Benzinga | Jan 21, 2022 05:10AM EST

Dirtt Environmental Solutions Says Special Committee Has Found Significant Evidence That Shows 22NW Is Acting Jointly With Another Shareholder; Believes It Has No Choice But To File With Alberta Securities Commission

DIRTT Environmental Solutions Ltd. ("DIRTT", the "Company", "we", or "us") (NASDAQ:DRTT, TSX:DRT), an interior construction company that uses proprietary software to design, manufacture and install fully customizable environments, today provided an update on the path forward in responding to the November 17, 2021 requisition (the "Requisition") issued by 22NW Fund, LP ("22NW" or the "Activist"). The Company announced that while it remains focused on realizing its potential as its top priority, it believes it has no choice but to file an application with the Alberta Securities Commission (the "ASC") against the Activist and another shareholder for breaching take-over bid and early warning reporting provisions under applicable Canadian securities laws, in order to protect minority shareholders and ensure that all shareholders are provided with full and accurate information. The Company also believes that the Activist's claim of significant shareholder support in its January 14, 2022 press release bears further examination.

Change is Underway: Board of Directors Determined to See the Company Realize its Potential

DIRTT has a well-defined strategic plan being overseen by a highly-qualified board of directors (the "Board") with a track record of success. Over the last 5 years, the Company has demonstrated its commitment to ensuring the long-term success of DIRTT by initiating a thoughtful, strategic refreshment of the Board based on a thorough review of the skill sets required for now and for tomorrow. Currently, the Board is comprised of 7 highly-qualified and experienced directors, 4 of whom have joined the Board in the last 18 months. As part of the Company's ongoing Board refreshment, the Nominating and Governance Committee will nominate directors it believes will serve in the best long-term interests of all shareholders.

In addition, with a new and experienced Interim CEO in place and an active search for a suitable permanent CEO underway, the Board is confident this change process will lead to improved results based on manufacturing excellence, commercial execution and continued innovation.

Despite the unnecessary distraction that 22NW's Requisition has caused, the Board remains focused on the Company's business as its priority.

DIRTT's Obligation to File Application and 22NW's Refusal to Engage

For more than a month, the Company has sought to engage with 22NW and another shareholder to address the serious findings made as a result of a comprehensive investigation by a special committee of the Board. 22NW has refused to provide legally required transparency and dismissed the Company's numerous requests to meet to discuss constructive solutions. As a result, the Company is left with no choice but to file an application with the ASC. While the Company is disappointed it has had to take such steps, 22NW's harmful actions toward DIRTT's minority shareholders and repeated stonewalling have left the Board no choice.

The Company filed an initial complaint with the ASC on December 8, 2021. The ASC asked 22NW and another shareholder to share their responses to the complaint with DIRTT. Both have refused, and DIRTT has serious concerns those responses provided to the ASC contain further misrepresentations and omissions. Also, 22NW's trading disclosure in its preliminary proxy statement (which is also set out in its definitive proxy statement) filed with the U.S. Securities and Exchange Commission (the "SEC") highlighted apparent breaches of Canadian securities laws which forced the Company to file a further complaint with the ASC on December 31, 2021.

In its application to the ASC, DIRTT explained how 22NW, its founder, Aron English who together with his associates control 18.9% of DIRTT's shares, and one other shareholder who controls 13.4% are acting jointly regarding all aspects of their investment in the Company.

DIRTT believes it is critical that 22NW and its joint actors disclose the full extent of their relationship and their plans for the Company. In addition, to the extent their activity has resulted in an illegal take-over bid, they must address this issue immediately.

22NW Refuses to Meet Despite Multiple Invitations

22NW's refusal to meet with the Company regarding its Requisition raises fundamental concerns, including as to its credibility.

"22NW's inconsistent approach of publicly stating one thing while doing another has unnecessarily prolonged our ability to reach a fair resolution for all shareholders. DIRTT has repeatedly offered to meet with 22NW, including providing specific dates and times for face-to-face meetings on January 7, 2022. 22NW rebuffed or simply ignored all of these offers, then falsely claimed the opposite," stated Todd Lillibridge, Director and Interim CEO. "This pattern of contradicting words and actions means shareholders are right to question their stated motive of helping the Company 'pursue value', especially since the reason stated by 22NW for the initial request for Board representation was explicitly to help advance Mr. English's career. The Board remains open to constructively engaging with 22NW and all shareholders to quickly and fairly end this unnecessary and time-consuming proxy fight."

Alleged Shareholder Support for Activist is Based on Misleading Information and is Not Binding

In its January 14, 2022 press release, 22NW claimed it had delivered executed documents from the beneficial owners of a majority of DIRTT's outstanding shares in support of the election of 22NW's six candidates nominated for election pursuant to the Requisition. As acknowledged by 22NW in its press release, all the proxies that were delivered are non-binding.

The Board believes that the proxies delivered to 22NW were based on misleading information presented by 22NW in its filings with Canadian and U.S. securities regulators. DIRTT is committed to ensuring that all shareholders have the benefit of full and accurate information before votes are counted at the annual and special meeting of shareholders scheduled to be held on April 26, 2022 (the "Meeting").

The Board accepts that many shareholders have not been pleased with the performance and direction of the Company thus far. The Board has and will continue to take steps to move the Company forward in a positive direction. While 22NW has not articulated a strategic plan or a clear vision for the Company, the Board looks forward to communicating with shareholders its proactive plan to grow the Company for the benefit of all stakeholders.