Case KG Doc 1073 Filed 06/10/16 Page 1 of 6 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE

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1 Case KG Doc 1073 Filed 06/10/16 Page 1 of 6 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: VERSO CORPORATION, et al., Debtor(s). Case No KG (Chapter 11) Honorable Kevin Gross / MICHIGAN DEPARTMENT OF ENVIRONMENTAL QUALITY S OBJECTION TO THE DEBTORS THIRD AMENDED JOINT PLAN OF REORGANIZATION The State of Michigan Department of Environmental Quality (MDEQ), by its attorneys, Bill Schuette, Attorney General, and Celeste R. Gill, Assistant Attorney General, objects to the approval of the Debtors Third Amended Plan Joint Plan of Reorganization (the Plan) and states in support of its objection: BACKGROUND 1. On January 26, 2016 (Petition Date), the Debtors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. section 101 et seq., the cases have been joined and are being jointly administered, under Case No The Joint Debtors continue to operate their businesses and manage their bankruptcy estate properties pursuant to 1107 and 1108 of the Bankruptcy Code. 3. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334, and this is a core proceeding pursuant to 28 U.S.C. 157(b)(2). 4. Included among the Debtors is Escanaba Paper Company (Escanaba), individual Case No and Verso Quinnesec, LLC (Verso Q), individual Case No

2 Case KG Doc 1073 Filed 06/10/16 Page 2 of 6 5. Escanaba and Verso Q own properties in Michigan containing paper mills, landfills and other disposal areas. The Debtors continue to own and operate those mills and landfills with attendant statutory, regulatory, and licensing obligations. 6. The Plan creates Reorganized Debtors to operate the Debtors businesses, including the Michigan mills and their associated properties. OBJECTION The Debtor's First Amended Plan is not confirmable under Section 1129 of the Code. 7. Debtors' proposed plan does not meet all of the requirements of section 1129 and it cannot be confirmed because the Plan violates applicable non-bankruptcy law by failing to address ongoing environmental obligations at the Debtors properties. 8. Under Michigan law, including but not limited to, Part 115 of the Natural Resources and Environmental Protection Act (NREPA), MCL et seq., the owners and operators of solid waste disposal facilities have affirmative obligations to operate in compliance with their operating license and upon cessation of operations to comply with closure and postclosure care (including, but not limited to monitoring to detect any releases from the landfills). Part 201, Environmental Remediation, of the NREPA, MCL et seq., requires the Debtors or Reorganized Debtors to remediate any contamination caused by releases from the landfills or otherwise resulting from their operations. 9. The Debtors acknowledge in the Disclosure Statement to the Third Amended Plan that they will continue to have obligations related to environmental, health and safety laws and regulations relating to air emissions, wastewater discharges, solid and hazardous waste management and disposal, site remediation and natural resources. See Docket No. 858 pages However, Debtors do not acknowledge those obligations in the Plan, while including

3 Case KG Doc 1073 Filed 06/10/16 Page 3 of 6 broad releases, exculpations, and indemnifications in Article XII of the Plan that could be interpreted as shielding the Debtors and Reorganized Debtors from those obligations. 10. Article XII, Section 12.4(b) of the Debtors' Plan provides broad releases by Holders of Claims and Other Entities (Releasing Parties) to the Released Parties, which includes the Debtors and Reorganized Debtors, among others. Subsection 12.4(b) provides in part: "each Releasing Party, in consideration for the obligation of the Debtors and the Reorganized Debtors under the Plans, and the Cash and other contracts, instrument, releases, agreements or documents to be delivered in connection with the Plan, shall be deemed to forever release, waive and discharge the Released Parties from any and all Claims, obligations, suits, judgments, damages, demands, debts, rights, remedies, actions, Causes of Action, and liabilities whatsoever, including any derivative Claims... whether liquidated or unliquidated, fixed or contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then existing or thereafter arising, at law, in equity,... that are based in whole or in part on any act, omission, transaction or other occurrence taking place on or prior to the Effective Date in any way relating to the Debtor, the Chapter 11 Cases, Pursuant to 28 USC 959(b), Debtors-in-possession are required to manage and operate bankruptcy estate property in accordance with non-bankruptcy law, including applicable environmental statutes and regulations. Further, the Reorganized Debtor is subject to liability under environmental law with respect to any property it owns or operates. See In re CMC Heartland Partners, 966 F2d 1143, (7 th Cir 1992). Not only does the Plan fail to address compliance with laws, regulations, and operating licenses necessary for the continued operation of the mills and related landfills, it could prevent the MDEQ from exercising enforcement authority to ensure the protection of public health, safety, welfare and the environment. To the extent the Plan is an attempt by Debtors or Reorganized Debtors to avoid their responsibilities in violation of the environmental laws of the State of Michigan it is not confirmable.

4 Case KG Doc 1073 Filed 06/10/16 Page 4 of Debtors' Plan does not comply with other applicable provisions of the bankruptcy code as required by Section 1129(a)(1). 13. With a limited exception, the Bankruptcy Code does not explicitly provide for non-debtor releases. 11 USC 524(g). In fact, 11 USC 524(e) provides that [e]xcept as provided in subsection (a)(3) of this section, discharge of the debt of a debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt. And while it is true that 11 USC 105(a) gives the Court authority to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the [Code], it does not allow the bankruptcy court to create substantive rights that are otherwise unavailable under applicable law. In re Metromedia Fiber Network, Inc., 416 F3d 136, 142 (2d Cir 2005) citing New England Diaries, Inc. v. Dairy Mart Convenience Stores, Inc. (In re Dairy Mart Convenience Stores, Inc.) 351 F3d 86, 92 (2d Cir 2003) (internal quotations omitted). However, as discussed above, Section 12.4(b) of the Debtors Plan provides broad releases by the Releasing Parties to the Released Parties, which in addition to the Debtors and Reorganized Debtors, includes a wide variety of non-debtors. In conjunction with the other subsections of 12.4 and the other sections of Article XII: (12.5 Exculpation and Limitation of Liability; and 12.6 Injunction), the Plan provides for broad releases, injunctions, and exculpations to a whole host of non-debtors which appears to shield them from liability in violation of Section 524(e). 14. Non-debtor releases are proper only in rare cases. In re Metromedia Fiber Network, 416 F3d at 141. And while the courts have looked at several factors in determining whether to grant non-debtor releases, this bankruptcy case does not present a situation in which the Court should use its equitable powers to grant releases to non-debtors. See generally, In re Dow Corning Corporation, 280 F3d 648 (6 th Cir, 2002); In re Metromedia Fiber, 416 F3d 136.

5 Case KG Doc 1073 Filed 06/10/16 Page 5 of Even if the Court has authority to provide such relief, the Plan's releases, injunction and exculpation provisions are not consensual nor are they supported by consideration to support such extraordinary relief. See, In re Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005). A non-debtor release is not adequately supported by consideration simply because the non-debtor contributed something to the reorganization and the enjoined creditor took something out. In re Metromedia Fiber Network, 416 2d Cir at In Article XIII, the Plan attempts to create exclusive jurisdiction in this Court for a wide range of post-consummation matters, including matters that may belong in state or other federal courts. 17. The exclusive jurisdiction provisions conflict with 28 USC 1334(b), which vests only concurrent jurisdiction in federal district courts over civil proceedings arising in or related to cases under Title 11. Most courts, when presented with the issue, have limited, rather than expanded post-consummation jurisdiction over plan enforcement. Creditors should be free to pursue default remedies in a non-bankruptcy forum, if appropriate. See e.g., Warren v Calania Corp., 178 BR 279, 281 (MD Fla. 1995) ( The term relate to the case refers to all matters arising in or arising under a Title 11 case. For a proceeding to arise under Title 11, it must be, by its very nature, the kind of proceeding that could only arise in the context of a bankruptcy case. ) [internal citations omitted]. 18. MDEQ has been in contact with Debtors regarding its concerns, as have other environmental agencies, with the hope of resolving its concerns. MDEQ files this objection to preserve its rights in the event that the Parties are unable to reach a consensual resolution. 19. MDEQ reserves the right to supplement its objections to the Debtor's Plan.

6 Case KG Doc 1073 Filed 06/10/16 Page 6 of 6 RELIEF REQUESTED Wherefore, the MDEQ asks this Court to withhold confirmation of the Debtors Third Amended Joint Plan of Reorganization unless the Plan defects identified above are resolved, and that the MDEQ be granted such additional relief as is just and proper. Dated: June 10, 2016 Respectfully Submitted: Bill Schuette Attorney General /s/ Celeste R. Gill Celeste R. Gill (P52484) Assistant Attorney General Environment, Natural Resources, and Agriculture Division Attorney for MDEQ 6 th Floor, G. Mennen Williams Building 525 West Ottawa Street P.O. Box Lansing, MI Telephone: (517) Telefax: (517) gillc1@michigan.gov LF: Verso Corporation (US BK-District of Delaware) AG# A/Objection to the Third Amended Plan

7 Case KG Doc Filed 06/10/16 Page 1 of 2 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: VERSO CORPORATION, et al., Debtor(s). Case No KG (Chapter 11) Honorable Kevin Gross CERTIFICATE OF SERVICE I hereby certify that on June 10, 2016, I caused the Michigan Department of Environmental Quality s Objection to Debtors Third Amended Joint Plan of Reorganization to be filed using the Court s ECF system, which will send notifications of such filing to the following registered users of the system: George A. Davis, Esq. Mark D. Collins, Esq. Michael Merchants, Esq. Paul Kizel, Esq. Eric S. Chafetz, Esq. Thomas M. Horan, Esq. Ericka F. Johnson, Esq. Keith H. Wofford, Esq. Stephen C. Moeller-Sally, Esq. Jane M. Leamy, Esq. / A copy of the Objection will also be sent to the following persons through electronic mail: Andrew M. Parlen, Esq. (aparlen@omm.com) Kenneth A Rosen. Esq. (krosen@lowenstein.com) Sharon L. Levine, Esq. (slevine@lowenstein.com) Dennis F. Dunne, Esq. (ddunne@milbank.com) Samuel A. Khalil, Esq. (skhalil@milbank.com) Steven Z. Szanzer, Esq. (sszanzer@milbank.com) Gregory A. Bray, Esq. (gbray@milbank.com)

8 Case KG Doc Filed 06/10/16 Page 2 of 2 Thomas R. Kreller, Esq. (tkreller@milbank.com) Jennifer Hagle, Esq. (jhagle@sidley.com) Robert S. Brady, Esq (rbrady@ycst.com) Sean M. Beach, Esq. (sbeach@ycst.com) Shana A. Elberg, Esq. (shana.elberg@skadden.com) Brian M. Resnick, Esq. (brian.resnick@davispolk.com) Darren S. Klein, Esq. (darren.klein@davispolk.com) Dated: June 10, 2016 Respectfully Submitted: Bill Schuette Attorney General /s/ Celeste R. Gill Celeste R. Gill (P52484) Assistant Attorney General Environment, Natural Resources, and Agriculture Division Attorney for MDEQ 6 th Floor, G. Mennen Williams Building 525 West Ottawa Street P.O. Box Lansing, MI Telephone: (517) Telefax: (517) gillc1@michigan.gov LF: Verso Corporation (US BK-District of Delaware) AG# A/Certificate of Service