Group Led by Former Chairman and CEO Kaleil Isaza Tuzman Extends
Revised Acquisition Offer to KIT Digital Board of Directors
NEW YORK, Dec. 5, 2012 /PRNewswire/ --
Attention: Bill Russell,
Chairman
Dear KIT digital Board of Directors,
On November 23, 2012, we sent you
a detailed letter describing our disappointment in the performance
of KIT digital Inc.'s ("KITD" or the "Company") current management
team in both administering the business and capitalizing on
strategic opportunities that could have generated significant value
for the Company's shareholders (the "Initial Letter"). In our
Initial Letter, we also outlined our own turnaround plan for KITD
and urged you to immediately engage with us regarding a provisional
offer to acquire the Company.
Since sending the Initial Letter additional information has come
to our attention that paints an even more troubling state of
affairs within the Company than we originally believed. We believe
management is confused at the current crossroads and that the
Company is severely limited in its options—a situation that will
likely deteriorate with time.
Your demonstrated lack of urgency regarding alternatives to
create value for shareholders is particularly unacceptable given
that:
- KITD has a very low cash balance (less than $7 million of unrestricted cash available to fund
operating activities) and we believe the Company is operating at a
significant cash burn in the near-term — providing an extremely
short runway to solve its manifold issues;
- The Company requires additional capital but the recent,
dramatic downward share price movement and lack of audited
financials will make it very difficult to raise additional
financing at anything but terribly dilutive terms–in fact we
believe the Company failed in a desperate attempt to close a
financing even prior to its announcement that it was
restating historical financials and delaying third quarter
results;
- The Company appears to have misrepresented the reason for the
delayed release of its 10-Q for the period ending September 30, 2012, and inappropriately utilized
the filing extension granted to companies due to Hurricane Sandy in
an attempt to obfuscate the underlying liquidity issues and
accounting issues afflicting the Company;
- KITD is in material, technical default under its senior secured
note issued to Western Technology Investment ("WTI") due to the
Company's restatement of its historical financials, enabling WTI to
pursue all rights available to it under the secured note agreement
to remedy this default—including foreclosure on all of KITD's
assets and intellectual property globally;
- Based on the current price of KITD common stock, the terms of
the Share Purchase Agreement entered into between KITD and Hyro
Limited ("Hyro") on April 21, 2012
obligate the Company to issue nearly twenty (20) million new shares
to Hyro shareholders within the next 30 days; and
- KITD's current share price and its lack of audited financials
puts the Company at serious risk of running afoul of the NASDAQ
continued listing requirements.
We have also received numerous unsolicited accounts of
announcements and comments made by KITD management last week to
employees, vendors and customers that call into question
management's grasp of the Company's challenges or their ability to
navigate the Company out of its dire straits. We believe these
communications included claims that (a) acquisition offers received
by the Company in the past have been too low to be considered; (b)
the Company will pursue a standalone path and will not entertain
future acquisition offers; (c) the Company has not and will not
consider filing for bankruptcy protection; and (d) the Company has
enough cash to weather this period and will be breakeven by January
or February. Although we appreciate management's desire to calm the
Company's various constituencies, reckless statements like these
undermine credibility, encourage complacency and prevent the
Company from successfully addressing its myriad challenges.
More importantly, we are aware of numerous strategic and
financial parties interested in the Company that have been ignored,
rebuffed and stonewalled in recent months and weeks by the Company
and its financial advisors, or have been paralyzed for months by
standstill provisions included in the form confidentiality
agreement propagated by the Company as a requisite for entering
into any acquisition dialogue.
If any of the foregoing conclusions are based on incorrect
information, please openly correct our understanding.
We fear that KITD's current structural, commercial and liquidity
challenges will worsen and compound—leaving the Company and its
shareholders with limited, if any, options to preserve or generate
value for shareholders. As such, we urge you to take immediate
action to the benefit of shareholders and:
- Execute on the operational turnaround plan articulated in our
Initial Letter;
- Clearly explain your balance sheet fortification strategy to
KITD shareholders, specifically how you intend to avoid a
foreclosure by WTI or a similar action taken by a replacement,
"last resort" lender;
- Conduct an open and transparent auction of the business
(without discriminating against any prospective bidders) with a
reasonable minimum bid price; and
- Release any party that is currently subject to a standstill
provision from any restrictions on participating within or pursuing
a transaction to acquire the Company.
With respect to our provisional buy-out offer from the Initial
Letter, neither you nor your advisors have engaged with us
directly. However, several days after you received our Initial
Letter, we were contacted by an executive of JEC Capital (the
New York hedge fund that currently
controls the Company and for which current KITD CEO Peter Heiland serves as Managing Director), who
stated that you were not taking our offer seriously because you
were unsure of our financial backing, and encouraged us to submit
an offer to the board of KITD using a "customary offer letter
format". While we believe this is a delaying
tactic—since we used a standard, conditional offer structure and
you are aware of at least one of our large private equity
partners—we have nevertheless complied with this request. Earlier
today, December 5, 2012, we
separately submitted a revised, non-binding offer letter in a
customary format to the Company's board of directors, as well
as a draft confidentiality agreement that we would be prepared
to sign in order to pursue a potential transaction. As part of this
documentation, we said we would expect to be able to reach a
definitive and binding acquisition agreement within thirty (30)
days of being granted due diligence access.
Given the current price of KITD stock, compounded by the
Company's strategic drift and worsening liquidity and capital
structure issues, we have lowered our indicative offer to acquire
the Company to a range of $1.35
-$1.70 per share—representing, at the midpoint of the range,
a 112% premium to the $0.72 closing
price of the Company's shares on Tuesday,
December 4, 2012. Our offer is subject to due diligence,
your release of certain parties from standstill agreements, and a
mutually acceptable definitive agreement.
We believe that time is of the essence and are prepared to
immediately engage with the Company and its legal and financial
advisors regarding this transaction. In the absence of a response
to this letter by 5pm ET on
Wednesday, December 12, 2012 that
generates demonstrable progress towards a transaction, we will
evaluate other options available to us—including, but not limited,
to an offer extended directly to shareholders and/or alternative
entry points into the Company's capital structure.
We look forward to your timely response.
Respectfully,
Kaleil Isaza Tuzman
On behalf of KIT Capital, Ltd.
Contact: Jonathan Cutler
JCUTLER MEDIA GROUP
JC@jcutlermedia.com
SOURCE Kaleil Isaza Tuzman