Current Hot Topics Involving Litigation of Environmental ... · Pierre G. Armand United States Department of Justice New York, NY Steven D. Cook ... S.D.N.Y.) Robert E. Gerber’s

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ABA Section of Litigation 2011 Environmental, Mass Torts & Products Liability Committees Joint CLE

Seminar, January 27-29, 2011:

Environmental Litigation Breakout: Caution at the Intersection of Environmental and Bankruptcy Law

Current Hot Topics Involving

Litigation of Environmental Issues in

Large Corporate Bankruptcies1 Pierre G. Armand United States Department of Justice New York, NY Steven D. Cook LyondellBasell Industries Houston, TX M. Natasha Labovitz Kirkland & Ellis LLP New York, NY David F. Williams Cadwalader, Wickersham & Taft LLP Washington, DC

1 These materials are prepared in order to provide a framework for the panel discussion. The views presented in these materials or during the panel discussion do not necessarily represent the views of each of the panel members, or their employers, firms or clients. The authors gratefully acknowledge the contributions of Geoffrey E. Gettinger of Cadwalader in the preparation of these materials.

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I. INTRODUCTION

“Issues as to the interplay between environmental law and bankruptcy law are

among the thorniest on the litigation map.”2

United States Bankruptcy Judge (Bankr. S.D.N.Y.) Robert E. Gerber’s observation, on the verge of approving a landmark settlement between the Lyondell debtors and the EPA and environmental agencies of a number of states, underscores the challenges faced by practitioners who work at the intersection of these two well developed, and often contradictory areas of the law. Thorns abound, and it is difficult not to get pricked. Rarely do the fundamental principles that underlie distinct legal regimes clash as often and as completely as they do in these two areas. Environmental law is animated by the “polluter pays” principle and, as a general rule, allocates risk and responsibility to the actor who generated pollution. Bankruptcy law, by contrast, is designed to afford bankrupt companies and individuals a “fresh start” by discharging debts arising before the date of the bankruptcy petition and distributing the debtors’ limited assets fairly among creditors – even when the effect is that no creditor will receive anything close to full value on its claim. When a “polluter” becomes a “debtor,” the confluence of the competing interests served by these two bodies of law has broad ramifications for environmental enforcement agencies, creditors, the debtor and society generally. The authors and presenters have navigated through this thicket in recent large corporate bankruptcies representing debtors, creditors and federal environmental enforcement agencies. Presented as a companion to our breakout workshop, this article is a brief summary primer on four key “environmental bankruptcy” legal issues that have arisen in recent big-case bankruptcies and that illustrate the tension between a debtor’s desire to minimize and discharge environmental liability and government agencies’ power to compel polluters to clean up or fund remediation at environmentally contaminated sites. Those issues are: (1) the status of injunctive obligations at third party property not owned by the debtor; (2) the “abandonment” of contaminated owned property under section 554 of the Bankruptcy Code; (3) the use of trusts to isolate legacy liabilities from the reorganized entity; and (4) asset sales under section 363 of the Bankruptcy Code.

II. FOUR KEY ISSUES

A. Status of Injunctive Obligations at Third Party Property

Many federal and state environmental laws give environmental enforcement authorities the ability to issue and enforce cleanup orders or institute lawsuits forcing polluters to clean up contaminated properties, and to seek other forms of injunctive relief. How does bankruptcy affect these “clean up” injunctive powers? While not a classic money “debt” of the sort that commonly gets discharged through bankruptcy, cleanup obligations arising under federal or state law nonetheless can impose massive liabilities on parties that, if permitted to ride through the bankruptcy process, could (in the view of the debtor) fatally undermine the “fresh start” objective and in some cases may make reorganization impossible. Bankruptcy only discharges liabilities that: (1) are classified as “claims” under section 101(5) of the Code, and (2) arise prior to the confirmation of any plan of reorganization. Liabilities that do not meet

2 Judge Robert E. Gerber, Hearing transcript at 100, In re Lyondell Chemical Co., et al., No. 09-10023 (REG) (Bankr. S.D.N.Y., Apr. 23, 2010).

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the definition of “claims” can “pass through” the bankruptcy undischarged, and attach to the reorganized debtor. Whether injunctive obligations are subject to discharge is determined by whether they are properly characterized as “claims” under the Bankruptcy Code. Confirmation of a plan of reorganization under Chapter 11 discharges a corporate debtor “from any debt that arose before the date of such confirmation . . . .” 11 U.S.C. § 1141(d)(1)(A). The term “debt” is defined in the Bankruptcy Code as “liability on a claim.” 11 U.S.C. § 101(12). A “claim” is, in turn, defined as:

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.

11 U.S.C. § 101(5). The Supreme Court has stated that – consistent with the overriding purpose of the Bankruptcy Code to discharge debts of bankrupt debtors, providing the greatest potential discharge of liability, and to afford debtors a fresh start – ‘“[c]laim’ has ‘the broadest available definition.’” F.C.C. v.

NextWave Personal Communications Inc., 537 U.S. 293, 302 (2003) (quoting Johnson v. Home State

Bank, 501 U.S. 78, 83 (1991)). Although it is settled law that government and private party rights to money payments – in the environmental context as in any other context – are “claims,” the law is unsettled as to whether a cleanup order or other form of environmental injunctive obligation issued by a government agency (or a court) directing a debtor to ameliorate pre-petition pollution on property it does not own constitutes a dischargeable claim. It is beyond dispute that a debtor has ongoing responsibility to maintain property of the estate – in other words, property owned or operated by the debtor – in compliance with law, including environmental law. See 28 U.S.C. § 959(b). Ohio v. Kovacs, 469 U.S. 274, 285 (1985) (“we do not question that anyone in possession of the site, whether it is Kovacs or another . . . must comply with the environmental laws of the State of Ohio”). Accordingly, debtors generally do not dispute their ongoing obligation to comply with cleanup orders for property they own. However, property owned by a third party – for example, Superfund sites that a debtor does not “own” or “operate,” but where a debtor faces liability as a generator or transporter of hazardous substances – is not property of the estate and consequently is not governed by 28 U.S.C. § 959(b). This distinction between debtor-owned and third party property has potentially wide ranging implications for the dischargeability of environmental obligations. To take one common example, section 106 of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9606, gives the federal government the right to issue administrative orders or seek injunctive relief in court against not only owners and operators, but also generators and transporters of hazardous substances, to address an “imminent and substantial endangerment to the public health or welfare or the environment because of an actual or threatened release of a hazardous substance from a facility.” The issue is whether such an injunction (under CERCLA or similar law) requiring a debtor to remediate a site owned by a third party would constitute an “equitable remedy for breach of performance if such breach gives rise to a right to payment,” rendering the injunction a “claim” under section 101(5)(B) of the Bankruptcy Code and therefore, subject to discharge.

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As a general rule, debtors in bankruptcy wish to have as many liabilities as possible defined as unsecured “claims” and discharged, so that the claims get paid in “bankruptcy dollars”3 and the liabilities cannot be asserted against the reorganized debtor. Debtors commonly argue that if the statutory scheme pursuant to which the government issued the injunction affords the government the ability to take action itself to remediate the environmental contamination at issue and obtain reimbursement of its cleanup costs from the debtor, it has an alternate “right to payment” that falls within the definition of “claim” under § 101(5) of the Code.4 Addressing the issues of claim dischargeability and injunctive relief obligations arising under CERCLA, the U.S. Court of Appeals for the Second Circuit stated in United States v. LTV Corp.

(In re Chateaugay Corp.), 944 F.2d 997, 1008 (2d Cir. 1991): “an order to clean up a site, to the extent that it imposes obligations distinct from any obligation to stop or ameliorate ongoing pollution, is a ‘claim’ if the creditor obtaining the order had the option, which CERCLA confers, to do the cleanup work itself and sue for response costs, thereby converting the injunction into a monetary obligation.” Debtors also broadly contend that, if compliance with the injunction would require the debtors to spend money, the injunction is the functional equivalent of a “right to payment” and therefore amounts to a dischargeable claim. See, e.g., Ohio v. Kovacs, 469 U.S. 274, 282 (1985) (because it was impossible for the debtor to implement the state’s injunctive remedy other than by paying for someone else to perform the cleanup, the state’s injunctive obligation was a claim subject to discharge in bankruptcy); United

States v. Whizco, Inc., 841 F.2d 147, 150 (6th Cir. 1988) (“[W]hen we look at the substance of what the [government] seeks, rather than the form of the relief sought, we see that the [government] is really seeking payment.”) Based on the above, debtors commonly argue that any efforts by the federal or state governments to pursue cleanup orders or injunctive relief with respect to property owned by a third party are unenforceable except to the extent they are monetized and paid as bankruptcy “claims.”5

3 Unsecured creditors often receive only a percentage of the dollar value of their claim as part of their distribution of the limited assets of the bankruptcy estate. A creditor who receives only thirty cents on the dollar, for example, is often said to be paid in “bankruptcy dollars.”

4 For example, CERCLA provides the federal government with both monetary remedies (cleanup cost reimbursement and natural resource damages) under § 107, 42 U.S.C. § 9607, and injunctive relief remedies under § 106, 42 U.S.C. § 9606. The EPA can pursue its cost reimbursement and injunctive relief remedies in the alternative, or in conjunction with each other. More specifically, CERCLA provides three avenues for EPA to act. EPA can issue an administrative order directing a potentially responsible party (“PRP”) or group of PRPs to take appropriate actions; EPA can request the Department of Justice to institute a civil action to obtain a judicial order against the PRP(s); and EPA can arrange to take cleanup actions itself, drawing on monies from the federal Superfund, and can sue (through the Justice Department) the liable PRP or PRPs for reimbursement of its cleanup costs. CERCLA §§ 104, 106, 107, 42 U.S.C. §§ 9604, 9606, 9607.

5 See, e.g., Kovacs, 469 U.S. at 282; Whizco, 841 F.2d at 150; United States v. Johns-Manville Sales Corp., 13 Envtl. L. Rep. 20310 (D.N.H. 1982) (EPA and state injunctive relief orders to force a debtor to clean up non-owned asbestos waste sites are bankruptcy claims that are not subject to the police power exception to the automatic stay under § 362(b)(4) of the Code); In re Goodwin, 163 B.R. 825, 832 (Bankr. D. Idaho 1993), aff’d, No. 94-cv-0024 (D. Idaho June 7, 1994) (injunctive relief cleanup order for cleanup of service station formerly, but not presently, owned by debtor issued under Idaho statute allowing state agency to perform cleanup itself and then seek cost reimbursement is dischargeable claim that is automatically stayed); see also, In re FV Steel & Wire Co., 324 B.R. 701 (Bankr. E.D. Wis. 2005) (EPA attempt to enforce prepetition CERCLA consent decree against debtor to fund groundwater cleanup remedy at third party waste site is equivalent to seeking money judgment, and therefore barred by automatic stay under § 362 of the Code).

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Environmental enforcement agencies generally contend, on the other hand, that injunctive remedies to remediate environmental contamination, regardless of whether the debtor owns the property, are not claims subject to discharge because environmental statutes do not permit governments to accept money as an alternative to compliance with cleanup orders. See, e.g., Chateaugay, 944 F.2d at 1008 (“Since there is no option to accept payment in lieu of continued pollution, any order that to any extent ends or ameliorates continued pollution is not an order for breach of an obligation that gives rise to a right of payment and is for that reason not a ‘claim’.”) Moreover, environmental enforcement agencies reject debtors’ “functional equivalent” argument and contend that it is irrelevant whether debtors must spend money to comply with injunctive orders.6 See, e.g., United States v. Apex Oil Co., 579 F.3d 734, 738 (7th Cir. 2009) (“discharge [of a “claim” as defined under § 101(5)(B)] must indeed be limited to cases in which the claim gives rise to a right to payment because the equitable decree cannot be executed, rather than merely imposing a cost on the defendant, as virtually all equitable decrees do”), cert. denied, No. 09-1023, 2010 WL 752322 (Oct. 4, 2010); Mark IV Indus., Inc., v. N.M. Envtl Dep’t (In re Mark IV Indus.,

Inc.), No. 09-1507 (SMB), 2010 WL 4225949, *6 (Bankr. S.D.N.Y., Oct. 21, 2010). As a result, environmental enforcement agencies take the position that injunctive orders requiring the remediation of third party property can be enforced against the debtor (or the reorganized debtor post-bankruptcy) essentially irrespective of the bankruptcy. Environmental enforcement agencies can be expected to rely on Chateaugay, Apex Oil and other case law in support of their position on the non-dischargeability of injunctive obligations; debtors can be expected to contend that those cases are distinguishable and rely on other case law in support of their position on claims definition and discharge. In Chateaugay, the Second Circuit ruled that CERCLA cleanup orders, to the extent they remedied ongoing pollution, are not dischargeable claims. Debtors distinguish Chateaugay by arguing that the sites implicated in that case involved only debtor-owned property, which must concededly be maintained in compliance with all applicable environmental laws irrespective of the bankruptcy. Enforcement agencies reject this distinction and contend that the reasoning of Chateaugay

applies equally to debtor-owned and third party sites. In Apex Oil, the Seventh Circuit ruled that an EPA cleanup order issued to a debtor under section 7003 of the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6973, to clean up a third party site was not a “claim.” RCRA, however, unlike other federal environmental statutes such as CERCLA, does not give the government the authority to perform the cleanup itself and then seek reimbursement. Debtors can therefore be expected to distinguish Apex Oil on the ground that RCRA is by definition not an “alternate right to payment” statute and that RCRA cleanup orders therefore fall outside the definition of “claim.” Finally, the environmental enforcement agencies often cite the Third Circuit’s decision in Torwico Elecs., Inc. v. New Jersey Dep’t

of Envtl. Prot. (In re Torwico Elecs., Inc.), 8 F.3d 146, 151 (3d Cir. 1993), cert. denied, 511 U.S. 1046 (1994), which held that a debtor’s obligations to comply with injunctive clean-up orders “run with the waste” and require debtors to comply with injunctive orders at third party sites. Debtors counter that Torwico is incompatible with the Supreme Court’s decision in Kovacs and, like Apex Oil, involved a

6 Enforcement agencies can be expected to reject debtors’ reliance on the Supreme Court decision in Kovacs and the Sixth Circuit decision in Whizco. These agencies read Kovacs narrowly, highlighting that in that case, the State of Ohio had secured the appointment of a receiver to dispossess the debtor of the property at issue and effectively elected to convert a cleanup injunction into an obligation to pay money – thus turning the obligation into a claim. See Kovacs, 469 U.S. at 283 (“after the receiver was appointed, the only performance sought from Kovacs was the payment of money.”) They also contend that Whizco is poorly reasoned and is limited to its unusual and unique facts, in which the only way the aging individual debtor could perform the mine reclamation work at issue was to pay money to someone else to do it. Whizco, 841 F.2d at 149-50.

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statute (the New Jersey Environmental Cleanup and Responsibility Act, or “ECRA”) that does not give the government an alternate right to payment.7 This remains an unsettled and contentious issue between debtors (and perhaps creditors), on the one hand, and environmental enforcement agencies on the other.8 The Supreme Court’s decision earlier in this term to deny certiorari in Apex Oil suggests that the uncertainty will continue for the foreseeable future. In large bankruptcies involving significant environmental liabilities, the litigation risk (and attendant uncertainty with respect to the treatment of the cleanup orders) for all sides can be substantial. As a result, in recent big case bankruptcies some debtors (including Lyondell and Chemtura) have chosen to settle the issue with the EPA by paying a cash settlement. In Lyondell, for example – a case in which the debtors were named as PRPs at large numbers of Superfund sites and listed over 400 waste sites on their bankruptcy schedules filed with the court – the debtors settled their exposure for all current and future injunctive obligations at certain third party owned sites in exchange for a cash payment of approximately $61.6 million and the right of certain federal and state government agencies to recover claims in the future with respect to certain “Additional Sites.”9 The United States and certain California environmental enforcement agencies agreed to relinquish their asserted rights to issue cleanup orders or enforce injunctive remedies in exchange for the cash payment and the ability to monetize any and all future assertions of prepetition liability at Additional Sites through settlements or judgments, with reservations of rights for the debtors to contest liability, that would be payable as though an allowed unsecured claim against the debtor in the bankruptcy (under the same pro-rata distribution provided for other unsecured creditors of the debtor).10 In a somewhat similar arrangement, debtor Chemtura Corporation and its affiliates reached a series of agreements with federal and state environmental enforcement agencies whereby the affiliated debtors agreed to resolve all current and future remedial obligations at identified third-party owned sites in exchange for a combination of cash settlement payments and the grant of allowed claims in the Chemtura chapter 11 cases. As in Lyondell, the United States and the settling state agencies agreed in exchange for Chemtura’s cash payments to forego asserted rights to issue cleanup orders or enforce injunctive remedies in the future. In certain instances where the parties were unable to agree upon the size of the cash payment and/or claim that would be required with respect to a particular third-party site, Chemtura elected not to settle its environmental obligations as part of the chapter 11 cases. Instead, Chemtura expressly agreed that its obligations, if any, for remediation at these specified sites would “pass through” the chapter 11 cases and the government agencies agreed that they would not assert claims related to those sites as part of the chapter 11 process.

7 See also In re Mark IV Indus., Inc., 2010 WL 4225949 at *8 (Bankr. S.D.N.Y., Oct. 21, 2010) (“NMED obtained and seeks to enforce the cleanup order under the New Mexico Water Quality Act. It contends and Mark IV does not appear to dispute that the Water Quality Act does not allow NMED the alternative to perform the cleanup itself and recover the costs from Mark IV. In other words, NMED does not have an alternative monetary remedy for breach of the cleanup order.”)

8 Depending on the circumstances, it is possible, or even likely, that secured creditors and the unsecured creditors committee will support the debtors’ position on this issue, whereas a PRP creditor at a given site will support the government’s position.

9 Additional Sites were defined in the settlement agreement as sites not owned or operated by a Debtor that were disclosed on the Debtors’ Statements of Financial Affairs, but were not the subject of a proof of claim filed by the relevant government agency.

10 The United States additionally retained a limited right to pursue injunctive relief under Section 7003 of RCRA at nine specified sites, called “Reserved Additional Sites” in the settlement agreement.

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Importantly, because Chemtura and its affiliates had the ability to pay all of their creditors in full and provide some distribution to equity holders in their chapter 11 cases, the ability to satisfy environmental obligations in “bankruptcy dollars” ultimately was not a factor in that case: under Chemtura's chapter 11 plan, any environmental obligations that were treated as “claims” were nevertheless payable in full, in cash, on the effective date of the plan. Nevertheless, from Chemtura’s perspective, the ability to settle environmental obligations in chapter 11 was attractive even when obligations were paid dollar-for-dollar: the settlement brought finality to a class of liability for which unexpected contingencies often increase liability over time, and it enabled Chemtura to focus on its core business activities post-bankruptcy instead of diverting attention to managing (or litigating over) legacy environmental obligations. In all, Chemtura and its affiliates agreed, with the support of their creditor and shareholder constituencies, to settle obligations at a total of approximately 100 non-owned sites for total cash payments of approximately $68 million.11

B. The Abandonment of Contaminated Owned Properties

Taken at face value, the abandonment power afforded debtors under the Bankruptcy Code seemingly provides debtors with an effective tool to avoid the costs of environmental compliance at unwanted owned properties. The Bankruptcy Code provides:

After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.

11 U.S.C. § 554(a). The Supreme Court clarified, however, in Midlantic Nat’l Bank v. New Jersey Dep’t

of Envtl. Protection, 474 U.S. 494, 507 (1986) that the Bankruptcy Code does not permit a debtor to abandon property or assets “in contravention of a state statute or regulation that is reasonably designed to protect the public health or safety from identified hazards.” The Court explained:

[t]he Bankruptcy Court does not have the power to authorize an abandonment without formulating conditions that will adequately protect the public’s health and safety. Accordingly, without reaching the question whether certain state laws imposing conditions on abandonment may be so onerous as to interfere with the bankruptcy adjudication itself, we hold that a trustee may not abandon property in contravention of a state statute or regulation that is reasonably designed to protect the public health or safety from identified hazards.

Id. at 506-07. The Court stressed that this exception to the abandonment power must be applied “narrow[ly].” Id. at 507 n.9. Employing language that has become the touchstone for subsequent cases addressing abandonment of property involving environmental issues, the Court held that the exception to the abandonment power “does not encompass a speculative or indeterminate future violation of such laws that may stem from abandonment,” and that a trustee’s power to abandon “is not to be fettered by laws or

11 The salient terms of certain settlements between the Lyondell and Chemtura debtors and federal and state environmental enforcement agencies are summarized in the Appendix attached to this article. At the time of submission of these written materials, certain of the Chemtura settlements were awaiting required regulatory or bankruptcy court approvals.

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regulations not reasonably calculated to protect the public health or safety from imminent and identifiable harm.” Id.

In the wake of Midlantic, courts have been divided on the extent to which noncompliance with environmental law precludes abandonment. Some courts have read the Midlantic exception to the abandonment power relatively broadly and precluded abandonment which would result in the violation of an environmental law reasonably constructed to protect public health and safety. See, e.g., In re Wall

Tube & Metal Products Co., 831 F.2d 118, 122 (6th Cir. 1987) (property at a facility occupied by a debtor under a lease could not be abandoned in contravention of environmental law requiring proper disposal and storage of hazardous wastes); In re Peerless Plating Co., 70 B.R. 943, 948 (Bankr. W.D. Mich. 1987) (“If the Trustee cannot abandon the property under Midlantic without complying with CERCLA, that creates an implicit duty on the Trustee’s part to expend the estate’s unencumbered assets in cleaning up the site in compliance with CERCLA”); In re Stevens, 68 B.R. 774, 783 (Bankr. D. Me. 1987) (“The trustee could not abandon the hazardous waste, and therefore she must comply with state environmental laws”). A majority of courts, however, have read Midlantic as applying a narrower exception to the debtors’ abandonment power, permitting abandonment – even in situations where such abandonment would contravene environmental laws – so long as the abandonment did not pose an imminent and identifiable risk to the public health. See e.g., South Chicago Disposal, Inc. v. LTV Steel Co., Inc. (In re Chateaugay

Corp.), 130 B.R. 162, 167 (S.D.N.Y. 1991) (“Cases following Midlantic have made clear that the only policy concern of the environmental laws that will impinge upon a debtor’s otherwise unfettered right to abandon its property is that an imminent and identifiable hazard may not be created”); In re McCrory, 188 B.R. 763, 768 (Bankr. S.D.N.Y. 1995) (“Where there has been a violation of state environmental laws but there is not any imminent harm or danger to the public, abandonment has been permitted”) (citing

Borden, Inc. v. Wells-Fargo Business Credit (In re Smith-Douglass, Inc.), 856 F.2d 12, 16 (4th Cir. 1988)); In re Unidigital, Inc., 262 B.R. 283, 286-87 (Bankr. D. Del. 2001) (“Since the Midlantic decision, the majority of courts have read the exception to abandonment narrowly by disallowing abandonment only where there is an imminent and identifiable harm to the public health or safety”); In re Guterl

Specialty Steel Corp., 316 B.R. 843, 858-59 (Bankr. W.D. Pa. 2004) (abandonment permitted if it does not present an imminent threat to public health or safety, even though such abandonment would violate state laws or regulations designed to protect public health and safety). A factor potentially limiting the effectiveness of abandonment in reorganization cases is the ruling by many courts that abandonment “divest[s] the bankruptcy estate of control over the abandoned property and . . . revest[s] title in the debtor. In doing so, the property becomes part of the debtor’s non-bankruptcy estate, just as if no bankruptcy had occurred.” In re Moody, 277 B.R. 858, 861 (Bankr. S.D. Ga. 2001). As such, most cases involving the abandonment of contaminated property occur in the context of chapter 7 (liquidation) cases rather than reorganizations under chapter 11 – where the reorganized debtor runs the risk of re-inheriting the property upon emergence. Nonetheless, some courts have approved the abandonment of private property because the debtor would be effectively abandoning that property not to itself, but rather, to another entity that would be obliged to maintain it in compliance with environmental law. See, e.g., In re Circle K Corp., 1991 WL 349900, *16 (Bankr. D. Ariz., Apr. 5, 1991), aff’d, No. Civ. 91-1000-PHX-RGS (D. Ariz. Dec. 29, 1992) (“[i]n rejecting the [service station] lease, the debtor is not releasing the property [underground storage tanks] to itself. Instead, the property is being released to the owner of the real property.”) The Lyondell bankruptcy furnished a recent example of the issues at play in abandonment litigation: there, parties litigated whether a debtor could abandon an idled chemical production complex sitting atop leased real property. The debtor’s obligations clearly implicated environmental law “reasonably constructed to protect public health and safety,” but the proposed abandonment arguably did not pose “an

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imminent and identifiable risk to the public health.” Equistar Chemicals, LP, a Lyondell affiliate and a debtor, had rejected its ground lease at the Chocolate Bayou chemical manufacturing complex in Texas under section 365 of the Bankruptcy Code, 11 U.S.C. § 365, and had initially proposed to transition its olefins production complex (located thereon) to its landlord – over the landlord’s objection.12 The Bankruptcy Court rejected Equistar’s attempted transfer and ruled that “if Equistar wishes to leave the Personal Property behind, it must do so by abandonment.” In re Lyondell Chemical Co., 416 B.R. 108, 117 (Bankr. S.D.N.Y. 2009). Equistar subsequently moved to abandon its olefins production complex, essentially arguing that, as a matter of fact, the facility did not pose an imminent and identifiable risk to the public health and, thus, fell outside of the Midlantic exception to the abandonment power. Two creditors, Ascend Performance Materials and Solutia, Inc., the landowner and former landowner, respectively, at the Chocolate Bayou site, objected to the abandonment. Both creditors challenged Equistar’s factual assertion that the complex did not pose an imminent and identifiable harm. Ascend and Solutia, along with the Texas environmental enforcement agency (“TCEQ”), also challenged Equistar’s legal argument that it could abandon the Chocolate Bayou facility notwithstanding a finding by TCEQ – contested by Equistar – that the facility was in violation of hazardous waste storage regulations. The parties settled their differences on the eve of a scheduled evidentiary hearing. Generally, Equistar agreed to decontaminate and dismantle its chemical production facility in exchange for a $17 million cash payment from Solutia (in settlement of the abandonment litigation as well as two unrelated adversary proceedings between the parties).

C. Use of Trusts to Isolate Liabilities

The Bankruptcy Code provides various tools for debtors to seek to isolate legacy liabilities from the reorganized entity. In recent years, debtors in big-case bankruptcies have increasingly turned to the creation of trusts to serve this purpose. Trusts can be created for any number of purposes, but recent examples include trusts to take title to debtors’ contaminated real estate, and liquidating trusts to house corporate entities with tail liability exposure requiring resolution and discharge. In light of the restrictions placed on the bankrupt debtor’s abandonment power by Midlantic and its progeny, debtors and environmental enforcement agencies have reached a creative resolution to the problem posed by contaminated debtor-owned properties that do not play a role in the reorganized debtor’s plans: to transfer title to contaminated properties to a custodial trust and contribute an agreed amount of cash to fund cleanup of these properties and the administrative expenses of the trust. The trust structure allows debtors to “buy peace” with respect to owned contaminated sites for which they would otherwise be compelled to remediate and monitor. Environmental enforcement agencies also benefit from this arrangement by securing dedicated and upfront resources for the remediation of contaminated properties and turning management of the remediation over to a trustee experienced in the management of environmental remediation projects. The formation of, transfer of contaminated property to, and funding of, custodial trusts has become a common bankruptcy mechanism for dealing with environmental liabilities at debtor-owned properties. See, e.g., In re Lyondell Chemical Co., No. 09-10023 (Bankr. S.D.N.Y.); In re ASARCO, LLC, No. 05-21207 (Bankr. S.D. Tex.); In re Fruit of the Loom, Inc., No. 99-

12 It bears noting that section 365(d)(4) places a time restriction of 120 days (subject to the potential for a ninety day extension) for a trustee or debtor in possession to reject a non-residential leases. As a practical matter, it proved difficult to vacate a leasehold housing a complex chemical manufacturing facility within the timeframe provided under the Bankruptcy Code.

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4497 (Bankr. D. Del.); In re Philip Servs. Corp., No. 03-37718 (Bankr. S.D. Tex.); In re Eagle-Picher

Holdings, Inc., No. 05-12601 (Bankr. S.D. Ohio). For example, in Lyondell, in April 2010 the debtors collectively transferred nine properties – which were of no economic value to the debtors (or anyone else), but would have collectively constituted a significant liability to the reorganized debtors – to a custodial trust. In settlement with the United States and seven state environmental enforcement agencies, the Lyondell debtors contributed a total of approximately $110 million to fund the custodial trust, in return for a complete release from any liability. In ASARCO, in March 2009 EPA, various states and the debtors entered into a settlement pursuant to which 24 debtor-owned sites were transferred to three custodial trusts, and the debtors contributed approximately $261 million to fund site cleanup and administrative expenses associated with the trust. Beyond the isolation of individual contaminated properties from the reorganized debtor, trust structures can also be employed to cleave corporate entities with significant liabilities (including environmental liabilities relating to non-debtor-owned properties, tort, or others) from the reorganized company going forward. Lyondell, again, provides an apt example of this restructuring strategy. Through its plan of reorganization, Lyondell separated a number of its former affiliates from the entities to be reorganized and placed them in a liquidating trust – a structure designed to liquidate claims against those entities in the trust and cause their dissolution. Among the corporate entities consigned to this “Millennium Custodial Trust” were companies with little to no value, but significant historical environmental liabilities. One such entity, Millennium Holdings, LLC, for example, was the single largest PRP (on an allocated share basis) at the Kalamazoo River Superfund site in Michigan. As part of the environmental settlement between the debtors and the environmental agencies, the United States and the State of Michigan received general unsecured claims against Millennium Holdings, LLC in excess of $1 billion arising from response costs and natural resource damages at the non-debtor-owned portions of the Kalamazoo site. However, the imposition of the trust structure helped to ensure that these massive claims were isolated to Millennium Holdings, LLC and resolved within the trust rather than affecting the healthy, reorganized debtors emerging from bankruptcy.

D. 363 Sales

A number of bankruptcies involving significant environmental issues, including the bankruptcies of Chrysler and General Motors, have been resolved by sales of assets under section 363 of the Bankruptcy Code.13 The question – of obvious great consequence to debtors, creditors, environmental enforcement agencies, and prospective purchasers (as well as other PRPs co-liable with the debtor at environmental sites) – is the extent to which a section 363 purchaser will have successor liability for the debtor’s environmental liabilities, both for environmental remediation costs previously incurred and for ongoing environmental compliance. Pursuant to section 363(f) of the Bankruptcy Code, a debtor may sell property of the estate outside the ordinary course of business “free and clear of any interest in such property of an entity other than the estate . . . .” To do so, a debtor must satisfy any one of the five conditions enumerated in that subsection:

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

13 In re Chrysler LLC, 405 B.R. 84 (Bankr. S.D.N.Y. 2009), aff’d, 576 F. 3d 108 (2d Cir. 2009), cert. dismissed, Lovitz v. Chrysler LLC, 130 S.Ct. 41 (2009), and cert. granted and judgment vacated and remanded, Ind. State

Police Pension Trust, et al., v. Chrysler LLC, et al., 130 S.Ct. 1015 (2009), appeal dismissed as moot, In re

Chrysler, LLC, 592 F.3d 370 (2nd Cir. 2010); In re General Motors Corp., 407 B.R. 463 (Bankr. S.D.N.Y. 2009).

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(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;

(4) such interest is in a bona fide dispute; or

(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

11 U.S.C. § 363(f). The effect of a 363 sale on a purchaser’s environmental liabilities is governed by the construction and meaning of the phrase “free and clear of any interest in such property” in section 363(f). A key decision interpreting this language is In re Trans World Airlines, 322 F.3d 283 (3d Cir. 2003), in which the Third Circuit precluded certain TWA employees from enforcing a settlement agreement arising out of an employment discrimination case, and then-pending EEOC employment discrimination charges against American Airlines as purchaser of TWA’s assets via a section 363 sale. The employees arguing that American Airlines should be liable as a successor to TWA contended that “interests in property” within the meaning of § 363 was limited to “liens, mortgages, money judgments, writs of garnishment and attachment, and the like and cannot encompass successor liability claims arising under federal antidiscrimination statutes and judicial decrees implementing those statutes.” 322 F.3d at 288. The Third Circuit, however, rejected this narrow application of the term “interest” and held that “‘the term ‘any interest’ is intended to refer to obligations that are connected to, or arise from, the property being sold.’” 322 F.3d at 290 (quoting Folger Adam Sec., Inc. v. DeMatteis/MacGregor, JV, 209 F.3d 252, 259 (3d Cir. 2000)). The court explained that the settlement and the employment discrimination claims at issue qualified as “interests” because “[i]n each case it was the assets of the debtor which gave rise to the claims.” Id.

Although not an environmental bankruptcy case, the TWA court’s holding that “interest” applies to any “obligations . . . connected to, or aris[ing] from, the property being sold” has broad implications for treatment of environmental liabilities. In fact, TWA has been followed in General Motors and other cases addressing claims of successor environmental and toxic tort liability. See In re General Motors Corp., 407 B.R. 463, 508 (Bankr. S.D.N.Y. 2009) (“The Environmental Matters Objectors understandably would like New GM to satisfy cleanup obligations that were the responsibility of Old GM, on theories of successor liability. . . . however, the property may be sold free and clear of such claims”); Myers v. United

States, 297 B.R. 774, 781 (S.D. Cal. 2003) (“The court finds that Plaintiffs’ claim for personal injury does arise from the property being sold, i.e., the contracts to transport toxic materials” and therefore the purchaser was protected from a claim of successor liability in a toxic tort suit.) It is important to recognize, however, that a sale of property “free and clear of any interest in such property” does not impact or diminish the purchaser’s ongoing obligation to clean up the contaminated property that is the subject of the sale or otherwise maintain the property in compliance with applicable law. See Ohio v. Kovacs, 469 U.S. 274, 285 (1985) (“[w]e do not question that anyone in possession of the site – whether it is Kovacs [the debtor] or another . . ., or a vendee from the receiver or the bankruptcy trustee – must comply with the environmental laws of the State of Ohio. Plainly, that person or firm may not maintain a nuisance, pollute the waters of the State, or refuse to remove the source of such conditions”); Lawrence R. Ahern, III and Darlene T. Marsh, Environmental Obligations in Bankruptcy § 9:43 (2010). As the court (coincidentally, Judge Robert Gerber, who also presided over the Lyondell and Chemtura cases) held in General Motors:

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Any Old GM properties to be transferred will be transferred free and clear of successor liability, but New GM will be liable from the day it gets any such properties for its environmental responsibilities going forward. And if the State of New York . . . feels a need to cause any acquirer of Old GM property to engage in remedial action because of environmental issues existing even at the outset of the acquirer’s ownership, nothing in this Court’s order will stand in its way.

407 B.R. at 508. Because purchasers will inherit ongoing liability for the environmental compliance of purchased assets, regulators have a vested interest in seeking to ensure that any prospective purchaser of environmentally contaminated assets have the wherewithal to implement any necessary compliance measures. See In re Oldco M. Corp., No. 09-13412 (MG), 2010 WL 3489947, *8 (Bankr. S.D.N.Y., Sept. 7, 2010) (“[j]ust as [Midlantic] prevents a debtor from abandoning property to avoid obligations under state environmental laws, to the extent that significant health and safety risks exist, a state may well have valid grounds to object to a property sale to a party that will not, or financially cannot, offer adequate assurance that it will meet its environmental compliance obligations.”) A few more words about General Motors provide additional context. The debtors, with the strong support of the U.S. Government (in particular, the U.S. Treasury Department’s Auto Task Force) used the Section 363 sale process to split GM into two pieces – “New GM,” the healthy part of the company, designated to emerge from bankruptcy with the company’s operating assets as the reorganized debtor – and “Old GM,” the unhealthy part of the company, which would retain the prepetition liabilities (including environmental), and remain behind in bankruptcy as a liquidating debtor under Chapter 11. After receiving a combined $17.4 billion in aid from the U.S. Government in December 2008, GM and Chrysler sought additional federal assistance in early 2009. President Obama announced that such assistance would only be forthcoming contingent upon the automakers’ compliance with the government’s time frame for each automaker to restructure or otherwise file for bankruptcy protection. In GM’s case, that deadline was June 1, 2009. On that date, GM and three of its affiliates filed for Chapter 11 protection in the Southern District of New York. Shortly thereafter, GM filed its section 363 motion, seeking the Bankruptcy Court’s approval to sell substantially all of its assets to New GM, a newly created entity that would be owned by the U.S. and Canadian governments as well as an employees’ benefit association controlled by the United Auto Workers. As Judge Gerber wrote in his landmark decision on that motion, the objective was to accomplish the 363 sale as quickly as possible, “before GM’s value dissipated as a result of continuing losses and consumer uncertainty,” in order to “preserve the growing concern value; avoid systemic failure; provide continuing employment; protect the many communities dependent upon the continuation of GM’s business, and restore consumer confidence.” 407 B.R. at 480. The court also found that “[a]bsent prompt confirmation that the sale has been approved and the transfer of the assets will be implemented, GM will have to liquidate.” Id. at 484.14 Following a three-day evidentiary hearing conducted between June 29 and July 1, 2009, and over the objections of certain GM bondholders and various environmental, tort, consumer and asbestos claimants, on July 5, 2009 Judge Gerber issued an 87-page decision approving the 363 sale. In re General Motors Corp., 407 B.R. 463 (Bankr. S.D.N.Y. 2009).

14 The court found “that a lengthy chapter 11 case for the Debtors is not an option” and “that it is not reasonable to expect that a reorganization plan could be confirmed in the next 60 days.” Id. at 485.

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A critical feature of the 363 sale approved by the court was the agreement by the U.S. Government to fund the Chapter 11 case of Old GM with a new $1.175 billion “Wind Down Facility” establishing a budget for the payment of liabilities left behind with Old GM. As of the time of the 363 sale hearing at the end of June 2009, the wind-down budget included approximately $530 million set aside to pay for environmental liabilities, including cleanup of GM-owned inactive manufacturing plants and other contaminated properties.15 The court’s decision made clear that New GM and Old GM would continue to be obliged to comply with environmental laws, but that the “free and clear” provisions of section 363(f) of the Code precluded any assertion of liability against New GM to satisfy environmental obligations of Old GM (including cleanup of the former manufacturing sites retained by Old GM) on theories of successor liability. 407 B.R. at 508.

III. CONCLUSION

As the above discussion makes clear, the intersection of environmental and bankruptcy law continues to give rise to difficult issues, contentious litigation, and – increasingly – creative settlements as parties with divergent interests attempt to bridge the gap between “polluter pays” and “fresh start.” In the absence of future action by Congress definitively resolving these conflicts, future big-case bankruptcies involving environmental liabilities promise more of the same.

15 In re General Motors Corp., No. 09-50026 (Bankr. S.D.N.Y.), 6/30/09 Hearing Transcript, at 298 (testimony of Chief Restructuring Officer Al Koch).

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APPENDIX

PRINCIPAL TERMS OF ENVIRONMENTAL SETTLEMENTS

IN LYONDELL AND CHEMTURA

A. LYONDELL

The settlement agreement among the Lyondell Debtors, the Environmental Custodial Trust Trustee, the United States, and Certain State Environmental Agencies (including California, Illinois, Maryland, Michigan, North Carolina, Pennsylvania and Texas) provided for:

• the settlement of unsecured claims. Federal and state environmental agencies filed proofs of claim against the Lyondell debtors asserting various environmental claims and liabilities totaling approximately $5.5 billion in identified amounts, in addition to asserting a significant number of additional unliquidated claims for which the agencies did not provide an estimate. In settlement, the agreement provided for the allowance of claims (as general unsecured claims) for the benefit of the (i) United States on behalf of the EPA in the aggregate amount of $1,011,144,336, (ii) United States on behalf of the Federal Trustees in the aggregate amount of $124,731,125, (iii) United States on behalf of the Department of Interior (“DOI”) in the amount of $20,529, (iv) California Department of Toxic Substances Control (“DTSC”) in the aggregate amount of $7,000,000, (v) California Central Valley Regional Board in the aggregate amount of $1,000,000, (vi) LA Regional Board in the aggregate amount of $5,000,000, (vii) State of Illinois Natural Resource Trustees in the amount of $955,161, and (viii) Settling Michigan Agencies in the amount of $30,067,687.60;

• the allocation of the funds to be transferred to the Environmental Custodial Trust in the following amounts: $53,721,850 for the Allied Paper Mill (MI) Transferred Real Property, $2,000,000 for the Beaver Valley (PA) Transferred Real Property, $8,000,000 for the Bully Hill, Rising Star, and Excelsior Mines (CA) Transferred Real Properties, $5,300,000 for the Charlotte (NC) Transferred Real Property, $1,100,000 for the Gypsum Pile (IL) Transferred Real Property, $10,000,000 for the Saint Helena (MD) Transferred Real Property, $6,800,000 for the Turtle Bayou (TX) Transferred Real Property, and $21,500,000 for administrative expenses of the Environmental Custodial Trust;

• cash payments and distributions to the (i) United States on behalf of the EPA in the aggregate amount of $53,628,150, (ii) California DTSC in the amount of $4,000,000, (iii) LA Regional Board in the amount of $3,500,000, and (iv) California Central Valley Regional Board in the amount of $500,000 to resolve litigation concerning injunctive obligations imposed on the debtors under applicable environmental laws to perform current or future cleanup work at sites not owned or operated by the debtors (“Injunctive Obligations”);

• as an additional aspect of the resolution of litigation relating to the Injunctive Obligations, the creation of procedures for the determination of liability and the satisfaction of any claims against the debtors that may arise out of the Additional Sites and Reserved Additional Sites;

• the payment to the United States, the Settling California Agencies, the State of Illinois Natural Resource Trustees, and/or the Settling Michigan Agencies, as applicable, of 70%

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of any insurance proceeds that the debtors may recover on account of any of the Liquidated Sites in excess of the debtors’ costs of pursuing such insurance proceeds;

• the resolution and satisfaction of the debtors’ obligations to perform work pursuant to any outstanding Consent Decree, Unilateral Administrative Order, Agreed Order, Administrative Order on Consent, or permit regarding any of the Transferred Real Properties and the removal of the debtors as a party to such orders, decrees, or permits;

• the covenant by the EPA and the States (except for NCDWM and TCEQ) not to file a civil action or to take any administrative or other civil action against the Debtors or the Custodial Trust Parties pursuant to CERCLA §§ 106 and 107 and RCRA §§ 7002 and 7003, or any similar state laws with respect to each of the Liquidated Sites and Transferred Real Properties;

• the covenant by the Federal Trustees not to file a civil action or to take any administrative or other civil action against the Debtors or the Custodial Trust Parties pursuant to CERCLA §§ 106 and 107, or any similar state laws with respect to the Kalamazoo River Site, the Allied Paper Mill Transferred Real Property, or the Diamond Alkali Site; and the covenant by DOI not to file a civil action or to take any administrative or other civil action against the Debtors or the Custodial Trust Parties pursuant to CERCLA §§ 106 and 107, or any similar state laws with respect to the Hegeler Zinc Site;

• the release and agreement to not sue or take administrative action by TCEQ (i) against the Debtors pursuant to CERCLA §§ 106 and 107, RCRA §§ 7002 and 7003, or any similar state laws for any liabilities or obligations asserted in Claim 8183 with respect to the Turtle Bayou Transferred Real Property, or (ii) against the Custodial Trust Parties pursuant to CERCLA §§ 106 and 107, and RCRA §§ 7002 and 7003, or any similar state laws with respect to the Turtle Bayou Transferred Real Property;

• the covenant not to sue and agreement not to assert or pursue any claims or causes of action by the Debtors and the Environmental Custodial Trust Trustee against the United States and the States with respect to the Liquidated Sites or Transferred Real Properties and the cash payments set forth in the Settlement Agreement;

• the covenant not to sue and agreement not to assert claims or causes of action by the Debtors against the Custodial Trust Parties;

• the protection of the Debtors and the Custodial Trust Parties from contribution actions or claims as provided by Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), or as may be otherwise provided by law, for “matters addressed” in the Settlement Agreement; and

• the release of all financial assurance maintained by the debtors at Liquidated Sites or Transferred Real Properties.

B. CHEMTURA

Chemtura Corporation and its debtor affiliates (“Chemtura”) entered into a number of settlement agreements with various federal and state environmental agencies to resolve alleged environmental liabilities at certain sites. The following presents a summary of key provisions of the major environmental settlements that were entered into during the course of these chapter 11 proceedings.

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Settlement Agreement with the United States and the Connecticut Commissioner of Environmental

Protection.

• Liquidated Sites.

o Allowed Claims. In settlement and satisfaction of the proofs of claim filed by the United States and the Connecticut Commissioner of Environmental Protection (the “Commissioner”) for past and future response costs, civil penalties and natural source damages, the settlement agreement (the “Chemtura U.S. Settlement Agreement”) provides that the United States shall have certain allowed environmental claims in the amounts set forth in the agreement with respect to certain sites. EPA shall deposit any funds received for such sites into the Hazardous Substance Superfund or into an EPA special account established for the site within the Hazardous Substance Superfund, to be retained and used to conduct or finance response actions at or in connection with the site, or to be transferred to the Hazardous Substance Superfund.

o Cash Payments. In addition, Chemtura, in settlement of the injunctive and other work obligations to the United States shall make cash payments to the United States in full within 30 days after the “Effective Date” of the Joint Chapter 11 Plan of Chemtura

Corporation, et al. [Dkt. No. 4387] (as may be supplemented, modified or amended, the “Chemtura Plan”) in the amounts as set forth in the agreement with respect to certain sites. The EPA shall deposit any funds received for such sites into an EPA special account established for the site within the Hazardous Substance Superfund. The EPA shall retain and use such funds to conduct or finance any work which Chemtura has been obligated to perform pursuant to any consent decree or administrative order for such sites. If non-Debtor parties obligated to perform this work enter into an agreement with EPA providing for special account disbursements for the performance of the work, EPA shall make such disbursements as agreed to by EPA and the non-Debtor parties. Notwithstanding Paragraph 12b of the Chemtura U.S. Settlement Agreement, EPA may retain and use to conduct or finance any response actions at or in connection with the site, or may transfer to the Hazardous Substance Superfund, the following: (i) any funds received pursuant to Paragraph 5 (Liquidated Sites - Cash Payments) of the Chemtura U.S. Settlement Agreement if EPA and the non-Debtor parties fail to reach an agreement as described in the preceding sentence, or (ii) any funds received pursuant to Paragraph 5 (Liquidated Sites - Cash Payments) of the Chemtura U.S. Settlement Agreement that are not necessary to make disbursements in accordance with an agreement as described in the preceding sentence.

• Debtor-Owned or Operated Sites. With respect to any properties, facilities or sites owned and/or operated by Chemtura at the time of, or at any time after, the confirmation of the Chemtura Plan (“Debtor-Owned/Operated Sites”), the Chemtura U.S. Settlement Agreement sets forth the following terms:

o Allowed Claims. The Chemtura U.S. Settlement Agreement provides that the United States will have the following allowed environmental claims: (a) an allowed environmental claim in the total amount of $785,714 against Bio-Lab, Inc. in settlement and satisfaction of EPA’s claim for civil penalties for alleged prepetition violations of the Clean Air Act at the Bio-Lab, Inc. facility located in Georgia, and (b) an allowed environmental claim of $45,000 against Great Lakes Chemical Corporation in settlement and satisfaction of EPA’s claim for prepetition response costs in connection with the El Dorado site located in Arkansas. The EPA shall deposit any funds received for such sites

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into the Hazardous Substance Superfund or into an EPA special account established for the site within the Hazardous Substance Superfund, to be retained and used to conduct or finance response actions at or in connection with the site, or to be transferred to the Hazardous Substance Superfund.

o Non-Dischargeability/Reservation of Rights. The Chemtura U.S. Settlement Agreement provides that the following claims of or obligations to the United States and the Commissioner with respect to Debtor-Owned/Operated Sites shall not be discharged under Section 1141 of the Bankruptcy Code by the confirmation of the Chemtura Plan, nor shall such claims or obligations be impaired or affected in any way by the bankruptcy cases or confirmation of the Chemtura Plan: (i) claims against Chemtura by the United States or the Commissioner under Section 107 of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. § 9607, or similar state laws, for recovery of response costs with respect to response actions taken postpetition at a Debtor-Owned/Operated Site, or recovery of natural resource damages arising as a result of postpetition releases or ongoing releases of hazardous substances at, or which migrate to a proximate location from, a Debtor-Owned/Operated Site; (ii) claims against Chemtura by the United States or the Commissioner for recovery of civil penalties for violations of law resulting from Chemtura’s postpetition conduct; or (iii) actions against Chemtura by the United States or the Commissioner under CERCLA, the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq. (“RCRA”), or similar state laws seeking to compel the performance of a removal action, remedial action, corrective action, closure, or any other cleanup action at a Debtor-Owned/Operated Site, including actions to address hazardous substances that have migrated to a proximate location from a Debtor-Owned/Operated Site.

o Enforcement Actions. The Chemtura U.S. Settlement Agreement provides that the United States and the Commissioner may pursue enforcement actions or proceedings under applicable law with respect to the Claims and obligations of Chemtura to the United States or the Commissioner in the manner, and by the administrative or judicial tribunals, in which the United States or the Commissioner could have pursued enforcement actions or proceedings if the Bankruptcy Cases had never been commenced.

o Reservation of Rights. Chemtura reserves the right to assert any and all defenses and counterclaims available to it under applicable law with respect to any claims and obligations of Chemtura to the United States or the Commissioner that are asserted by the United States or the Commissioner, except for any alleged defense of discharge of liabilities provided under the Bankruptcy Code, the Chemtura Plan, or any order of confirmation. The United States and the Commissioner reserve all of their rights with respect to any defenses or counterclaims asserted by Chemtura under this Paragraph.

• Treatment of Allowed Claims. The Chemtura U.S. Settlement Agreement provides that all allowed environmental claims authorized by the Chemtura U.S. Settlement Agreement (i) shall be treated as provided under Section 3.3(k)(i)(A) of the Chemtura Plan, specifically, payment in cash, and (ii) shall not be subordinated to any other allowed environmental claims or any allowed general unsecured claims pursuant to any provision of the Bankruptcy Code or other applicable law, including, without limitation, Sections 105, 510, and 726(a)(4) of the Bankruptcy Code.

• Laurel Park Site. A predecessor to Chemtura and Naugatuck Treatment Company (“Naugatuck”) are parties to a consent decree in connection with the Laurel Park Superfund Site (the “Laurel Park Consent Decree”). Chemtura and Naugatuck shall comply with all obligations and retain all

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rights under the Laurel Park Consent Decree. Chemtura and Naugatuck’s obligations under the Laurel Park Consent Decree, including Chemtura and Naugatuck’s obligations to perform work and reimburse response costs of the United States and the Commissioner, shall not be impaired in any way by the Bankruptcy Cases, confirmation of the Chemtura Plan, or the Chemtura U.S. Settlement Agreement. Nothing in the Chemtura U.S. Settlement Agreement or the Chemtura Plan shall constitute a discharge of any obligations of Chemtura and Naugatuck at or in connection with the Laurel Park Site.

• Credits. With respect to the allowed environmental claims for the United States, the Chemtura U.S. Settlement Agreement provides that only the amount of cash received by such entities from Chemtura under the Settlement Agreement for the allowed environmental claim for a particular site, and not the total amount of the allowed environmental claim, shall be credited by each such entity to its account for a particular site, which credit shall reduce the liability of non-settling potentially responsible parties for the particular site by the amount of the credit.

• Contribution Protection. The Parties agree, and by entering the Settlement Agreement the Court finds, that this settlement constitutes a judicially-approved settlement for purposes of Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), and that Chemtura is entitled, as of the Effective Date, to protection from contribution actions or claims as provided by Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), or as may be otherwise provided by law, for “matters addressed” in the Settlement Agreement. The “matters addressed” in this Settlement Agreement do not include claims against Chemtura for liquidated past response costs incurred by potentially responsible parties prior to the Petition Date and included in proofs of claim filed in any of the Bankruptcy Cases by potentially responsible parties with respect to any of the Liquidated Sites or the El Dorado Site.

• Resolution of Proofs of Claim and the Dismissal of the Environmental Declaratory Action.

o The proofs of claim filed by the United States and the Commissioner (except with respect to the Gowanus Canal Superfund Site) (the “Proofs of Claim”) shall be deemed satisfied in full in accordance with the terms of the Chemtura U.S. Settlement Agreement. The approval of the Chemtura U.S. Settlement Agreement by the Court, together with the Proofs of Claim, shall be deemed to satisfy any requirement for the United States and the Commissioner to file in these Bankruptcy Cases any claim, request, or demand for the disbursement of funds as provided herein.

o Except with respect to the Gowanus Canal Superfund Site, Chemtura’s omnibus objections filed in connection with the Proofs of Claim shall be deemed resolved in full by the Chemtura U.S. Settlement Agreement, without costs or attorney’s fees to any party.

o Upon the Effective Date, any and all outstanding obligations of Chemtura to perform work pursuant to any consent decree or administrative order entered into with, or issued by, the United States or Connecticut through the Commissioner, in connection with any of the Liquidated Sites, including any obligation to pay statutory, stipulated, or other penalties for failure to perform work pursuant to any such consent decree or administrative order, shall be deemed to be fully resolved and satisfied by the Chemtura U.S. Settlement Agreement, subject to such court approval as may be necessary.

o Chemtura agrees that, with respect to any suit for contribution brought against any of them after the Effective Date for matters related to the Settlement Agreement, they will

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notify the United States and the Commissioner, as applicable, within fifteen (15) business days of service of the complaint upon them. In addition, in connection with such suit, Chemtura shall notify the United States and the Commissioner, as applicable, within fifteen (15) business days of service or receipt of any Motion for Summary Judgment and within fifteen (15) business days of receipt of any order from a court setting a case for trial (provided, however, that the failure to notify the United States or the Commissioner pursuant to Paragraph 26 (Contribution Protection) shall not in any way affect the protections afforded under Section XIII (Covenants Not to Sue and Reservation of Rights).

o Within three days of the Effective Date, Chemtura shall, by motion or other request in the Environmental Declaratory Action, seek dismissal with prejudice of that action with respect to the United States and the Commissioner, pursuant to an agreed order among Chemtura, the United States and the Commissioner.

• Covenants Not to Sue and Reservation of Rights.

o The following covenants not to sue shall take effect on the Effective Date:

� EPA covenants not to file a civil action or to take any administrative or other civil action against Chemtura (i) pursuant to Sections 106 or 107 of CERCLA, 42 U.S.C. §§ 9606 or 9607, and Section 7003 of RCRA, 42 U.S.C. § 6973, with respect to each of the Liquidated Sites; (ii) pursuant to Section 107 of CERCLA, 42 U.S.C. § 9607, with respect to the Settled El Dorado Claim; and (iii) for Prepetition civil penalties pursuant to the certain federal environmental status as provided in the agreement with respect to the Settled Bio-Lab Claim.

� The National Oceanic and Atmospheric Administration (“NOAA”) covenants not to file a civil action or to take any administrative or other civil action against Chemtura pursuant to Section 107 of CERCLA, 42 U.S.C. § 9607, with respect to the Diamond Alkali Superfund Site. With respect to all other Liquidated Sites, all liabilities and obligations of the Chemtura to NOAA under Section 107 of CERCLA, 42 U.S.C. § 9607, arising from prepetition acts, omissions, or conduct of Chemtura or its predecessors shall be discharged under Section 1141 of the Bankruptcy Code by the confirmation and effectiveness of the Chemtura Plan.

� The Commissioner covenants not to file a civil action or to take any administrative or other civil action against Chemtura pursuant to Sections 106 or 107 of CERCLA, 42 U.S.C. §§ 9606 or 9607, Sections 7002 or 7003 of RCRA, 42 U.S.C. §§ 6972 or 6973, or similar state laws with respect to the Beacon Heights Site.

� Chemtura covenants not to sue and agree not to assert or pursue any claims or causes of action against the United States or the Commissioner with respect to the Liquidated Sites, the Settled Bio-Lab Claim, or the Settled El Dorado Claim, including, but not limited to: (i) any direct or indirect claim for reimbursement from the Hazardous Substance Superfund through Sections 106(b)(2), 111, 112, or 113 of CERCLA, 42 U.S.C. §§ 9606(b)(2), 9611, 9612, or 9613, or any other provision of law; (ii) any claim against the United States, including any department, agency, or instrumentality of the United States, under Sections 107 or 113 of CERCLA, 42 U.S.C. §§ 9607 or 9613, related to the Liquidated Sites or

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the Settled El Dorado Claim; or (iii) any claims arising out of response activities at the Liquidated Sites. The foregoing covenant not to sue shall also apply to the United States and the Commissioner’s employees, successors, and assigns.

o The following reservations shall also apply:

� Nothing in the Chemtura U.S. Settlement Agreement is intended as a covenant not to sue or a release from liability for any person or entity other than Chemtura, the United States, the Commissioner, and the persons described in Paragraph 20 (Covenant not to Sue and Reservation of Rights) of the agreement. The United States, the Commissioner, and Chemtura expressly reserve all claims, demands, and causes of action, either judicial or administrative, past, present, or future, in law or equity, which they may have against all other persons, firms, corporations, entities, or predecessors of Chemtura (except as successor to any entity) for any matter arising at or relating in any manner to the sites or claims addressed herein.

� The United States and the Commissioner expressly reserve, and the Chemtura U.S. Settlement Agreement is without prejudice to, all rights against Chemtura with respect to all other matters other than those set forth in Paragraph 18 (Covenant Not to Sue and Reservation of Rights) of the Chemtura U.S. Settlement Agreement and any action based on (i) a failure to meet a requirement of the Settlement Agreement; (ii) criminal liability; (iii) matters reserved in Paragraph 8 (Non-Dischargeability/ Reservation Regarding Debtor-Owned/Operated Sites); or (iv) matters excluded in Section XVII (Excluded Matters). In addition, the United States and the Commissioner reserve, and the Chemtura U.S. Settlement Agreement is without prejudice to, all rights against Chemtura, its successors, assigns, officers, directors, employees, and trustees with respect to the Liquidated Sites for liability for response costs, natural resource damages (including natural resource damage assessment costs), and injunctive relief under CERCLA, RCRA, or state law for acts by Chemtura, its successors, assigns, officers, directors, employees, or trustees that occur after the date of lodging of the Chemtura U.S. Settlement Agreement and give rise to liability under CERCLA, RCRA, or state law.

Settlement Agreement with the United States Relating to the Gowanus Canal Superfund Site.

• Terms of Resolution. In settlement and satisfaction of the proof of claim filed by the United States (the “U.S. Proof of Claim”) with respect to the Gowanus Superfund Site (the “Gowanus Site”), the United States, on behalf of EPA, shall have an allowed environmental claim, as defined in the Chemtura Plan, of $3.9 million against Chemtura. The United States shall receive no distributions or other payments in the Bankruptcy Cases with respect to Chemtura’s liabilities and obligations asserted in the U.S. Proof of Claim with respect to the Gowanus Site other than as set forth in this paragraph. The allowed environmental claim (i) shall be treated as provided under Section 3.3(k)(i)(A) of the Chemtura Plan, specifically, payment in cash, and (ii) shall not be subordinated to any other allowed environmental claims or any allowed general unsecured claims pursuant to any provision of the Bankruptcy Code or other applicable law, including, without limitation, Sections 105, 510, and 726(a)(4) of the Bankruptcy Code.

• Resolution of the Proof of Claim and Omnibus Objection. The U.S. Proof of Claim shall be deemed satisfied in full with respect to the Gowanus Site in accordance with the terms of the settlement agreement with respect to the U.S. Proof of Claim as it relates to the Gowanus Site

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(the “Chemtura Gowanus Settlement”). Moreover, the approval of the Chemtura Gowanus Settlement Agreement by the Court, together with the U.S Proof of Claim, shall be deemed to satisfy any requirement for EPA to file in these Bankruptcy Cases any claim, request, or demand for the disbursement of funds as provided herein. No further proof of claim or other request or demand by EPA shall be required. Any and all proofs of claim deemed to be filed pursuant to this paragraph shall also be deemed satisfied in full in accordance with the terms of the Chemtura Gowanus Settlement Agreement. With respect to matters pertaining to the Gowanus Site, the omnibus objection filed with respect to the U.S. Proof of Claim with respect to the Gowanus Site shall be deemed resolved in full by the Chemtura Gowanus Settlement Agreement, without costs or attorney’s fees to any party.

• Contribution Protection. The parties agree that the settlement constitutes a judicially-approved settlement for purposes of Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), and that Chemtura is entitled, as of the Effective Date, to protection from contribution actions or claims as provided by Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), or as may be otherwise provided by law, for “matters addressed” in the Chemtura Gowanus Settlement Agreement. Subject to the last sentence of this paragraph, the “matters addressed” in the Chemtura Gowanus Settlement Agreement, as that phrase is used in Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), include, without limitation, claims by EPA or potentially responsible parties for response costs at or in connection with the Gowanus Site. The “matters addressed” in the Chemtura Gowanus Settlement Agreement do not include claims against Chemtura for liquidated past response costs incurred by potentially responsible parties prior to the Petition Date and included in proofs of claim filed in any of the Bankruptcy Cases by potentially responsible parties with respect to the Gowanus Site.

• Covenant Not to Sue and Reservation of Rights.

o EPA covenants not to file a civil action or to take any administrative or other civil action against Chemtura pursuant to Sections 106 or 107 of CERCLA, 42 U.S.C. §§ 9606 or 9607, and Section 7003 of RCRA, 42 U.S.C. § 6973, with respect to the Gowanus Site.

o The covenant not to sue shall take effect on the Effective Date, provided, however, that if (a) the New York State Department of Environmental Conservation (the “NYSDEC”) issues a notice of noncompliance or a notice of violation to Chemtura with respect to one or more of the Court Street Facilities addressed in the Chemtura New York Settlement Agreement and Consent Orders, and (b) the notice of noncompliance or notice of violation is not cured within the time specified in the notice, or determined by the NYSDEC to have been issued in error, or otherwise withdrawn, and (c) the United States determines that there may be an imminent and substantial endangerment to public health or welfare or the environment because of an actual or threatened release of hazardous substances at the Court Street Facility (or Facilities) which is (or are) the subject of the notice of noncompliance or notice of violation, then the covenant not to sue shall, only with respect to the Court Street Facility (or Facilities) which is (or are) the subject to the notice of noncompliance or notice of violation, be null and void and of no effect without further action by any party.

o The United States also specifically reserves, and the Chemtura Gowanus Settlement Agreement is without prejudice to, any action based on (a) a failure to meet a requirement of the Chemtura Gowanus Settlement Agreement or (b) criminal liability. In addition, the United States reserves, and the Chemtura Gowanus Settlement Agreement is without prejudice to, all rights against Chemtura, its successors, assigns, officers, directors,

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employees, and trustees with respect to the Gowanus Site for liability under CERCLA, RCRA, or state law for acts by Chemtura, its successors, assigns, officers, directors, employees, or trustees that occur after the date of lodging of the Chemtura Gowanus Settlement Agreement and give rise to liability under CERCLA, RCRA, or state law. As used in the preceding sentence, the phrase “acts by Chemtura, its successors, assigns, officers, directors, employees, or trustees that occur after the date of lodging of the Chemtura Gowanus Settlement Agreement” does not include continuing releases related to conduct occurring before the date of lodging of the Chemtura Gowanus Settlement Agreement.

Settlement Agreement with the State of New York and the New York State Department of

Environmental Conservation.

• Terms of Resolution. Upon the effective date (the “New York Settlement Effective Date”) of the settlement agreement (the “Chemtura New York Settlement Agreement”) with the State of New York and the New York State Department of Environmental Conservation (“NYSDEC”), Chemtura will enter into and comply with two separate consent orders with respect to the 688 Court Street and 633 Court Street sites (the “688 Court Street Consent Order” and the “633 Court Street Consent Order” respectively) pursuant to and in accordance with the Chemtura New York Settlement Agreement. Any obligations arising under these two consent orders shall not be impaired in any way by the chapter 11 cases or the Chemtura Plan.

o 688 Court Street Site.

� Chemtura’s obligations with respect to the 688 Court Street Site shall be as provided in and required by the 688 Court Street Consent Order and shall be consistent with the NYSDEC’s rules, regulations and guidance memorandum governing such activities. Chemtura’s liability for the NYSDEC’s oversight costs at the 688 Court Street Site shall be capped at $150,000, as stated in the 688 Court Street Consent Order.

� As of the New York Settlement Effective Date, the May 2002 Order shall be superseded and Chemtura agrees to undertake investigation and remediation activities for the 688 Court Street Site, including off-site areas where contamination has migrated from the 688 Court Street Site, in compliance with the 688 Court Street Consent Order. Chemtura’s obligations with respect to the 688 Court Street Site shall be deemed satisfied upon the completion of approved investigation and remediation work and issuance of a No Further Action (or comparable) letter from the NYSDEC.

� Except with respect to the suspended civil penalty assessment set forth in, and to be governed by, the 688 Court Street Consent Order (which provides for dismissal of the penalty upon substantial compliance), the NYSDEC agrees not to seek to recover civil penalties for any violation of the May 2002 Order or the New York Environmental Laws occurring prior to the New York Settlement Effective Date.

� NYSDEC shall receive no payments or distributions under the Chemtura Plan in the Chapter 11 Cases with respect to any of Chemtura’s liabilities and obligations for the 688 Court Street Site under the New York Environmental Laws or the May 2002 Order, provided, however, that the Chemtura New York Settlement

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Agreement shall not affect penalties for any future violation of the 633 or 688 Court Street Consent Orders.

o 633 Court Street Site.

� On and after the New York Settlement Effective Date, Chemtura agrees to undertake investigation and remediation activities at the 633 Court Street Site in compliance with the 633 Court Street Consent Order subject to an aggregate cap on Chemtura’s expenditures in the amount of $3.596 million for such activities. All of Chemtura’s obligations with respect to the 633 Court Street Site shall be deemed satisfied upon the earlier of (a) completion of remediation work and issuance of a No Further Action (or comparable) letter from the NYSDEC; or (b) expenditure by or on behalf of Chemtura in the amount of $3.596 million in the aggregate for investigation and remediation and the NYSDEC oversight at the 633 Court Street Site, except to the extent of any contamination caused by the acts of Chemtura, its successors, assigns, officers, directors, employees, or trustees after the New York Settlement Effective Date. Upon reaching either (a) or (b) above, the NYSDEC covenants not to file a civil action, not to take any administrative action, and not to seek any penalties against Chemtura with respect to the 633 Court Street Site.

� The 633 Court Street Consent Order shall govern the investigation and remediation activities at the 633 Court Street Site consistent with the NYSDEC’s rules, regulations and guidance memoranda governing such activities. Chemtura will have control over the investigation and remediation activities at the 633 Court Street Site subject to the NYSDEC’s oversight and approval as set forth in the 633 Court Street Consent Order and shall continue such activities until such time as (a) or (b) in Paragraph 11 of the Chemtura New York Settlement Agreement (summarized above) occurs. The NYSDEC retains the right (1) to review all invoices for work performed with respect to 633 Court Street, and (2) to conduct an audit of the costs associated with Chemtura’s investigation and remediation activities.

� NYSDEC’s oversight costs at the 633 Court Street Site shall be capped as provided for in the 633 Court Street Consent Order at $100,000. Costs incurred by Chemtura in the performance of investigation and remediation activities at the 633 Court Street Site, together with any amount of money attributed to the NYSDEC’s oversight costs, shall be included in and count toward satisfaction of Chemtura’s $3.596 million liability cap after the New York Settlement Effective Date. The NYSDEC shall not seek any penalties or other costs associated with any violations of New York Environmental Laws occurring prior to the New York Settlement Effective Date with respect to the 633 Court Street Site.

� NYSDEC shall receive no payments or distributions under the Chemtura Plan in the Chapter 11 Cases with respect to any of Chemtura’s liabilities and obligations under the New York Environmental Laws for the 633 Court Street Site, provided, however, that the Chemtura New York Settlement Agreement shall not affect penalties for any future violation of the 633 or 688 Court Street Consent Orders.

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• Treatment of the Court Street Claims and the Objection. The Court Street Claims and the objection to the Court Street Claims shall be deemed withdrawn as of the New York Settlement Effective Date without any further action by the Court or the parties.

• Covenant Not to Sue and Reservation of Rights.

o With respect to the 688 Court Street Site, the NYSDEC agrees that it will not file a civil action or to take any administrative or other action against Chemtura pursuant to any New York Environmental Law, CERCLA, RCRA or any other applicable federal law or regulation with regard to contamination at the 688 Court Street Site above and beyond what is provided for in the 688 Court Street Site Consent Order (including the suspended civil penalty set forth therein).

o With respect to the 633 Court Street Site, the NYSDEC agrees not to file a civil action or to take any administrative or other action against Chemtura pursuant to any New York Environmental Law, CERCLA, RCRA or any other applicable federal law or regulation with regard to contamination at the 633 Court Street Site to the extent that such action asserts that Chemtura has any remaining liability at the 633 Court Street Site beyond the obligations of Chemtura subject to the $3.596 million cap as set forth in the Chemtura New York Settlement Agreement.

o All of Chemtura’s obligations with respect to the 633 Court Street Site shall be deemed satisfied upon the earlier of (a) completion of remediation work and issuance of a No Further Action (or comparable) letter by the NYSDEC or (b) expenditure by or on behalf of Chemtura in excess of $3.596 million in the aggregate, except to the extent of any contamination caused by the acts of Chemtura after the New York Settlement Effective Date.

o With respect to both Court Street Sites, the Chemtura New York Settlement Agreement is without prejudice to, all rights against Chemtura, its successors, assigns, officers, directors, employees, and trustees with respect to the Court Street Sites for liability for response costs, natural resource damages (including natural resource damage assessment costs), and injunctive relief under CERCLA, RCRA, or state law for acts by Chemtura that occur after the New York Settlement Effective Date and give rise to liability under CERCLA, RCRA, or state law.

o Chemtura releases any claims or causes of action against the NYSDEC with respect to the Court Street Sites, except for any claims relating to a breach or enforcement of the Chemtura New York Settlement Agreement or the Consent Order.

• Contribution Protection. The Chemtura New York Settlement Agreement resolves the obligation of Chemtura with respect to the Court Street Sites for any and all costs of “response” as that term is defined by section 101(25) of CERCLA, incurred or to be incurred, at or in relation to the Court Street Sites, by the NYSDEC or any other potentially responsible party and current or former site owner (hereinafter “matters addressed in the Chemtura New York Settlement Agreement”). Provided Chemtura complies with the terms of the Agreement, Chemtura shall be entitled to protection from contribution actions or claims as provided under section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2) (to the extent applicable) for matters addressed in the Agreement. However, no subsequent finding of inapplicability of such section shall affect the finality or enforceability of the Agreement.

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• Dismissal of the Environmental Declaratory Action. Upon the New York Settlement Effective Date, the Parties shall jointly seek approval of the Agreement by the District Court as soon as practical insofar as it addresses the 688 Court Street Site and resolution of the Environmental Declaratory Action as to the NYSDEC and the State of New York. Upon approval by the District Court, the Amended Complaint in the Environmental Declaratory Action shall be dismissed as to the NYSDEC and the State of New York, and Chemtura shall seek no declaration with regard to its obligations to remediate the Court Street Sites either in the Environmental Declaratory Action or as part of any Chemtura Plan or order confirming a plan of reorganization.

Settlement Agreement with the State of New Jersey and the Dial Corporation.

• Terms of Resolution.

o The settlement agreement (the “Chemtura New Jersey/Dial Settlement Agreement”) with the State of New Jersey (“New Jersey”) and the Dial Corporation (“Dial”) provides that Chemtura and New Jersey agree to fix and liquidate the value of the Oversight and NRD Claim (as defined in the settlement agreement) in an amount of $13,141.85 with respect to state oversight costs and $46,699.71 for natural resources damages for a total liquidated amount with respect to the Oversight and NRD Claim of $59,841.56, which Chemtura will pay to the New Jersey within 30 days of the Effective Date.

o In addition, Dial and New Jersey also agree that Dial and Purex’s joint obligation to New Jersey with respect to natural resources damages at the Paterson Site is in the total amount of $31,132.44, which Dial agrees to pay to the New Jersey Department of Environmental Protection (“NJ DEP”) within 30 days of the Effective Date.

o Remediation Obligations.

� In full settlement and satisfaction of all remediation obligations and liabilities under the New Jersey Cleanup Laws and CERCLA and all other claims, amounts or rights that are or could have been asserted in the NJ DEP Claim (other than the Oversight and NRD Claim), with respect to the Paterson Site, Chemtura, New Jersey, and Dial agree that the NJ DEP Claim shall be treated, solely for settlement purposes and while reserving all rights with regard to legal issues in dispute among the parties, in accordance with the Chemtura New Jersey/Dial Settlement Agreement as an allowed Environmental Claim (as such term is defined in the Chemtura Plan) against Chemtura in the amount of $5,589,000 (the “Liquidated New Jersey Remediation Liability”), which shall be paid in full in cash by Chemtura directly to Dial within 30 days of the Effective Date.

� Excluding the NRD and Oversight Claim, from and after the Effective Date and Dial’s receipt of the Liquidated New Jersey Remediation Liability payment, Dial agrees to assume responsibility for any and all obligations related to the Paterson Site that arise out of ISRA and which would have been the responsibility and obligation of Chemtura from and after the Effective Date. Dial further agrees to establish a remediation funding source (“RFS”) in an amount required to complete the remediation of the Paterson Site, within 60 calendar days of Dial’s receipt of the Liquidated New Jersey Remediation Liability payment. NJ DEP agrees that Dial may request the reduction of the RFS amount at any time following the one year anniversary of the Effective Date.

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• Withdrawal of the Claims. Upon the payments described above, the NJ DEP Claim and the Dial Claims shall be deemed resolved and withdrawn pursuant to Rule 3006 of the Federal Rules of Bankruptcy Procedure, and the objections to the claims shall be deemed withdrawn without any further action by the parties or the Court.

• Contribution Protection. With regard to all existing or future third-party claims against Chemtura with respect to the Paterson Site, including claims for contribution, New Jersey agrees that, as of the Effective Date, as defined in the Chemtura New Jersey/Dial Settlement Agreement, Chemtura is entitled to protection from actions or claims as provided by Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), or as may be otherwise provided by law, for “matters addressed” in the Chemtura New Jersey/Dial Settlement Agreement. The “matters addressed” in the Chemtura New Jersey/Dial Settlement Agreement, as that phrase is used in Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), include, without limitation, response or other costs incurred or to be incurred by New Jersey, Dial, or potentially responsible parties with respect to the Paterson Site.

• Covenant Not to Sue and Chemtura’s Release. In consideration of all of the foregoing, including the distributions that will be made pursuant to the terms of the Chemtura New Jersey/Dial Settlement Agreement and the resolution of Chemtura’s liability with respect to the Paterson Site and the claims as set forth herein, New Jersey and Dial covenant not to file a civil action or to take any administrative or other action against Chemtura pursuant to any New Jersey Cleanup Law or any other applicable federal law or regulation with respect to the Paterson Site. These covenants not to sue shall take effect on the latter of the Effective Date, the date on which the payment of the liquidated New Jersey Remediation Liability is received by Dial and the date on which payment of the Liquidated State Oversight and NRD Claim is received by New Jersey. The State and Dial also agree to release Chemtura of any and all liability under the New Jersey Cleanup Laws and CERCLA with respect to the Paterson Site and the claims.

Settlement Agreement with the Commonwealth of Pennsylvania, the Pennsylvania Department of

Environmental Protection and the American Refining Group, Inc.

• Terms of Resolution.

o The settlement agreement (the “Chemtura Pennsylvania Settlement Agreement”) with the Commonwealth of Pennsylvania, the Pennsylvania Department of Environmental Protection (“PADEP”) and the American Refining Group, Inc. (“ARG”) provides that on or before the Effective Date of the Chemtura Plan, Chemtura shall deposit $10,000,000 into the Environmental Reserve (as defined in the Chemtura Plan), and upon the earlier of (a) 30 days after the Effective Date of the Chemtura Pennsylvania Settlement Agreement and (b) the first distribution date occurring after the Effective Date (the “Funding Date”), Chemtura shall cause such amount to be released from the Environmental Reserve by wire transfer into a segregated fund established pursuant to the ARG Consent Order, as defined below (the “Fund”), which funds shall be used by ARG or its designee and/or PADEP or its designee for remedial actions at the Bradford Site, in accordance with the terms of the ARG Consent Order. The completion of Chemtura’s payments to the Environmental Reserve will resolve: (a) the Bradford Proofs of Claim and all amounts or rights asserted in the Bradford Proofs of Claim, (b) all liabilities and obligations (including any injunctive obligations) of Chemtura to the Commonwealth under the Pennsylvania Cleanup Laws, CERCLA, RCRA and any other applicable federal law or regulation with respect to the Bradford Site, and (c) and all liabilities and obligations of Chemtura to ARG with respect to the Bradford Site.

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o In consideration of the payment of $10,000,000 into the Fund, PADEP shall issue a covenant not to sue Chemtura with regard to any Pennsylvania Cleanup Laws, CERCLA, RCRA or other applicable law with respect to the Bradford Site, and ARG shall covenant not to sue Chemtura under the Bradford Consent Order, the Services Agreement, the Sale Agreement, and the Environmental Agreement

• ARG Consent Order. PADEP and ARG have agreed to a new Consent Order and Agreement with respect to the Bradford Site (the “ARG Consent Order”), which shall take effect upon the later of the effective date of the Chemtura Pennsylvania Chemtura Pennsylvania Settlement Agreement and the Funding Date, and which shall replace the existing Bradford Consent Order. Pursuant to the ARG Consent Order, ARG shall be the sole responsible party with respect to the Bradford Site, and the Bradford Consent Order shall be replaced in its entirety as of the effective date of the ARG Consent Order. Pursuant to the Chemtura Pennsylvania Settlement Agreement, Chemtura (and its respective predecessors and successors, including reorganized Chemtura) shall be released from and shall have no further liabilities or obligations under the Bradford Consent Order or otherwise related to environmental conditions at or associated with the Bradford Site or its past, present and future operations.

• Wastewater Treatment Facility and Remediation Equipment. On the later of the effective date of the Chemtura Pennsylvania Settlement Agreement and the Funding Date, and for no further consideration, Chemtura shall convey and quitclaim to ARG, free and clear of all liens, claims, encumbrances and other interests, to the fullest extent contemplated by sections 363(b) and (f) and section 365 of the Bankruptcy Code, all right, title and interest it may have in and to: (i) the wastewater treatment plant located on the Bradford Site and all ancillary equipment and other property located on the Bradford Site that is used and useful in operating the wastewater treatment plant (collectively, the “Wastewater Treatment Facility”); and (ii) all remediation improvements, fixtures, and equipment (including all wells, tanks, piping, pumping, collection, oil water separators, air compressors and transmission equipment) and all ancillary equipment and other property located on the Bradford Site that is used and useful in the remediation of the Bradford Site (collectively, the “Remediation Equipment”), and Chemtura shall transfer or cause to be transferred to ARG all existing and readily available engineering design manuals, operating manuals, and as-built drawings and surveys necessary or appropriate to enable ARG to own and operate the Wastewater Treatment Facility and the Remediation Equipment. Through and until the later of the Effective Date and the Funding Date, Chemtura shall continue to operate the Wastewater Treatment Facility and the Remediation Equipment, and shall pay or reimburse ARG for postpetition services and ordinary course expenses (e.g., utilities) under the Services Agreement.

• Permits. Prior to the effective date of the Chemtura Pennsylvania Settlement Agreement, PADEP, Chemtura and ARG shall cooperate and take all actions necessary to apply for and/or transfer or cause to be transferred or reissued to ARG the permits issued to Chemtura by PADEP that are required for the operation of the Wastewater Treatment Facility and the Remediation Equipment (as defined in the Chemtura Pennsylvania Settlement Agreement, the “Permits”), such transfers and reissuances to be effective as of the later of the Effective Date and the Funding Date. The Parties’ duty to cooperate shall continue until such time as all Permits have been transferred to ARG. Upon the transfer of the Permits to ARG, ARG shall assume all responsibility for compliance with the Permits, including any modifications thereto that may be made by PADEP or other regulatory authorities.

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• Parties under the Bradford Consent Order. Upon the later of the Effective Date and the Funding Date, ARG shall be solely responsible for the payment of all outstanding and future fines or penalties issued by PADEP under the Bradford Consent Order.

• Treatment of the Bradford Claims. The Bradford Claims shall be deemed resolved in accordance with the terms of the Chemtura Pennsylvania Settlement Agreement as of the completion of payments thereunder, and the PADEP Objection and the ARG Objection shall be deemed withdrawn or denied as moot without any further action of the parties or the Court.

• Contribution Protection. With regard to all existing or future third-party claims against Chemtura with respect to the Bradford Site, including claims for contribution, the Parties agree that, as of the later of the Effective Date or the Funding Date, Chemtura is entitled to protection from actions or claims as provided by sections 107 and 113(f)(2) of CERCLA, 42 U.S.C. § 9 613(f)(2), Pennsylvania Cleanup Laws, or as otherwise may be provided by law, for “matters addressed” in the Chemtura Pennsylvania Settlement Agreement. The “matters addressed” in the Chemtura Pennsylvania Settlement Agreement, as that phrase is used in section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), include response or other costs incurred or to be incurred by PADEP, ARG, or potentially responsible parties with respect to the Bradford Site.

• Dismissal of the Adversary Complaint. The Amended Complaint in the Environmental Declaratory Action shall be dismissed against PADEP with prejudice, and Chemtura shall seek no declaration with regard to their obligations to remediate the Bradford Site either in the Environmental Declaratory Action or as part of any plan or order confirming a plan of reorganization. Neither Chemtura nor PADEP shall seek or be entitled to any costs or fees related to the Environmental Declaratory Action.

• Covenant Not to Sue and Chemtura’s Release. PADEP shall covenant not to file a civil action or to take any administrative or other action against Chemtura pursuant to any Pennsylvania Environmental Law, CERCLA, or any other applicable federal law or regulation with regard to the Bradford Site. ARG covenants not to file a civil action pursuant to the Bradford Consent Order, the Services Agreement, the Sale Agreement, and the Environmental Agreement. These covenants not to sue shall take effect on the later of the Effective Date and the Funding Date. The covenants not to sue shall also apply to Chemtura’s officers, directors, employees, and trustees, but only to the extent that the alleged liability of the officer, director, employee, or trustee of any Debtor is based on its status and in its capacity as an officer, director, employee, or trustee of any Debtor. The covenants not to sue shall also apply to reorganized Chemtura under the Chemtura Plan. Chemtura hereby releases any claims or causes of action against PADEP and ARG with respect to the Bradford Site.

• Public Comment Period. The Chemtura Pennsylvania Settlement Agreement remains subject to the satisfaction of the 60-day public comment period that will commence after PADEP publishes notice in the Pennsylvania Bulletin and the Bradford Era, pursuant to and in accordance with Section 1113 of the Hazardous Sites Cleanup Act, 35 P.S. § 6020.1113, and PADEP shall notify the Court upon satisfaction of the public comment period.

Settlement Agreement with the California Department of Toxic Substances Control.

• Terms of Resolution. The settlement agreement (the “Chemtura California Settlement Agreement”) among Chemtura, Great Lakes Chemical Corporation (“Great Lakes”), Uniroyal Chemical Company Limited (Delaware) (“Uniroyal”), ISCI, Inc. (“ISCI”) and Great Lakes Chemical Global, Inc. (“Great Lakes Global”) and the California Department of Toxic Substances

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Control (“DTSC”) provides that in full settlement and satisfaction of the proofs of claim filed by the DTSC certain of the debtors will make cash payments to the DTSC with respect to certain sites in the amounts set forth in the agreement.

o Payments with respect to the BKK Site. $67,000 will be deemed reimbursement to DTSC for past response costs (as defined by CERCLA) that DTSC incurred. The remainder, $1,873,000, will be deposited in the DTSC BKK Site specific special subaccount to be used solely, solely, at DTSC’s sole and reasonable discretion, to conduct or finance ongoing and future response actions (as defined by CERCLA) at or in connection with the BKK Site, including, but not limited to, DTSC's recoverable oversight, or to reimburse third parties for the performance of such response actions. This provision does not create any rights in any non-Debtor third parties; provided, however, that the funds actually paid by Chemtura to DTSC in connection with the BKK Site shall reduce the potential liability of other potentially liable persons at the BKK Site as provided by 42 U.S.C. § 9613(f)(2).

o Payments with respect to the San Joaquin Site. Payments received by DTSC in relation to the San Joaquin Site will be deposited in the DTSC San Joaquin Site specific special subaccount to be used solely, at DTSC’s sole and reasonable discretion to satisfy certain past response, oversight and enforcement costs, which were incurred by DTSC through the Petition Date, in connection with the San Joaquin Site and to conduct or finance ongoing and future response actions (as defined by CERCLA) at or in connection with the San Joaquin Site, including, but not limited to, DTSC's recoverable oversight, or to reimburse third parties for the performance of such response actions. Nothing in this paragraph shall create any rights in any non-Debtor third parties; provided, however, that the funds actually paid by Chemtura to DTSC in connection with the San Joaquin Site shall reduce the potential liability of other potentially liable persons at the San Joaquin Site as provided by 42 U.S.C. § 9613(f)(2).

• Treatment of the Proofs of Claim. Upon the debtor parties to the Chemtura California Settlement Agreement making the payments required pursuant to the terms of the agreement, the DTSC Proofs of Claim shall be deemed resolved in accordance with the terms of the agreement without any further order of the Court or action by the parties. Other than as set forth in this agreement, DTSC shall not receive any other distributions under the Chemtura Plan or otherwise from reorganized Chemtura.

• Covenants Not to Sue and Reservations of Rights.

o DTSC covenants not to file a civil action or to take any administrative or other action against Chemtura pursuant to any California Cleanup Laws or CERCLA in relation to the Liquidated Sites. These covenants not to sue shall take effect upon Great Lakes, ISCI, and Chemtura making the payments required in paragraph 10 of the Chemtura California Settlement Agreement.

o Except with respect to any action to enforce this Chemtura California Settlement Agreement, and notwithstanding Exhibit C to the Chemtura Plan or any other Chemtura Plan provision, Great Lakes, Uniroyal, ISCI, Chemtura, and Great Lakes Global hereby covenant not to sue and agree not to assert or pursue any claims or causes of action against DTSC with respect to the Liquidated Sites, including any claim against DTSC, under the California Cleanup Laws or CERCLA, related to the Liquidated Sites, or any claims arising out of investigation, remediation, monitoring, or response activities at the

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Liquidated Sites, provided that the foregoing covenant not to sue shall not apply to, and the above-listed parties reserve the right to present and pursue to resolution, a request for a release of funds held for financial assurance with respect to the Richmond Site that exceed the actual costs of certified final closure pursuant to 22 CCR § 66264.143(a)(12)(B) and (j)(1). The foregoing covenant not to sue shall also apply to DTSC’s successors or assigns, officers, directors, and employees.

o The Chemtura California Settlement Agreement does not impair the scope and effect of Chemtura’s discharge under section 1141 of the Bankruptcy Code as to any third parties or as to any claims that are not addressed by the Chemtura California Settlement Agreement.

o Except as otherwise provided, the covenant not to sue shall also apply to each of Chemtura’s successors and assigns (including reorganized Chemtura), officers, directors, employees, and trustee, but only to the extent that the alleged liability is based on the status of the party as and in its capacity as a successor or assign, officer, director, employee or trustee of any Debtor. Moreover, such covenants are limited to the terms and matters addressed as set forth in the Chemtura California Settlement Agreement.

o Nothing in this Chemtura California Settlement Agreement shall be deemed to limit DTSC to take response action under the California Cleanup Laws, CERCLA, or any other applicable law or regulation, or to alter the applicable legal principles governing judicial review of any action taken by DTSC pursuant to those authorities. Nothing in the Chemtura California Settlement Agreement shall be deemed to limit the information gathering authority of DTSC under California Cleanup Laws, CERCLA, or any other applicable federal law or regulation, or to excuse Chemtura from any disclosure or notification requirements imposed by California Cleanup Laws, CERCLA or any other applicable federal or state law or regulation.

• Contribution Protection. The parties agree that, as of the Effective Date, Chemtura is entitled to protection from actions or claims as provided by Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), or as may be otherwise provided by law, for “matters addressed” in the Chemtura California Settlement Agreement. The “matters addressed” in the Chemtura California Settlement Agreement, as that phrase is used in Section 113(f)(2) of CERCLA, 42 U.S.C. § 9613(f)(2), include any response or other costs incurred by DTSC, or to be incurred by DTSC or potentially responsible parties, with respect to the Liquidated Sites only. No finding in any subsequent proceeding concerning Chemtura’s contribution obligations shall affect the finality or enforceability of the Chemtura California Settlement Agreement. This does not bar claims by a non-party against Chemtura for response costs (as defined by CERCLA) incurred prior to the Effective Date with respect to any of the Liquidated Sites. The DTSC has no obligation to appear, intervene, assist or defend Chemtura for any claims for contribution in any action and notice of any suits brought forth against the parties to the agreement must be provided to DTSC within a reasonable time as set forth in the agreement.