Click here to close now.




















Welcome!

News Feed Item

Former Chairman and CEO Kaleil Isaza Tuzman Sends Letter to KIT digital Board of Directors

Urges Company to Discuss Acquisition Offer and Conduct Open and Transparent Sale Process

NEW YORK, Nov. 23, 2012 /PRNewswire/ --

Board of Directors
KIT digital, Inc.
26 West 17th Street, 2nd Floor
New York, NY
10011

Attention: Bill Russell, Chairman

Dear KIT digital Board of Directors,

KIT digital, Inc.'s ("KITD" or the "Company") November 21, 2012 8-K (the "8-K") effectively blamed prior management for the Company's delayed filing of third quarter results and the Company's intent to restate its financial statements for the 2009-2011 period, among other issues.  The Company's attempt to attribute its current problems to prior management is spurious.

As one of KITD's largest shareholders and the Company's former chairman and CEO, I have kept my opinions on the Company's trajectory confidential since my departure in April 2012, in deference to the efforts being expended by current management and to avoid unnecessary discord.  However, I can no longer silently abide the Company's attempt to scapegoat previous management or tolerate the recent record of deficient management and poor business execution.  KITD shareholders deserve to be leveled with on what has occurred at the Company to date, and shown a path forward to success and enhancement of share value, as we have set forth below.

First, some clarifications concerning some implications contained in the Company's recent 8-K.  During my tenure at the Company, all revenue recognition decisions were made in consultation with and approved by the Company's independent accounting firm, and approved by your audit committee. We have no reason to believe any of those decisions were improper.  Since my departure, it is possible that your new audit committee members have elected, in consultation with the firm's outside auditors, to apply different revenue recognition policies. That is not prior management's responsibility, and a change in revenue recognition policies and application may reflect your recently insinuated decision to further separate the "software" and "services" lines of the Company's business.  As shareholders, we cannot yet opine on the merit of your decision, since your 8-K lacked details on the matter.

Similarly, the 8K's vague reference to a lack of disclosure concerning certain undisclosed "related party transactions" is misleading and inappropriate.  During my tenure with KITD, all related party transactions were vetted by KITD's outside counsel and relevant disclosures in KITD financial statements were reviewed and approved by the Company's independent accounting firm.  For instance, as you know, my affiliate investment companies, KIT Media and KIT Capital, supported the Company by investing on four different occasions between 2008 and 2011 in public share issuances alongside other public shareholders.  These transactions were "related party transactions" in nature and were disclosed in great detail in press releases and Company financial statements at the time.  The transactions were very positive for the Company (and included two successfully completed financings during the depth of the 2008-2009 financial crisis) and were broadly lauded by KITD's shareholder base at the time as demonstrating management's "skin in the game."  In addition, stock options and restricted stock grants over time to me or KIT Capital for services rendered were also described in detail in the Company's public filings.  Accordingly, these transactions were all appropriately disclosed and benefited the Company and its shareholders—and, in fact, neither myself nor KIT Capital has ever exercised or sold any of these stock grants or options, nor have I received a single dollar or share in severance. 

By comparison, you granted former CEO Barak Bar-Cohen a $250,000 "success bonus" for an extremely dilutive, death-spiral financing concluded after my departure and JEC Capital (the New York hedge fund which currently controls the Company and for which current KITD CEO Peter Heiland serves as Managing Director) recently lent $2.5 million to the Company without a concomitant press release—and the mention of this related party transaction received only cursory mention in an indirectly related SEC filing. 

Given the 8-K's emphasis on the dire current liquidity situation of the Company, it appears to us that you, in conjunction with the Company's senior creditors, may be conspiring to artificially decrease the Company's stock price so as to acquire the Company at a fire sale price that is unfair to shareholders.  Indeed, the 8-K's disclosure regarding covenant breaches of current lender agreements could be interpreted as a lead-in to a pre-arranged, sweetheart deal with the Company's  lenders.

Previous management presided over a period between December 2007 and March 2012 during which monthly revenues expanded over 20x, operating results went from huge losses to small gains, and the Company's shares appreciated from $2.90 to over $9.00. Despite your attempt to blame past management for your current results, those close to the Company report that current management has shown disregard for the underlying business—including key clients, employees and vendors. Most startlingly, you seem to have presided over the Company burning more cash from operations in the seven months since I left than the Company had burned from operations in the prior two fiscal years.

Adding to KITD's problems, the Company's current management has:

  • failed to visit many, if not most key clients
  • failed to visit more than a handful of Company field locations
  • lost many, if not most, of the Company's key salespeople
  • disassembled the Company's core engineering team
  • demonstrated a lack of sufficient understanding of the Company's core technology, products and capabilities, and failed to make material progress in product development
  • moved the Company headquarters from its low-cost European center of Prague to a high-cost NYC office—despite over 50% of the Company's revenues being European in origin
  • incurred ballooning operating losses
  • poorly executed on an ill-conceived idea of stripping down and selling individual pieces of the Company—without sufficient comprehension of how software and services units complement each other in serving clients
  • failed to attract significant new talent to the business
  • failed to add material new client contracts
  • failed to communicate a coherent vision for the future to staff, clients and industry observers
  • left an impression with staff, clients, vendors and competitors alike that KITD is under "temporary", "hedge fund", "Wall Street-focused" management.

Ignoring these poor managerial decisions, the Company instead seeks to scapegoat prior management in describing its current condition.  It is time to redress this situation.

I originally resigned from my post as CEO of KITD in March 2012 (and subsequently resigned from his role as Chairman in April, 2012) because I had come to irreconcilable differences with the Board at the time concerning strategic decisions and the future of the Company.  As a major shareholder, I ultimately felt I could make a greater positive impact on the Company's development from the outside than from within, especially considering that the Board formed a Special Strategic Committee (the "Special Committee") in January 2012 which had effectively taken control of all CEO-level decisions.

By way of background, in December 2011, my core management team had recommended to the Board that the Company complete a major restructuring and consolidation of operations (a plan that you finally began to implement about two months ago).  We also recommended to the Board at such time that the Company pursue two competing strategic transactions, each with the potential to be a homerun for shareholders (one a private equity buy-out and the other a merger-of-equals).  Instead, the Board rejected management's suggested approach and formed the Special Committee with a broad mandate to oversee "any and all strategic decisions" at the Company.  The Special Committee was comprised of two board members—Wayne R. Walker and Santo Politi—and immediately shut down or irreparably delayed the discussions with the strategic transaction counterparties.  KITD's management-by-special-committee was predictably dysfunctional.  After months of wrestling with the Special Committee to no avail, myself and several members of the core management team eventually resigned.

In connection with my resignation I issued a letter—which was publicly filed by the Company as an 8-K at the time—stating that I intended to independently consider strategic alternatives for the Company.  After my resignation, a bidding group (led by a large private equity firm which I had introduced to the Company), endeavored to obtain approval from the Special Committee to share information with me so that I could participate in connection with a potential offer for KITD.  Unfortunately, the Special Committee refused this request, to the detriment of all shareholders.

Since that time, KIT Capital and other prospective bidders have been repeatedly delayed or stonewalled in our continued efforts to create shareholder value, while the indecision and delay of new management and board continues to result in value destruction.  For example, although KITD's current management and board finally adopted the staff reduction and office consolidation plan prior management first put forward almost a year ago, the delay has caused KITD to effectively run out of money and may put the Company into the pockets of its lenders.

KITD must right its ship. From an operational perspective, KITD management must immediately:

  • Articulate a vision of the "new" KIT digital, with the focus being on clients, employees and vendors—and away from capital markets
  • Halve executive management costs
  • Tour the top 30 clients globally to ensure contract compliance and renewal
  • Implement a program to re-invigorate the core team of top 50-performing employees globally
  • Complete our original cost reduction and office consolidation plan—including keeping headquarters in Prague, consolidating engineering team into two locations, consolidating New York and Atlanta office into one location and shutting down six other locations globally (including Dubai), while expanding sales and business development staff by one-third
  • Cease the "divide-and-sell" approach to assets
  • Clearly articulate a balance sheet-fortification strategy, centered on a significant private equity minority investment and concomitant restructuring of existing debt, while conducting an open and transparent auction of the Company (engaging both private equity and strategic buyer prospects), with a publicly announced minimum price of $3.75 per share.

We do not believe that current management is capable of the actions listed in this letter.  As a result, we are prepared to lead a bidding group to buy the Company at a reasonable and substantial cash premium to the current traded price of the Company's common stock.  Since May 2012, we have repeatedly requested that the board engage with us and certain other private equity firms regarding a strategic transaction for the Company.  In light of KITD's mismanagement and the Company's current circumstances, the Board can no longer afford to ignore these overtures.

Based on our analysis of publicly available information, and subject to due diligence and the execution of a mutually acceptable definitive agreement, we are prepared to lead a bidding group to buy the Company at $3.75 per share in cash, which represents an 81% premium to the closing price of KITD common stock on Wednesday, November 21, 2012 (and an approximately 750% premium to the reported after-market trading price of KITD common stock on that date).  We have reviewed this transaction with two large private equity groups who are interested in participating with us, and believe we have the backing of the Company's prior and current executives, salespeople and senior engineers who would be key to execute on our plan to right the KITD ship.   We believe we can finalize financing and business terms with respect to this acquisition very quickly if the Board responds forthwith.

For the benefit of all the shareholders, we ask that you to cease and desist from defamatory and inaccurate descriptions of KITD's prior management and immediately engage in an open dialogue with us on this offer.

Regards,

Kaleil Isaza Tuzman

On behalf of:
KIT Capital, LLC

Contact: Jonathan Cutler
JCUTLER MEDIA GROUP
[email protected]

SOURCE Kaleil Isaza Tuzman

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
One of the hottest areas in cloud right now is DRaaS and related offerings. In his session at 16th Cloud Expo, Dale Levesque, Disaster Recovery Product Manager with Windstream's Cloud and Data Center Marketing team, will discuss the benefits of the cloud model, which far outweigh the traditional approach, and how enterprises need to ensure that their needs are properly being met.
Palerra, the cloud security automation company, announced enhanced support for Amazon AWS, allowing IT security and DevOps teams to automate activity and configuration monitoring, anomaly detection, and orchestrated remediation, thereby meeting compliance mandates within complex infrastructure deployments. "Monitoring and threat detection for AWS is a non-trivial task. While Amazon's flexible environment facilitates successful DevOps implementations, it adds another layer, which can become a ...
The speed of software changes in growing and large scale rapid-paced DevOps environments presents a challenge for continuous testing. Many organizations struggle to get this right. Practices that work for small scale continuous testing may not be sufficient as the requirements grow. In his session at DevOps Summit, Marc Hornbeek, Sr. Solutions Architect of DevOps continuous test solutions at Spirent Communications, explained the best practices of continuous testing at high scale, which is rele...
"We got started as search consultants. On the services side of the business we have help organizations save time and save money when they hit issues that everyone more or less hits when their data grows," noted Otis Gospodnetić, Founder of Sematext, in this SYS-CON.tv interview at @DevOpsSummit, held June 9-11, 2015, at the Javits Center in New York City.
Growth hacking is common for startups to make unheard-of progress in building their business. Career Hacks can help Geek Girls and those who support them (yes, that's you too, Dad!) to excel in this typically male-dominated world. Get ready to learn the facts: Is there a bias against women in the tech / developer communities? Why are women 50% of the workforce, but hold only 24% of the STEM or IT positions? Some beginnings of what to do about it! In her Opening Keynote at 16th Cloud Expo, S...
With SaaS use rampant across organizations, how can IT departments track company data and maintain security? More and more departments are commissioning their own solutions and bypassing IT. A cloud environment is amorphous and powerful, allowing you to set up solutions for all of your user needs: document sharing and collaboration, mobile access, e-mail, even industry-specific applications. In his session at 16th Cloud Expo, Shawn Mills, President and a founder of Green House Data, discussed h...
Delphix, the market leader in Data as a Service (DaaS), has been announced winner of the DevOps Solution Award at the prestigious Computing Vendor Excellence Awards in London. The awards celebrate the achievements of the technology vendors and service providers that are leading the field of enterprise IT. Delphix was recognised as the vendor demonstrating the most effective support of DevOps culture for its ability to improve time to market and collaboration between teams.
"Our biggest growth area has been the security services, the managed services - the things that differentiate us in the market that there is no client that's too small and there's no client that's too big," explained Paul Mazzucco, Chief Security Officer at TierPoint, in this SYS-CON.tv interview at 16th Cloud Expo, held June 9-11, 2015, at the Javits Center in New York City.
"We've just seen a huge influx of new partners coming into our ecosystem, and partners building unique offerings on top of our API set," explained Seth Bostock, Chief Executive Officer at IndependenceIT, in this SYS-CON.tv interview at 16th Cloud Expo, held June 9-11, 2015, at the Javits Center in New York City.
The Cloud industry has moved from being more than just being able to provide infrastructure and management services on the Cloud. Enter a new era of Cloud computing where monetization’s services through the Cloud are an essential piece of strategy to feed your organizations bottom-line, your revenue and Profitability. In their session at 16th Cloud Expo, Ermanno Bonifazi, CEO & Founder of Solgenia, and Ian Khan, Global Strategic Positioning & Brand Manager at Solgenia, discussed how to easily o...
Explosive growth in connected devices. Enormous amounts of data for collection and analysis. Critical use of data for split-second decision making and actionable information. All three are factors in making the Internet of Things a reality. Yet, any one factor would have an IT organization pondering its infrastructure strategy. How should your organization enhance its IT framework to enable an Internet of Things implementation? In his session at @ThingsExpo, James Kirkland, Red Hat's Chief Arch...
Sysdig has announced two significant milestones in its mission to bring infrastructure and application monitoring to the world of containers and microservices: a $10.7 million Series A funding led by Accel and Bain Capital Ventures (BCV); and the general availability of Sysdig Cloud, the first monitoring, alerting, and troubleshooting platform specializing in container visibility, which is already used by more than 30 enterprise customers. The funding will be used to drive adoption of Sysdig Clo...
The Software Defined Data Center (SDDC), which enables organizations to seamlessly run in a hybrid cloud model (public + private cloud), is here to stay. IDC estimates that the software-defined networking market will be valued at $3.7 billion by 2016. Security is a key component and benefit of the SDDC, and offers an opportunity to build security 'from the ground up' and weave it into the environment from day one. In his session at 16th Cloud Expo, Reuven Harrison, CTO and Co-Founder of Tufin,...
The Internet of Things is not only adding billions of sensors and billions of terabytes to the Internet. It is also forcing a fundamental change in the way we envision Information Technology. For the first time, more data is being created by devices at the edge of the Internet rather than from centralized systems. What does this mean for today's IT professional? In this Power Panel at @ThingsExpo, moderated by Conference Chair Roger Strukhoff, panelists addressed this very serious issue of pro...
"We do data integration for B2B also application to application, and we do data management and enable Big Data," explained Pat Adamiak, Vice President, Product Marketing at Liaison Technologies, in this SYS-CON.tv interview at 16th Cloud Expo, held June 9-11, 2015, at the Javits Center in New York City.