RAPAPORT... Pala Investments, which owns nearly 20 percent of Rockwell Diamonds' shares, issued a statement today claiming that the diamond miner is "facing significant challenges" and that it is "a company that needs new leadership." Pala mailed its proxy circular to shareholders for its planned special meeting on June 17, 2009, which Rockwell executives earlier today called an unnecessary event, given that the annual shareholders meeting is coming up in July. It is during this proposed June meeting, which Pala alone ordered, that the investment company expects shareholders to vote on a special resolution to remove directors of the company, elect a new board and to amend and then terminate Rockwell's shareholder rights plan.

Before the markets opened today, John Bristow, Rockwell Diamond's chief executive, and David Copeland and Mark Bristow, company directors, issued a statement explaining that shareholders and management "will now suffer the costs and distraction of two shareholders' meetings in quick succession." Copeland added, "We see Pala's proposal to terminate Rockwell's shareholders rights plan and to remove the executive directors as yet another attempt to control the company — this time, as a kind of cashless takeover. The information circular prepared by the executive directors on behalf of Rockwell that will be mailed to shareholders in due course will offer a competing financial plan and going-forward vision that will protect the interests of all our shareholders."

This afternoon, Jan Castro, managing director of Pala Investments AG, in reference to Pala's proposed new directors of Rockwell, said, "The three new South African directors that have been nominated, combined with a majority of the existing board, will add the experience and capabilities required to restructure Rockwell and begin to return value to shareholders. It is also a board unquestioningly independent of Pala, with six of the seven nominees having no ties whatsoever to us."

Pala's management believes that Rockwell Diamonds faces a "lack of leadership. The minority directors have attempted to distract shareholders from this issue by harping on about Pala's takeover bid last November and the proposed termination of Rockwell's shareholder rights plan. For instance, John Bristow, in an interview earlier today, stated 'You have to ask yourself why Pala withdrew its last bid.'" In Pala's statement, it told shareholders that that bid "was rejected by the minority directors, and shareholders were denied the opportunity to take advantage of a tremendous premium, a premium that was especially generous after the onset of the worldwide financial crisis."

Castro explained that in March 2009, he told Bristow and Copeland that Pala "strongly preferred financing in the form of a rights offering" that would allow each shareholder the opportunity to avoid the highly dilutive effects of the sizeable financing that they were consistently being proposed. "Pala believes that the only equitable approach to an equity-raising effort, especially one as large and as dilutive as that which was proposed by the minority directors in March and April, is to proceed with a rights offering available to all Rockwell shareholders, providing all shareholders with the choice to participate in the financing and avoid potential dilution. A private placement, such as the one that the minority directors repeatedly proposed in March and April, is inherently unfair, especially since it would be available only to those shareholders or worse yet, non-shareholders, lucky enough to be favored by the minority directors."

Pala's proposal to terminate the shareholder rights plan was meant “to afford the new board with the greatest possible flexibility in preparing a financing for the company in the form of a rights offering that is fair to all shareholders....If, however, shareholders are concerned that the proposed termination of the shareholder rights plan is in any way an attempt at a cashless takeover by Pala, then I strongly encourage shareholders to vote against that particular item," said Castro.

"The real issue facing Rockwell is the current lack of leadership, embodied by the minority directors, and Pala has proposed to shareholders a solution where the minority directors have not. Let me be clear, the only true issue at hand is the election of a quality, independent board to lead this company." Pala proposes replacing the Bristows and Copeland with three South Africans: Matie Von Wielligh, as the chairman, Philip Reynolds, as the interim chief executive, and Hennie Van Wyk.

NC