IN THE MATTER OF THE SECURITIES ACT
R.S.O. 1990, c. S.5, AS AMENDED
- and -
IN THE MATTER OF
BENNETT ENVIRONMENTAL INC., JOHN BENNETT,
RICHARD STERN, ROBERT GRIFFITHS, and
SETTLEMENT AGREEMENT BETWEEN STAFF OF THE
ONTARIO SECURITIES COMMISSION and
II. JOINT SETTLEMENT RECOMMENDATION
III. STATEMENT OF FACTS
A. The Respondents in this proceeding
3. Bennett Environmental Inc. (“BEI”) is a Canadian company with its head office in Oakville, Ontario. BEI is a reporting issuer in Ontario, Quebec and British Columbia. Shares of BEI trade on the TSX and the American Stock Exchange in the United States. BEI provides thermal treatment services for the remediation of contaminated soil.
4. At all relevant times, John Bennett was Chairman of the Board of BEI and was the Chief Executive Officer (“CEO”) of BEI until February 18, 2004. John Bennett was the founder of BEI and one of two members of its Disclosure Committee, which was responsible for ensuring that BEI complied with its disclosure obligations under the Ontario Securities Act.
5. At all relevant times, Richard Stern was the Chief Financial Officer (“CFO”) of BEI. Stern was the other member of BEI’s Disclosure Committee.
6. At all relevant times, Robert Griffiths headed BEI’s U.S. Sales division, first as Director of Sales, U.S.A. and then, as of approximately June, 2003, as Vice-President, U.S. Sales.
7. Allan Bulckaert became the President and CEO of BEI on February 18, 2004.
B. The Phase III Contract is announced
8. On June 2, 2003, BEI announced that it had been awarded a contract to treat contaminated soil from Phase III of the Federal Creosote Superfund Site in New Jersey (the “Phase III Contract”). The Phase III Contract was with Sevenson Environmental Services Inc. (“Sevenson”) acting as sub-contractor for the United States Army Corps of Engineers (the “Corps”). In its news release, BEI described the Phase III Contract as being for an “estimated 300,000 tons of soil” and “valued at $200 million Cdn., the largest in the Company’s history”.
9. In the June 2, 2003 news release, BEI emphasized the significance of the Phase III Contract, stating that “[s]hipments from three different locations on the site should start within the next few days, and continue until the completion of Phase III which is anticipated by the end of 2005”. In the news release, John Bennett is quoted as stating that:
[t]his, together with previously announced contracts, ensures that we will have a very successful year in 2003 and beyond in terms of meeting our financial and operational goals….[w]inning this contract…provides a good base load of materials for our proposed new soil treatment facility in Belledune, New Brunswick which is scheduled to be completed by the end of this year.”
10. BEI did not disclose that the Phase III Contract was an “Indefinite Delivery/Indefinite Quantity” (“ID/IQ”) contract, which means that the actual amount of soil to be treated under the contract was uncertain, as was the timing of any shipment of soil.
C. BEI is advised that there has been a protest of the Phase III Contract
11. Just a few days after issuing its news release of June 2, 2003, BEI was advised that a competitor of BEI had protested the awarding of the Phase III Contract to BEI. At the request of Sevenson, BEI agreed to a 30-day extension of the previous Phase II Contract to treat material that would have been treated under the Phase III Contract. At this point, BEI was sufficiently concerned about the status of the Phase III Contract that it had legal counsel review the matter.
12. BEI did not disclose the fact that a competitor had protested the awarding of the Phase III Contract or the fact that Sevenson had requested an extension to the previous Phase II Contract.
D. BEI is advised by Sevenson that ACE has withdrawn its consent to the Phase III Contract
14. On August 5, 2003, Sevenson advised BEI that the Request for Proposal (“RFP”) that had given rise to the Phase III Contract was going to be amended such that multiple ID/IQ contracts were being awarded with a maximum shared quantity of 100,000 tons of soil and a minimum quantity of 1000 tons.
15. BEI sent a letter to Sevenson protesting the amendment to the RFP, noting that Sevenson was essentially re-bidding the work that had been awarded to BEI under the Phase III Contract. In response, Sevenson wrote to BEI on August 6, 2003 and advised that,
[t]he amended RFP was issued as a result of the government’s withdrawal of its consent to the Bennett contract with direction to Sevenson to obtain clarifications concerning, and to perform a re-evaluation of, the proposals received in response to the original RFP. Those clarifications and the re-evaluation resulted in the government’s direction to Sevenson to proceed with the amended RFP. ( emphasis added )
16. Moreover, Sevenson advised BEI that BEI’s characterization of the Phase III Contract (as set out in the June 2, 2003 news release) was incorrect, stating that,
[a]s you well know, the contract guarantees a minimum quantity of 500 tons. A prudent person could not value such contract as having the value you ascribe to it using the maximum quantity. That contract also contains a termination for convenience clause.
17. On August 14, 2003, Sevenson advised BEI that instead of amending the original RFP, it would proceed by way of an Invitation for Bids (“IFB”) which would be delivered on or about August 27, 2003.
18. Throughout this time, BEI did not disclose that the Corps had withdrawn its consent to the Phase III Contract. It did not disclose that Sevenson had told BEI that the Phase III Contract was going to be re-bid and that the maximum shared quantity of soil to be treated was going to be reduced to 100,000 tons.
19. In addition, BEI continued to include the full 300,000 tons of soil under the Phase III Contract (minus any nominal amounts that had been shipped) as part of its disclosed contract backlog, including in a news release dated August 8, 2003.
E. The Corps confirms to BEI that it has withdrawn its consent to the Phase III Contract
20. Although it had not yet received the new IFB, BEI was concerned that it appeared to be replacing the Phase III Contract. BEI’s legal counsel wrote to the Corps on August 25, 2003 and objected on the ground that the IFB was “essentially a re-solicitation to submit bids for a contract that Bennett has already been awarded”.
21. By letter dated September 4, 2003, the Corps advised BEI of the following facts:
- It had withdrawn its consent to the Phase III Contract;
- The Phase III Contract only guaranteed a minimum of 500 tons of soil;
- The Corps had issued a limited consent for up to 10,000 tons of soil, which would exceed the minimum guarantee under the Phase III Contract; and
- As a result of design revisions to the site in New Jersey, the maximum amount of soil to be treated had been reduced from 300,000 tons of soil to 100,000 tons of soil. The new IFB would be awarding up to three sub-contracts to treat a minimum of 1000 tons of soil and a total maximum of 100,000 tons of soil.
22. BEI and the Corps exchanged correspondence throughout the month of September, 2003, in which the Corps reiterated the above facts to BEI.
23. Throughout this time, BEI still did not disclose that the Corps had withdrawn its consent to the Phase III Contract. It did not disclose that the Phase III Contract was going to be re-bid and that the maximum shared quantity of soil to be treated had been reduced to 100,000 tons.
24. In addition, BEI continued to include the full 300,000 tons of soil under the Phase III Contract (minus any nominal amounts that had been shipped) as part of its disclosed contract backlog, including in a conference call for investors on October 23, 2003.
F. BEI is notified that it is the low bidder on the 100,000 ton contract
25. Although there were several delays, on or about October 23, 2003, Sevenson sent BEI an IFB for the treatment of a minimum of 1000 and maximum of 100,000 tons of soil.
26. After some minor amendments to the IFB, BEI submitted a bid in response to it and on December 11, 2003, Sevenson advised BEI that it was the low bidder in response to the IFB (the “Second Contract”).
27. BEI did not disclose that it was the low bidder for the Second Contract.
28. Moreover, BEI continued to include the full 300,000 tons of soil that was originally going to be treated under the Phase III Contract as part of its disclosed contract backlog, including in a news release dated November 6, 2003.
G. BEI is awarded the Second Contract
29. On March 30, 2004, Sevenson advised BEI that it had been awarded the Second Contract and Sevenson would be sending a purchase order to BEI pursuant to that Second Contract.
30. By May, 2004, Bulckaert had not been informed about the dispute regarding the Phase III Contract and had not been provided with copies of any of the above-noted correspondence. Prior to executing the purchase order under the Second Contract, Bulckaert wrote to Sevenson on May 13, 2004 requesting clarification of the status of the Phase III Contract and its relationship to the Second Contract because the two contracts appeared to be for the same scope of work. BEI did not receive a response to its enquiries.
31. On June 3, 2004, BEI signed the purchase order pursuant to the Second Contract, although BEI maintained it was not waiving its rights under the Phase III Contract.
32. BEI did not disclose that it had been awarded the Second Contract or that it had executed the purchase order under it.
33. On June 9, 2004, Bulckaert first received a copy of the September 4 correspondence from the Corps. That same day BEI, through its legal counsel, wrote directly to the Corps once again requesting clarification of the status of the Phase III Contract and its relationship to the Second Contract.
34. By letter to BEI dated July 15, 2004, the Corps reiterated its position which it had previously detailed in its letter of September 4, 2003.
35. Throughout this time, BEI continued to include the full 300,000 tons of soil to be treated under the Phase III Contract (minus any nominal amounts that had been shipped) as part of its disclosed contract backlog, including in news releases dated March 29, 2004 and April 29, 2004, its Management Discussion and Analysis as at April 28, 2004, its Annual Report dated May 13, 2004 and its Annual Information Form filed in May, 2004.
H. BEI discloses the Phase III Contract dispute
36. By news release dated July 22, 2004, BEI announced the existence of the Phase III Contract dispute . BEI revealed that a competitor had protested the awarding of the Phase III Contract to BEI and that the Corps had withdrawn its consent to the Phase III Contract. BEI stated that it had been attempting to ascertain the status of the Phase III Contract since August, 2003. BEI disclosed that it had only treated 7,000 tons of soil under the Phase III Contract and that any future shipments under it were “highly unlikely”.
37. In that news release, BEI also disclosed the Second Contract to treat some of the soil that was originally going to be treated under the Phase III Contract. BEI acknowledged that the Second Contract only guaranteed a minimum shipment of 1000 tons.
38. After the news release of July 22, 2004, the price of BEI shares fell dramatically – falling almost 50% within the next 10 days.
I. The above information about the Phase III Contract was material and should have been disclosed forthwith
39. The existence of the dispute over the Phase III Contract, including whether there would be any further shipments under it and whether it was being replaced by the much smaller Second Contract, was a material change in the affairs of BEI within the meaning of the Securities Act. BEI failed to disclose that material change forthwith, contrary to s. 75 of the Securities Act and contrary to the public interest.
40. The existence of the dispute over the Phase III Contract, including whether there would be any further shipments under it and whether it was being replaced by the much smaller Second Contract, was also a material fact within the meaning of the Securities Act that had not been generally disclosed.
J. BEI’s inclusion of the Phase III Contract in its disclosed contract backlog was misleading or untrue
41. BEI’s inclusion of the volume to be treated under the Phase III Contract in its public disclosure, including in its press releases of July 24, 2003, August 8, 2003, November 6, 2003, March 29, 2004 and April 29, 2004 and in its Management Discussion and Analysis as at April 28, 2004, its Annual Report dated May 13, 2004 and its Annual Information Form filed in May, 2004 was misleading or untrue contrary to s. 122(1)(b) of the Securities Act and/or contrary to the public interest.
42. BEI’s inclusion of the volume to be treated under the Phase III Contract as part of its disclosed contract backlog was also misleading or untrue and contrary to the public interest.
K. Conduct of Bulckaert
43. As noted, Bulckaert did not join BEI until February 18, 2004. By May 13, 2004, Bulckaert was aware that there were concerns about whether the Second Contract was intended to replace the Phase III Contract, although he was not aware of the position taken by the Corps on September 4, 2003 until June 9, 2004. He received confirmation that the Corps was maintaining its position by letter dated July 15, 2004, which he reviewed on July 16, 2004. From that date, Bulckaert authorized, permitted or acquiesced in BEI’s continuing failure to disclose the material change forthwith contrary to s. 122(3) of the Securities Act and contrary to the public interest.
44. At the material time, Bulckaert was a person in a special relationship with BEI. Between June 3, 2004 and June 7, 2004 Bulckaert sold a total of 5900 shares of BEI from a U.S. account and a Canadian account in order to fund the purchase of a condominium in Toronto. Bulckaert sold these shares for a loss of $17,340.00 CDN and $10,758.00 US, for a total loss of approximately $31,540.00 CDN.
45. As set out above, these sales were prior to Bulckaert learning of the position that had been taken by the Corps on September 4, 2003. Although at the time of the sales Bulckaert was concerned about the relationship between the Phase III Contract and the Second Contract, he was still in the process of gathering all of the necessary information. Certain members of former management and other individuals hindered that effort by, among other things, providing him with inconsistent and/or incomplete information and not providing him with all of the relevant documents in their custody. Moreover, certain individuals assured Bulckaert that they expected BEI ultimately to receive shipments of soil in the range of the original estimates issued in June, 2003. Nevertheless, Bulckaert acknowledges that the partial information he had was material and his trading in advance of its disclosure was contrary to s. 76 of the Securities Act.
46. As noted above, Bulckaert learned on Friday, July 16, 2004 that the Corps had not changed its position. A Board meeting had already been scheduled for Wednesday, July 21, 2004, and at least one director had to travel to Toronto to attend. Bulckaert prepared packages of information for the directors over the weekend, and then he brought the matter to the attention of the Board of Directors at the meeting on July 21, 2004. At that meeting, the Board mandated a disclosure (which was released on July 22, 2003) and appointed a Special Committee of Independent Directors to investigate the issues arising out of the Phase III Contract. The Special Committee, through its counsel, conducted a comprehensive inquiry.
IV. cooperation of BulcKaert
47. When the issues raised in this proceeding were brought to Bulckaert’s attention by Staff, he acknowledged his conduct and agreed to pay to the Ontario Securities Commission $64,165.00, representing his loss avoided on the sale of his BEI shares.
48. Under the leadership of Bulckaert, BEI has been exceptionally cooperative with Staff and has assisted Staff in gathering the facts that gave rise to this proceeding. BEI’s cooperation has assisted Staff in its review and analysis of those facts and has been instrumental in the expeditious resolution of this matter.
49. Bulckaert has agreed that he will continue to cooperate with Staff in this matter and at the request of Staff, will appear as a witness for Staff in proceedings before the Ontario Securities Commission.
V. position of bulckaert
A. February - June 2004
50. As previously noted, on February 18, 2004, Bulckaert became the President and CEO of BEI. When he arrived at BEI, the company had not had a Toronto-based CEO for approximately eighteen months. As a result, there were a host of short- and long-term operational and strategic concerns that required his immediate attention. These issues included restructuring BEI’s sales and finance operations, revamping its periodic forecasting and reporting systems, and devising and implementing a new sales strategy.
51. In addition, within his first six weeks at BEI, Bulckaert had to address a temporary suspension of operations at BEI’s facility in St. Ambroise, Quebec and the delay in the permitting of its facility in Belledune, New Brunswick.
52. At the Board’s request, Bulckaert also evaluated BEI’s operations and determined that the Vancouver office should be closed and all Vancouver-based functions should be relocated to Toronto.
53. Notwithstanding these urgent and time-consuming demands, Bulckaert undertook to obtain information regarding the status of the Phase III Contract and its relationship to the Second Contract from certain former executives of BEI and other individuals, one or more of whom failed to provide him with all relevant information and documents. Moreover, in July 2004, one or more of those individuals disavowed knowledge of the salient facts when confronted with the information contained in the Corp’s correspondence of September 4, 2003. In addition, one or more of those individuals repeatedly assured Bulckaert that the Phase III Contract was still valid, and that the Second Contract provided for the remediation of additional soil. As late as the first week of July 2004, one or more of those individuals presented Bulckaert with a draft press release asserting that the Second Contract called for the remediation of additional soil.
B. Compliance and Operational Initiatives by BEI and the Board during Bulckaert’s Tenure
54. Under Bulckaert’s leadership, BEI has devised and implemented a broad array of compliance and operational initiatives, beginning with the Finance Department. As previously noted, in July 2004, Bulckaert hired as BEI’s CFO Andrew Boulanger. Boulanger assumed his duties in September 2004. BEI hired Wendy Ford as Corporate Controller in January 2005. Under her supervision, the Company has transferred all files from the Vancouver office to a new financial control system in the Oakville office. It has also transferred audit responsibilities from KPMG LLP’s Vancouver office to its Toronto office.
55. In October 2004, BEI named Michael McSweeney Vice President – Environmental Affairs and Government Relations.
56. During Bulckaert’s tenure, BEI retained outside corporate counsel in Toronto, Fogler Rubinoff LLP, to advise BEI on an ongoing basis.
57. BEI, at the direction of Bulckaert and the Board, has adopted a comprehensive corporate compliance program. A new Code of Business Conduct and Ethics applies to all directors, officers, executives and employees, and includes an affirmative duty to report violations of the Code or any company policy to the CEO or to the Chairpersons of the Corporate Governance Committee or to the Audit Committee of the Board. As part of the corporate compliance program, BEI also has adopted a Code of Business Conduct and Ethics Applicable to United States Government Procurement Activities. BEI now has a detailed document retention policy that applies to all personnel.
58. During Bulckaert’s tenure, BEI has implemented new financial planning procedures and a new Disclosure Policy that provides clear examples of potentially material events; each employee is required to execute an acknowledgement that he or she has received the Disclosure Policy. Furthermore, BEI has expanded the Disclosure Committee to include the CEO, CFO and the Vice President – Environmental Affairs and Government Relations. Among other things, under the new policy financial disclosures are reviewed by BEI’s external auditors, outside corporate counsel, the Audit Committee of the Board and the full Board.
VI. TERMS OF SETTLEMENT
59. Bulckaert agrees to the following terms of settlement:
- Bulckaert will continue to cooperate with Staff in this matter and at the request of Staff, he will appear as a witness for Staff in the proceeding it has brought before the Ontario Securities Commission; and
- immediately upon this Settlement Agreement being approved, Bulckaert will pay to the Ontario Securities Commission the sum of $64,165.00 representing the loss avoided on the sale of his BEI shares, for allocation to or for the benefit of third parties under section 3.4(2) of the Securities Act.
VII. staff commitment
60. If this settlement is approved by the Commission, Staff will not initiate any other proceeding under the Act against Bulckaert in relation to the facts set out in Part III of this Settlement Agreement.
61. If this settlement is approved by the Commission and at any subsequent time, Bulckaert fails to honour the terms of settlement contained in paragraph59 of this Settlement Agreement, Staff reserve the right to bring proceedings against Bulckaert based on the facts set out in part III of this Settlement Agreement, and based on the breach of this Settlement Agreement.
VIII. approval of settlement
62. Approval of the settlement set out in this Settlement Agreement shall be sought at the public hearing of the Commission scheduled for June 20, 2006 at 2:00 p.m. or such other date as may be agreed to by Staff and Bulckaert (the "Settlement Hearing"). Bulckaert will attend the Settlement Hearing.
63. Counsel for Staff or Bulckaert may refer to any part, or all, of this Agreement at the Settlement Hearing. Staff and Bulckaert agree that this Settlement Agreement will constitute the entirety of the evidence to be submitted at the Settlement Hearing.
64. If this Settlement is approved by the Commission, Bulckaert agrees to waive his rights to a full hearing, judicial review or appeal of the matter under the Act.
65. Staff and Bulckaert agree that if this settlement is approved by the Commission, he will not make any public statement inconsistent with this Settlement Agreement.
66. If, for any reason whatsoever, this settlement is not approved by the Commission, or any order in the form attached as Schedule "A" is not made by the Commission:
i) This settlement Agreement and its terms, including all discussions and negotiations between Staff and Bulckaert leading up to its presentation at the Settlement Hearing, shall be without prejudice to Staff and Bulckaert;
ii) Staff and Bulckaert shall be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of the allegations in the Notice of Hearing and Statement of Allegations of Staff, unaffected by this Settlement Agreement or the settlement discussions/negotiations;
iii) The terms of this Settlement Agreement will not be referred to in any subsequent proceeding, or disclosed to any person, except with the written consent of Staff and Bulckaert or as may be required by law; and
iv) Bulckaert agrees that it will not, in any proceeding, refer to or rely upon this Settlement Agreement, the settlement discussions/negotiations or the process of approval of this Settlement Agreement as the basis for any attack on the Commission's jurisdiction, alleged bias or appearance of bias, alleged unfairness or any other remedies or challenges that may otherwise be available.
67. Except as permitted under paragraph 66(iii) above, this Settlement Agreement and its terms will be treated as confidential by Staff and Bulckaert until approved by the Commission, and forever, if for any reason whatsoever this settlement is not approved by the Commission, except with the consent of Staff and Bulckaert, or as may be required by law.
68. Any obligations of confidentiality shall terminate upon approval of this settlement by the Commission.
IX. EXECUTION OF SETTLEMENT AGREEMENT
69. This Settlement Agreement may be signed in one or more counterparts that together shall constitute a binding agreement.
DATED this 15 th day of June, 2006
__ ”Allan Bulckaert” ________
Name: Allan Bulckaert
DATED this 15 th day of June, 2006
STAFF OF THE ONTARIO SECURITIES COMMISSION
Name: Kelley McKinnon
Title: Acting Director of Enforcement