Joinder ABWTQ 23 September 2010

8/8/2019 Joinder ABWTQ 23 September 2010

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THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re:

ABITIBIBOWATER, INC., et al

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Debtors.

Chapter 11

Case No.: 09-11296 (KJC)(Jointly Administered)

JOINDER TO OBJECTION BY CERTAIN EQUITY SHAREHOLDERS(Docket #3224) TO THE DEBTORS’ PLAN OF REORGANIZATION

(“JOINDER”)

I, Robert Alan Cameron Gilbertson, residing at “Dower House”, 9 Point Shares Road,

Pembroke HM06, Bermuda, am a shareholder of the above-captioned debtors and debtors-in-

possession (collectively, the "Debtors"). I hereby submit this Joinder to the objection by

certain equity shareholders to the Debtors’ plan of reorganization (Docket #3224) (the

“Objection”). The competence of this Court to rule on this matter, the venue of the hearing

and certain generic factual background are either not in dispute or are well known to the

Court, and so are included in Annexure “A” rather than in the body of this Joinder.

JOINDER

1. I hereby join in the Objection on the following bases: (1) the Debtors’ plan of

reorganization materially understates the value of the Debtors’ companies. Such

undervaluation seems sufficient that the overall group may be solvent. However, even if

it is not, certain group subsidiaries currently claimed to be insolvent in fact may be

solvent. In either event, more value is available for creditors and some value may be left

for shareholders; (2) Inadequate information has been provided to stakeholders. Debtors

and Debtors’ management repeatedly have deprived their stakeholders, including their

shareholders, of sufficient information required to assess these matters (and I for one

have not succeeded in attempts to contact the US Trustee for advice or help in this

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regard); and (3) Debtors’ management are proposing to enrich themselves. Specifically,

management proposes to award themselves 8.5% of the shares in the emerging group at

the expense of creditors and potentially shareholders.

PREAMBLE

2. I live in Bermuda, which was hit by Hurricane Igor over the weekend. This deprived me

of electricity and connectivity for several days. I was left with approximately 5 hours in

which to write and submit this Joinder. With more time, I could have written less, better.

3. I have been an investor for approximately 33 years. I am well aware that some

investments succeed; some do not. However, this is the first occasion on which I have felt

compelled to lodge a filing such as this. I am doing so because, in my opinion, the

Debtors in these cases have treated their shareholders—to whom I understand they owe

some fiduciary duty, even during Chapter 11 proceedings—with contempt.

MY BACKGROUND

4. I graduated with a Bachelor of Commerce and a Bachelor of Science (Hons) (1st class

pass). I then qualified as a Chartered Accountant (South Africa). This included spending

three years with Arthur Young & Co (now Ernst & Young). I next completed an MBA

(1st class pass).

5. After the MBA, I helped to create Orbis, an international investment management group.

Forming Orbis led me to work in South Africa, Hong Kong and finally Bermuda. I was

the founding President of Orbis until my retirement as such in 2000 (I remain a non-

executive Director of the controlling company). My responsibilities at Orbis combined

developing and managing the business with portfolio management. During my tenure at

Orbis, the firm’s mutual funds won numerous awards (including “best in the world”

awards) from independent third parties based on investment performance. Today, Orbis

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administers tens of billions of dollars under management, operates in several countries,

employs hundreds of people, and has an enviable reputation.

6. After my retirement as President of Orbis but also in 2000, my wife Carol and I began

helping to cultivate a not-for-profit feeding scheme in South Africa. By 2008 that

scheme, Feedback Food Redistribution (“Feedback”), was operating in 4 South African

cities and (based on best estimates) was donating in excess of 10 million meals per year

to needy South Africans. Carol and I were on the Board of governance, acted as strategic

advisors, and were donating approximately half of the annual budget.

7. In late 2008, Feedback was asked to transform itself into the national foodbanking

scheme for South Africa. However, at the same time, the Managing Director resigned. I

was asked to step in as acting Managing Director. I accepted, on a voluntary basis.

During 2009 I led a team which transformed Feedback into FoodBank South Africa

(“FoodBank SA”); opened South Africa’s first 4 foodbanks; successfully negotiated with

the national government for the scheme to be officially recognized as the national

foodbanking network (akin to Feeding America in the USA—or it will eventually be);

secured sufficient funding to ensure the immediate future; and effective December 2009

recruited a replacement Managing Director. I remain on the Boards of Directors and

Members (akin to trustees) of FoodBank SA, and Carol and I remain donors to the

project.

MY INVESTMENT IN ABITIBIBOWATER

8. I hold 2,390,000 shares in ABWTQ. This exceeds 4% of the issued capital. I first

invested in Abitibi Inc, as part of my diversified portfolio, prior to that company’s merger

with Bowater Inc. At the time, the challenges being faced by the company and its

industry were widely publicized. However, an objective investment assessment suggested

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that, as so often occurs in investment markets, these challenges were more than built into

the company’s share price and that with competent management this had the potential to

be a successful investment.

9. The investment was initially successful but was decimated when it because apparent that

management had failed to secure adequate cash flow; had elected—without reference to

shareholders—to secure emergency financing on a massively dilutive basis; then, despite

this, took the entire group into Chapter 11 (analysts had felt that there were several

alternatives open to them—to name one, to place only the illiquid company into

protection.) By virtue of this process, my original investment was converted into shares

in ABWTQ.

10. The consequence of all this, of course, was a massively lower share price. I made more

recent purchases (now directly into ABWTQ shares) during the past 12 months, induced

on management’s financial statement filings and optimistic public statements, the

evidently improving market conditions, and, of course, the extremely low share price.

11. Overall my investments in Abitibi Inc and ABWTQ cost a combined $735,185, of which

approximately half was invested since the group entered Chapter 11.

12. Since retiring from Orbis, I have funded my expenses—essentially my family’s living

expenses and our donations to FoodBank SA and Feedback before it—by investing. The

loss of my investment in these Debtors will not materially affect my family’s living

standards. In that regard I am luckier than many shareholders and creditors of these

companies. However, every dollar I can donate to FoodBank SA is currently sufficient to

pay for approximately 10 meals for people who might otherwise go without food. It

follows that the indirect impact of losing my $735,185 investment in these Debtors is that

I am able to fund approximately 7.3 million fewer meals in South Africa, at prevailing

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rates. (And, of course, I did not expect to merely recover my investment when I made it.)

13. Every shareholder and creditor in ABWTQ has his or her equivalent story. For many

people, the loss of their shares implies a loss of their life savings. Each such stakeholder

deserves to be treated with respect. I will explain below that I do not believe that such

respect has been afforded to the shareholders in these cases—as yet.

THE PLAN OF REORGANISATION MATERIALLY UNDERSTATES VALUE

14. The Objection argues that the Debtors’ plan of reorganization materially understates the

value of the Debtors’ group because the Debtors have (1) undervalued multiple assets, (2)

failed to value other assets, and (3) sought to defer recognition until after plan

confirmation of recoveries they have already arranged. The amounts involved are highly

material, and critical to an overall assessment of value and therefore a fair plan of

reorganization. I completely support these assertions, for reasons including those given in

the Objection.

15. While in general I do not wish to repeat reasons given in other submissions, I will make

one exception. In the court hearing of the shareholders’ request for an equity committee,

Mr. Steve Zelin appeared as an expert witness for the Debtors (aside: his associated fees

came from the Debtors’ pockets—i.e. indirectly from the creditors and shareholders. In

contrast, the shareholders, having lost 99% of their investment, could not afford their own

expert. Was this just?) Mr. Zelin admitted that, in his work on the plan of reorganization,

the value attributed to timber related assets was simply provided to him by the company--

as opposed to independently assessed by him or others--and the value given was

“insignificant”. The potential undervaluation associated with this alone amounts to,

potentially, billions (an assertion supported by at least one public investment analyst’s

appraisal of the Abitibi company alone pre merger, doubtless prepared after consulting

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10k filings? (Eventually Mr. Zelin, no doubt correctly, asserted that the difference is

attributable to the MORs being non-consolidated. He also asserted that any CPA would

have known this; I wonder what percentage of potential investors in this company are

American CPAs?)

19. To next try to address such matters, I contacted the group’s investor relations manager

via telephone. I found him unable to address many of my questions. Regarding the one

about NOLS in particular I recall him referring me to EPIQ. At his suggestion, I phoned

them. They in turn could not answer my questions and referred me to the group’s

website, which as noted I had already tried.

20. I therefore tried to phone Mr. David Paterson, the Debtors’ CEO, to try to arrange a

convenient opportunity to speak to ask questions. I was forced to leave a message. He did

not return my call (despite my very polite message introducing myself as holding several

percentage points of his company’s stock and explaining, I believe, that I wanted to ask

some non-controversial questions.)

21. This discourtesy encouraged me to take more active steps. I considered purchasing

sufficient shares to ensure I would be heard (with the share now at a few cents a share, I

could have bought the company if necessary and appointed more representative

Directors, as Fairfax had been allowed to). However, after accumulating over 4% of the

company I was informed that I could not buy further shares without a lengthy process of

application to the Debtors, which could be refused. Why? Because the Debtors had

persuaded the Court to issue a limit on the number of shares purchasable—in turn, by the

way, ostensibly to protect the NOLS, for which no value has been attributed in the plan of

reorganization!

22. I concluded that it would be appropriate to, in cooperation with other shareholders,

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instead request a shareholders’ meeting, allowing shareholders to ask formal questions

and potentially for representation. I discovered that the management had—I suspect

during the time of the merger—introduced By-laws which stipulated that only Directors

could convene a shareholders’ meeting! Should I have known about this? Possibly, but I

don’t know how---and why would I look for it, because this undermining of shareholders’

rights is unprecedented in my long experience and so I would have had no reason to look

for such a clause when investing. (If the relevant By-law was indeed introduced during

the merger, I have no recollection of it being disclosed to me when the merger was

mooted.)

23. I decided to read the iHub message board to understand whether other shareholders were

being treated better. I discovered that certain shareholders, organized by Dr. and Mrs.

Romero, were about to submit a request to the Court for appointment of an equity

committee. A successful application would have ensured that shareholders were fairly

represented. I therefore added my name to the Romeros’ motion and listened to the

hearing on the telephone. The Debtors and Creditors had opposed the motion (in doing

so, suggesting that the shareholders were speculators.) The day before the hearing, the US

Trustee dismissed the Romeros’ detailed motion with a written one line response. On the

day of the hearing he got the time wrong, and therefore did not attend. The Honorable

Judge Carey advised the shareholders to appoint counsel before reapplying, and that an

application should address the considerations applied in the Spansion case.

24. Within 3 days, an ad hoc shareholders’ group had appointed counsel. The latter estimated

that it would cost $20,000 to file a motion. In the end he charged $63,000 (and capped his

fees at that). During his work he advised us that it would improve our prospects to

appoint an independent valuer. We appointed NHB, who quoted $20,000 for a corporate

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appraisal. NHB’s verbal report asserted that equity was “in the money” by an estimated

$3.8 billion—however, they said it would cost a further $20,000 to write a report suitable

for submission to the Court. Our lawyer advised us that (given the NHB assessment of

value) it would materially improve our case to pay for the report. We reluctantly did so,

only for the final report to omit the key assertion that equity was in the money by billions.

(Essentially, I believe NHB felt that it was, but that they did not have sufficient

information—that problem again—to prove it.) NHB also now quoted that it would cost a

further (from memory) $75,000 for their expert to prepare for and attend a court

appearance. We could not afford that. The result? Our lawyer appeared alone and faced a

battery of lawyers for the Debtors and Creditors. These highly paid lawyers, armed with

an expensive expert witness evidently well known to the Court, ensured that the NHB

report—as diluted as it was relative to the verbal version--could not be admitted. Given

all these circumstances, our lawyer felt obliged to argue for an equity committee not on

the grounds that there was material undervaluation (our reason for appointing a lawyer)

but instead solely on the grounds that the Debtors’ accounting was misleading. The

results were predictable. The motion was declined. We did not get the equity committee,

and consequently still lacked, and lack, the information or representation we had been

seeking all along.

25. This, my first experience of being represented by a lawyer, cost me personally $63,000

(another 630,000 meals not donated) out of an overall cost to shareholders of over

$100,000 and yet did not result in my fundamental questions about value even being

substantially discussed in court. This was the worst of outcomes. It would have been far

more tolerable to have heard an objective reassessment of the Debtors’ valuation even if

it were impartially assessed to be fair. In such an event, case closed; I would simply have

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written off my investment.

26. Next, in an attempt to assess whether I would be wasting my time in considering an

appeal or a motion for the Court to appoint an examiner, I called the office of the US

Trustee. I did so twice, leaving messages to explain that I was a 4% shareholder and

would appreciate 15 minutes to ask questions about my rights and position. I followed up

by faxing Mr. Klauder to ask him to email me to propose a convenient time. Like Mr.

Paterson, he did not reply.

27. I have been an investor in the admirable USA for decades. The total lack of transparency

I have experienced in these cases is materially undermining my confidence in doing so.

DEBTORS’ MANAGEMENT ARE PROPOSING TO ENRICH THEMSELVES

28. The Debtors’ plan proposes to award 8.5% of the shares in the emerging company to

management. Management in turn have forecast that the company will earn profits

amounting to hundreds of millions of dollars from 2011 onwards. If this is correct, any

reasonable appraisal of an 8.5% stake in the company would value it, in turn, at hundreds

of millions of dollars. Do management deserve to receive hundreds of millions of dollars

when (they assert) some unsecured creditors will receive less than 1c in the dollar and the

shareholders will be wiped out?

29. Let’s first consider management’s historic performance. In recent years, the Debtors’

management has:

• steered the group companies into a merger without first ensuring adequate funding

for the merged group;

• deprived the shareholders for whom they supposedly act by undermining shareholder

rights as outlined in 21 and 22 above;

• steered the group into a cash flow crisis (and they should not claim that no-one saw

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the debt crisis coming—many did);

• tried to address the cash flow crisis via emergency funding from Fairfax which

entailed a material dilution which was arranged without the shareholders’ permission

(some shareholders might have been able to arrange financing on better terms—if

given the opportunity; I for one have such experience);

• shocked investors by placing the whole group, instead of just the one company which

was cash strapped, into Chapter 11. At least one public investment analyst at a major

broker, after discussions with management, had advised investors that this would be

an improbable last resort;

• turned a company which was—according to their numbers—solvent although cash

strapped when entering Chapter 11 into a group which, they claim, is now insolvent

by several billion dollars (incurring roughly three quarters of a billion dollars in

restructuring costs along the way);

• treated shareholders with contempt as argued above;

• continued to pay themselves large amounts. Note that Mr Paterson’s current million

dollar salary exceeds the value of the group’s entire issued share capital at this point;

and

• proposed to write off 100% of the equity of the shareholders they were acting for,

thereby of course decimating the share price.

30. Many people, including me, wholeheartedly support the concept of providing incentive

remuneration. However, the concept only works if the incentives are aligned with results.

As explained above, the Debtors’ management has achieved utterly incompetent results

in recent years. It would be absurd to reward them at all over and above their salaries for

results such as these—let alone by awarding them shares worth hundreds of millions of

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dollars. I respectfully submit to the Court that if this proposal is intended to reward past

behaviour, it is offensive. Any such reward would be grossly unfair to the creditors (or

shareholders) who would in effect fund such rewards.

31. The Debtors may argue that management has worked hard. That is no justification for

rewarding inept performance by augmenting a large salary with a massive bonus. Many

other stakeholders in these cases have worked equally hard—as have, I dare say, the

officers of this Court—without proposing to award themselves massive amounts.

32. Of course, it will be critical to the future success of the company for it to have competent

management post emergence. Few businesspeople would object to an incentive scheme

being introduced to reward future performance, as long as it is proportionate. If this

proposed 8.5% were intended for this purpose, it is grossly disproportionate—seriously

talented and experienced new management could be attracted for a small fraction of this

cost (and on a basis requiring demonstrated performance before the reward would

become payable.).

33. Finally, if the concern is that this management will leave if they are not incentivized on a

basis such as this, I suggest that any sober reflection of their performance and potential

would lead to the conclusion: here’s the door.

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CONCLUDING REMARKS

34. I have been an investor for approximately 33 years, primarily in equities. I am well aware

that investing in equities entails risk. In particular, investing in a company in Chapter 11

entails a very high risk of complete loss (and it is one that I do not usually elect to

assume.) I further understand that recovery by equity investors falls behind other

stakeholders in priority. Nevertheless, surely even in a Chapter 11 situation management

should fulfill their fiduciary duties; shareholders should not be ignored nor their interests

written off without adequate justification.

35. In the case of these Debtors, I and many other shareholders believe that management has

utterly failed to either represent our interests or have done so incompetently—before and

during these Chapter 11 cases. We do not trust the valuations which have been prepared

by the Debtors and their management. We believe that we have demonstrable grounds for

that distrust. I am not simply being facetious when I ask whether management would be

willing to sell the timber assets and associated rights to current shareholders at a

reasonable premium to the valuation placed on them in the plan of reorganization? If the

answer is yes, I would wish to explore that possibility on behalf of shareholders, before

the plan is confirmed. If the answer is no, it follows that the valuation must be wrong and

the plan of reorganization is flawed and should not be approved.

36. Please forgive a philosophical last comment. My wife is my best advisor. She suggested I

should give up on achieving justice in these cases. She argues that justice goes to those

who can afford the best lawyers. Clearly, the shareholders cannot. Instead, she advised, I

should write a book to publicize these extraordinary events and in particular the actions

by management. My wife may be wise, but I retain confidence that the American judicial

system will make a fair decision—even if that decision is that sufficient light shines to

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prove the shareholders’ position to be mistaken. Thank you if you have read this far, and

my apologies for any weaknesses in the arguments submitted by this non-lawyer in the

constrained time available.

DATED:

ROBERT ALAN CAMERON GILBERTSON

The Debtors in these chapter 11 cases are AbitiBowater, Inc.; AbitiBowater US Holding 1 Corp.;

AbitiBowater US Holding LLC; AbitiBowater Canada, Inc.; Abitibi-Consolidated Alabama Corp.; AbitibiConsolidated

Corp.; Abitibi-Consolidated Finance LP; Abitibi-Consolidated Sales Corp.; Alabama River Newsprint Co.; August

Woodlands, LLC; Bowater Alabama LLC; Bowater America, Inc.; Bowater Canada Finance Corp.; Bowater Canadian

Forest Products, Inc.; Bowater Canadian Holdings Inc.; Bowater Canadian Ltd.; Bowater Finance Company, Inc.;

Bowater Finance II LLC; Bowater, Inc.; Bowater LaHave Corp.; Bowater Maritimes, Inc.; Bowater Newsprint South

LLC; Bowater Newsprint South Operations LLC; Bowater Nuway, Inc.; Bowater Nuway MidSates, Inc.; Bowater

South American Holdings, Inc.; Bowater Ventures, Inc.; Catawba Property Holdings LLC; Coosa Pines Golf Club

Holdings LLC; Donohue Corp.; Lake Superior Forest Products, Inc.; and Tenex Data, Inc

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ANNEXURE A: JURISDICTION, VENUE & CASE BACKGROUND

JURISDICTION AND VENUE

1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and

1334. Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. This

matter constitutes a "core proceeding" within the meaning of 28 U.S.C. § 157(b)

(2)(A).

BACKGROUND

2. On April 16, 2009 (the “Petition Date”), the Debtors filed voluntary petitions for

relief under Chapter 11 of the Bankruptcy Code. The Debtors operate and

maintain their businesses as debtors-in-possession pursuant to sections 1107(a)

and 1108 of the Bankruptcy Code. Pursuant to Debtors’ voluntary petitions filed

with this Court, the company listed assets valued at $9.94 billion against

liabilities of $8.78 billion.

3. On April 17, 2009, certain of the Debtors (the “Canadian Debtors”), along with

non-debtor subsidiaries, sought protection from creditors under Canada’s

Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the “CCAA”), in

the Superior Court, Commercial Division, for the Judicial District of Montreal,

Canada (the “Canadian Proceeding” and the “Canadian Court,” respectively).

4. On April 28, 2009, the United States Trustee for the District of Delaware (the

“U.S. Trustee”) appointed a statutory committee of unsecured creditors (the

“Committee”), pursuant to 11 U.S.C. sec. 1102 of the Bankruptcy Code.

5. On April 14, 2010, the Debtors filed their Third Motion for Order Extending

Their Exclusive Periods to File a Chapter 11 Plan and Solicit Acceptances (the

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“Third Exclusivity Motion”). Pursuant to this Court’s order dated May 12, 2010

granting the Third Exclusivity Motion (the “Order”), Debtors’ exclusivity for

filing a plan of reorganization was extended through and including July 21, 2010.

Further, the Order extended exclusivity for solicitation of acceptance of a plan

through and including September 9, 2010.

6. On May 24, 2010, Debtors filed their First Amended Joint Plan of Reorganization

(the “Plan”) and Disclosure Statement for First Amended Plan (the “Disclosure

Statement”) [D.I. 2199 and 2200]. On June 29, 2010, Aurelius Capital

Management, LP (“Aurelius”) filed an Objection to Disclosure Statement (the

“Aurelius Objection”) [D.I. 2526].

7. The Shareholders filed a Joinder (the “Joinder”) [D.I. 2558] to the Aurelius

Objection as the Shareholders share many of the concerns raised by Aurelius.

For example, Aurelius objects to the Debtors’ Disclosure Statement as it lacks a

liquidation analysis for each Debtor, nor does it include a valuation of the

reorganized Debtors. See Objection, at *3. Aurelius also objects to the

Disclosure Statement’s lack of explanation of how certain intercompany claims

are being treated under Debtors’ proposed plan. Id.

8. Contained in Docket # 2796, AbitibiBowater Inc. (the “Company”), together with

its subsidiaries, affiliated debtors and debtors-in-possession (collectively the

“Debtors” and individually as an “Individual Debtor” or “Individual Debtors”)

proposed a second amended joint plan of reorganization (the “Plan”) for

acceptance by the court and all creditors entitled to vote on the Plan. The Plan is

to be considered with reference to the Disclosure Statement with exhibits thereto.

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9. On September 13, 2010, certain equity shareholders filed an objection to the

Debtors’ Plan of Reorganization (Docket #3224).

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Joinder ABWTQ 23 September 2010

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