Exhibit A It was scanned from copies obtained from the bankruptcy court clerk. I apologize if my scanning software is not as accurate as it should be.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
IN RE:
Solv-Ex Corporation, 85-0283729
Debtor.Case No. 11-97-14361 MA
Solv-Ex Corporation,
Plaintiff
vs.
The United States Securities
& Exchange Commission,
Defendant.
City of Albuquerque )
) ss:
State of
New Mexico )
Declaration of Herbert M. Campbell II
Adversary No. 97-1159 M
I, Herbert M. Campbell II, declare under penalty of perjury, as follows:
1. I am an attorney at law, admitted to the Bar of the State of New Mexico, and at all relevant times, have been employed as a Senior Vice President and in-house counsel for SolvEx Corporation ("Solv-Ex" or the "Company"), Albuquerque, New Mexico. The Common Stock of Solv-Ex is publicly traded and until September 17, 1997, was listed on the Nasdaq (SmallCap) Stock Market ("Nasdaq"), at which date it was delisted by reason of being unable to file timely an Annual Report on Form 10-K containing unqualified, unaudited financial statements with the Securities and Exchange Commission (the "SEC" or the "Commission") for the fiscal year ended June 30, 1997. By reason of the within bankruptcy proceedings, Solv-Ex remains unable to file such report, together with other periodic reports containing unaudited financial information, because it will be unable to obtain required audited financial statements until confirmation of its Plan of Reorganization.
2. On August 28, 1997, a hearing was held at the Nasdaq offices in Washington, D.C., before a Nasdaq Listing Qualifications Panel (the "Panel") to determine the eligibility of Solv-Ex for continued listing on the Nasdaq SmallCap Market. The night before the hearing, Nasdaq delivered to me at my hotel in Washington certain exhibits to be used at the hearing, which included previously unknown correspondence between the Nasdaq Listing Analyst (Mr. Andrew Labadie) and competitors of Solv-Ex, including Suncor Energy Inc. ("Suncor"), Syncrude Canada Ltd. ("Syncruden) and Robert Tipman, a professional engineer who had
recently retired from Syncrude and was consulting for Shell Canada Limited and Mobil Canada Ltd., both of which are also holders of Athabasca oil sands leases and competitors of Solv-Ex.
3. The Nasdaq analyst, Mr. Labadie, represented to Solv-Ex that all communications between Solv-Ex and Nasdaq, together with all documents furnished to Nasdaq by Solv-Ex, were to be held confidential by Nasdaq. Such representations, which are evidenced in writing, are uncontested by Nasdaq. Contrary to such representations, Mr. Labadie did in fact deliver confidential Solv-Ex documents to Mr. Tipman and discussed confidential Solv-Ex information with Mr. Tipman at length over a period extending from at least February, 1997 through June, 1997. I have attached hereto as Exhibit A a copy of a Memorandum dated August 4, 1997 (the "Memorandum"), from Andrew Labadie (the Nasdaq Listing Analyst) to the Panel in connection with the hearing. As hereinafter described in more detail, I believe that the conclusions set forth in paragraphs (a)-(d) on page 1 of the Memorandum reflect Mr. Labadie's extensive dialogue and correspondence with Mr. Tipman.
4. At the hearing held on August 28, 1997, I formally protested to the Listing Qualifications Panel about the conduct of the Nasdaq listing analyst vis-a-vis competitors of Solv-Ex and the impact of such conduct on Nasdaq's course of action. Attached hereto as Exhibit B is a copy of pages 9 through 17 of the hearing transcript in which my statement with respect to the conduct of Nasdaq as to competitors of Solv-Ex was recorded.
5. Attached hereto as Exhibit C is a copy of a letter dated September 10, 1997 from Nasdaq informing Solv-Ex of the decision of the Panel. Particular attention should be given to the second full paragraph on page 2 of the letter, which states:
"The Panel was of the opinion that the primary issues listed on the first page of the August 4, 1997 Memorandum to the Nasdaq Listing Qualifications Panel as items (a), (b), (c) and (d) appear to focus upon hindsight evaluations of business judgments and decisions, and on disclosure issues which may still be subject to legitimate dispute. Accordingly, the Panel determined not to consider these issues as a factor in its decision."
6. Subsequent to the letter from Nasdaq dated September 10, 1997, Solv-Ex filed a motion in the United States Bankruptcy Court for the District of New Mexico requesting that Nasdaq produce, among other things, the notes of conversations between Mr. Labadie and Mr. Tipman, who clearly represents past and current competitors of Solv-Ex. Rather than continue with possible adversary proceedings, Nasdaq did in fact reach agreement with Solv-Ex as to production of requested documents and produced the notes and correspondence pertaining to Mr. Labadie's continuing dialogue with Mr. Tipman, as well as his attempts to obtain information from other competitors of Solv-Ex. Relevant documents produced are attached as Exhibit D to this affidavit and, among other things, reveal the following:
(a) Mr. Tipman had little, if any, knowledge of the details as to the processing
technologies of Solv-Ex for either (bitumen) oil extraction and upgrading or for
extraction of minerals from the fine clays associated with the Athabasca oil sands.
Nevertheless, Mr. Tipman (for no reason apparent from the documents)
-2 -
continuously denigrated the Solv-Ex technologies and appears from the documents to have become a "source" upon which Mr. Labadie placed confidence and reliance, which was totally contrary to Mr. Labadie's representations to Solv-Ex as to confidentiality and use of information furnished to Nasdaq by Solv-Ex. Unbeknownst to Solv-Ex, the veracity of its disclosures (both public statements and in confidential responses to Nasdaq) were being undermined by a competitor who had no knowledge upon which to base his negative statements.
(b) The Nasdaq documents revealed (see Document NASD.0005 in Exhibit D) that
Mr. Tipman, while an employee of Syncrude in early 1996, participated in
authoring a report commissioned through Weir-Jones Engineering Consultants
Ltd. by shortsellers of Solv-Ex Common Stock, which report was released
surreptitiously to the public by the short-sellers through Dan Dorfman at CNBC.
The report was negative concerning Solv-Ex technology and prospects for the
Company and was a significant factor in a one-day decline of $14.375 in the price
of Solv-Ex Common Stock.
(c) The Nasdaq documents revealed (see Documents NASD.0008, 0594 and 0595)
in Exhibit D) that the Commission staff met and had been in contact with Mr.
Tipman in May, 1997, during a visit to inspect the Solv-Ex plant near Fort
McMurray, Alberta.
7. I am reliably informed and believe that the Commission staff also interviewed Mr. T.R. Beck, a significant competitor of Solv-Ex in development of aluminum reduction cell technology. Mr. Beck also previously executed a confidentiality agreement with Solv-Ex.
8. On November 12, 1997, I met with several members of the SEC staff in Denver, Colorado to discuss the status of the pending SEC investigation into trading of Solv-Ex Common Stock. At such meeting, at which Ms. Katherine S. Addleman was present, I was advised by Ms. Andra Ozols (then an Enforcement Attorney for the staff) that the Company would be receiving a "Wells Letter" wherein the staff would be recommending to the Commission that an enforcement action be brought against Solv-Ex. Such letter was in fact received by Solv-Ex on November 25, 1997, is attached hereto as Exhibit E and states, "The staff's proposed action against Solv-Ex Corporation would be based on facts developed in our investigation that Solv-Ex made false and misleading public statements or omitted to state material facts about its oil extraction technology, its electrolytic cell technology and its minerals and mineral extraction technology.
9. Solv-Ex had not yet received the Nasdaq documents included in Exhibit D at the time of the November 12 meeting with the SEC. Nevertheless, I expressed concern as to whether the staff might be basing its conclusions on the basis of information provided by competitors. I was advised by Ms. Ozols that the staff's conclusions and recommendations were primarily based upon documents obtained from the Company's own files. The documents in Exhibit D had in fact been received by the time at which the November 25 "Wells Letter" was delivered to SolvEx. Solv-Ex, acting through Declarant responded with a letter to the Commission staff dated December 5, 1997, which is attached hereto as Exhibit F and stated in part:
-3-
"The primary dilemma faced by Solv-Ex is that until we have an opportunity to review a draft complaint, we are unable to assess the sources or the basis for the general allegations made by the staff. However, it is quite difficult for us to believe that the investigation conducted by the staff has been undertaken objectively, particularly in view of our experience with the Nasdaq investigation and clear cross-communication with the Commission staff. We find it difficult to understand why the primary consultants or companies relied upon by Solv-Ex were not interrogated by the staff, including The Pace Consultants, Inc., Cumming Cockburn Ltd., Temanex Consulting Inc. and Raisio Chemicals. Instead, we have the distinct impression that the staff has sifted through our own documents (including those prepared by consultants which also work with industry competitors) with a view to try and highlight any negatives which could be found. Depositions taken from technical personnel, including the Company's Chairman and CEO John S. Rendall, also indicate that the staff may have misunderstood certain aspects of technical reports presented in deposition.
"I do not believe that the focus of the staff's investigation was upon whether the Company had a reasonable basis for its public statements but, rather, upon whether or not a basis could be found to challenge our statements, irrespective of the source. With all due respect to the Commission staff, it appears to the Company that the staff has failed to look at any positive attributes of our technology and efforts and has been influenced from the start by sources which have acted in a consistent manner to the detriment of Solv-Ex. Similarly, we are unable to understand inaction by the Commission with respect to our own documented complaints. Although it appears that the staff believes Solv-Ex has made misleading statements, a situation with which we are prepared to deal, that is no reason to ignore flagrant violations of the securities laws by others."
10. I am reliably informed and believe that the Commission staff has also been in regular communications with counsel for the Plaintiffs in a class action pending against Solv-Ex in the United States District Court for the Southern District of New York. I believe that such counsel, which is not subject to any protective orders by the Bankruptcy Court, has based its pleadings upon extensive conversations with persons who may be deemed to be competitors of Solv-Ex and that the staff may effectively be circumventing the current injunction entered by the Court against discussions between the staff and competitors.
11. I was present at a hearing in the Bankruptcy Court held on August 18, 1997 at which Mr. James A. Brigagliano of the Commission staff advised the Court, "We have not talked to competitors." I am unable to reconcile this statement with information contained in this Affidavit as to contacts between the staff and competitors prior to such date.
12. Based upon my own experiences with the Nasdaq investigation and my review of documents furnished by Nasdaq to Solv-Ex as hereinbefore described, I believe that Solv-Ex could be irreparably harmed by further discussions between the Commission staff and employees or agents of Solv-Ex competitors for the following reasons:
(a) without the benefit of Solv-Ex proprietary information, any such discussions will
have little or no probative value;
(b) irrespective of information which may be made available to competitors,
experience indicates that competitors will not say anything positive about Solv-Ex;
(c) competitors will be adversely impacted by any future success of Solv-Ex
technologies;
(d) the use by the Commission of Solv-Ex proprietary knowledge and information
cannot by properly policed by the Court or Solv-Ex; and
(e) the Commission staff has acted irresponsibly in the past with respect to the Solv--
Ex investigation, as evidenced by the facts and circumstances set forth in a letter
to the staff from Herrick K. Lidstone, Jr. dated May 14, 1997 (of Friedlob
Sanderson Raskin Paulson & Tourtillott, LLC, securities counsel for Solv-Ex),
which is attached hereto as Exhibit G.
13. Based upon statements made to Declarant in writing in the Wells Letters and in oral
statements made by the staff to Declarant, it appears that the Commission staff has substantially completed its investigation, it has identified Solv-Ex's statements which the staff claims to be misleading in a material respect, and there should be no need for the Commission staff to consult with competitors of Solv-Ex in order to support its enforcement recommendation to the Commission.
14. Solv-Ex has filed a formal complaint against Mr. Robert Tipman with The Association of Professional Engineers, Geologists and Geophysicists of Alberta with respect to his conduct vis-a-vis Solv-Ex and Nasdaq, a copy of which is attached as Exhibit H. The matters set forth therein are indicative of the kind of damage which can be incurred through irresponsible contact with competitors.
15. On March 3, 1998, Declarant personally received a "Wells Letter" from the Commission staff containing extremely serious allegations, including, "The staff believes that the evidence demonstrates you knew, or acted with severe recklessness in the face of, information that the statements made were false, misleading or deficient (emphasis added)." This letter, together with Declarant's reply dated April 1, 1998, is attached hereto as Exhibit I. I have reviewed the Declaration of Ms. Katherine S. Addleman dated April 20, 1998 and in particular note Paragraph 10 thereof which states:
"10. Based upon my knowledge and experience, I believe that if the Commission is completely enjoined from disclosing confidential and proprietary information to the entities listed in Exhibit B, we will be unable to proceed with the investigation and in any further proceedings in an appropriate and effective manner. "
I am totally unable to understand any reasonable basis for such a claim, particularly in light of written allegations which have been made in "Wells Letters" against Solv-Ex and Declarant
_5
personally pursuant to an investigation which began more than two years ago. To this very date, the Commission staff has been unable or unwilling to discuss any specific allegations against Solv-Ex despite numerous requests from the Company and its counsel. The staff did send Declarant personally a letter dated December 24, 1997 concerning a transaction which was never completed by Solv-Ex and the issuance of stock with respect thereto, and Declarant assumes that the allegations therein are also relevant to the staff's recommendations regarding the Company. The letter dated December 24, 1997, together with Declarant's response dated January 15, 1997, are attached hereto as Exhibit J.
Further, based upon conversations between the staff, counsel for the Company, counsel for John S. Rendall, the Chairman and Chief Executive Officer of Solv-Ex, Declarant reasonably believes that the staff misunderstands, by design or otherwise, a significant amount of information contained in written documents provided by Solv-Ex (and perhaps others) or obtained through deposition of officers, directors and employees (including former employees) of Solv-Ex and is now seeking to bolster weak or non-existent allegations and arguments through the very competitors which would welcome the demise of Solv-Ex.
16. Because of the confidential nature of investigations undertaken by the Commission, SolvEx has only limited knowledge of how the investigation into trading of its Common Stock was initiated and does not know the extent to which conclusions of the staff are based upon interviews or depositions of third parties, including competitors or consultants for competitors of Solv-Ex or documents obtained from any such parties. Solv-Ex has been advised, however, that the staff has neither interviewed nor deposed the primary independent consultants upon which it relied in making many of its public statements, namely (i) The Pace Consultants (a division of the Jacobs Engineering Group), Houston, Texas, with respect to bitumen extraction, upgrading and marketing and (ii) Cumming Cockburn Ltd., Toronto, Ontario (including Dr. George Angelov) with respect to mineral extraction and production of alumina. Similarly, the staff neither interviewed nor deposed representatives of Raisio Chemicals OY or Temanex Consulting Inc., the parties with whom Solv-Ex has worked closely in developing its TI02S (titanium-dioxide substitute) product for use in the paper manufacturing industry. In light of the allegations made in Paragraph 9 of Ms. Addleman's Declaration, I find this omission inexcusable and incomprehensible.
17. Although details related to most aspects of the Commission's investigation are not available to Solv-Ex, the Company has been advised that the original formal order of investigation includes language which strongly suggests that the investigative process may have been initiated by short-sellers, competitors or, in any event, parties interested in damaging or destroying the Company's ability to carry out its plans. It is beyond coincidence that the investigative process was in fact initiated at a point in time when Solv-Ex had completed major financing transactions and appeared to be poised to accomplish the total financing required to carry out its plans.
18. On August 30,1996, Declarant met in Denver with several members of the Commission staff to pledge the Company's full and complete cooperation with the staff in carrying out its investigation and expediting its conclusion. During this meeting, Declarant also explained to the staff the difficulties which were being encountered by the Company in the financial marketplace
-6-
by reason of false and negative publicity being directed toward Solv-Ex on a rather continuous basis. In light of the manner in which the investigation has been conducted by the staff during the period of nearly 21 months following such meeting, there is every reason to believe that in fact the investigation has been driven by the short-sellers with documented evidence of at least some assistance by competitors. Until these matters can be sorted out, it would be unconscionable at this late date to permit the Commission staff to begin an entirely new tact of investigation which has predictable results based upon the Company's experience to date.
I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct to the best of my knowledge.
Executed this 18th day of May, 1998, in Albuquerque, New Mexico.
Herbert M. Campbell II
|
