Free Appendix - District Court of Delaware - Delaware

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Smyrna. I rea lly don't kno w. Bu t I know they could no t run the profit and loss statement there. Q. What information needs to be input into the computer system in Smyrna? A. Well, I assume it's input in the computer. There is a weekly payroll or the hours are generated by the time clock. So there is payroll information. There are billings that he does for his accounts. There are inventories, some inventories that are kept over there and they are also kept at the P ackaging Comp any. And there are purchase orders issued by the Paper Company to a vendor that are transmitted to the Packaging office. And I would suppose they are put in

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the, input into the computer. Then there are the invoices from vendors that have to be matched up with the receiving repo rts and checks cut to pay them. Q. Now, is it your testimony that all of this information has to be input at the Paper location? A. I honestly don't know. Some of it may be automatically transmitted through a mo dem . But as I say, I'm very shallow on computers. And we have somebody who can tear them down and rebuild them. So anything relative to the data that is collected and transmitted, I can't say for sure ho w it's done. I see co pies of purc hase o rders that are sent by the Pap er Co mpany. But

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those are faxe s. And I get a co py of every invo ice that is mad e by the Pap er Co mpa ny to analyze it. Q. So you don't know, though, if that is information that has been input into the computer in Delaware; do you? A. By input, you mean it stays in that computer? Q. N o. W hen you enter information into a com puter, that's inputting information. You don't know if all the inform ation tha t you just listed is actually inp ut, put manually into the computer system in Delaware? A. No, I don't really know. Q. Do you know for sure of any information that is

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input into the com puter in Delaware at the Paper Compa ny? A. Well, I know for sure , since he generates purchase orders, that's input. Payroll is done by a payroll service, b ut he inputs the numbe r of straight time and overtime ho urs. I can't really answer that question . Q. When you said we have someone who can tear down and rebuild a computer, were you referring to Rose Grab owski? A. Yes. Q. And you said Rose, Miss Grabowski, had started going to the paper location to help set up this computer system in January of 2005?

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A. I believe it was at that time. Q. D oes the Pap er Co mpa ny pay the Packaging Co mpa ny for the services that Miss Grabowski is providing to the Paper C omp any? A. A number of years ago it was decided that there would be an administrative charge of $2,000 a mo nth for work done by Packaging Company employees, basically the things that we've talked about, the purc hases, accou nts receivable, invoicing customers and paying invoices. And it's been that way for, I think from the early '90s. Q. From the early '90s. So the logs I received are

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not a comple te set; is that co rrect? A. Excuse me? Q. I received logs showing that payment starting in 2001. Is it your testimony those payments started prior to then? A. What information did you receive that said that it started in 2000? Q. No, I received information, logs as far back as 2001. Is it your testimony that this system was set up prior to that? A. I believe so. Q. And yo u believe it was the early '90s? A. Early to mid '90s, yes. Q. And it started out as $2,000 per m onth; is that

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correct? A. Yes. Q. And it has not changed to date; is that correct? It's still $2,000 per month? A. Yes. Q. So the amount did not increase even though Miss Grabowski was performing this additional duty on behalf of the P aper Compa ny; is that correct? A. That is correct. Q. And is M iss Gra bow ski reimburse d for her trave l

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expenses of going from M aryland to Delaware on a regular basis? A. Yes. Q. And who reimburses her? A. Pack aging C omp any. Q. At the time that you dec ided to reimburse , that the Pap er Co mpa ny wou ld reimburse the Pa ckaging Co mpa ny $2,00 0 per month, let's say about 1995 , do yo u have any idea what the sales for the Paper Company were in 1995? A. They were probably substantially higher, maybe 50 percent. That was a reflection of market conditions and there was a paper shortage at that time. We get $65 a ton for old b oxes baled today picked up. Bac k then it was as high as $2 30 per ton picked up. So the sales would have been substantially higher. But it's more a

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function of the market than -- although, we had more accounts back then too. Q. Could you guess at how many more accounts you had in 1995 than you had in 2004? A. Maybe 50. And now maybe 35. Q. At the time tha t you started this pa yment system, did either company engage in any due diligence to try to determine what the service would cost them from a third party?

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A. No. Q. How did you come up with the figure of $2,000 p er month? A. I would just say a guesstimate. Q. What was the guesstimate based on? A. Observation, a guesstimate how many hours and using som e type o f cost per hour for -- way back then it was just accounting. Ro se was not very involved at all with the Pa per C omp any. Q. So now the Packaging Company is providing the Paper C omp any mo re services than it did in 1995 ; is that correct? A. At the present time the answer is yes. But don't forget the two situations that I mentioned. Q. Let me sho w you a do cument and we will mark this Exhibit 1.

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(Morgan Deposition Exhibit No. 1, Notice to Em ployees, Simple IR A, was marked for identification.) BY MS. CL ICK NE R: Q. Mr. Morgan, have you had a cha nce to look at this document? A. Yes. Q. Can you identify it? A. I guess it's the information that's given to

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employees that are eligible to be covered under the Simple IRA. Q. Is this with D ean W itter? Is that the compa ny that's providing this service? A. Yes. Q. Are there two accounts? Are there separate accounts for the Pap er Co mpa ny and the Pa ckaging Co mpa ny? A. Yes. Q. And do you know who negotiated with Dean W itter or interacted with them to set up these acco unts? A. It was a question of giving our employees the opportunity, but it was actually my son-in-law who worked for D ean W itter at that time when Simp le evolved. Be cause we had other plans in the p ast. Q. What is your son-in-law's name? A. Chris Persico, P-E-R-S-I-C-O. Q. And you said he's your son-in-law and your

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daughter works fo r you, his wife works for you. Okay. So who interacted with D ean W itter from the Pa per C omp any to set up this acco unt? A. It would have been Ge ne Fox. Q. And did he also interact on behalf of the Packaging Co mpa ny? A. Not Gene Fox, no. It would have been a quick

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briefing by him to myself and pro bably Ro bbi's predecessor. Q. A quick briefing by whom? A. Chris P ersico. I mean , I had read about Simp le. And because of all the paperwork involved in other pension pro fit sharing p rogra ms, this was a great opportunity for us to come out underneath having a consultant we had to submit d ata to and everything. It greatly reduced the paper load. And then he was allowed to hav e a me eting with each group separate. Q. Chris had a mee ting with each gro up separately? A. The Packaging Comp any and the Paper Com pany in Smyrna. Q. W ho hire s emp loyees for the P aper Compa ny? A. Gary Eberhard. Q. And who hired Gary Eberhard? A. I did. Q. Are you involve d in hiring Pap er Co mpa ny

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employees? A. The only other employees are hourly laborer, and the answer is no. Q. N ow, I'm going to ask you a question. And if your answer is something that has changed over time, we will need to explore that. Who has responsibility for

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disciplining Paper em ployees? A. Gary Eberhard. Q. The general manager? A. Yes. Q. No w, are there sup ervisors at the P aper Compa ny? A. No. Q. Are there team lead ers? A. Yes. Q. And do the team leaders have the authority to discipline an employee? A. No. And there is only, at this time, one team leader. Q. W ho is that? A. Jerry Broussard. Q. Were there previously more than one? A. There may have b een. But I don't recall. It's like two different operations and they are in what we refer to as separate rooms. There is an area here and then there is an area that can be shut off by a fire

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door. A nd one area is where warehousing and baling is done. And the other area is where items are manufactured. So Jerry may have been a team leader in the area where the balers are and where trucks are loaded and unloaded .

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Q. So the trucks are loading and unloading in the area where the balers are and where the wareho using is? A. Yes. Q. What about Doug G oodermuth, was he a team leader? A. He was. Q. When did that cease? A. I believe January or February of last year. Q. And what created that change or what caused that change? A. Number one, he had had a heart attack in the late fall. He was out two or three months. Number two, he asked to be removed from the job. Q. Did he give a reason? A. I think that he was a little fearful being a team leader with the group he w as in cha rge of. Q. He was fearful of violence? A. Something being done to him. Q. D id he the tell you why he was fearful? A. I didn't talk directly with him. I think it was a combination of the stress and the people that he

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supe rvised and w hat they were doing. Q. You don't know what they were doing? A. I've heard stories. But when I'm there, I d on't see it.

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Q. What stories have you heard? A. Well, you've gotten cop ies of some letters recently. Supposedly, someone in that group was selling drugs out the back door. Q. Someone in what group? A. Let's just say one of the employees that filed a complaint against us. Q. Who? MR. N EUB ERG ER: Yo u can answer the question. A. I would say that this is hearsay evid ence in that it was no t told to m e directly. Patrick M oore. Q. And wh y did that make Mr. Go ode rmuth fearful? A. I don't know that that in fact is occurring now or occurred before. But this group of employees likes to tell the co mpa ny what they are going to do and no t do. Q. Are you referring to the four complainants in this lawsuit when you say this group of em ployees? A. Yes. Q. Are you includ ing anyone else in that term, this group, who is not a complainant in the lawsuit? Do you know who the complainants are?

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A. The three M oores and Greg. I forget his last name. Q. Bernard Tingle?

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A. Bernard T ingle, yes. Q. So are you including anyone else in that group when you use the term "this group" other than those four people? A. No. Q. So what have you heard that makes M r. Gooderm uth fearful of violence? A. That's just my personal guess. Q. Has someone told you that he's fearful of violence? A. Obviously, this was o ver a year ago . I didn't question him about it. And no one made that remark to me. Q. So you are just assuming that he was fearful of violen ce? You have no basis for that assumption? O r if you d o, I wo uld like to hear what it is. A. I have no basis except kno wing the guy's personality, his age, ho w he reacts to things. Q. You mean M r. Gooderm uth? A. Uh-huh. Q. How old is he?

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A. I believe he's going to b e 65 in a couple m onths. Q. And what is his race? A. Caucasian.

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Q. Do es the team lead er have the authority to tell an employee to leave the premises for any reason? A. If he feels there is a compelling reason, he would do his best to contact first Gary Eberhard or, second ly, myself. Q. That doesn't answe r my question. A. Do you want to restate it? Q. Do es the team lead er have the authority to tell an employee to leave the premises for any reason? A. I will answer it the same way. If it was serious enough, he would try and contac t some bod y first. Q. And if he is unable to contact yourself or the general manager, doe s the team leader have the authority to tell an employee to leave the prem ises? A. If it is a serious eno ugh event, for instance, we've ha d to call the po lice to ge t some people out of the building. Q. And do you have the authority to discipline a Paper Company employee? A. I would say I have the authority, but I have never done it. From a military background, I like to work up the chain o f command.

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Q. Have you ever informed someone at the Paper Company to tell an employee they must leave?

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A. I know I did at least once. Q. And who d id you tell? A. Jerry Broussard. Q. So on that occasion you did discipline a Paper Company emp loyee; is tha t correct? A. I gave the permission for him to tell the employee to leave the premises. Q. Who was the employee? A. I don't recall who it was per se since, at one time, there were three Moo res. But I believe it was one of the three. Probably Patrick. Q. And if you believe that P atrick is selling drugs, have you ever informed the police or tried to do an investigation? A. As I sa y -Q. Is that a no? A. Can you ask the question again? Q. You were shaking your head no. And I wanted no on the record. That's all. Was that a no? A. That's why I asked to re-ask the question. Q. If you have some reason to believe that Mr. Moo re is selling drugs out of the fac ility, have you done any kind of an investigation, you or anyone for Paper?

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A. No.

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Q. W hy not? A. Well, numb er one, it's a rumor. And , numb er two, we don't have any surveillance cameras. But we will when we move into the new building. And the building, the way it is set up, particularly in the summertime, there are large do ors that are op en to the outside. And it's easy for somebo dy to go outside the building. Q. The Paper Co mpany provides medical insurance for its employee, is that correct, if they choose to participate? A. Yes. Q. Who handles the paperwork for the employees who choose to participate? A. The form s would be given to the employee by G ary Eb erhard and then sent to Ro bbi. Q. And Robb i would directly interact with the health insurance comp anies; is that correct? A. Yes. Q. Who d etermines the hourly wages for Paper employees? A. The gen eral manager and myself. Q. So you are involved in setting wages. Are you involved in determining bonuses for Paper employee? A. I'm involved in the bonuses the same way I am in

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the wage increases. Recommendations are submitted to me. Q. By the general manager? A. Yes. And there may or may not be a discussion on certain people for b onuses or w age increases. Q. But you have authority to override the general manager if you choose; is that co rrect? A. If I'm one o f the owners, I would say that's correct. Q. Thank you. And the P aper C omp any payroll is hand led by a com pany called Paychecks; is that correct? A. Co rrect. Q. And w ho interacts directly with Payche cks such as giving that com pany the hours and the wage amounts that are to be paid? A. The hours are submitted on Monday. I don't know whether they are transmitted by computer or faxed or UPS'd. And there will be a breakdown of the hours for various categories, straight time , overtime, vacation, holiday. And that inform ation is given to R obb i Smith. And it is called in to Paychecks. Q. So if there is a problem or a change in the payroll, is she the person who interacts with Paychecks and gives them that information? A. Yes.

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Q. And she's a Pa ckaging Co mpa ny emp loyee; is tha t correct? A. Yes. Q. W here are the p erson nel files for P aper Compa ny emplo yees kept? A. They are kept in two places, one, at the Paper Company and, numb er two, at the Packaging Comp any. Q. Are they identical files in each place as far as you know? A. I would think so. But I've never asked to see the file on the Paper Company employees when I was at the Paper C omp any. Q. Well, during the course of this litigation, the commission has been provided with copies of certain personnel files. Were those files the files that were kept at the Packaging office or at the Paper office? A. W ell, I would think tha t they were provided by the Packaging Comp any. Q. D o you know -A. But going back a ways, it may have been handled at the Paper Company when Gene Fox was there. Q. My question was the files that had been turned over to the E EO C. A. I don't know what years. Going back to 2001?

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Q. No, the files that were -- there were some personnel files turned over to us in this litigation. A. Right. I do n't have an answer for that. I d on't know. Q. Now, during the course of this litigation, you have been identified as the human resource manager for the Pac kaging Compa ny. Is that co rrect? A. Yes. Q. And what does that mean to you, to be the human resource manager? A. I've never identified myself as the human relations manager. We have an office manager, Rose Grabowski, who everybody else reports to. And then I am her direct supervisor. So if she wants to change something or do something or a recommendation for a better way to do it or what not, she'll present it to me and we'll discuss it. And, generally speaking, I let her make the decision . Q. D o you know what an Employm ent Eligibility Verification Fo rm is? A. Employment Verification? Q. Y es. A. I believe so, yes. Q. W hat is it?

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A. It's a form that would be sent out, I would think, by a prospective employer looking for information or confirmation for an employee who at one time worked for us. And I guess that would be something like a fill in the blank or circle A, B , C, or D and w ould be sent back. Q. And is that som ething tha t would be handled by the human resource manager? A. Which co mpa ny are we -Q. Either compa ny. A. We have very little turnover in the Packaging Compa ny. So I don't recall ever seeing a Verification o f Employment Form for Packaging Co mpany. The Pa per Company, it would depend upon the, I would say -- well, I don't really know whether those kind of forms are faxed or not. But it would be the, the request would either go to Gary Eberhard or end up at the Packaging Company and be handled by Robbi S mith. Q. If a Paper Co mpany customer has a problem, can they call the customer services person at the Packaging Company? Do you have a customer services employee? A. Yes. Q. W ho is that? A. First of all, Rose Grabowski, she used to be

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customer service ma nager. But we cha nged her job so that she's now also in charge of Robbi Smith. So say the question again. Q. I will show you what we'll mark as Exhibit 2. (Morgan D eposition Exhibit No. 2, Paper Company Organization Charts, was marked for identification.) BY MS. CL ICK NE R: Q. Can you identify these two pages? A. Yes. Q. W hat are they? A. Organization chart for the two co mpanies. Q. Do you know who created these two charts? A. On the Packaging, I would say probably Rose Grabowski, and probably on the Paper Company too. Q. O n the sec ond page on the organizational chart for the Packaging Company, it has Joan M eyers, customer service. Do you see that? A. Yes. Q. Is she someone who handles complaints from customers? Is that what that means? A. Generally speaking, Joan would not handle complaints. She's not as technically oriented as Linda and Rose. If somebody is not there for whatever reason

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automatically to the various employees. And she could end up taking an order, a message, a complaint. But the comp laint would be given to som ebo dy else to handle. She's, even though she is in customer service, her dealings with customers are far less than Linda and Rose. Q. Linda Reppenhagen, would she be someone who would handle custome r comp laints from Pap er customers? A. If that person happened to call the Packaging Compa ny, she wo uld take the co mpla int and then co ntact Gary Eberhard or fax him. But the information would be passed on to him first. Q. N ow, you have two sales reps listed here. Cind y Morgan Moss and Maryanne Persico. Those are not the peo ple you referred to as independent sales rep s; is that correct? A. No, that is co rrect. Q. W hat is their job? D o they have the sam e job as sales reps? A. They do. However, Cindy has had three back operations and has been on sick leave for about three years. So she's on the chart. Bu t she do esn't sell anything. Q. Is she still on the payroll?

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A. For hospitalization only. She does not get a paycheck.

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Q. So what is Maryanne's job as sales rep? A. Her status is somewhat like Cindy's. Maryanne had two kids under two and she wanted to be a full-time mother rather than a sales rep. So she handles a few accounts in Philadelphia. And sometimes she gets a paycheck and sometimes she doesn't. They're paid a percentage o f the gross profit. Q. D oes she hand le accounts fo r the Paper Compa ny? A. No. Q. Have you ever or anyone for either Packaging or Paper Com pany tried to determine how many hours a week Packaging Company em ployees are employed in performing Pape r Com pany business? A. Rose Grabowski, at the present time with an asterisk because of the two major projects we are involved in, 2 0 percent. R obb i Smith, 4 0 percent. B ut Robbi Smith is slower than her predecessor. But she's very accura te. Q. And w hat about Joan M eyers? A. What is your question ab out Joan Me yers? Q. How much of her time is spent on the Paper business?

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A. A cou ple percen t. Q. That includes calling delinquent accounts for the Paper Co mpa ny?

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A. At the most it wou ld be 5. I didn't think abo ut that. I was thinking about customer service. Paper accounts receivable is much easier to handle than the Packaging C omp any accounts. They are genera lly smaller. You can ge t through to them easier. A nd she has someb ody else to go to like the general manager who would know somebo dy at that plant person ally. Q. And what services does Linda Reppenhagen provide for the P aper Compa ny? A. If for some reason she got an order for the Paper Company, she would inform the general manager. If the general manager needed to purchase finished boxes, he would contact her and she would place the order with the proper vendor. She's, basically, in charge of the communication directly to the vendor. And if a common carrier is used, she wo uld line up the comm on ca rrier. And there are occasions on a tractor-trailer load of boxes, some, there might be one or two or three Paper Company orders on the trailer and one or two Packaging Company accounts on the trailer. And she would do the coordination o f taking care of the Packaging part.

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She would line up the carrier. She would contact the customer. And between the general manager and herself, they would determine the sequence of the stops on the trailer, what is first, second, last, et cetera.

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Q. But you said she wo uld be the one who actually interacted with the commo n carrier who was delivering these items; is that correct? A. If the trailer -- well, if the trailer was a Packaging Company trailer, everything on there she handles it and that's the end of it. If it's the Paper Compa ny trailer, then she would, yeah, she would contact the carrier and the Packaging customers and line up the sequ ence of the stops. Q. Is it true that neither Packaging nor Paper Company doe s its own shipping, trucking? A. That's not true. Q. So sometimes -- so Paper Company does some trucking; is that true? A. We own two tractors, one of which is just a jockey tractor to move trailers from the yard to the dock, back them in. We own one tractor. And I think we are leasing 17 o r 18 -- prob ably own ab out 14 trailers and renting m aybe 4. So there are two Paper Company employees who

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have licenses to operate tractor-trailer. That's Goodermuth and Roy James. In addition, we have two owner/operators. The y don't work for us. But the y pretty much wo rk for us a hund red p ercen t of the time. And the y have their own tractor and sometimes trailer.

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And we utilize co mmon ca rriers at times. Q. W e have the do cuments from Mr. Fox's person nel file that show or ap pear to sho w that he received a bonus from the P ackaging Comp any while he was an em ployee of the Paper Company. Is that true? A. Yes. Q. And why was he given a bonus from the Packaging Compa ny? A. In rec ognition of the good job that he ha d do ne. Q. Did the Packaging Company give any other person not its an employee a bonus at any time? A. No. Q. W hat did Mr. Fox do fo r the Packaging Comp any that warranted a b onus? A. Not much mo re than Gary Eberhard exc ept that financially the com panies did much better. B ut, basically, they did the same job. Unfortunately, the results are different. Q. Well, how are the financial successes of the two

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companies connected? A. Well, the Paper Compa ny, it's success is greatly influenced on market conditions. Like the example I gave you, today we're getting $65 a ton. Ten yea rs ago it was 235. The Packaging Company, at times, maybe there was a little more volume that was shipped from the Paper

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Company or let's say the general manager got his hands on some merchandise that had a slight defect but we were able to sell with a huge gross profit margin. Because there are re ally two comp anies that are in somewhat the same fields, boxes, wastepaper. I could get a call that there was such and such somewhere and this is what they want. Or the Paper Company could end up getting a call and says we got two trailers dro ppe d at W eyerha euser for mistakes. I gue ss somewhat the luck of the draw unless you're buying brand new boxes. And that's pretty cut and dry. There is not much negotiation. Q. My question is: How does the success of the Paper Company impact on the financial success of the Packaging Co mpa ny? A. Generally speaking, not much except for the services it provides. Q. That it provides to the Packaging Company. And

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what services are those? A. Well, warehousing of generic boxes that can be sold by either one of the companies and the manufacture of the pads and liners. Q. I would just like you to identify this for the record if you can. (Morgan De position Exhibit N o. 3,

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Hand written N otes, wa s marked for identification.) BY MS. CL ICK NE R: Q. Are you able to identify this? A. I'm racking my brake. Q. If you look at the second page on the top, you see "Gene Fox" there. I'm just going to ask you, if you look at the second page, if you look about the 8th line down where there is writing on that chart, it says "bonus, 200 0, PKG ." Do you see that? A. Yes. Q. And that was following the date of 6/26/90? A. Uh-huh. Q. Does that indicate that Mr. Fox was given a bonus from the Packaging Company of $2,000? A. I would say so, yes. Q. Do you know if any of the other bonuses that are listed on there came from the Pa ckaging Co mpa ny?

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A. I would say that any bonuses that were given in June of a particular year would have been from the Packaging C omp any. T he other bo nuses which we re, generally speaking, much higher are bonuses paid to him by the Paper Compa ny. W e had a pro fit sharing p lan at that time. W e still do. Q. So in June of 1994, Mr. Fox received a $3,000 bonus from Packaging; is that true?

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A. I would think so. Q. When you said we had a profit sharing plan, who did you mean by we? A. There was a profit sharing plan set up for the general manager, and that he received 10 percent of the net profit. Q. O f the Packaging Co mpa ny or the Pap er Co mpa ny? A. Pa per C omp any. Q. But he received a profit from the Packaging Compa ny? A. He got an arbitrary bonus. Q. In June? A. From the P ackaging. And those wo uld be small as com pared with year-end bonuses for the Pa per C omp any. Q. If you look on the first page of this do cument -and I can tell it's not marked with his name. It was in

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his personnel file that was given to the EE OC . The B ates numbers are consecutive. So I d on't know if you will concede that this is from his file. But it indicates in June, 2001, he received a Packaging bonus of $8,000, in June of 200 2 that he received a P ackaging bonus of $8,500 . Do you have any reaso n to dispute that that's true? A. Give me the numbers again.

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Q. If you start, the third line d own is June o f 2000 . It has "PT M bonus, $7 ,500." Two more lines it has "6/01, PKG bonus, $8,000." And skip a line, "6/02, PKG bonus, $8,500." A. Yes. The one I might question would be the June of '00. For some reason it has "P TM bonus." I'm no t sure whether my wife got that or he did. But the other two, chances are that those -- well, one of them is marked Packaging bonus. Both of them are. So they came from the Pa ckaging compa ny. For sure, those two. Q. D o em ployees at the P ackaging Comp any hav e any responsibility for maintaining repairs on the Paper Compa ny equipme nt? A. Say that again. Q. D o any P ackaging em ployees have responsibility for maintaining repairs on P aper Compa ny equipment?

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A. I don't believe so, no. Q. Is there any reason that M r. Eberha rd is responsible for keeping P.T. M organ Packaging accounting department apprised of repairs? A. Is he responsible for that; is that your question? Q. Yes. W hy is he responsible for that? A. I have learned a long time ago that if you have equipment or inventory located at another site, it's much

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better to have that particular com pany that occupies that site to be resp onsible for the invento ries, i.e., if something is missing, it was either given away, stolen or they made a mistake on the bill of lad ing. That's why the majority of the inventory over there is charged to the Paper Compa ny. The equ ipme nt that is over there -Q. Over there meaning? A. Smyrna. -- that is used to manufacture pads and scored liners, the equipment is on the books of the Paper Company as an asset. But if there were repairs, the repairs are charged to the Packaging Company because those machines, for the most part, are being used to generate a product that the Packaging Company is going to buy from them. Therefore, you can't charge somebo dy for repairs on the equipment they d on't ever use. So , yes,

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there are invoices for repairs on the equipment that are paid by the Pa ckaging Co mpa ny. Q. Is this equipment that's owned by the Packaging Company or ow ned by the P aper Compa ny? A. It's owned by the P aper Compa ny. MS. CLIC KN ER: W ell, that opens another whole can of worms. I think we need to take a break. (Thereupon, a lun ch recess was had.) TH E W ITN ESS : I have been in d epositions befo re a gra nd jury. And I've learne d that if you don't

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know the answer, then, first of all, tell the truth but describe it as best you can. And if you give an answer that is a little, doesn't satisfy the questioner, to couch it in such words that a month or two from now you get asked the sam e question, it will be in her notes whatever it applied to. BY MS. CL ICK NE R: Q. B efore the bre ak, I asked you why one of M r. Eberhard's duties w as to inform P ackaging Comp any abo ut repa ir costs. A. Oh, yeah. Q. So why don't you answer that question again to be clear? A. W e do our b est to allocate costs to the proper,

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let's say, line on the financial statement. Q. When you say we, who do you mean? A. The com pany. Q. W hich co mpa ny? A. W ell, both. An example, Robb i will bring an invoice to me -- first of all, I see all the invoices on the Packaging Company and most of them on the Paper Company. But if there comes an invoice for a thousand dollar repair on a fork truck, there is a fork truck over there that is owned -Q. Meaning at Paper?

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A. Uh-huh. -- that is being used primarily by the Paper Company. So we don't want to erroneously charge the Paper Company for a repair bill when they were actually doing work for the P ackaging Comp any. Q. So what work does the Paper Company do for the Packaging Co mpa ny? A. Repair work? Q. W hat work with a fo rklift is the Pa per C omp any doing for the Packaging Compa ny? A. Everything we've discussed so far, i.e., loading and unloading trailers, putting stuff into inventory and moving the in-process materials into -- I don't think I described the equipment that is in Delaware other than

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the balers. But the re are two slitters tha t would cut paper, corrugated board in half. And there is two band saws that wo uld cut them the second direction. And they are on the pro perty led ger of the Paper C omp any. But they are run prima rily for the P ackaging Comp any. So if there is a repair on equipment that is more used by the Packaging C omp any than the Pap er Com pany, that repair is paid for by the Packaging Company. I know it sounds like I talk in circles. Q. Yeah. I'm totally confused now. You have described at length the work that is done at the Paper Company such as creating pads, sorting and baling paper

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for rec ycling, warehousing, selling new cardb oard boxes. Is that all the work that's being done at the Paper site? A. Yes, other than say a miscellaneous job where we may so rt throug h som e material that we bought very, very cheaply. The best example is everybody knows who Perdue Po ultry is. W e onc e bought a trailer load of po ultry boxes that are w ax coated that Perdue would put 65 po unds of poultry and 20 pounds of ice, stack them six high in a trailer and go to Canada. And they sit in their yard over the long Fourth of July weekend. Those boxes have to stand up. We once bought 85,000 lids because they were

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the wrong red. For instance, there is a B udweiser red. If you can't match the red, it all comes back. There is nothing they can do except bale it or sell it, beer trays to nurseries and Easter and around M other's day. So we got this trailer load of poultry from Perdue -- well, it was run by In ternational Paper but it was for Perdue. And they were afraid to ship it because the inside of the box there was a little crack. And we bought it, sold it and made $11,000. Q. When you say we bought it and sold it, who is we? A. The Packaging Comp any. Because at one time, obviously, that Paper Company didn't exist and we operated out of the building in Baltimore for seven or

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eight yea rs. Q. Let me back up . You were talking to me ab out this trailer load of box tops. You bought a trailer load of bo x tops that were mis-co lored . Packaging bought those and to turn around? A. The lids, actually, were purchased by the Paper Compa ny and brought into the warehouse. Q. So how d oes tha t relate to the Pa ckaging Co mpa ny? A. Pa ckaging Co mpa ny even tually sold those lids, not the Paper Compa ny. Q. So how d oes the Packaging Compa ny sell a product

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owned by the P aper Compa ny? A. W ell, as I mentioned, there are times when both comp anies sell to the sam e custo mer d ifferent products. Restate that question again. Q. Yo u said the Paper C omp any bo ught these po orly colored box lids. And they were delivered to the Paper wareho use; is that co rrect? A. Right, and they paid for them. Q. And Paper paid for them. And did Paper then bale them? A. They were sold to some guy in Brooklyn. Q. So they were sold "as is?" A. "A s is." Sometimes you have to sort piece by piece in those kind of situation s.

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Q. B ut you said the P ackaging Comp any is actually the co mpa ny that sold these lids to the New York comp any. A. Right. Q. So did the Packaging Company purchase them, the product from Paper and then sell it to the New York company? A. Yes. Nothing is given away between the two comp anies. Q. So there is a p rice that the Packaging Co mpa ny paid the Paper Company; is that true?

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A. Right. Q. Did the Paper Comp any make any sort of profit on that? A. No. If they had sold the m, they would have. Q. So the profit from that transaction all accrued to the Pa ckaging Co mpa ny? A. Correct. Q. Back up. Are there other transactions similar to that? A. Yes. Q. Do you want to explain those? A. Another transaction could be we sell a lot of new boxes, a lot of seco nds which we 've never talked about. Q. You say we meaning who? A. Meaning both companies. The profit goes to the

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com pany that sells it. But let's say we handle a lo t of boxes ab out half the size of this desk. And it's used by peo ple like D uPo nt, Do w, M onsanto, G enera l Electric, plastic resin or a compo und o f resin. And the b ox will hold 1,500 to 2,000 pounds stacked three high. You have to be very careful that there are no manufacturing defects. Otherwise, the stack will collapse in somebo dy's warehouse and he will get charged back. So we ge t our hands o n a lot of seconds.

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And tho se are wareh oused there . The re is an aftermarket for this box. Because new it might cost $15. So we are also in the used box business for these. And there are very few peop le that are in it. So the b oxes, generally, are com ing out of one of the fortune 100s. And they call up and say I've got a trucklo ad of these. D o you want them? They are shipped into the Paper Company and warehoused. Q. And who owns them at that point, Paper or Packaging? A. The P aper C omp any. The reason we d o that is, as I mentioned before, there are mistakes made. Maybe somebody runs into a stack of something with a fork truck and it's 20 feet in the air and it hits the floor and picks up grease and oil and everything from the fork truck's run. If somebody were stealing from us, like

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somebo dy just sto le four tires from us, the general manager o f that plant is respo nsible fo r the inventory. I can't be 70 miles aw ay and notice what's going on. B ut he sho uld certainly kno w if there is d amage or invento ry missing by putting it on a truck and using the wrong count. Then it ge ts charged to that Paper C omp any. That puts the onus on whoever sells it. You are the

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risk, the one responsible for the inventory. Because the biggest fluctuation in a particular month could be the inventory. There is roughly $50,000 worth of stuff in that building. So yo u've got to have some bod y responsible fo r it. And the best way is to m ake that manager resp onsible for it. Q. But you, basically, were describing the same situation where P aper Compa ny will buy a second. A. Okay. It's true. Q. And it will warehouse it at Paper? A. Right. Q. B ut Paper d oesn't sell it; it's said so ld by Packaging? A. Either one can sell, especially that product and especially the wax coated boxes for poultry and fish. Q. B ut if that pro duct, these seconds are so ld by the Paper Comp any -- excuse me, are sold by the Packaging

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Company, then the Paper Company makes no profit on them? A. That's correct, because they didn't sell it. Q. So the Paper sells it to Packaging at cost and Packaging sells it to a third pa rty and m akes the profit? A. Co rrect. Q. W hat is the benefit to Paper of doing this? A. They are providing a service. Plus --

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Q. They are providing a service to Packaging? A. Correct. MR. NEUBERG ER: You didn't finish. You said "plus." THE W ITNESS: The Paper Company could sell -- who gets the phone call, the Paper Company or the Packaging? Whoever is responsible for the sale gets the profit. BY MS. CL ICK NE R: Q. But if Pack aging Co mpany gets the sale, it does not pay Paper -A. A p rofit. Q. Does it pay Paper anything for that transaction? A. Yes, it does. Q. W hat do es it pay? A. The cost of those boxes as they sit and are loaded. Q. Packaging pays Paper the cost that Paper had paid

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for the boxes plus what else? A. The cost of, basically, unloading the trailer when it got there and went into inventory. And then when it's reloaded, they get paid for the labor involved. Q. Anything else that Packaging pays Pa per for that transaction?

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A. No, not really. I'm just trying to think if it were -- if it were picked up and/or delivered by the one tractor, one tractor that we have and a com pany emp loyee, they would bill us for the freight. But most generally, we're shipp ing by o wner/o perators or com mon carriers. It's next to impossible to get anybody to go from Smyrna to Manha ttan in a tractor-trailer for obvious reaso ns. Q. Now, what brought all this up is: I asked you why was one of Gary Eberhard's duties to keep P.T. M organ Packaging Co mpa ny app rised o f repair costs. T hat's what led into this. A. Right. Q. So tie them to gether for me if you will. A. Okay. If a particular piece of equipm ent is used -- let's go to the extreme -- exclusively to do something for the P ackaging C omp any and req uires preventive maintenance or there is a breakdown, it would not be fair to charge the Paper Comp any for a repair on equipment that is pretty much exclusively used by the

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Packaging Company. Have you ever seen a band saw? Q. Y eah, I know what that is. A. They are special blad es that are used to, say let's, cut this material. And after a while, they are dull and they'll break. So they will go put a

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replace ment blade on. W hen all the work is basica lly done for the Packaging Company, you can't charge the Paper Co mpa ny for we aring o ut the ma terial. Q. So are you saying that instead of paying Paper a profit on this material that it brings in, you pay for the equip ment it uses to manage that material? A. We end up paying the maintenance, the electricity, the propane. Let's say the heat in the building, anything that is associated with som ething tha t is pretty much done exclusively for the Packaging Com pany, they bill the Packaging Com pany for theirs costs. They recoup their costs but they don't make the pro fit. Q. How does Pape r Com pany know how m uch of its maintenance, electricity, propane, heat cost to attribute to the Packaging business? A. Let's take each one. The propane co mes in propane tanks, liquid propane. So as many tanks that are used times the cost of the propane gets charged to the Packaging Company at the end of the month. And if you

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have the financial statements, you could look that up where they'll say fork truck expense and fork truck repairs. The expense would be the propane. The electricity --

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Q. Excuse me. Propane is just to run the fork trucks? A. Fork trucks o f which the re are three. Q. But my question: How do you know how to apportion the propane usage between Packaging and Paper? A. There is basically one fork truck that is used primarily for the Packaging Company and two others for the Pap er Co mpa ny. So they keep track of the numb er of propane tan ks that are utilized. The electricity is, I believe it is one invoice for the entire property. And we have made studies in the pa st for the p ortion of the building that does the pad work for the Packaging Company. We have calculated what the costs of the lighting is as a percent of the to tal bill. And we have co sted the amo unt of electricity that is used by the four m achines. Q. B y the what? A. By the four machines that we use to make pad s. I think we use a figure of 35 percent of the bill which is charged to the Packaging Company. I believe that there are two different heating bills that come from the Town

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of Smyrna. So there is an invoice that goes to one company and a second invoice that would go to the other com pany.

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Q. Are those two hea ting bills from two different sources of heat? A. No. The y come from the To wn of Smyrna, gas heaters. But they would have meters on them just like you were in an apartment building. There is a separate meter for each portion of the building. The n the ren t is split as a percen tage of the number of square feet that -- let's say the Packaging Company is using, if it's 30, 40 percent, then 40 p ercen t of the rent bill is charged to the Packaging Company and the ba lance to the P aper Compa ny. Q. Is the rent split by some percentage on a regular basis? A. It's done by, if each one, let's say, if the total square footage was 26 ,000 sq uare feet and it was split equally, then it will be 50 percent of the bill. If one of the companies only used 30 percent of the spac e, then the y would pay 30 percent o f the rent. Q. And d oes this change on a monthly basis? A. The electricity and the heat do. But the square footage does not change. And there was one other item that we talked about. I covered the propane. It could

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be re nt, heat, electricity. Those are split by, I call it, the con sump tion of tho se, say, utilities and rent.

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Q. So, basically, you are saying that the Packaging Company runs part of its business out of Paper C omp any's location? A. Yes. Q. Does the Packaging Company use only one particular part of the Paper's location? A. The po rtion of the building which we call, refer to as the back room. The back room is where the pads and scored liners or whatno t are run. Bec ause yo u've got moving equipment that's say bolted to the floor. You have crews back there. So that definitely belongs -- the cost associated with that to include the labo r is paid by the Packaging Comp any. In the front room there is the baling, which is 100 percent P aper Compa ny. And then you have the real big ex tensive b oxes in an inve ntory, wh ich can be so ld by either comp any. And there are poultry and fish bo xes, first and seconds that can be sold by either one of the companies because they're generic. We even have people that will take a used box o r a second even though it's got U nion C arbid e on all four side s, particu larly nowadays with the energy costs and the costs of virgin resin an d compo und.

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There are a lot of plastic recyclers who

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operate out of their garage. Resin, recycled resin like in garbage can liners an d real cheap plastics, the y don't care what the box says on it. They bring it in, regrind it, pelletize it and blow it into the cheapest box they can get their hands on. It might be used. It could be a second. But recyclers do no t generally buy new bo xes. Q. So let me back up here. The back room where the pads are made, is that consid ered to be 100 percent Packaging b usiness? A. No. If the Paper Co mpany can sell pads or liners, which they do, but the vast majority of what is sold is sold by the Packaging. So, yeah, we don't charge them for the material or labor because, generally, their orders are so small. So, yes, they can get to use the equipme nt. Q. So the Pa per C omp any creates the p ads. A. Man ufactures. Q. And then either they or the Packaging Company can sell those pads? A. Right. But, genera lly speaking, the pads are cut to a customer's specifications different than the box that says Dow all over it. For instance, we sell to the guy who sells to the egg industry a 30 d ozen egg carton. That's a specific size. It's printed 30 dozen egg s. But

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there is a corrugated piece that is put into the middle of the box vertically so the next box doesn't crush the eggs. And there are certain size a pple box pads. Generally speaking, for pads and liners it's run to a specific size or to a specific orde r that a customer has given us. B ecause you some of these go o n the back o f picture frames. And if they are a trapezoid, they are not going to work. Q. So the pads and liners that are manufactured b y the Paper Comp any but may be sold by the Packaging Company, does the Packaging Com pany reimburse the Paper Com pany for labo r costs? A. Yes. We have -- I'm sure you've heard of the term "a standard costing system," which we pretty much are -- I'm trying not to lose you, but being too technical. But believ e it or no t, there are a lot of mistakes made by box plants. A nd we take ad vantag e. W e'll take anything. So w e have trailers dropped at different locations to get obsolete material or, you know, it was supposed to b e white but they ran it out as Kraft, supp osed to be this long b ut it's this long, you're not supposed to be able to tear it apart, but you can. When you get into the real big boxes and the

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wax coated b oxes, there aren't many com petitors for us. Number one, there aren't very many people that can make them. And if your box is coated to ho ld 85 pounds o f poultry going to Canada over four or five days and bumping along, it better hold up. So if there is the least thing wro ng with a real big box or these poultry and fish boxes, we know who makes them. And we will do our best to buy e verything that they will generate. And we ne ver know until we crack the do ors what's in the tra iler. So so metimes we lo se mo ney because the re is nothing we can m ake o ut of it. Then it gets baled. So we have constant in-coming what box plants would call scrap. And we are sorting or cutting into pads. Q. B ut you d on't -A. To answer you, you asked did they get compensated for the labor. There is a formula in the compu ter that calculates how much pa per is in a 12 b y 12 p ad. W e all know that's one square foot. So if you have 1 00,0 00 o f those, we kno w what the average cost for the material is. We know what the average cost of the labor should be, how many man-hours times the man-hour rate. We know how muc h twine and how much, let's say, plastic strapping or this wrap , stretch wrap that's put around it. And it's all

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