plan Committee members, and the

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retention or employment of the Plan Committee’s attorneys and other professionals shall terminate. The Plan Committee shall have the right to (a) retain attorneys or other professionals, the reasonable fees and expenses of which shall be paid by the Debtors or the Plan Administrator, as applicable, upon the submission of invoices, without the need for an application or further order of the Bankruptcy Court; (b) object to Claims filed against the Debtors; (c) review and approve any proposed resolution concerning the Lumbermens Action; (d) review and approve any proposed abandonment or sale of Assets by the Debtors, in each instance where the amount in controversy exceeds $50,000; and (e) perform such additional functions as may be agreed to by the Plan Administrator, provided in the Confirmation Order, or provided for by order of the Bankruptcy Court entered after the Effective Date.

5. No Liability

The Plan Administrator, the Plan Committee, the Plan Committee’s members, and their respective employees, professionals, agents, and representatives shall not be liable for the act or omission of any other member, employee, professional, agent, or representative of the Plan Administrator or the Plan Committee, nor shall they be liable for any act or omission taken or omitted to be taken in their respective capacities, other than acts or omissions constituting actual fraud, gross negligence, or willful misconduct. The Plan Administrator and Plan Committee shall be entitled to consult with attorneys, accountants, financial advisors, and other agents and representatives, and shall not be liable for any act taken or omitted to be taken in accordance with advice rendered by such entities. Notwithstanding the foregoing, the Plan Administrator and Plan Committee shall not be under any obligation to consult with attorneys, accountants, financial advisors, or other agents or representatives, and their determination not to do so shall not result in the imposition of liability, unless such determination constitutes actual fraud, gross negligence, or willful misconduct.

6. Indemnification

The Debtors and their estates shall indemnify and hold harmless the Plan Administrator, the Plan Committee, the Plan Committee’s members, and their respective employees, professionals, agents, and representatives, in each case in their capacity as such, from and against any and all liabilities, losses, damages, claims, costs, and expenses, including, but not limited to attorneys’ fees and expenses, arising out of or due to their acts or omissions related to the performance of their duties under the Plan; provided, however, that no such indemnification shall be made to such entities for such acts or omissions constituting actual fraud, gross negligence, or willful misconduct.

7. State Street Escrow

The Debtors believe that their predecessor in interest, Hills Stores Company and/or its affiliates, established one or more accounts for the benefit of certain employees and/or under certain benefit programs, which accounts are now, upon information and belief, held at State Street Corporation. After diligent inquiry, the Debtors have been unable to determine or locate the account beneficiaries. Accordingly, pursuant to Section 4.7 of the Plan, the Debtors will either take possession of the funds in such accounts for Distribution to creditors or dispose of

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such funds in a manner directed by the Bankruptcy Court, either before or after the Effective Date.

8. Leesport Property Escrow

The Debtors agreed, in connection with the sale of their commercial real property located in Leesport, Pennsylvania, free and clear of Liens, to Ashley Furniture Industries, Inc., to escrow .5 percent of the purchase price, representing the amount the Schuylkill Valley School District is authorized under applicable state law. The Leesport Sale Order further provides that the escrowed funds, plus interest, shall be disbursed to the Debtors upon confirmation of a chapter 11 plan of the Debtors that contains a waiver pursuant to section 1146 of the Bankruptcy Code. The Debtors’ Plan includes such a waiver. Accordingly, Section 4.8 of the Plan provides that on the Effective Date or as soon as practicable thereafter, all funds escrowed by the Debtors in accordance with the Leesport Sale Order shall be returned to the Debtors or the Plan Administrator and any escrow agreement, consent agreement concerning the transfer of the escrowed funds from Search & Settlement Solutions, Inc., as title agent, to Stevens & Lee, as counsel to the Schuylkill Valley School District, and related transaction documents shall be deemed automatically cancelled and shall be of no further force or effect. The Debtors anticipate that approximately $133,750, representing .5 percent of the $26.75 million purchase price, plus interest, shall be returned to them pursuant to Section 4.8 of the Plan.

9. PIP and ERP Obligations

The Debtors may have outstanding obligations under the PIP and ERP Order, i.e., the Bankruptcy Court’s order, entered November 13, 2003 [Docket No. 2426], authorizing the Debtors to implement a Performance Incentive Program and Expected Recovery Percentage Program. Accordingly, Section 4.9 of the Plan provides that on the Effective Date or as soon as practicable thereafter, the Debtors shall satisfy all outstanding obligations owing pursuant to the PIP and ERP Order. The Debtors do not believe any amounts are currently owing under the PIP and ERP Order. However, as noted above, under the Expected Recovery Percentage Program, if Administrative Claim recoveries exceed 100% of $120.4 million and Allowed Priority Tax and Priority Non-Tax Claims are satisfied in full, such program may resume based on a formula to be determined by the Debtors, in consultation with the Creditors’ Committee. Thus, additional compensation may be due to Mr. de Aguiar based upon actual creditor recoveries if such program is resumed.

10. Corporate Action

Upon the Effective Date, all matters under the Plan involving or requiring corporation action of the Debtors shall be deemed to have been authorized and to have occurred and be in effect from and after the Effective Date without further action by the Debtors or authorization from the Bankruptcy Court.

11. Continued Corporate Existence; Dissolution of the Debtors

Upon the Effective Date, the Debtors shall remain in existence; provided, however, the Plan Administrator may file certificates of dissolution in respect of the Debtors and take such other action as may be required to dissolve the Debtors.

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12. Cancellation of Securities

Except as otherwise provided in the Plan, on the Effective Date, all notes, indentures, stock, instruments, certificates, and other documents evidencing the Note Claims and Equity Interests, including the Notes and Indentures, shall be deemed automatically cancelled and shall be of no further force or effect, whether surrendered for cancellation or otherwise, and the obligations of the Debtors’ estates thereunder or in any way related thereto shall be terminated. Notwithstanding the foregoing, the Notes and Indentures shall continue in effect solely for the purposes of (a) allowing the Indenture Trustees to receive Distributions on behalf of and make Distributions to their respective holders of Allowed Note Claims; (b) allowing holders of Allowed Note Claims to receive Distributions on account of such Claims; (c) permitting Indenture Trustees to receive payment of their respective Indenture Trustee Fees from the Plan Administrator to the extent permitted under the Plan, including, without limitation, Section 2.6 of the Plan; (d) allowing Indenture Trustees to maintain, assert, and enforce their Charging Liens for payment of any Indenture Trustee Fees that are not paid by the Plan Administrator pursuant to Section 2.6 of the Plan or otherwise; (e) permitting Indenture Trustees to serve on the Plan Committee after the Effective Date; and (f) permitting the Indenture Trustees to appear and be heard in the Chapter 11 Cases. The Notes and the Indentures shall terminate completely upon the completion of all Distributions by the Indenture Trustees to holders of Allowed Note Claims. In addition, notwithstanding the cancellation of Equity Interests pursuant to the Plan, the Plan Administrator shall be deemed the holder of all equity interests in the Debtors on and after the Effective Date solely to effectuate the Plan. The Indenture Trustees shall be entitled to receive reasonable compensation for their services and reimbursement of their expenses in connection with making any Distributions. Any such compensation which is not paid by the Plan Administrator shall be payable from the Distributions through the exercise by the Indenture Trustees of their Charging Liens.

13. Preservation of Causes of Action

Except as otherwise provided in the Plan, all Claims and Causes of Action that the Debtors may have against any person or entity shall be preserved, including, without limitation, the Lumbermens Action and any related Claims the Debtors may have in connection with the Lumbermens Liquidation. For the avoidance of doubt, the Plan Administrator and Plan Committee shall jointly determine whether and under what terms to resolve the Lumbermens Action and any related claims the Debtors may have, or may have had, against Lumbermens or its affiliates.

G. Executory Contracts and Unexpired Leases

1. Assumed and Rejected Executory Contracts and Unexpired Leases

Pursuant to Section 5.1 of the Plan, each executory contract and unexpired lease as to which any Debtor is a party shall be deemed automatically rejected on the Effective Date, unless such executory contract or unexpired lease (a) shall have been previously assumed or rejected by the Debtors by order of the Bankruptcy Court, (b) is the subject of a motion to assume pending on or before the Effective Date, or (c) is otherwise assumed pursuant to the Plan. Entry of the Confirmation Order shall constitute approval of the rejections contemplated by the Plan as of the

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Effective Date. Notwithstanding the foregoing, entry of the Confirmation Order shall constitute approval of the assumption of the executory contracts and unexpired leases identified on Schedule 5.1 as of the Effective Date. Unless otherwise determined by the Bankruptcy Court pursuant to a Final Order or agreed to by the parties thereto prior to the Effective Date, no payments are required to cure any defaults of the Debtors existing as of the Effective Date with respect to each executory contract or unexpired lease set forth in Schedule 5.1. To the extent the Bankruptcy Court determines otherwise with respect to any executory contract or unexpired lease, the Debtors reserve the right to seek rejection of such contract or lease or other available relief.

2. Rejection Damages Bar Date

If a Claim arises from the rejection of any executory contract or unexpired lease pursuant to Section 5.1, such Claim shall be barred and unenforceable against the Debtors or their property unless a proof of claim asserting such Claim is filed with the Bankruptcy Court or the Debtors’ Claims Agent and served upon the Debtors within thirty (30) days after the Effective Date. Unless otherwise ordered by the Bankruptcy Court, all such rejection damages Claims shall be treated as General Unsecured Claims under the Plan.

H. Distribution Provisions

1. Administrative and Disputed Claims Reserves

Prior to making any Distribution on account of Allowed Note Claims and Allowed General Unsecured Claims, the Debtors shall establish the Administrative Reserve and Disputed Claims Reserve. The Plan Administrator shall (a) pay the fees and expenses associated with prosecuting the Lumbermens Action to a conclusion and liquidating and administering the Debtors’ estates with funds from the Administrative Reserve; and (b) make Distributions to holders of Claims which become Allowed after the Effective Date from the Disputed Claims Reserve. Any excess Cash remaining in the (i) Administrative Reserve upon the conclusion of the Lumbermens Action and after the payment of all fees and expenses of liquidating and administering the Debtors’ estates; and (ii) Disputed Claims Reserve after all Disputed Claims have been either Allowed or disallowed shall become Available Cash and be distributed pursuant to the Plan.

2. Record Date for Distributions

Upon the Distribution Record Date, i.e., the date the Confirmation Order is entered by the Bankruptcy Court, (a) the transfer registers for each Class of Claims maintained by the Claims Agent shall be deemed closed and the Debtors shall have no obligation to recognize any transfer of Claims occurring on or after the Distribution Record Date; and (b) the registers for the Notes maintained by the Indenture Trustees shall be deemed closed and the Debtors and Indenture Trustees shall have no obligation to recognize any transfer of Notes occurring on or after the Distribution Record Date.

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3. Delivery of Distributions

The Plan Administrator shall make all Distributions on behalf of the Debtors. Except with respect to holders of Allowed Note Claims, the Plan Administrator shall make Distributions to holders of Allowed Claims as of the Distribution Record Date at the address for each such holder as indicated on the Debtors’ books and records or as set forth in any proof of claim filed by such holder. Distributions to holders of Allowed Note Claims shall be made to the Indenture Trustees for the benefit of the holders of such Claims and shall be deemed completed when made to such Indenture Trustees. The Indenture Trustees shall hold or direct their respective Distributions, subject to their right to assert Charging Liens against such Distributions, for the benefit of the holders of Allowed Note Claims. As soon as practicable after its receipt of any Distribution, the applicable Indenture Trustee shall arrange to deliver such Distribution (subject in all respects to any asserted Charging Lien) to or on behalf of the holders of the Allowed Note Claims for which such Distribution was made. Notwithstanding the foregoing, the Debtors shall not make Distributions to holders of Allowed General Unsecured Claims if the Disclosure Statement Hearing Notice or Solicitation Package mailed to such creditors were returned as undeliverable; provided, however, that each holder of an Allowed General Unsecured Claim shall be entitled to receive Distributions, to the extent Distributions are made to holders of Allowed General Unsecured Claims under the Plan, provided (a) such holder provides the Debtors with updated contact information within thirty (30) days following the Effective Date; or (b) the Plan Administrator can, with reasonable effort, locate such holder within thirty (30) days following the Effective Date. Each Allowed Class 3 Claim shall be subject to the $50 Administrative Charge and no Distribution will be made in respect of any Allowed Class 3 Claim if the Administrative Charge reduces the Distribution such Claimant would receive to $0. For the avoidance of doubt, the Administrative Charge shall only be recoverable as an offset against an Allowed Class 3 Claim.

4. Manner of Distributions

At the option of the Plan Administrator, Distributions may be made in Cash, by wire transfer, or by a check drawn on a domestic bank. Notwithstanding anything to the contrary in the Plan, if any portion of a Claim is a Disputed Claim, no Distribution shall be made to the holder thereof on account of such portion of the Claim that constitutes a Disputed Claim unless and until such portion becomes Allowed. Nothing in the Plan shall be deemed to prohibit or require Distribution on account of any undisputed portion of a Claim and, when only a portion of a Claim is Disputed, partial Distributions may be made with respect to the portion of such Claim that is not Disputed. If, following the initial Distribution and, if applicable, one or more subsequent Distributions, the Plan Administrator determines, in consultation with the Plan Committee, that there is insufficient Available Cash to make a cost-efficient additional Distribution, taking into account the size of the Distribution to be made and the number of recipients of such Distribution, the Plan Administrator shall, in consultation with the Plan Committee, donate such Available Cash to one or more reputable charitable organization(s).

5. Minimum Distributions

By application of the Administrative Charge, the Plan Administrator shall not be required to make Distributions to any holder of an Allowed Class 3 Claim in an amount less than $50.

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Further, the Plan Administrator shall not be required to make Distributions to any holder of an Allowed Claim in any other Class in an amount less than $50. Cash allocated to an Allowed Claim but withheld from Distribution pursuant to this provision shall be held by the Plan Administrator for future Distribution to holders of such Allowed Claims, if sufficient funds are available to make such future Distributions.

For example, assuming the Debtors prevail in the Lumbermens Action and have sufficient Available Cash to make a 1% Distribution to holders of Allowed General Unsecured Claims, a holder of a $5,000 Allowed General Unsecured Claim would receive no Distribution, as 1% of $5,000 is $50 and following application of the Administrative Charge there remains no amount to be distributed to such holder. Under the same facts, a holder of a $10,000 Allowed General Unsecured Claim would receive $50, as 1% of $10,000 is $100 and following application of the Administrative Charge there remains $50 to be distributed to such holder. Because the Indenture Trustees, and not the Debtors, are responsible for making Distributions to holders of Allowed Note Claims pursuant to Section 6.3 of the Plan, no Administrative Charge shall be applied to holders of such Claims.

6. Undeliverable Distributions

If a Claimholder’s Distribution is returned as undeliverable, no further Distributions to such Claimholder shall be made. Amounts in respect of undeliverable Distributions shall be returned to the Debtors until such Distributions are claimed. All funds or other undeliverable Distributions returned to the Debtors and not claimed within ninety (90) days shall irrevocably revert to the Debtors and become Available Cash and any Claim in respect thereof shall be deemed satisfied and the holder thereof shall be forever barred from asserting such Claim against the Debtors and their property.

7. Failure to Present Checks

Each check issued by the Plan Administrator on account of an Allowed Claim shall be null and void if not negotiated within ninety (90) days after the issuance of such check. Requests for reissuance of any check shall be made to the Plan Administrator by the holder of the Allowed Claim to whom such check was originally issued. After the ninety (90) day period following the date of issuance of such check, the amount represented by such check shall irrevocably revert to the Debtors and shall become Available Cash and any Claim in respect thereof shall be deemed satisfied and the holder thereof shall be forever barred from asserting such Claim against the Debtors and their property.

I. Claim Administration Provisions

1. Reservation of Rights to Object to Claims

Unless a Claim is specifically Allowed pursuant to the Plan or otherwise Allowed prior to or after the Effective Date, the Debtors, the Plan Administrator, and the Plan Committee reserve any and all objections to any and all Claims and motions for the payment of Claims, without limitation. The Debtors’ failure to object to a Claim in the Chapter 11 Cases shall be without prejudice to the Plan Administrator’s or the Plan Committee’s right to contest such Claim in the Bankruptcy Court.

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2. Claim Objection Deadline

All objections to Claims must be filed and served by the later of two (2) years after the Effective Date and eighteen (18) months after the Lumbermens Action is litigated to a conclusion, settled, or otherwise resolved; provided, however, the foregoing deadline for filing and serving objections to Claims may be extended by order of the Bankruptcy Court for cause shown.

3. Filing of Objections

A Claim objection shall be deemed properly served on a Claimholder if the Debtors, the Plan Administrator, or the Plan Committee effect service by any of the following methods: (a) in accordance with Bankruptcy Rule 7004; (b) by first class mail on the creditor identified in the proof of claim or its representative identified in the proof of claim; or (c) by first class mail on counsel that appeared on behalf of the Claimholder in the Chapter 11 Cases.

4. Amendments to Claims

On and after the Effective Date, other than a proof of claim relating to an executory contract or unexpired lease that is rejected pursuant to the Plan, a proof of claim may not be filed or amended without prior authorization of the Bankruptcy Court or the Plan Administrator.

5. Setoff and Recoupment

The Debtors or Plan Administrator may setoff against or recoup from any Claim, and Distributions to be made in respect thereof pursuant to the Plan, claims of any nature whatsoever the Debtors may have against the Claimholder. Neither the failure to do so nor the allowance of any Claim under the Plan shall constitute a waiver or release by the Debtors of any right to setoff or recoupment that the Debtors may have against the Claims of such holder.

6. No Interest

Postpetition interest shall not accrue or be paid on Claims and no Claimholder shall be entitled to interest accruing on or after the Petition Date on any Claim. For the avoidance of doubt, interest shall not accrue on or be paid on any Disputed Claim in respect of the period from the Effective Date through the date a final Distribution is made when and if such Disputed Claim becomes Allowed.

7. Disallowance of Claims Payable by Third Parties

No Distributions shall be made on account of an Allowed Claim payable under one of the Debtors’ insurance policies until the holder of such Claim has exhausted all remedies with respect to such insurance policy. To the extent one or more of the Debtors’ insurers agrees to satisfy in full a Claim, then immediately upon such insurer’s agreement and upon notice by the Plan Administrator to the applicable Claimholder and Claims Agent, such Claim shall be disallowed and expunged, without a Claim objection having to be filed with the Bankruptcy Court and without any further order of the Bankruptcy Court.

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8. Disallowance of Duplicative Note Claims

All Note Claims that are duplicative of Note Claims filed by the Indenture Trustees shall be disallowed and expunged upon notice by the Plan Administrator to the applicable Claimholder and Claims Agent, without a Claim objection having to be filed with the Bankruptcy Court and without any further order of the Bankruptcy Court. For the avoidance of doubt, the Note Claims filed by the Indenture Trustees shall be the sole surviving Claims in respect of the Notes.

J. Effect of Plan Confirmation

1. Injunction

The Plan provides that except as otherwise provided in the Plan, all entities that have held, hold, or may hold Claims against or Equity Interests in the Debtors or their estates that arose prior to the Effective Date are permanently enjoined, solely with respect to any such Claims or Equity Interests, from: (a) commencing or continuing in any manner, directly or indirectly, any action or other proceeding of any kind against the Debtors, their estates, or the Plan Administrator; (b) enforcing, attaching, collecting, or recovering, by any manner or means, whether directly or indirectly, any judgment, award, decree, or order against the Debtors, their estates, or the Plan Administrator; (c) creating, perfecting, or enforcing, in any manner, directly or indirectly, any Lien or encumbrance against the Debtors, their estates, or the Plan Administrator; (d) except to the extent permitted by sections 362(b), 553, 559, 560, or 561 of the Bankruptcy Code, asserting any right of setoff, subrogation, or recoupment against the Debtors, their estates, or the Plan Administrator; (e) pursuing any Claim or Cause of Action released pursuant to the Plan; or (f) taking actions which interfere with the implementation or consummation of the Plan.

2. Exculpation

The Plan provides that the Exculpated Parties, i.e., the Debtors, the Creditors’ Committee, the Plan Administrator, the Plan Committee, the Indenture Trustees, the DIP Lenders, and their former, current, and future members, directors, officers, employees, attorneys, financial advisors, investment bankers, accountants, representatives, and other agents, each in their respective capacities as such, shall neither have nor incur any liability to any person or entity for any Claim, Cause of Action, or other assertion of liability for any act taken or omission occurring on or after the Petition Date in connection with, arising from, or relating to the Debtors, the Chapter 11 Cases, the Plan, the pursuit of confirmation of the Plan, or the administration of the Plan or property Distributed under the Plan; provided, however, that the foregoing shall not release any Exculpated Party from liability resulting from actual fraud, gross negligence, or willful misconduct, as determined by a Final Order.

3. Release of Directors and Officers

On the Effective Date, the Debtors, in their individual capacities and as debtors in possession for and on behalf of their estates, shall release and discharge any and all claims and Causes of Action against their current and former directors and officers based upon or

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relating to any act or omission occurring prior to the Effective Date; provided, however, that the foregoing shall not release any director or officer from liability resulting from actual fraud, gross negligence, or willful misconduct, as determined by a Final Order; provided further, however, that the foregoing shall not affect the Debtors’ indemnification obligations or any other contractual obligations to such directors and officers.

4. Terms of Stays and Injunctions

The Plan provides that the automatic stay provided under section 362(a) of the Bankruptcy Code and the injunction set forth above shall remain in full force and effect until the closing of the Chapter 11 Cases.

VI. Certain Factors to be Considered Regarding the Plan

Holders of Note Claims and General Unsecured Claims against the Debtors should read and consider carefully the factors set forth below, as well as other information set forth in the Disclosure Statement (and the other documents enclosed herewith or incorporated by reference) prior to voting on the Plan. These risk factors should not be regarded as constituting the only risks involved in connection with the Plan and its implementation.

The Debtors make no representations concerning the accuracy of the projected financial information or their ability to achieve the projected results. Many of the assumptions on which their projections are based are subject to significant economic uncertainties. Some assumptions may not materialize because of unanticipated events and circumstances. Accordingly, the actual results achieved may vary from the projected results. The variations may be material and adverse or positive. The Debtors do not anticipate that they will update these projections at the Confirmation Hearing or otherwise make updated projections public.

A. Lumbermens Action

A portion of the property to be distributed to creditors under the Plan includes proceeds of the Lumbermens Action. The outcome of such litigation is impossible to predict. It is possible that the Debtors’ estates may recover nothing at all on account of such litigation. The risks in such litigation include, but are not limited to, the delay and expense associated with litigating the Lumbermens Action in multiple courts, the additional delay and expense inherent in appellate review, the impossibility of predicting judicial outcomes, and difficulty in collecting judgments, particularly given that the defendant in the Lumbermens Action is the subject of a state court insurance insolvency liquidation proceeding.

B. Cellmark Litigation

A portion of the property to be distributed to creditors under the Plan includes proceeds of a preference judgment entered by the Bankruptcy Court against Cellmark in the aggregate amount of approximately $2 million, which judgment was affirmed by the District Court and Second Circuit. As noted above, on April 23, 2013, Cellmark filed a petition for a writ of certiorari with the Supreme Court, which petition remains pending as of the date of this Disclosure Statement. At this juncture it is impossible to determine whether the Supreme Court

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will grant Cellmark’s petition or the outcome of any subsequent litigation if the Supreme Court grants such petition. The risks in such litigation include, but are not limited to, the delay and expense associated with litigating with Cellmark before the Supreme Court and the impossibility of predicting judicial outcomes.

C. Risks Regarding the Amount of Allowed Administrative, Priority Tax, and Priority Non-Tax Claims

The Debtors’ projections assume that there are no outstanding Allowed Priority Non-Tax Claims and that the Debtors have accounted for all Allowed Administrative and Allowed Priority Tax Claims. Any unanticipated Allowed Administrative, Priority Tax, or Priority Non-Tax Claims could affect recoveries for holders of Allowed Note Claims and Allowed General Unsecured Claims, if the Debtors achieve a successful result in the Lumbermens Action. In addition, there are numerous contingencies and variable factors that will affect the value of the Debtors’ Available Assets, and thus, creditor recoveries.

D. Bankruptcy Considerations

An objection to confirmation of the Plan could prevent confirmation or delay confirmation for a significant period of time. In such case, the Effective Date may not occur and payments to holders of Allowed Administrative Claims, Allowed Priority Tax Claims, and Allowed Priority Non-Tax Claims may not commence for several months. In addition, if the Plan is not confirmed, the case may be converted to a case under chapter 7, in which case the Debtors believe creditor recoveries will be diminished.

E. Overall Risks

In addition to the risks described above, the ultimate recovery under the plan to holders of Claims depends upon the Plan Administrator’s ability to realize the maximum value of the Debtors’ Assets and achieve a successful result in the Lumbermens Action. It is extremely difficult to value litigation and, as discussed above, litigation outcomes cannot be predicted.

VII. Certain Federal Income Tax Consequences of the Plan

The following discussion summarizes certain federal income tax consequences of the Plan to the Debtors and to holders of certain Claims and Equity Interests. This summary does not address the federal income tax consequences to holders whose Claims are paid in full in Cash or which are otherwise unimpaired under the Plan.

This summary is based on the Internal Revenue Code of 1986 (as amended, the “IRC”), Treasury Regulations promulgated and proposed thereunder, judicial decisions, and published administrative rulings and pronouncements of the Internal Revenue Service (the “IRS”). These authorities are all subject to change, possibly with retroactive effect, and any such change could alter or modify the federal income tax consequences described below.

This summary does not address foreign, state, or local income tax consequences, or any estate or gift tax consequences of the Plan, nor does it purport to address the federal income tax consequences of the Plan to special classes of taxpayers (such as foreign companies, nonresident

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alien individuals, S corporations, banks, mutual funds, insurance companies, financial institutions, small business investment companies, regulated investment companies, investors in pass-through entities, broker-dealers, and tax exempt organizations). Accordingly, this summary should not be relied upon for purposes of determining the specific tax consequences of the Plan with respect to a particular holder of a Claim or Equity Interest.

Due to the possibility of changes in law, differences in the nature of various Claims, differences in individual Claim or Equity interest holders’ methods of accounting, and the potential for disputes as to legal and factual matters, the federal income tax consequences described below are subject to significant uncertainties. No ruling has been applied for or obtained from the IRS, and no opinion of counsel has been requested or obtained by the Debtors with respect to any of the Plan’s tax aspects.

This discussion does not constitute tax advice or a tax opinion concerning the matters described herein. There can be no assurance that the IRS will not challenge any or all of the tax consequences described herein or that such a challenge, if asserted, would not be sustained. Accordingly, each holder of a Claim or Equity Interest is strongly urged to consult with his, her, or its own tax advisor regarding the federal, state, local, foreign, or other tax consequences of the Plan.

A. Federal Income Tax Consequences to the Debtors

1. Overview of Current Year Tax Position and NOLs

The Debtors expect to have substantial net operating loss carryforwards (“NOLs”). As a result of these NOLs and the exclusion of any cancellation of indebtedness income (“CODI”) in connection with a bankruptcy case from taxation, the Debtors do not expect to incur any substantial tax liability as a result of implementation of the Plan. The Debtors are unable to predict whether NOLs will be remaining following application against CODI. The Debtors have been unable to monetize the value of their NOLs and do not anticipate the Plan Administrator will be able to monetize the value of NOLs remaining following the Effective Date.

2. Cancellation of Indebtedness Income

The IRC provides that a debtor in a chapter 11 bankruptcy case must reduce certain of its tax attributes by the amount of any CODI that is realized as a result of the bankruptcy plan, instead of recognizing the income. CODI is the excess of the amount of a taxpayer’s indebtedness that is discharged over the amount or value of the consideration exchanged therefor. Tax attributes that are subject to reduction include NOLs, capital losses, loss carryovers, certain tax credits, and, subject to certain limitations, the tax basis of property. The reduction of tax attributes occurs after the determination of the Debtors’ tax for the taxable year in which the CODI is realized. It is expected that the Debtors’ NOLs will absorb all or substantially all of the CODI realized as a result of implementation of the Plan.

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B. Federal Income Tax Consequences to Holders of Allowed Note and General Unsecured Claims

In accordance with the Plan, each holder of an Allowed Note Claim and Allowed General Unsecured Claim shall be entitled to receive his, her, or its Pro Rata share of Available Cash. Each such holder will recognize gain or loss upon receipt of such Pro Rata share equal to the difference between the “amount realized” by such creditor and such creditor’s adjusted tax basis in his, her, or its Claim. The amount realized is equal to the value of such creditor’s Pro Rata share of the Available Cash. Any gain or loss realized by such creditor should constitute ordinary income or loss to such creditor unless such Claim is a capital asset. If a Claim is a capital asset, and it has been held for more than one year, such creditor will realize a long term capital gain or loss.

The tax consequences to holders of Allowed Note Claims and Allowed General Unsecured Claims will differ and will depend on factors specific to each such creditor, including: (a) whether the creditor’s Claim constitutes a Claim for principal or interest; (b) the origin of the Claim; (c) the type of consideration received in exchange for the Claim; (d) whether the creditor is a United States person or a foreign person for tax purposes; (e) whether the creditor reports income on an accrual or cash basis method; and (f) whether the creditor has taken a bad debt deduction or otherwise recognized a loss with respect to the Claim.

C. Federal Income Tax Consequences to Holders of Section 510(b) Claims and Equity Interests

Under the Plan, holders of Section 510(b) Claims and Equity Interests will not receive anything on account of such Claims and Equity Interests. Each holder of such a Claim or Equity Interest will recognize a loss in an amount equal to such holder’s adjusted tax basis in the Section 510(b) Claim or Equity Interest. The character of any recognized loss will depend upon several factors, including the status of the holder, the nature of the Section 510(b) Claim or Equity Interest, the purpose and circumstance of its acquisition, the holder’s holding period, and the extent to which the holder had previously claimed a deduction for the worthlessness of all or a portion of the Section 510(b) Claim or Equity Interests.

D. Withholding and Reporting

The Plan provides that the Debtors and Plan Administrator shall comply with all withholding and reporting requirements imposed by any federal, state, or local taxing authority, and all Distributions shall be subject to any such withholding and reporting requirements. The Plan further provides that the Plan Administrator shall be entitled to deduct any federal, state, or local withholding taxes from any Distributions and that as a condition to making any Distribution, the Plan Administrator may require that the holder of an Allowed Claim provide such holder’s taxpayer identification number and such other information and certification as may be deemed necessary for the Plan Administrator to comply with applicable tax reporting and withholding laws.

The foregoing is intended to be only a summary of certain United States federal income tax consequences of the Plan and is not a substitute for careful tax planning with a

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tax professional. The federal, state, and local income and other tax consequences of the Plan are complex, and in some cases, uncertain. Such consequences may also vary based on the individual circumstances of each holder of a Claim or Equity Interest. Accordingly, each holder of a Claim or Equity Interest is strongly urged to consult with his, her, or its own tax advisor regarding the federal, state, and local income and other tax consequences under the Plan.

VIII. Alternatives to Confirmation of the Plan

The Debtors believe the Plan provides a recovery to creditors that is greater than or equal to the probable recoveries by creditors if the Debtors were liquidated under chapter 7 of the Bankruptcy Code.

IX. Acceptance and Confirmation of the Plan

The Debtors believe the Plan satisfies all of the requirements for confirmation.

A. General Confirmation Requirements

Section 1129(a) of the Bankruptcy Code includes several requirements for confirmation of a chapter 11 plan. Among those requirements are that a plan be proposed in good faith, that certain information be disclosed regarding payments made or promised to be made to insiders, and that the plan comply with the applicable provisions of chapter 11. The Debtors believe they have complied with these requirements, including those requirements described below.

B. Best Interest Test

Each holder of a Claim or Equity Interest in an impaired Class must either (a) accept the Plan or (b) receive or retain under the Plan Cash or property of a value, as of the Plan’s Effective Date, 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. The Bankruptcy Court will determine whether the Cash and property issued under the Plan to each Class equals or exceeds the value that would be allocated to the holders in a chapter 7 liquidation (the “Best Interest Test”). The Debtors believe holders of Claims against and Equity Interests in the Debtors will have an equal or greater recovery under the Plan than could be realized in a chapter 7 liquidation for reasons described below.

To determine the value a holder of a Claim or Equity Interest in an impaired Class would receive in a chapter 7 liquidation, the Bankruptcy Court must determine the aggregate amount that would be generated from the liquidation of the Debtors’ assets if the Debtors’ Chapter 11 Cases were converted to chapter 7 cases and the Debtors’ Assets were liquidated by a chapter 7 trustee (the “Liquidation Value”). The Liquidation Value would consist of the net proceeds from the disposition of the Debtors’ non-litigation Assets and the prosecution of the Debtors’ Causes of Action, augmented by Cash held by the Debtors and reduced by certain increased costs and Claims that arise in a chapter 7 liquidation that do not arise in the Chapter 11 Cases.

As explained below, the Liquidation Value available for satisfaction of Claims and Equity Interests would be reduced by: (a) the costs, fees, and expenses associated with the

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chapter 7 liquidation, which would include disposition expenses and compensation of a chapter 7 trustee and his or her counsel and other professionals retained; (b) the fees of the chapter 7 trustee; and (c) certain other costs arising from conversion of the Chapter 11 Cases to chapter 7.

The Debtors believe creditors have and will continue to clearly benefit from the liquidation of their Assets by the Debtors. Had the Debtors’ Assets been liquidated by a chapter 7 trustee, the Debtors project the maximum recovery would have been substantially less. The Debtors have realized a greater return than a chapter 7 trustee would have obtained on the sale of its assets, specifically due to the Debtors’ familiarity with the Assets. The Debtors have already reduced the vast majority of their Assets to Cash through their going out of business sale, sale and assignments of valuable unexpired leases, and prosecution of Avoidance Actions, among other things. Therefore, the Debtors have already established systems and protocols for the efficient disposition of their Assets and are in the process of liquidating their remaining Assets.

In addition, converting the Chapter 11 Cases to chapter 7 cases at this stage would result in an immense waste of the Debtors’ resources that were already expended in connection with the realization of Cash proceeds from the Debtors’ Assets and would delay converting the Debtors’ remaining Assets to Cash. It may also result in substantial additional Claims against the Debtors’ estates.

Moreover, under the Plan the Debtors will avoid the increased costs and expenses of a chapter 7 liquidation, including the fees payable to a chapter 7 trustee and his or her professionals. Although the Debtors have already incurred many of the fees and expenses associated with generating Cash proceeds from their Assets, the Cash to be distributed to creditors would be reduced by the chapter 7 trustee’s statutory fee, which is calculated on a sliding scale from which the maximum compensation is determined based on the total amount of moneys disbursed or turned over to the chapter 7 trustee. Section 326(a) of the Bankruptcy Code permits reasonable compensation not to exceed 3% of the proceeds in excess of $1 million distributable to creditors.5

The chapter 7 trustee’s professionals, including attorneys and accountants, would add substantial administrative expense that would be entitled to be paid ahead of holders of Allowed Claims against the Debtors. Moreover, the aforementioned chapter 7 trustee fees would reduce the Assets available for Distribution to creditors.

In contrast, the Plan Administrator, Mr. de Aguiar, is very familiar with the Debtors’ Assets and the issues pertaining thereto, and therefore, the Debtors’ estates will avoid the significant administrative burden associated with the familiarization process of a chapter 7 trustee and his or her attorneys and accountants. Further, under the Plan all Causes of Action are preserved, including the Lumbermens Action, which will be prosecuted by the Plan Administrator. The Plan Administrator is extensively familiar with the facts and legal theories pertaining to the Debtors’ Causes of Action. Conversely, a chapter 7 trustee would have no

5 Section 326(a) of the Bankruptcy Code permits a chapter 7 trustee to receive 25% of the first $5,000 distributed to creditors, 10% of additional amounts up to $50,000, 5% of additional distributions up to $1 million, and reasonable compensation up to 3% of distributions in excess of $1 million.

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initial familiarity with the Debtors’ litigations and would have less capability to maximize the value of the Debtors’ Causes of Action.

It is also anticipated that a chapter 7 liquidation would result in a significant delay in payments being made to creditors. Pursuant to Bankruptcy Rule 3002(c), conversion of the Chapter 11 Cases to chapter 7 cases would trigger a new bar date for filing claims against the Debtors, which bar date would be at least 90 days after the conversion date. Not only would a chapter 7 liquidation delay Distributions, it is possible that additional Claims, such as those that were not previously asserted in the Chapter 11 Cases or that were late-filed, may be asserted against the Debtors. Reopening the bar date in connection with conversion to chapter 7 would provide Claimants with an additional opportunity to timely file Claims against the Debtors estates. Moreover, the Debtors would lose the substantial benefit associated with having established an Administrative Claims bar date earlier on in their Chapter 11 Cases.

C. Feasibility

The Bankruptcy Code requires that in order for the Plan to be confirmed by the Bankruptcy Court, it must be demonstrated that consummation of the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Debtors. Since a form of liquidation is proposed in the Plan and no further financial reorganization of the Debtors is contemplated, the Debtors believe the Plan meets the feasibility requirement.

D. Acceptance by an Impaired Class

Section 1129(b) of the Bankruptcy Code provides that a chapter 11 plan can be confirmed even if it has not been accepted by all impaired classes so long as at least one impaired class of claims has accepted it. The process by which non-accepting classes are forced to be bound by the terms of the plan is commonly referred to as “cramdown.” The Bankruptcy Court may confirm the Plan at the request of the debtor, notwithstanding the plan’s rejection or deemed rejection by impaired classes as long as it “does not discriminate unfairly” and is “fair and equitable” as to each impaired class that has not accepted it. A plan does not discriminate unfairly under the bankruptcy Code if a dissenting class is treated equally with respect to other classes of equal rank.

A class of claims under a plan accepts the plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class that actually vote on the plan. A class of interests accepts the plan if it is accepted by holders of interests that hold at least two-thirds in amount of the allowed interests in the class that actually vote on the plan.

A class that is not “impaired” under a plan is conclusively presumed to have accepted the plan. Solicitation of votes from such a class is not required. A class is “impaired” unless the legal, equitable, and contractual rights to which a claim or interest in the class entitles the holder are unaltered or the effect of any default is cured and the original terms of the obligations are reinstated.

A plan is fair and equitable as to a class of unsecured claims that rejects the plan if the plan provides (a) for each holder of a claim included in the rejecting class to receive or retain on

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account of that claim property that has a value, as of the effective date of the plan, equal to the allowed amount of such claim; or (b) that the holder of any claim or interest that is junior to the claims of such rejecting class will not receive or retain property on account of such junior claim or interest.

A plan is fair and equitable as to a class of equity interests that rejects a plan if the plan provides that (a) each holder of an interest included in the rejecting class receive or retain on account of that interest property that has a value of the plan’s effective date, equal to the greater of the allowed amount of any fixed liquidation preference as to which such holder is entitled, any fixed redemption price as to which such holder is entitled, or the value of such interest; or (b) the holder of any interest that is junior to the interest of such rejecting class will not receive or retain property on account of such junior interest.

Class 1 (Priority Non-Tax Claims) is unimpaired under the Plan, and thus, is conclusively presumed to have accepted the Plan pursuant to section 1126(f) of the Bankruptcy Code. Classes 2 and 3 (Note Claims and General Unsecured Claims) are impaired under the Plan and their votes will be solicited. The Debtors anticipate the holders of Claims in Classes 2 and 3 will vote to accept the Plan. Classes 4, 5, and 6 (Section 510(b) Claims, Intercompany Claims, and Equity Interests) are not being solicited because holders of such Claims and Equity Interests are not entitled to receive or retain any property on account of such Claims or Equity Interests. Classes 4, 5, and 6 are therefore deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code. The Plan provides fair and equitable treatment to holders of Class 4, 5, and 6 Claims and Equity Interests because there are no Classes junior to these Classes and no Class senior to these Classes is being paid more than in full on account of its Allowed Claims.

If any impaired Class fails to accept the Plan, the Debtors intend to request that the Bankruptcy Court confirm the Plan pursuant to section 1129(b) of the Bankruptcy Code with respect to those Classes.

Dated: September 10, 2013 Respectfully submitted, New York, New York

/s/ Rolando de Aguiar Rolando de Aguiar President and Chief Wind Down Officer of the Debtors

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