Mr. James Gowans reports
DOMINION DIAMOND CORPORATION PROVIDES UPDATE
Dominion Diamond Corp. today reconfirmed that while its board of directors remains
confident in the company's long-term strategic plan and the opportunity
it provides to enhance value for all shareholders, as it always has, the
board remains open to holding discussions with Washington Corporations
(WashCorps) on customary terms and in a manner that protects the
interests of the company and its stakeholders.
It is important to highlight to all Dominion shareholders that:
-
WashCorps have not made a formal offer to Dominion or its shareholders.
Should Dominion receive a formal offer, the board of directors will
assess it.
- Dominion has consistently told WashCorps that it is prepared to engage
in discussions on customary terms in order to allow WashCorps to
improve its conditional and opportunistic indicative proposal.
- WashCorps have insisted on terms that would give them a free option and
present significant risks to the company and shareholder interests.
To provide clarity, Dominion is providing the correspondence exchanged
between the company and WashCorps, which highlights the aggressive and
off-market terms and conditions proposed by WashCorps in regard to their opportunistic indicative proposal, and the company's responses.
WashCorps' indication of interest was disclosed by press release on
March 19, 2017. All other correspondence between the parties follows.
March 15, 2017
Lawrence R. Simkins, president
Washington corporations
P.O. Box 16630
Missoula, Mont.
United States, 59808
Dear Larry,
Thank you for your indicative proposal, and your interest in the
company. Our board has carefully considered, again, the terms that you
have insisted on for discussions with us, including your requirement for
a lengthy period of exclusivity so that you can begin your due
diligence, your insistence that you be able to veto our choice of chief executive officer
and your refusal to accept a customary form of standstill.
While we believe there is more value in the company than reflected in
your indicative proposal, we are and have been prepared to work
constructively with you and to engage in discussions with you on
customary terms that would allow you to undertake the due diligence that
you have said you require and so improve your view on value. However, we
cannot, in the best interests of the company and its stakeholders, grant
you exclusivity, or the other rights that you have demanded, before you
have completed any due diligence and before we have a better view from
you on value.
If you are prepared to engage with us on the customary terms that we
have proposed, then I'm confident that our respective advisers can
settle an acceptable form of non-disclosure agreement and that you can commence your due
diligence promptly. If there is a basis to move forward after you have
completed this initial due diligence, then we would be open to
considering a period of exclusivity at that time.
Sincerely,
Dominion Diamond
James Gowans, chairman
March 17, 2017
Strictly confidential
The board of directors
Dominion Diamond
4920, 52nd St., Suite II02
Yellowknife, NWT, XIA3Tl, Canada
Attention: James Gowans, chairman
We write in response to your letter dated March 15, 2017, in order to
correct a number of mischaracterizations contained in that letter. In
this regard, we note the following.
You have characterized our requested period for exclusivity as
lengthy. This is incorrect. We requested an exclusivity period in
order to complete confirmatory due diligence and negotiate an
acquisition agreement that is entirely usual, if not extremely quick,
for a transaction of this size and nature. We are able to move quickly
because we have already retained financial, legal, tax and accounting
advisers, and spent a considerable amount of time and money assessing
this opportunity. Further, we note that if the board of directors had
engaged with us on Feb. 21, the exclusivity period
would be approximately half over by now.
You have characterized us as being at the beginning point our due
diligence. This is incorrect. As explained in our proposal and to the
board of directors in person, we have completed a substantial amount
of due diligence based on your public record, public sources and our
knowledge of the mining industry. As the board of directors knows, the
public record of a public Canadian mining company is quite detailed.
You have characterized our proposal as an insistence that we would be
able to veto your choice of CEO. This is incorrect. We specifically
provided that the board of directors could continue its search for a
new CEO. What we requested was that you not hire the new CEO during
the period of the exclusivity where we were jointly working together
toward a transaction. As we repeatedly explained, no public company
CEO candidate would want to be hired to learn that the board of
directors was considering the possible sale of the company. You would
have to disclose this to the candidate. The pursuit of our proposal
and the search for a new CEO are parallel paths. Again, if the board
of directors had engaged with us on Feb. 21, the exclusivity
period would be approximately one-half over by now.
You continue to mention customary terms of a standstill. This is
incorrect. You sent us a form of non-disclosure agreement that
contained a broad standstill, which had never been raised or discussed
with us. This standstill is not customary in these circumstances and
we proposed a reasonable alternative. We were inclined to reject this
outright but advised you on March 14 that we would compromise and
agree to a standstill under which we cannot acquire shares, make an
unsolicited offer or sponsor a proxy fight during the standstill
period.
What we advised we were not prepared to do was to
restrict our ability to publicly disclose the existence and terms of
our proposal if we could not come to an agreement with the board of
directors on a transaction during the exclusivity period. We requested
this in part because we became worried about non-engagement by the
board and that a standstill could be used to just say no for the
full duration of the standstill period.
You indicated that the board of directors cannot, in the best
interests of the company and its stakeholders, grant us exclusivity
before we have completed any due diligence. This is incorrect.
We have advised that we have already completed substantial due
diligence.
There is nothing at law or otherwise that requires you to decline
our proposed compromise form of exclusivity. Our proposal is
compelling and in the best interests of the company and its
stakeholders. Further, we understand that the company has run a
number of unsuccessful processes in the past and we know that you
are currently considering at least one other alternative
transaction so the board of directors is fully aware of the
available alternatives. In fact, we understand that the company
has previously agreed to exclusivity as part of at least one of
those processes.
You initially explained to us that you could not grant exclusivity
because the board of directors is considering a competitive
alternative transaction and that you were in the midst of a search
for a new CEO. We considered this and advised you on March 10
that the board could continue to pursue the alternative
transaction and your CEO search during the exclusivity period,
provided that you did not enter an agreement for an alternative
transaction or hire a CEO during this period (but could do so
without restriction after this period). On March 14,
you advised that the board of directors could not agree to
exclusivity because you had other alternative transactions. We
considered this and advised that we would be prepared to consider
fully carving out your continued negotiation of other pre-existing
bona fide transactions from the exclusivity restrictions. We
believed these were all reasonable compromises, which you have now
indicated are not acceptable. We have been very clear and
consistent since we made our initial proposal that we would
require some form of exclusivity, as we are not prepared to be
involved in a process where our proposal is shopped. What is
clear to us now is that is exactly what the board of directors
wants to be able to do; otherwise you would have accepted our
reasonable compromises.
We believe that we would be excellent stewards of the company for the
reasons previously articulated and that our Feb. 21
proposal is in the best interests of the company and all its
stakeholders. Further, our all-cash premium proposal that is not
contingent on financing is extremely attractive to shareholders and we
believe it is not comparable with any other transactions you are
considering at this time.
We have considered your letter. We are not prepared to agree to the
onerous standstill provisions you have requested. We have made several
constructive and reasonable compromise proposals, all of which you have
rejected. We believe that your shareholders will be very disappointed by
your delays and ultimately the positions you have taken.
Sincerely,
Washington Corporations
Lawrence R. Siskins, president
P.O. Box 16630
Missoula, Mont.
United States, 59808
Dear Larry,
The board has received your response. Regrettably, your letter distorts
the facts.
By any measure your requested exclusivity period was lengthy, and we
have consistently indicated that we were not prepared to grant it to you
at this stage. You made it clear to us in our discussions that you have
not conducted technical diligence on our unique assets and that you do
not have familiarity with the diamond industry. Any past dealings by the
company are simply not relevant to your present request and would
moreover be subject to an obligation of confidentiality.
You have refused to agree to a customary standstill, and you have
insisted on being granted an unwarranted veto over decisions that are at
the sole discretion of the board, including, among other things, our
ability to choose and install a chief executive officer.
The board considered, responsibly and in good faith, your unsolicited
and conditional proposal, and invited you to present to a full in-person
meeting of the board and our advisers on March 9, 2017. While we believe
that your proposal does not recognize the full value of the company, we
are, and have been, prepared to work constructively with you and allow
you to conduct the due diligence that you have requested, on standard
and market customary terms that protect the company and its
stakeholders. It is unfortunate and surprising that you have refused to
so do.
Entering into discussions on customary terms would surely allow for both
parties to work together constructively to determine if an acceptable
proposal is within the capabilities of the Washington Group.
Sincerely,
Dominion Diamond
James K. Gowans, chairman
TD Securities Inc. is acting as financial adviser to the company,
Stikeman Elliott LLP is acting as legal adviser and Kingsdale as
strategic advisers.
About Dominion Diamond Corp.
Dominion
Diamond is a Canadian diamond mining company with ownership
interests in two major producing diamond mines. Both mines are located
in the low-political-risk environment of the Northwest Territories in
Canada. The company operates the Ekati diamond mine, in which it owns a
controlling interest, and also owns 40 per cent of the Diavik diamond mine. It
supplies premium rough diamond assortments to the global market through
its sorting and selling operations in Canada, Belgium and India.
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