Summary of Issues and Related Request Raised to Tecumseh's Board
of Directors on April 23, 2015
The following represents an enumerated list that speaks to what
Marcus Hudson views as the ineffectiveness and poor decision making of this
Board (for clarity, some points have been simplified from the initial
electronic communication to the Board.
None of the edits made represent a material change to the message conveyed
to the Board) as well as several request made to the Board to address these
issues:
1. Effectively disregarding of a substantial August
2013 offer for India's Hyderabad site. Internally, belief by the
executive management team was that the offer would likely have yielded $30
million dollars in net cash.
2. Disregarding of what appeared to be a legitimate
offer for the Company's Brazilian operation in July 2014. On a net basis,
this sale could have generated $40 million in cash, almost 80% of the current
market value of the Company.
3. Delisting the Brazilian foundry after less than
two months of being formally on the market. The delisting was done
ostensibly to drive down the value of the stock which was viewed by the Board
to be significantly overvalued at that time (the stock's value at that time was
roughly $9 / share).
4. Hiring of a Chief Restructuring
Officer with a questionable financial past, something the Board did not realize
until after he was offered a position, and who lacked any industry or substantive
international experience.
5. The Company spent almost a year trying to "make"
Mexico a strategy despite prima facie evidence and advice that such a strategy
was essentially linked to currency, prohibitive in cost and would not
contribute to shareholder value creation given the nature of the Tecumseh
business and its markets. The strategy was apparently abandoned given the
devaluation of the Real; i.e., the Company's strategy essentially was
currency.
6. Continuing to populate the leadership of the
organization with individuals with a lack of practical HVAC experience but with
ties to current Board members.
7. The lack of experience has led to approval of a
product lineup and new product development that, based on a straightforward
competitive analysis with relevant data, is highly unlikely to drive
incremental volume or margin. It is
clear that there is a fundamental misunderstanding of what drives
competitiveness in the HVAC market at the highest levels in the Company.
8. Tecumseh has no clear strategy for rotary,
scroll, linear, or any other non-reciprocating compressor despite the fact that
a substantial portion of the market is trending that way. The Company
lacks the raw engineering manpower and dollars to develop such products.
9. Failing to direct appropriate resources to
upgrade Tecumseh's ability to manufacture and hold tolerances. This is a
root issue for the Company and is largely why the Company cannot meet the
weight and alternative material usage, and hence cost, of many of its
competitors. A perfect example of this is the TA2, AE2, AK2 (which is a
five year old design and was only pursued given the failure to be able to
stretch AE2), and AJ2 all of which are significantly heavier than their SECOP
and Embraco counterparts over the relevant operating ranges and, in most cases,
do not meet the efficiency competitiveness. Additionally, both SECOP and
Embraco are launching a slew of new products and making major manufacturing
upgrades for both reciprocating and non-reciprocating products. This will
likely put Tecumseh further behind its competition.
10. Awarded dilutive options to its top 4 executives
despite clear underperformance of the Company or creation of a functional
restructuring plan.
11.
The unconscionable pursuit of a debt strategy. The Company would likely not get enough to
fund meaningful change in the business. Given
the product predicament and manufacturing upgrades needed and the related
execution risks this appears to be gambling shareholder equity.
12. Apparent dismissal of an equity offer which was
55% above both the 90 day and 180 day averages. Given that this represents a
baseline and other companies are interested in purchasing Tecumseh, not
beginning a process is beyond unreasonable.
13. Having regional suitors do plant visits in
France suggest you are looking at selling the Company piece meal. Though
this is not the worst of ideas, this should be done as part of a process or the
execution risk, in my opinion, is too high
14. The alleged potential attempt by Douglas Suliman
to gain control of the Company prior to his official appointment but while
under a confidentiality agreement via negotiations with a major
shareholder. I have spoken extensively with said shareholder and a former
Tecumseh Director and believe these accusations to be true. How this did
not come under formal review by the Audit Committee, and the entire Board for
that matter, is beyond me.
15. Purchasing of shares by two directors after
receipt of, what any reasonable investor would assume to be, a letter of intent
from a well-financed institution. To think that this offer, or even
knowledge that the Company was approached by a well-financed institution with
genuine interest in acquiring the Company, would not have swayed investor
sentiment is beyond unreasonable. As such, to suggest that this did not
represent material inside information is also unreasonable.
16. Potentially turning a blind eye to distribution
of product into Iran and not disclosing such distributions and the potential
risk to investors
The latter three items are of particular concern and require
immediate action given that they speak to ethical behavior. As such, I am
requesting:
a. With regards to Item 14, the audit committee
conduct an investigation using an independent investigator: this is the only
way to dispel this allegation. This investigation should include
interviews with all parties involved, including the shareholder in question,
the former Director who initially raised the allegation, the former CEO,
yourself, and Mrs. Stephanie Boyse. I find the assertion, which you
communicated to Jim Connor in May of 2014, of your belief that the former "...was
just mad" an unsatisfactory reason as to not take the allegation
seriously. Nor do I find Mr. Suliman's denial of any wrongdoing a
sufficient reason not to investigate.
b. With regards to Item 15, immediate removal from
the Board of Mr. Quain and Mr. Karp as well as Mr. Karp offering his letter of
resignation as CEO or a viable explanation as to how this does not constitute
improper trading. From my perspective, this area is not grey, especially
in the case of Mr. Karp who purchased his shares nearly a week after being
notified of a pending offer.
c. Tecumseh immediately release to the public any
inquiries made to the Company by any of the following agencies: The Office of
Foreign Asset Control (OFAC), the Securities & Exchange Commission (SEC),
or the US Immigration and Customs Enforcement (ICE) or positive confirmation
that such inquiries do not exist
