Move Is Caused

By EPA Action

Against Company's

Texas Property

By DOUGLAS WATSON

Managing Editor

Delfasco, which has a manufacturing plant here, filed on Monday in Delaware for Chapter 11 bankruptcy protection as a defensive measure resulting from an environmental dispute in Texas.

Mark W. Benko, a company vice president and general manager of its Greeneville plant, said in an interview Tuesday that the local plant will continue operating.

Benko said he spoke earlier Tuesday to the company's approximately 100 employees, assuring them they will continue working.

He said Delfasco's top executives decided the company would have to seek Chapter 11 bankruptcy protection after being informed on July 1 by the U.S. Environmental Protection Agency (EPA) that it would be issuing an administrative order to require Delfasco to clean up a property the company owns in Grand Prairie, Texas.

Benko said the EPA's, action has "millions upon millions of dollars of implications" for Delfasco, which has caused the company to seek Chapter 11 bankruptcy protection.

He added that as of the June 30 end of the fiscal year, Delfasco was in "solid" financial shape and continues as a "healthy, successful company."

Deflasco has been a manufacturer here since 1977 of metal fabricated products, especially practice bombs used by the U.S. military.

Company's Statement

Benko provided the following press release: "Recently, Delfasco, Inc., was forced to seek Chapter 11 bankruptcy protection due to a Unilateral Order issued by the Environmental Protection Agency involving contamination of property owned by Delfasco in Grand Prairie, Texas.

"The property in question has nothing to do with our manufacturing divisions located in Hurst, Texas, and Greeneville, Tennessee, but was the former location of Delfasco Forge Division, which moved from that location in 1999.

"The listed contaminate is Trichloroethylene (TCE). Prior to the existence of EPA regulations, TCE was used extensively for industrial vapor degreasing and in the dry cleaning industry. "Delfasco is steadfast in our belief that any contamination at the site is the result of the prior owner's use of that property and predated our purchase of that property."

Property's Background

The company's statement continued, "Delfasco purchased the Grand Prairie property in 1980 through a bank in lieu of foreclosure. Delfasco discovered the TCE ground water contamination during a Phase II Environmental Site Assessment in 2002 when the former Delfasco Forge property was for sale.

"Provisions in the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) allow imposing of liability and responsibility on the current property owner.

"Unless the property owners can prove themselves innocent by locating the historic guilty party, there exists no presumption of "innocence until proven guilty."

"After discovery of the ground water contamination, Delfasco worked diligently to address the problem at the former plant location. The property was entered into the Texas Voluntary Clean Up Program with the Texas Commission on Environmental Quality (TCEQ).

"An extensive investigation has been conducted to define the extent of the groundwater contamination, including the identification of another potential source of the TCE. The investigation also showed that the amount of ground water contamination could have come from as little as a total of 100 gallons of TCE entering the ground water over a 25-year period.

"State of Texas environmental regulators, the city of Grand Prairie, and the neighbors around the property have been kept informed at each step of our investigation process. This included confirming that no one was using groundwater, which is a violation of local Grand Prairie ordnances.

Delfasco Spent $800,000

"All this was done at great expense to Delfasco who to date has spent over $800,000 in sampling and investigation.

"Not surprisingly, in the midst of our investigation, a civil liability lawsuit was filed against Delfasco by neighboring property owners seeking recovery of loss of property values due to the underground contamination.

Delfasco also initiated a request to the city of Grand Prairie, Texas, for a Municipal Setting Designation or MSD for the property in question. An MSD has been used where there is shallow ground water contamination (25 to 30 feet below the surface) and simply forbids the use of this water for any potable reason where there is city water available, as is the case in Grand Prairie.

"No property owners were using this water anyway but the MSD formalizes denying its use. Texas law also addresses obvious pathways of vapors from the sub-surface water by requiring capping of any open wells.

MSD designation was close to being permitted when the EPA started doing random TCE vapor testing. Delfasco was chosen as one of several sites for testing in EPA Region 6 that includes Texas, Louisiana, Arkansas, Oklahoma, and New Mexico. This new federal initiative caused the Grand Prairie City Council to withhold the MSD.

"Since Texas has no established vapor limits for TCE, the EPA used the California limits that are the most stringent in the nation.

Vapor Testing Results

On July 1, 2008, Delfasco principals Philip Kadlecek, Mark Benko, and David Lilly, Jr. (who are co-owner of the company) met with EPA Region 6 officials at their officesin Dallas, Texas.

"The EPA officials stated that they intended to issue an order to Delfasco requiring the mitigation of TCE vapors affecting a number of homes adjacent to the former Delfasco site.

"During the meeting, the Delfasco representatives, flanked by their attorneys and environmental consultants, stated that they would be financially unable to enter into an order of consent for the costly mitigation and that such action could force the otherwise successful small business into bankruptcy.

"The EPA officials stated that they were not in the business of bankrupting companies, but the very next day issued the Unilateral Order not only addressing areas tested so far, but any and all future findings and mitigation including the cost thereof.

"Delfasco responded that we simply lacked the financial resources necessary to conduct the future work contemplated by the Order.

Chapter 11 Filing

"On July 28, 2008 Delfasco, Inc. filed for Chapter 11 Bankruptcy protection due to the Unilateral Order filed in Texas by the EPA.

"Under the Chapter 11 protection, Delfasco plans to continue its operations in Greeneville, Tennessee, and anticipates no cutbacks or changes in operations.

"The Delfasco Forge Division in Hurst, Texas, has been for sale by Delfasco, Inc. for several months and a completed sale is contemplated soon."

Benko Comments

Benko added, "we feel strongly that usage of TCE probably occurred during the 30 years of operation of that facility prior to Delfasco acquiring the Grand Prairie property in 1980.

"At the time the property was purchased there were no requirements for environmental investigations of acquired property. Such investigation did not become mandatory until the passage of the Superfund Cleanup Act of 1998.

"We also strongly suspect that another facility, adjacent to the Delfasco property, may be a source of contamination due to the nature of their business (circuit boards)."

Benko concluded, "Throughout its history, Delfasco has always been an extremely environmentally conscientious company. Both the company and individual employees have been recognized for conservation of natural resources and environmental stewardship.

"With our primary customer being the U.S. government, we have spent decades attempting to update government specifications that called for use of environmentally-damaging substances such as lead, chrome, and cadmium and replace them with less harmful alternatives.

He said, "This has been an uphill battle with government EPA directing companies to eliminate hazardous materials while at the same time, a different government agency was demanding that companies use those specific substances.

Benko added, "To this day, inner government agencies continue to battle over uses of toxic or hazardous substances, with the only loser being businesses that are forced to use the less than desirable materials putting themselves at risk for liability by implication.

"We say this only to demonstrate that we have always been up-front with our concern for the environment and would never knowingly violate our own principals' much less environmental law."

Statement To Employees

Benko also provided the Sun with this statement it had given its employees here:

"It is important for all of us to understand that chapter 11 provides for business reorganizations, and that is exactly what Delfasco plans to do -- to reorganize, to continue our operations, and to emerge from bankruptcy protection as a stronger company.

"As you know, Delfasco has been in operation for over 50 years (30 years in Greeneville). In fact, our impeccable record of quality and "on time" delivery is well-known and often cited by the U.S. Department of Defense and other Delfasco customers.

"The Department of Defense is aware of our Chapter 11 petition and has indicated that they will continue to turn to Delfasco as a trusted supplier.

"Although the need for many of our practice bomb and suspension lug products has dropped off in light of the prolonged conflicts in Afghanistan and Iraq, and our production costs have increased at the same time, Delfasco's financial situation is not the motivation for seeking Chapter 11 protection.

"Our bank, Wachovia, has agreed to provide financing in connection with the Chapter 11 case.

"Our decision to seek Chapter 11 protection is the result of a recent administrative order issued by the Environmental Protection Agency regarding an acre of land Delfasco owns in Grand Prairie, Texas.

"Delfasco Forge Division relocated away from the Grand Prairie property in 1999, but has cooperated with state and federal agencies since the discovery of Trichloroethylene (TCE) ground water contamination in 2002.

"We are steadfast in our belief that any contamination at that site is the result of the prior owner's use of the Grand Prairie property.

"Nevertheless, the EPA issued its administrative order earlier this month, which would require Delfasco to complete numerous onerous and expensive tasks. We have informed the EPA that we could not possibly comply with their requests.

To sum up, the Chapter 11 filing is the best option for Delfasco in light of the EPA administrative order. As a result of the filing, we have the opportunity to continue our successful business and handle the EPA issues without having them threaten Delfasco's existence.

"We know that this is an unexpected announcement, but rest assured, Delfasco is the same healthy, successful company it was just a few months ago. We will move forward together, and with the assistance of the Bankruptcy Court, we will emerge from bankruptcy protection as a stronger company."