“(3) any person who by contract, agreement, or otherwise arranged for disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances.”
“Many comments were received suggesting that this document can be used to “allocate liability”
“The information in this document reflects the most complete understanding of solids and PCB discharges to the Lower Fox River for the period 1954 to 1997. To the greatest extent possible, data from monitoring or discharger records were used to estimate discharges. However, complete records for this period no longer exist and not all existing records were necessarily available to the Department at the time this report was prepared. Should more accurate, verifiable information become available, these discharge estimates may be revised. During the course of this effort, the Department received access to Confidential Business Information (CBI) provided by dischargers. This CBI contributed to the strength of this report. Although no CBI is presented in this report, CBI is present in many key spreadsheet files used to compute solids and PCB discharges to the Lower Fox River. The confidential status of this information prevents distribution of these files as open records.”
“In light of the time pressures we face, if we are to turn our substantial progress into an actual settlement, we have to work hard and fast. Thus, we are forgoing diplomacy in favor of frankness, candor and clarity so that all the parties to the mediation know exactly where things stand and precisely what is necessary for there to be a consensus based allocation in lieu of the unilateral administrative orders that will issue shortly and the litigation world war that will follow.”
“There are an infinite number of permutations that get to$450 million and$65 -70 million. Needless to say, each mediation participant has its own view as to how these numbers should be raised, and each of these views incorporates a large dose of subjective self-interest. For the avoidance of doubt, all parties should understand that we have faithfully listened, recorded, assimilated, and understood each of your arguments about how the targeted amounts should be allocated. There is a large measure of truth and rationality in all of your arguments, but they cannot all be right. As we have explained to you many times, including at the mediation sessions, we have formed our own impressions and reached our own conclusions based on the best understanding we have been able to reach of the technical, factual, operational, historical, geographical, hydrological, remedial, and equitable factors brought to our attention as part of the mediation. We recognize that there are other allocations that reasonable people could derive and defend and we respect the mediation parties' strongly held views on this subject.”
“Summary of Fox River Parties' Contributions to the Remediation of OUs 2-5 Settling Party Contribution NCR-API$240,000,000 GP$90,000,000 USP$40,000,000 WTM I$13,333,000 Menasha$10,000,000 Riverside*$1,000,000 TOTAL:$394,333,000 *Subject to agreement on payment terms”
“The Settling Parties instructed the Mediator to inform US DOJ of the progress and the proposed way forward and next steps. Pursuant to these instructions, the Mediator talked with Randy Stone to inform him of these developments. Stone indicated he was disappointed with the lack of closure but that he appreciated the progress made so far. Discussions between DOJ and the Mediator are ongoing.”
“The settlement position outlined in this memorandum reflects the views of key legal and technical staff from several of the government agencies involved in natural resource damage assessment and restoration activities for the Lower Fox River and Green Bay Site. It incorporates their analysis of the most current information, including: (1) data on all past and ongoing restoration projects performed with interim NRD recoveries in this case, …; (2) all available information on the potential costs and benefits of prospective future projects, including project concepts advanced by PRP representatives in recent NRD Settlement Work Group Meetings; and (3) recent analyses that the Trustees and their consultant have performed for preparation of a formal Restoration Progress Report.”
“The settlement structure proposed here also would allow the PRPs to satisfy the remaining NRD claim for less than$76 million , and the PRPs' total past and future payments to settle the NRD claim would be less than$120 million . That total commitment by the PRPs would only be a fraction of the$223 -333 million total claim amount estimated by the RCDP.”
“The Government made an outright demand on NCR/API for an additional$50 million for NRD if we wanted to settle the claim. Stone stated that in any event, a consent decree would need to address NRD, if only on the terms it proposed, to be sure that API/NCR were not able to use the proposed consent decree as a vehicle to insulate their resources from the NRD claim. Stone and John Carlucci (Department of the Interior) agreed that the Government's interest in this NRD claim was not driven purely by economic or financial considerations and that the Government would sue. Should such a suit be filed, it would be based on the full$333M assessment, and not their summer 2007 "bottom line" NPV offer of$76M . There did not appear to be much room for negotiation, but Stone also made clear that neither his proposal ($10M now and$10M next year) nor his$50M demand had been run by the NRD Trustees.”
“Given this apparent complexity and as we discussed some time ago when we met (briefly) in Pascal's [Mr Lebard’s] office, may I ask you again on the basis of your intimate knowledge of these issues to please try and map it out under the form of some sort of a matrix/occurrence tree/prioritization of issues, if feasible, so that we could have your synthetic opinion at a glance as to what could be the worst case and best case scenarios looking forward. Am I right in assuming that the base case scenario (…) is some sort of a best guess between the worse and best case scenarios, and that it should be amended/refined as a continuous process on the basis of the latest developments (i.e. the$10.4 M insurance payments so far, etc .. )?”
“$104 million (API/NCR share of 40% of$500 million - API being allocated 50% of that share after the first$75 million ) to$368 million (API/NCR share of 60% of$850 million - API being allocated 75% of that share after first$75 million . To this you then need to add the NRD liability resulting in a total range of possible liability of:$124 million to$408 million in present value terms.”$124 million to$408 million in present value terms.”
“… AWA is not impervious to a certain number of unpleasant surprises in the matter (the “worst case” falls within the range of$182 and$434 million ) that would make this provision manifestly insufficient though it is not possible to evaluate the probability of this at this stage.”
“During 2005 a clearer picture began to emerge on the future costs relating to the Fox River project. A subsequent review resulted in the creation of a provision which represents the anticipated excess discounted future expenditure on the project over the discounted available project insurance. The amounts are expected to be paid out over the next forty years.”
‘It is interesting to note that these items were not picked up by either PCC’s senior principal review or by Chris [Gower]’
“I believe this shows us that having somebody from within in the loop was both legitimate and presumably overdue. Good work!”
“I needed extra comfort -- after Chicago, I thought it was a very complex issue and I thought it would not be useless to have an extra layer of checks and also on the issue, that is the -- not that I didn't trust Mr Gower. Frankly, I was rather impressed by what Mr Gower was doing. I thought his notes were very well done. He knew very well – you know when somebody knows an issue. You ask him questions, he responds immediately, gives you some – so I had no reason to distrust Mr Gower. But the numbers were significant. It was a significant issue. And I was more comfortable to have somebody that I would absolutely trust also to look at the numbers.”
“As customary, the news on the Fox River issue are contrasted: some good, some bad and still a lot of unknowns. Under the circumstances that I'll summarize below, urgent actions are now needed on AWA ltd so as to prepare for the future and control potential damages.”
“We therefore made clear, Mike [Bartolotta] and I, to our counsel (Jeff Bates) that AWA was very stretched, that he could not count on more money than what we had currently reserved for, and that either we could work a compromise with what we had on the table, or we would have to have a plan B, whatever such plan could be. None looks right at the time being.”
“To calibrate the capital reduction, we obviously need to have a clear vision of the 2008 possible reserve adjustment, which is a function of what was explained above. And we will need to have a fairness opinion from a reputable third party that what is being done, when it will be done, is the best that could be done under the current circumstances. By the way, the way to effect a capital reduction will change on October 1st, 2008. A judge decision will not be needed anymore, simply a letter by each member of AWA's board asserting that the company is in good financial condition for the upcoming 12 months following the capital reduction. Chris can help there, not with Antoine and myself, but with his former colleagues. I would suggest that the maximum deadline for all this work be fixed at December 31, 2008, at the latest.”
“As of now, therefore, AWA is in a position to be transformed into a single purpose entity responsible for the Fox River exposure, and be re-organized in such a way that it would have adequate resources on its own to meet its remaining long term obligations in the US. To accomplish that, however, given the very significant, and largely excessive, amount of remaining inter-co accounts between AWA and Sequana, an additional, and presumably final, distribution of reserves coupled with an AWA capital reduction becomes mandatory before year end 2008. This cannot be done without an in-depth re-assessment of the current Fox River exposure, coupled with a third party fairness opinion as to the adequacy of the thus actualized Fox River reserve and related available resources, as well as of the envisaged AWA capital reduction.”
“Under such a preliminary scenario, however, AWA would still remain with a 66 MEUR receivable from Sequana, corresponding roughly to the sums recouped by AWA from the Fox insurance carriers in 2006 and 2007, but still an unnecessarily large number, particularly in light of Sequana's currently available cash resources.”
“These different alternatives need to be urgently vetted, in light of the recent Fox River developments (which could impact AWA's reserve).”
“…our intention was not to strip AWA of all its resources. It was to make a proper work and to do a good work where we would be comfortable that what we had done was right. There were a number of constraints. One of the constraints was timing, because we needed to have a set of statements that could be presented to the authorities, showing that we were not a deep pocket. ….”
“And of course -- now, of course nobody wants to increase a provision, if you can avoid it. But it was not my intention. My intention was: let's have a hard look at this situation. Let's do the best we can. We now are at a stage where a number of things have happened over the past years, so on and so forth. It is time to look at it very seriously, try to do everything we can to come up with a solid opinion. And frankly, this is what -- and I spent the remaining weeks of 2008 to try and do that.”
“For NRDs, we have two issues, amount and timing of payment. The high point should assume we pay 60% of 70% of the government's latest demand. JB — what was that number? The low point should assume 60% of 44% of the government's demand. The high point should assume payment in 2009. The low point should assume payment in tranches, say$5 million per year.”
“Based on this information, I think we have to contemplate that, regardless of the basis for the 2008 provision, we could see a significant increase a year later which, if the 2008 recap [sc.recapitalisation] is based on the 2008 provision, could be inadequate within 12 months.”
“Basis for Supporting Solvency and Deferring or Defending Litigation • Independent auditors have to conclude that AWA is solvent under UK law and that the intergroup transfer is not constructively fraudulent under UK and US law based on valuation of liabilities and assets, contingent and actual • Confer with PWC regarding modality (e.g., possibly proposed IASB methodology regarding contingent liabilities and assets) • No guarantee that this process will ultimately survive a court challenge in the UK or the US • Should consider providing third-party or self-insurance or a guarantee for the litigation on the legacy insurance • Should consider moving a trading company back into AWA • Should consider moving the intergroup obligation in stages (130 Million euros now; another next year following river sampling; another following the insurance appeal) • Should consider whether/when to notify or start arbitration with API over right to terminate indemnity”
“Looks much better for us. Now, is it realistic?”
“Chris, this obviously looks much better. Can you stand behind these numbers?”
“Q. Now, Mr Martinet, as you have just accepted, these changes haven't happened with any input from the experts in relation to each of the assumptions. All you wanted at this stage was just to see whether you could get Mr Gower to say, "Yes, we can use these numbers." A. But I'm asking, "Is it realistic?". Q. Well, you knew it wasn't realistic. A. I did not know whether it was realistic or not. I challenged the numbers. He changed the numbers and I am asking myself, and I am asking Pascal [Lebard] and Michael Bartolotta, "Is it realistic?" So I think basically I challenged some of the assumptions, I challenged the logic of the assumptions, came up with a number, numbers that are better. But I'm asking myself and my colleagues, I don't know if it is realistic so ... Q. I see. Maybe I misread this, I'm sorry. You are asking Mr Lebard and Mr Bartolotta, "Is it realistic?”
“Gentlemen - I have not worked my way through all the detail, - and I will look at it further tomorrow— however I have the same basic point I previously made regarding the approach and the auditors. In the past we did not use a range of outcomes we used a point. None of the email attachments has an analysis that shows the 12/31/07 reserve in comparison to your four outcomes — I think you need that for the auditors. Second the auditors will want you to explain all the year over year substantive changes by line item. This becomes much more complicated when you vary the various line elements in the different scenarios — which is why I have previously suggested that you only vary those elements where there truly is a reason for variability or multiple possible outcomes. For instance, in the past we picked a discount rate — based on a given methodology — now you have three different rates with a .20bps spread up and down — why? In the past we have used 60% of the full river costs as the NCR/API share — now we have a 45% and 50% case as well as 60% — what changed in 2008 to make the 60% less "correct" this year? - You see the point - where there is true variability — such as in the subsequent allocation to PRP's, or the contractor savings - new elements - I think "scenarios" may make sense — otherwise I think they are overly complicating. On the other hand I know you have had more discussions on this issue, particularly with the new insurance valuation consultants and, in fact, preliminary discussions with the auditors and thus my comments may in fact be irrelevant, but I will be surprised if the auditor's first reaction does not bring similar comments. Anyway — I think we need a comparative analysis to prior reserve calculations and I think we need a summary sheet that briefly explains why or supports the variance in each element that changes from case to case.”
“Mr Gower was bullish. He was certainly – the impression I got from him at the meeting was that things were moving in our favour and that the likely liability would be moving downwards. Nevertheless I think in my role as a director it is necessary to be cautious, bearing in mind, of course, the risks I would be taking if we got this wrong, risks of a claim against me, risk of a criminal act. So yes, I certainly wanted always to be cautious.”
“We also understand that it is the intention to reduce the share capital to a nominal amount on the 15th December. The amount of the reduction would be transferred to reserves. There would be a dividend payment out of reserves but a significant amount of reserves (€100m ?) would be retained in the company. There may then be further distributions next year. We believe that it would be prudent to retain some share capital in AWA on the 15th December. The amount of this capital would be the difference between the amount of the Fox River provision in AWA's books and the high undiscounted scenario - in the above illustration it would be the equivalent of$67m ($130m less$63m ). We consider this is prudent in view of the uncertainties in calculating the provision referred to above. We believe it should be the undiscounted provision as this will be AWA's actual liability. If we reduce the share capital to a nominal sum, even if we retain a "cushion" in reserves, it would be easy for future directors' (who may not necessarily be ourselves and who we have no control over) to declare this as a dividend. This could leave AWA with insufficient capital to meet its liabilities if they actually exceed the estimated provision.”
“calibrate AWA’s capital reduction so that the company would be left with€150 million of interco loan assets with Sequana … [this] would mean that the company would without a doubt have more than ample resources to cover its future obligations to API even in the very worst case scenario.”
“I have shared with you my financial analysis of the Liability and attach to this memo my most recent analysis. As we have discussed, there remain a number of uncertainties which may have a material impact on the amount AWA is called to ultimately pay pursuant to the indemnity it gave Appleton Papers Inc. in 2001. I believe the issue you need to consider is to what extent should the company retain assets in excess of the Maris policy to meet those indemnity obligations. In my opinion, the funds required in excess of the Maris policy, in 2009 dollars, range between$55 million and$90 million with my best estimate based on currently available information being approximately$66 million . Consequently, I have no difficulty advising the board that, following the reduction of capital, a dividend which leaves approximately€150 million in distributable reserves will, in my opinion, have no impact on the company's ability to pay any sums due pursuant to the indemnity as they fall due. For that reason, I believe it is reasonable to proceed with the proposed capital reduction and payment of a dividend.”
“Key matters for your attention Our job consisted in providing you with an estimated value of the net liability related to the Litigation. This valuation was performed on the basis of information provided by Management and its counsel, which we considered as being reliable and that we did not seek to verify independently. In particular, a significant part of our job is based on Management views which are its sole responsibility. In this context, our job as independent advisors has consisted in exercising our own judgment on the said valuation, challenging Management views, providing the valuation methodology, ensuring the overall coherence of the valuation model and performing the actual computation.”
“Our Services You have engaged us to perform the specified limited scope procedures (the "Services") set out in Appendix A on the Fox River provision calculation (the "Schedule"). You are responsible for determining whether the scope of the Services is sufficient for your purposes. The Schedule has been prepared by, and remains the sole responsibility of the Company's directors. Our work will be performed in accordance with the International Standard on Related Services (ISRS) 4400 "Engagements to perform agreed-upon procedures regarding financial information". As noted in Clause 1.4 of the Terms of Business, the Services do not constitute assurance; you and we agree that we have not been engaged to, and will not, perform an audit or a review, the objective of which would be the expression of an opinion on the Schedule. Accordingly, we will not express such an opinion. If we were to perform additional procedures or if we were to perform an audit or review of the Schedule, other matters might come to our attention that would be reported to you. You should understand that there is no guarantee that these procedures will result in the identification of all matters which may be of interest to you.”
“Our work will be based on information provided to us by the Company and will be carried out on the assumption that information provided to us by the Company is reliable and, in all material respects, accurate and complete. As set out in Clause 1.4 of the Terms of Business, we will not subject the information provided by you or contained in our reports and letters to checking or verification procedures except to the extent expressly stated. This is normal practice when carrying out such limited scope procedures, but contrasts significantly with, for example, an audit.”
“No Assurance - Save as expressly stated in the Engagement Letter, we will rely on and will not verify the accuracy or completeness of any information provided to us. The Services do not constitute an audit or review carried out in accordance with generally accepted auditing standards and no assurance will be given by us.”
“[8] While it is true that in some instances an entity's knowledge that its product will be leaked, spilled, dumped, or otherwise discarded may provide evidence of the entity's intent to dispose of its hazardous wastes, knowledge alone is insufficient to prove that an entity “planned for” the disposal, particularly when the disposal occurs as a peripheral result of the legitimate sale of an unused, useful product. In order to qualify as an arranger, Shell must have entered into the sale of [the chemicals] with the intention that at least a portion of the product be disposed of during the transfer process by one or more of the methods described in [the definition of ‘disposal’]. Here, the facts found by the District Court do not support such a conclusion.”
“This "fault" factor has been a major concern during the insurance litigation and in the mediation. In addition, there was some focus on fault in the NCR-API arbitration, in light of NCR's cleaning up of PCB-contaminated sediment in Japan and documents from Wiggins Teape to NCR indicating concerns about the environmental effects of PCBs. We countered it in the mediation by producing evidence that the recycling mills should have known that PCBs were in carbonless paper around the time in the late 1960's when the environmental harms of PCBs became widely known, and that they did nothing to abate their wastewater discharges, despite numerous state orders to do so. The mediator gave NCR/API a 55.5% share, based, we think, largely on the arguments regarding this factor. As an aside, the mediator stated that Glatfelter had a harmful document with respect to NCR on this factor, but he was not able to tell us what it was.”
“Our estimate of the total amount of expected insurance indemnities is 142 m$ (including settlements with carriers) vs. 100 m$ in our previous report, and varies between 12 m$ and 183 m$. Based on recent favourable Court decisions, Counsel believe that the likelihood of winning on Appeal has increased. We have therefore increased the probability of winning on Appeal from 75% to 80%. This probability remains prudent compared to the Circuit Court Judge average reversal rate on Appeal of 12%. Overall, the cumulative probability of winning the case is 93%. The probability of losing it is 7%.”
“The overview of outcomes presented in this graph shows that: - there is an estimated 84% chance that net liability is lower than 64 m$, - there is an estimated 93% chance that Maris policy is sufficient to cover AWA's net liability, - there is a 7% chance that net liability amounts at an estimated 231 m$ (cases when API does not receive any indemnities from insurers after losing all appeals).”
“A. My Lady, what I remember from that date was that we had done some work, we were okay, we wanted to see whether it could be done in a different way once the reports were finalised and so on and so forth. And we will see. Again, that is all I can say. Q. You -- A. And frankly, I go one step further. Frankly, in January and February, I was not obsessed by Lower Fox River at all. We had other things to do and I must honestly say that this was -- we had done something. We had done something I think to the satisfaction of everyone. I thought that what we were leaving in terms of assets was perfectly palatable by Sequana, and that is it. You know -- so -- and frankly, I remember that in January and February I had much other things on my plate rather than go again on this issue. I thought I treated it, with my fellow directors, in a reasonable way. So whatever Mr Gower was -- had in mind, you know, I don't know.”
“NCR/API's share of full river costs was changed from 60% last year to 55% this year based on the expanded list of defendants involved in the Whiting litigation case that was submitted to the Wisconsin court in 2008. In addition, the Cities of Appleton and Menasha were determined to NOT be de minimis. API expects the parties to the litigation will settle the complaint by 2012 and that when the other parties’ contributions are considered, API’s share will likely be 55% of total costs.”
“The US Supreme Court handed down its decision in the Shell case today. The decision appears to be favourable to NCR and API but I will provide a more detailed analysis after I have discussed the decision with Jeff [Bates] and the NCR lawyers on Wednesday.”
“So I called Bates, I think. And I said, "Jeff, is it important?" I think I got him late and he said -- a very quick conversation, as I remember, but he said, "You will have -- I'm working on it. You will have my answer to that. But it is significant. It is significant on apportionment, it is significant on joint and several, it is significant." I think he also said for arranger and so on. And so that struck me as something important indeed” … “A. I think I was probably in Paris. And I think he was travelling. So I got him late, very quickly. He said, "Look, it is an important decision. I am working on it, but it could be very significant and I am working on it." That is what I remember. And I think he said, "No apportionment is confirmed, no joint and several", I think he mentioned arrangers and so on. And I think I said, "Okay, maybe that is very good news indeed." And so that struck me as something important indeed”
“it looks as if we do not have a solvency issue at all any more: the Shell decision of today (no joint and several liability, apportionment, etc...) should significantly reduce AWA's liability, presumably more than by the 35 M euros we have in mind. Too bad we can't book it retroactively for 2008. Our call with PWC tomorrow therefore seems redundant. But I will participate out of courtesy while eating my morning croissant.”
“I have not done any back and forth on the counter-arguments in this ‘brief’.”
“The effect of the case, as it impacts API, appear to be: 1. Arranger liability (effectively liability for some part of the other PRP's share of the cleanup costs) has been abolished in cases like this where the Appleton coating plant sold a useful product; and 2. Where liability can be apportioned (as it surely can in this case where each company had its own distinct outlet to the river) then it should be which means that there is no "joint and several" liability and liability for the orphan shares (arising from bankruptcy or inability to pay) falls to the government. This decision will have a significant impact on how we assess API's future liability. The government already has a number of reports it commissioned which apportioned liability based on assumed discharges which, in turn, were based on assumed production. Those reports allotted a 38% share to NCR and API. Setting aside what those companies have paid in the past and rounding up to 40% would result in API's future liability being: Cost of cleanup and LTM: 604.5 million Less 2008 and Jan/Feb 09 spend: 95.1 million Remaining costs 509.4 million 40% for NCR/API 203.8 million API share @ 60% 122.3 million You will note that this amount is less than the current balance remaining in the Maris policy. If we apply the same analysis to Natural Resource Damages and start with the government's "demand" of a further$76 million , the API share of that number would be$18.2 million resulting in a total future liability of$140.5 million . As at the end of March the limits remaining in the Maris policy were approximately$145 million . This may moot any discussion regarding the transfer of the receivable as a reserve in excess of the Maris policy may no longer be necessary. We can discuss during today's call.”
“I want to discuss this before you send it out. We are not there as far as we are concerned and I want to understand why. Could PCC also do the standard comparison analysis (by columns, comparing 31/12/08 to today's on a line by line basis), please.”
“Putting on my director's hat I have to ask the question: in the light of these changes is it still in the best interests of the company to sell AWA Ltd at the price currently envisaged? There just seems to be a lot of potential upside & not much downside.”
“Martin, this is the KEY question, isn't it? What we first have to understand here is that i) the good news we just received will also have the effect of decreasing whatever AWA/API might get from the carriers in the future, especially in light of what we have already gotten from them in the recent past, and ii) we wish we were perfectly sure that there was no downside at all. There is definitely going to be a lot of legal work needed to bend the Supreme Court decision to fit our case. We presumably have a very good chance of success there, but I cannot recount the number of times in the recent past where good news has been systematically mitigated with bad news (remember the NCR/API allocation mediation, etc...?). We are currently working on the concept of getting something out of this transaction, while pondering whether we should try and maximize our share of the potential upside (and thus remain associated with the Fox problem for another number of years) or whether we should satisfy ourselves with mostly getting rid of a very hairy situation once and for all, without being held responsible for future downside, however remote this might be. It should be a basic risk/reward analysis, except there are many moving parts, numerous parties involved and much at stake, in either direction. Hence the dilemma, which nevertheless has to be sorted out sooner rather than later.”
“By way of managing expectations, the good news is that the disclosure around LFR seems comprehensive but there remain some internal inconsistencies and outstanding disclosure (such as the detail of the capital reduction in December) which need to be processed. The one matter that I want to flag at this stage is that our opinion will include an "emphasis of matter" paragraph which will refer to the LFR disclosure in the accounts. This very clearly states it is not a qualification but given the level of judgement and major change from the previous year appears appropriate. Very happy to discuss further when you have a chance to see the words.”
“Opinion In our opinion: • the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Company's affairs as at31 December 2008 and of its profit for the year then ended; • the financial statements have been properly prepared in accordance with theCompanies Act 1985 ; and • the information given in the Directors' Report is consistent with the financial statements. Emphasis of matter Without qualifying our opinion we draw attention to note 15 to the financial statements, which describes how the Company has indemnified a former subsidiary company, Appleton Papers Inc, for costs in connection with the costs of investigation, remediation of and other costs related to the alleged contamination of the Lower Fox River in Wisconsin, USA. The valuation of this liability and its settlement date, together with the realisation of potential contingent insurance policy assets, involve significant judgements by the Company. While the Directors have carried out an assessment of the position at31 December 2008 , this matter will still depend on the rulings of court cases and other agreements with relevant other parties in the future, the outcome of which are not certain at the date of these financial statements, nor necessarily under the control of the company.”
“A. … But again, my feeling, my understanding as a businessman, was that between the Maris Policy and the potential insurance recoup, actually there were more assets than liabilities in this case. Q. That is the upside? A. That is my feeling. Q. That was the potential upside? A. Yes, that was my feeling. It was more assets than liability. And so that in the end also I also mention that to you, my Lady, yesterday, is the fact that Mr Gower wanted to make the transaction. He was himself absolutely convinced that it was the case. So I didn't want to look stupid or foolish vis à vis my shareholders in my board in having Mr Gower make so much money that Sequana, in the end, had made a wrong decision. Q. Of course Mr Gower wasn't going to be exposed to the downside, was he, the downside risk, personally? A. Personally, I don't think so, yes. But again, you know, he was thinking himself, and I was sure of that, that he will make a fortune in taking over the Fox liability. And because he knew so well the case, I was pretty much convinced that there was pretty good news to come, especially vis à vis some court decisions and in the end he was really thinking he will make millions of euros.”
“Altogether, we believe it's a good deal which, for all intents and purposes, allows Sequana to get rid of a very hairy issue under favourable terms, while greatly limiting its future exposure to the Fox matter, if any at all. Time will tell, bearing in mind that the remaining Maris monies, anyway, are expected to cover API's Fox River obligations for a minimum of 2.5 to 3 years at the pre Burlington Northern (Latest Supreme Court decision) run rate. A minimum monitoring will nevertheless remain necessary in the future, if only to secure Sequana's earn-out rights which could be significant. In the short run, Sequana will generate a windfall profit of —€35 million by getting rid of its Fox River reserve.”
“The immediate effect of this operation was to externalise a significant underlying risk that was difficult to control from the scope of the group, with Sequana having expressly excluded any guarantee under the sale contracts of API and the Fox River risk. The CEO drew the Board’s attention to the strictly confidential nature of the conditions of this operation, which needed to be maintained in the group’s own interests.”
“… something of a concealed trap, taking effect if it proves to be substantially complete and perfect, and retrospectively destroying the operation and effect of the declaration of solvency if, at whatever distance of time, error in the statement can be detected. The implication of a retrospective effect is, in my judgment, a significant pointer against a strict construction.”
“Essentially, section 123(2) requires the court to make a judgment whether it has been established that, looking at the company’s assets and making proper allowance for its prospective and contingent liabilities, it cannot reasonably be expected to be able to meet those liabilities. If so, it will be deemed insolvent although it is currently able to pay its debts as they fall due. The more distant the liabilities, the harder this will be to establish.”
“34. … But the exercise required by section 123(2) is not the production of an annual balance sheet but a comparison of the value of assets with the amount of liabilities in order to ascertain solvency. There is no doubt that the claim in the liquidations of the Lehmans companies is a present asset of the issuer. Similarly there is no doubt that it is of considerable value, whether admitted or not. If the secondary market is indicative of value it is worth some 35% to 37% of US$221m . This asset and its value should not be ignored.”
“Q …Mr Lebard's view was that he wanted to take everything out, he wanted to keep any value in Sequana, not in AWA? A. That was not my view. I mean, my view was that we had to achieve a transaction where we could reorganise AWA with only the Fox River liabilities in it. And then I was here to achieve this in a right way, I mean. I am the lawyer of the company. So I'm trying to -- what I am trying to do here is probably to make sure that we comply with the rules and that we are taking care of everything. That is the only thing. Now, I was -- my target here, which has been assigned to me, was to achieve a transaction where we could reduce the receivable, so through capital reduction and the distribution of dividend, and maybe at some stage we would try to sell the company to somebody else. But that is all that what we had in mind here.”
“Q. The reality is, isn't it, Mr Mountford, that you knew very well in that meeting on 15 December that there was a serious risk that if this dividend was paid, the company might ultimately be unable to meet its indemnity liability if it turned out to be larger than estimated? A. I was very cautious. I did not want to expose – as I said yesterday, my motivation here was to make sure I did everything legally, did not expose myself to a criminal act or indeed a claim, a personal claim against me. So I reviewed -- I believed that the amount of assets that we were leaving in the company were more than sufficient to meet the worst case scenario that we foresaw. So in my mind there was no question of insolvency. If there had been any issue in my mind on that, I simply would not have taken the risk of doing it.”
“I knew that the solvency statement was something that each individual director has to sign. So it is up to each individual director to make their own judgment as to whether they should sign it or not. For me, I had my worst case scenario in mind, I had my assets in mind, and that is why I signed the solvency statement.”
“A. Well, all I can say is that at that meeting that is what I genuinely believed. I did -- I thought there was no basis on which the company could not meet its liabilities in the future. And that is why I signed the solvency statement. I mean, I knew this was a significant transaction. I'm not going to do anything that I thought was incorrect. We had had McDermott there, giving us advice. We had PwC, they were at the meeting. They had vetted the accounts. They had looked again at the provision. As I say, from my point of view, when I signed that solvency statement, I believed there was no risk of the company becoming insolvent. That is all I can say. Q. But you didn't, at that stage, have enough material to allow you to reach that conclusion, did you? A. Well, I believe that I had. We had a range of estimates from PCC and Mr Gower. We had had PwC to look at the provision, review the provision. We had had McDermotts providing legal advice to us. I can sit here and say to you, my Lady, when I was at that meeting I had no doubt in my mind that there was no -- that the company -- there was no risk of insolvency.”
“In many instances, the Trustees have been able to achieve high quality restoration at lower than expected costs (specific areas of wetland habitat have been restored or preserved at less than the per-acre cost originally estimated by the RCDP). That past experience with interim recoveries — coupled with a reasonable expectation that a near-term final settlement could fund other cost-effective restoration projects — leads me to believe that the Trustees could justify settling the total NRD claim now for less than the prior dollar estimates, as discussed below.”
“First, (after noting we appreciated his comments and efforts) API would be looking for closure on the NRD issue. Without missing a beat, Randy said that closure would be$50M (for both API/NCR). He knew I wasn't calling to negotiate, and that I was only passing the info along to you all.”
“1) Shared NCR/API NRD payment- Last year we listed a$25 million payment for 2007. Should we use this same figure for 2008? Jeff Bates suggested$35 -$40 million . We also would like to ask Laura Moore [of MWE US] to provide us with a short justification for the amount you give. We would insert her justification in the backup documentation for the reserve. She provided us with justification for last year's figure and, based on her time and knowledge on the subject, we do not believe it would be a difficult task.”
“3/ Estimation of NRD costs As of December 2007, we understand that your best estimate is that API/NCR liability for NRD costs will be$35 million (+$10 million compared to 2006, no support for that amount in the PCC report) We understand that in a 2000, potential natural resource damages ("NRDs") were estimated by the U.S. Fish and Wildlife Service ("FWS") to fall in the range of$176 million to$333 million for all PRPs in the aggregate. In its 10-Q report, dated5/10/2007 , NCR Corp. mentions "for total natural resource damages (NRD), NCR uses a best estimate of$131 million . The range of reasonably possible outcomes is between$10 million and$176 million ." — > Could you please explain what are the 35MUSD derived from and why that amount has increased compared to 2006? How will you share these expenses with NCR (same agreement 60/40?)? — > What is the status of the negotiations between IGP (Inter Governmental partnership) and API/NCR on that matter? The companies are not negotiating the government's NRD claim at this time. It may be deferred until after the cleanup is complete. The$35million figure reflects our reasonable estimate of the NCR/API share of the government's demand for a further$75million which it made last year. Any NRD settlement will be shared with NCR according to the terms of the arbitration agreement. The 2007 reserve forecasts a$35M NRD settlement in 2009. By then, the$75M threshold with NCR will have been met and API's share will be 60%. I do not believe, however, that we will reach a settlement of NRDs in 2009.”
“I always said that I believed that Mr Gower was extremely knowledgeable of all the issues in Fox River. He had spent seven years or eight years, whatever, working only on that. And although I understand that he was not a CERCLA expert, but he was -- he had a legal mind. He was an intelligent person. He was hard-working. And I -- and it was my view was that he knew much more than me and that his advice was reliable. I also knew that Mr Bates was very much in the background and so -- and Mr Bates being a CERCLA expert. And yes, I mean, I thought that Mr Gower was as good as any, and more probably better than any to provide us with solid advice. That is what I thought.”
“NCR/API's share of full river costs was lowered from 60% last year to 38% this year in light of the following developments which have occurred since1 Jan 2008 : (i) the list of defendants named in the Whiting litigation (filed by NCR and API in January 2008) now stands at 23, which number includes the 6 other PRPs together with a number of other companies which are not expected to be de minimis parties; (ii) in seeking to reach a settlement with 11 of the defendants in the Whiting case, the US Department of Justice has indicated that it does not consider the Cities of Appleton and Neenah-Menasha to be de minimis parties suggesting that NCR and API may expect the City of Appleton to pay a material proportion of those companies’ liability; (iii) NCR has informed API that, as a result of its lobbying, it expects the state of Wisconsin to receive at least$50 million in funding from the federal government to settle the cities and municipalities liability; and (iv) as a result of testing conducted by API late in 2008, it appears that a material amount of the PCBs in the river have resulted from the discharge of Aroclors other than 1242, suggesting that the universe of parties liable to pay for the remediation will further increase; and (v) the Supreme Court's ruling in Burlington Northern which the company's legal adviser has stated (i) removed the likelihood that NCR and API would bear any arranger liability and (ii) suggests that liability for the cleanup will be apportioned resulting in no joint or several liability falling on any of the PRPs. For these reasons, API believes that a more realistic estimate of the combined NCR/API share of the remediation costs is now 38% of the total costs, which number is supported by the government's own apportionment analyses although that number is the upper end of the range and, therefore, remains prudent.”
“ That was to me the most important point, of course. But there was also the matter of the solvency which we had -- which we had to consider and which we had considered carefully. Again, prior to that day. So we knew it was an important decision. … Q. And the solvency point that you mention, was what? What was the question that you say had already been considered? A. Well, the solvency point dates back to the long work we had had on this issue in the preceding month, and of course we needed to be comfortable that this would not put the company in jeopardy, looking forward. We were leaving some resources in the company. We thought those resources were enough to cover its liabilities in the long run, and that is what we were considering. Q. Can you just identify what resources you are referring to? A. Two resources, one which was the Maris, which was at that point in time,$151 million , if my recollection is correct. And the second was of a more contingent nature, but on which we were very confident, which was the possibilities of very, very significant settlements or indemnities from the insurance carriers.”
“At the end of the day we were proposed a number of numbers which we thought were solid or robust and that is what was used. And that is what I remember. I never --You see, my Lady, for the past few days I have been -- the alternative is either an I am an idiot and unprofessional, or I am a manipulator, with tortuous ideas. Well, you know, maybe I'm an idiot, but I'm not a manipulator, I'm not trying to doctor anything there.On the contrary, it is ironic, because all of my life I have been considered as a straight arrow, so I understand what you are saying, Mr Smouha, but again, I was trying to do a professional job, trying to determine whether we should change the numbers or not, and the conclusion was that the numbers we had used, there was no compelling reason to change them. Rightly or wrongly, I don't know.”
“90. An entity should disclose the following for each class of provision: (a) a brief description of the nature of the obligation, and the expected timing of any resulting transfers of economic benefits; (b) an indication of the uncertainties about the amount or timing of those transfers of economic benefits. Where necessary to provide adequate information, an entity should disclose the major assumptions made concerning future events, as addressed in paragraph 51; and (c) the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement.”
“15.3: the LFR reserve: For the purposes of creating its reserve, the Company using third party experts (notably PCC) has taken a reasonable, prudent view as to API's likely share of the cost of remediating the remainder of the river as proposed in the ROD2 amendment and as further modified by information received from the contractors during the bid process and subsequent review. A significant unknown remains the precise percentage of the total costs of the remediation and natural resource damages which will be borne by NCR Corporation and API, which two companies the Agencies treat as a single share. The final cost to the Company is unlikely to be determined until all allocation issues are finally determined by a court or through some form of dispute resolution. Nevertheless, as between NCR and API, costs are shared pursuant to a 1998 settlement between these two companies and a November 2005 arbitration which found API liable for 60% of all costs in excess of$75 million . For the purposes of creating its reserve, the Company has taken a prudent view as to API's likely overall percentage allocation, without taking into account the existence of highly likely contingent asset (see 15.2 above [sc. the Historic Insurance Policies]). On4 May 2009 , the US Supreme Court delivered its decision in the Burlington Northern case. In that case the court considered three issues relevant to the Fox River matter (i) arranger liability (ii) joint and several liability, and (iii) apportionment. The impact of the decision in that case on the Company's liability for the Fox River may mean that API and NCR have no arranger liability; that their liability may be apportioned and, if so, no joint and several liability exists. For these reasons management has re-assessed the Company's exposure and determined that a reduction in the share for which API may be found liable is more likely than not. 15.4: other contingent liabilities: There are no other contingent liabilities arising in the ordinary course of business in respect of litigation and guarantees, which the directors believe will have a significant effect on the financial position of the Company and its subsidiary undertakings.”
“In light of the Burlington Northern decision and based on the Company's own scientific and technical investigation regarding the processes utilised at the facility now owned by API, the directors have determined that the Company has sufficient financial assets to meet its indemnity obligations to API on the basis that those obligations are limited. It is the view of the directors that it is reasonably likely that the Company, on behalf of API, has already paid more than the amount that API will ultimately be held legally obligated to pay. Accordingly, whilst the Company intends to continue to fund the ongoing cleanup work for the time being, resolution of API's share will be sought through appropriate avenues including the courts.”
“(iii) The duties of directors are owed to the company. On the facts of particular cases this may require the directors to consider inter alia the interests of creditors. For instance, creditors are entitled to consideration, in my opinion, if the company is insolvent, or near insolvent, or of doubtful solvency, or if a contemplated payment or other course of action would jeopardise its solvency. The criterion should not be simply whether the step will leave a state of ultimate solvency according to the balance sheet, in that total assets will exceed total liabilities. Nor should it be decisive that on the balance sheet the subscribed capital will remain intact, so that a capital dividend can be paid without returning capital to shareholders. Balance sheet solvency and the ability to pay a capital dividend are certainly important factors tending to justify proposed action. But as a matter of business ethics it is appropriate for directors to consider also whether what they do will prejudice their company's practical ability to discharge promptly debts owed to current and likely continuing trade creditors. … … If the company's financial position is precarious the fortunes of such suppliers may be so linked with those of the company as to bring them within the reasonable scope of the directors' duties. They may continue to give credit in ignorance of a change damaging to their prospects of payment.”
“If a company is solvent in the sense of its assets exceeding its liabilities there can, I think, be no question of a separate duty to creditors: they have their ordinary remedies if their accounts are not paid. If it is insolvent the creditors have an interest in the company and the directors might be said to have a duty to them for creditors' money is then at stake. It is in the intermediate situation of near insolvency or doubtful insolvency that greater difficulties of legal principle arise.”
“They become prospectively entitled, through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company’s assets. It is in a practical sense their assets and not the shareholders’ assets that, through the medium of the company, are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration.”
“It is sufficient for present purposes that, in accord with the reason for regard to the interests of creditors, the company need not be insolvent at the time and the directors must consider their interests if there is a real and not remote risk that they will be prejudiced by the dealing in question.”
“For my part, I do not detect any difference in principle behind these varying verbal formulations. It is clear that established, definite insolvency before the transaction or dealing in question is not a pre-requisite for a duty to consider the interests of creditors to arise. The underlying principle is that directors are not free to take action which puts at real (as opposed to remote) risk the creditors' prospects of being paid, without first having considered their interests rather than those of the company and its shareholders. If, on the other hand, a company is going to be able to pay its creditors in any event, ex hypothesi there need be no such constraint on the directors. Exactly when the risk to creditors' interests becomes real for these purposes will ultimately have to be judged on a case-by-case basis. Different verbal formulations may fit more comfortably with different factual circumstances.”
“23. … Accordingly, in my judgment, the section does not require the inquiry to be made whether the purpose was a dominant purpose. It is sufficient if the statutory purpose can properly be described as a purpose and not merely as a consequence, rather than something which was indeed positively intended. Moreover, I agree with the observation of the judge that it will often be the case that the motive to defeat creditors and the motive to secure family protection will co-exist in such a way that even the transferor himself may be unable to say what was uppermost in his mind. … 25. … [F]or something to be a purpose it must be a real substantial purpose; it is not sufficient to quote something which is a by-product of the transaction under consideration, or to show that it was simply a result of it, …, or an element which made no contribution of importance to the debtor's purpose of carrying out the transaction under consideration. I agree with the point made by Lord Justice Laws in argument, that trivial purposes must be excluded.”
“32 ... It is clear that the statutory purpose referred to insection 423(3) of the Insolvency Act 1986 need not be the only purpose for which the impugned transaction was entered into. Moreover, there is in my judgment no warrant for a construction of the statute which would qualify the term "purpose" by the adjective "dominant". No such qualification is required to make sense of the Act or to give it pragmatic efficacy. On the contrary, it is easy to envisage cases where more than one purpose is at hand between whose weight or influence it is on the evidence impossible to distinguish in practical terms. 33. In such a case, in my judgment, the application of section 423(3) is by no means necessarily excluded. What in my judgment is required is that the claimant show that the donor, vendor or settler was substantially motivated by one or other of the aims set out in section 423(3)(a) and (b) in entering into the transaction in question. There may be cases in which, even absent the statutory purpose, the transaction would or might have been entered into anyway. That would not necessarily negate the section's application; but the fact-finding judge on an application made to him under section 423 must be alert to see that he is satisfied that the statutory purpose has in truth substantially motivated the donor if he is to find that the section bites.”
“It is the interest of a person in the company, that interest being composed of rights and obligations which are defined by the Companies Act and by the memorandum and articles of association of the company.”
“37. … The distribution of the undistributed profits of a company in liquidation to its shareholders is not a transaction relating to securities because neither the shares themselves nor the rights attached to them are affected by a payment which merely gives effect to the shareholders’ rights; they receive only what is already theirs. Distributions are made to shareholders in respect of the shares, but the shares of the individual shareholder are nothing more than the measure of the proportion of the total which is due to him. 38. In my opinion the position is not materially different if part of the undistributed profits is paid to the shareholders by way of dividend while the company is a going concern. The Court of Appeal seized on the fact that until a dividend, if final, is declared or, if interim, is paid, the shareholders have no right to it:[2002] STC 722 . Accordingly, the Court of Appeal concluded, the declaration and payment do not merely give effect to pre-existing rights. … 40. The right to receive a dividend does not arise until the conditions laid down in the company’s articles of association are satisfied. Any requirement that a dividend must be declared by the directors before the shareholders are entitled to receive it must be found in the company’s articles of association: there is nothing in the Companies Acts save an obligation not to pay dividends out of capital. Constraints on the shareholders’ rights to receive dividends contained in the articles are self-imposed. 41. In the early days articles of association commonly left the declaration of dividends to the company in general meeting, that is to say to the shareholders themselves. Gradually, however, it became the general practice to require the dividend to be declared by the directors. The change was a response to the increasing separation of ownership and management. The shareholders own the company, but they entrust the management of its undertaking to the directors. To enable the directors to carry out their functions, shareholders give them a discretion to decide how much of the company’s funds should be retained to pay creditors and carry on the business and how much can safely be returned to shareholders by way of dividend. By declaring a dividend, the directors effectively release funds due to the shareholders from their power to retain them in the business. 42. Whether the company is in liquidation or continuing to carry on business as a going concern, therefore, the distribution of the undistributed profits of a company to the shareholders entitled thereto merely gives effect to the rights attached to the shares. The funds are released, in the one case from the liquidator’s discretion to retain them for the purpose of the winding up, and in the other from the directors’ discretion to retain them for the purposes of the undertaking. Given that the former is not “a transaction relating to securities’’, neither in my opinion is the latter. The relationship between the payment and the shares in respect of which it is paid is the same in both cases.”
“If I can elaborate, I will give you some reason for that. Never, ever Sequana didn't fulfil its obligations vis à vis any subsidiaries. And also we had some subsidiaries in the paper industry that you can imagine which had a tough, tough time, and very big difficulties. We had injected the money which had to be needed to find ways to help our business to survive and to work. That is the first point. The second is we also had a board of directors and maybe I will come back to that, which are prestigious and very well-known people, including senior people from the Agnelli family. And in the end, remember that the Agnelli family still owned close to 30% of Sequana. Sequana was consolidated into the IFIL group; the Agnelli family. For the Agnelli family, can you imagine that they would accept that one of their subsidiaries would let fall bankrupt a business in the US, with obligations vis à vis the US Government? It is just impossible. So in my mind, in the mind of the board, it was not question at all not to fulfil our obligations vis à vis AWA. As simple as that.”
“Q. … in this case you very carefully, in a number of places in the documentation … inserted clauses to make it absolutely clear that the seller, Sequana, would have absolutely no post-sale liabilities in relation to the indemnity liabilities, Fox River, Future Sites and so on; correct? A. It was absolutely the purpose of -- it was a part of this transaction. I also took care – Q. It was the reason for the transaction? A. Well, the reason for the transaction was a sale. But we did not intend to guarantee any of the liabilities regarding the Fox River or any of the Future Sites. Q. Because if you had that would have cut across … the objective of removing Sequana from … A. From the risk, yes, of course. Q. Thank you. A. And that is the reason why I also took care of including in the agreement some wording about the fact that Mr Gower and Mr Tauscher were fully aware of what they were purchasing. … It was important for me that these two persons, who were the purchasers of the company, recognised that they knew exactly what they were purchasing. … I wanted Mr Gower and Mr Tauscher to give a personal guarantee that they were fully aware of what they were purchasing and so on. It was important for us.”
“… it is immediately scary, and they don’t want to spend the time in trying to understand the case and they invest in another company. It is a marketing and communications thing.”
“102. … If the transaction is entered into with the requisite purpose, the fact that some other event needs to occur does not mean that the transaction cannot itself be within section 423(3). I consider that this is what the judge meant by his test of whether the transaction was an essential part of the purpose. … The right approach in my judgment is to apply the statutory wording. It is enough if the transaction sought to be impugned was entered into with the requisite purpose. It is entry into the transaction, not the transaction itself, which has to have the necessary purpose.”
“13. ln my judgment, the nature of any order and the extent of the relief granted by the court under s.423(2) and s.425 should take into account the mental state of the transferee of property under a relevant transaction (or of any other person against whom an order is sought) and the degree of their involvement in the fraudulent scheme of the debtor/transferor to put assets out of the reach of his creditors. The principles in the application of this statutory regime should reflect in this respect general principles inherent in other areas of the law, which treat the mental state and degree of involvement of a defendant in wrongdoing as relevant to the extent of recovery available against him (compare, as one example among many, Seager v Copydex Ltd [1967] 1 W.L.R. 923, 932 — no order of an account of profits ordered against an innocent wrongdoer in respect of a breach of confidence). Although the trigger conditions for liability to make restoration under s.423 set out the basic balance to be struck between the interests of the creditors and of a transferee as established by Parliament, the making of an order under s.423(2) and s.425 necessarily requires some further balancing of the interests of the transferor's creditors and of the transferee to be determined by the court, since by the time the court has to take action events will have moved on from the transfer and the balance of the equities between creditors and transferee may well have been affected by changes in circumstances over time.”
“16. In choosing what relief is appropriate in a given case, a great deal will depend upon the particular facts. One of the reasons the court is given such a wide jurisdiction as to remedy under this regime is to allow it flexibility in fashioning relief which is carefully tailored to the justice of the particular case. Helpful analogies may be drawn with other areas of the law to guide the court in reaching its conclusion, but given the wide range of situations which the statutory regime is intended to deal with it would be wrong to be unduly prescriptive in trying to lay down hard and fast rules for the application of these provisions.”