Key player in paper mill restart says deal is “on target”


One year ago, the steam stopped coming from the tall stacks at Grays Harbor Paper in Hoquiam and everything went silent as hundreds of workers lost their jobs. Today, there’s optimism as a potential buyer is on the horizon and some of those involved in the effort to restart the mill say a deal very well could be made by the end of June.

Court records, as well as public records turned over by the state Department of Commerce, detail the efforts to sell Grays Harbor Paper and where things stand today.

Last month, a letter of intent was signed between a new company led by former Grays Harbor Paper CEO and industry veteran John Begley and court-appointed receiver Dick Hooper of Pivotal Solutions, Inc.

Begley has been involved in trying to find a buyer for the mill since the summer of last year. At one point, Gov. Chris Gregoire even wrote a letter courting a company from Thailand to take over the Grays Harbor Paper mill, although that deal fell through.

Begley was CEO of Grays Harbor Paper from June of 2009 to November of 2010, but disagreements with the company’s board of directors led to his departure. He’s since gone on to do consulting work. And he has a history in the paper industry of his own, serving for 10 years as the president and CEO of Port Townsend Paper Corp.

“We’re on target,” Begley said on Friday. “We’re still shooting for the end of June to close the deal. And, right now, everything is moving along. You’ll see steam by the end of July. Our goal is to be making paper by August.”

Begley said that the company will be re-named Harbor Paper, with the focus continuing on the 100 percent recycled paper that Grays Harbor Paper made famous.

When Grays Harbor Paper went down, it left more than $25 million in outstanding debt. Hooper was appointed by Grays Harbor Superior Court to recover as much of that as possible. U.S. Bank has the biggest debt at $9.4 million.

Hooper said earlier this week that conversations are still occurring with Begley and his backers, Elliott Rust Holdings, LLC. But Hooper was mum on details, referring the conversation back to an April 20 press release.

“Nothing has changed from that press release,” Hooper said.

The press release states that the letter of intent was a result of negotiations led by Hooper and Marcia Frey of Pivotol Solutions, as well as the Grays Harbor Public Utility District, U.S. Bank and representatives of the buyer, Elliott Rust Holdings, LLC. The release expected the court process to take about 60 days.

To date, the letter of intent has not been filed with the Grays Harbor Superior Court and no other documentation indicating a sale has occurred, or is about to occur, has been filed.

State Sen. Jim Hargrove, D-Hoquiam, and Hoquiam Mayor Jack Durney both said that neither Begley nor anyone else had requested any kind of special favors from their offices to get the mill back open.

“I’m just excited that the mill could be opening soon,” Durney said.

Hargrove re-iterated that whoever takes over the mill ought to have a solid business plan. Over the years, the state has invested millions of dollars in loans, grants and special consultants to help the mill along. Hargrove and other legislators even helped change state law to require more state agencies to purchase the same kind of 100 percent recycled paper that Grays Harbor Paper produced.

INTEREST FROM THAILAND

Begley said that at one point, he helped recruit a company from Thailand to take a look at the mill. Records from the state Department of Commerce identify the company as Double A or Advanced Agro, which operates one of the largest pulp and paper operations in Thailand.

Gov. Gregoire joined efforts to recruit the company after a nudge from the state Department of Commerce and at the request of the receiver, according to public records.

“I am excited to learn that Double A is evaluating Washington State as a potential location for an expansion of its paper mill,” Gregoire wrote in her Sept. 28 letter to the company. “I am writing to pledge my support and the resources of the Department of Commerce to assist you as you move forward with your evaluation. … Washington state is a prime location to expand your business and I look forward to being of assistance.”

In a Nov. 25 letter back to Gregoire, Double A vice president Thirawit Leetavorn wrote, “Whatever the outcome of our investigation will be, you can be assured that your office has contributed to the positive impression we have of Washington state.”

As of Jan. 3, an e-mail from Hooper to the state Department of Commerce showed that the Thai company may still have been interested in the mill. But, at some point, the company opted out.

Wynand Wessels, a manager at Double A, declined to comment about the mill deal. Although, Wessels had many positive things to say about the Harbor area and wished the Harbor luck in getting the mill re-opened.

“In my personal capacity, what I can say is that we were very impressed by the warm welcome and professionalism of all the people we met with,” Wessels said. “You live in a very beautiful part of the world with such an interesting history and wonderful character.”

NEW PARTNER

Begley said his new partner is Cesar Scolari, who is CEO of Eliott Rust Company.

The Washington Secretary of State’s corporation listings show that Elliott Rust was incorporated in 2006 and has papers that expire as of Oct. 31.

Begley confirmed reports that Scolari was the founder and CEO of StaffWorks, Inc. of San Clemente, Calif. back in 1998, a company he sold in 2007.

“It was a distribution business where they ran distribution for major grocery stores like Kroger and Safeway,” Begley said.

A press release from 2007 shows that StaffWorks had 17 distribution centers across the Western United States and had more than 700 freight handlers. The business was purchased at that point by Fenway Partners and RoadLink USA.

Begley said that Elliott Rust and Scolari, who now lives in Gig Harbor with his wife, have not been involved in mill operations like Grays Harbor Paper before.

About the only other news item mentioning Scolari involved a federal lawsuit brought in U.S. District Court in Tacoma between Scolari and Bancroft, an insurance company out of the British Virgin Islands.

The federal lawsuit was filed in January of last year and has already survived one motion to dismiss the case. The proceedings are now going through pre-trial motions.

“This case involves a complicated, secretive insurance arrangement,” writes U.S. District Judge Ronald Leighton in his order denying the dismissal motion last fall.

Leighton explains that Scolari apparently enrolled in a program offered by Bancroft beginning in 2005, paying more than $7 million in premiums, but he was able to borrow back more than $5 million.

“When the parties’ business relationship soured for a variety of reasons, Scolari refused to pay on the loans and Bancroft sued on the notes,” Leighton wrote. “Scolari has asserted counterclaims including fraud, bad faith and the like, which are both defenses to the collection action and affirmative claims for relief.”

Scolari’s suit seeks to get the rest of his money back.

Bancroft, meantime, denied all of the allegations and tried to get the case dismissed by saying everything had to be handled in the courts of St. Lucia, which Leighton denied.

Leighton said in the motion that “there is ample evidence that Bancroft unilaterally and retroactively and secretly modified provisions in the agreement.”

“He is the victim of a very sophisticated insurance rip-off,” Begley said. “He was taken advantage of and has brought suit to reclaim a lot of money.”

SUPERIOR COURT FILES

On May 17, Hooper and his company submitted his bills to Grays Harbor Superior Court for compensation. The detail bill work for the month of April show numerous e-mails and conversations between the Grays Harbor PUD, Greater Grays Harbor, Inc., Begley, Scolari and others involved, with a flurry of activity involving the letter of intent happening in the days before the April 20 press release. In the 10 days that followed, Hooper and his staff also arranged visits at the mill by the buyers, sought information regarding tax filings and flood insurance information. There’s also mention of a draft purchase and sale agreement. Details for the month of May are not yet on file.

A new narrative update from Hooper is not included in the court files. The last narrative update was on March 30, when Hooper wrote to the court that he had obtained “a series of bids for deconstruction of the mill in part or sale to a deconstruction company. Those bids are being analyzed while negotiations are underway with prospective buyers.”

Court records show that Hooper, as the receiver of Grays Harbor Paper, started a breach of contract lawsuit in April against West World Paper Inc. of British Columbia, Canada, seeking to recover the more than $1 million after Grays Harbor Paper had provided paper to the company. West World Paper Inc. agreed in a court response that Grays Harbor Paper requested payment, but the company decided not to pay because it said the Hoquiam-based company was providing faulty goods.

The court records also show that in March, Grays Harbor Superior Court Judge Gordon Godfrey approved a settlement agreement in which a division of International Paper Company agreed to pay Grays Harbor Paper $333,152 to settle bills and other excess claims originally valued at more than $1 million.

Hooper told the court that the deal was a good one because it “generated valuable income for the estate.”