Snowball Research 1 Introduction - ValueWalk · 2016-08-16 · Snowball Research – Special report...

Snowball Research – Special report Roumell Asset Management: Letters

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www.snowballresearch.com

Introduction

Roumell Asset Management In the past eleven years, Mr. Roumell has sent very few public letters to the Board and the CEO.

Nevertheless, the letters sent by Mr. Roumell are rich with insights gathered through field check

(“Scuttlebutt research”). It is apparent from his letters that he attends trade conference, speaks

with competitors and customers to gather information about the company’s business. In one of

his letters he wrote, “I personally sat in a commercial compressor distribution store to witness

first-hand the strength and persistency of the Company’s after-market business”.

In fact, his fund’s website has a dedicated page named “company visit” (very rare practice

among investment funds). You can see a few pictures taken during his field visit.

I’ve compiled the list of “interesting” excerpts from his letters. Also, the complete letters can be

found in the "exhibits" section.

The purpose of reading this? Readers can use it for “idea generation” and to improve their

research skills.

13F Portfolio, as on March 31, 2016

Ticker

Company name

% Ownership

% of Portfolio

% Change

RST Rosetta Stone Inc 5.16% 19.4% -11%

COVS Covisint Corp 5.01% 10.3% 9%

AAPL Apple Inc. 0.00% 9.8% 18%

SZMK Sizmek Inc 3.81% 8.4% -5%

PRTK Paratek Pharmaceuticals Inc 1.23% 8.4% 8%

LQDT Liquidity Services, Inc. 1.91% 7.7% 42%

SAND Sandstorm Gold Ltd 0.72% 7.7% -34%

DSPG DSP Group, Inc. 1.52% 7.7% 8%

DRA Diversified Real Asset Income Fund of Beneficial Interest No Data 7.0% 280%

JGH Nuveen Global High Income Fund of Beneficial Interest No Data 5.5% New

JQC Nuveen Credit Strategies Income Fund 0.17% 4.8% New

GDX Market Vectors Gold Miners ETF No Data 2.0% -16%

GSIT GSI Technology, Inc. 0.55% 1.3% New

“Our research process is relentless and includes regular travel to see management teams, assets,

customers, and competitors firsthand.”

“We typically do not get involved in situations where we do not have solid industry and/or

company contacts.”

Source: Fund website

http://www.roumellasset.com/company_visits.htm


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Excerpts from eight letters


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01 | Covisint Corp June 15, 2016 Upon returning from last week’s TU-Automotive Telematics conference in Novi, Michigan,

it is our belief that the company will warrant a significant premium to its current stock

price in a sale to a strategic buyer. Underscoring the company’s belief in the strength of its

Identity Management tools and its IoT platform, we confirmed that industry leaders,

partners and customers remain very positive in the platform’s capabilities. Industry

contacts who are deeply familiar with competing platforms – Telit, Aeris, PTC’s ThingWorx,

GE’s Predix and IBM’s Bluemix (the company’s chief competitor, as we understand, in last

year’s Jaguar Land Rover contract win) – indicate to us the superior depth, complexity and

sophistication of the company’s platform. A key industry participant said flatly that the

Covisint platform was the best platform among these leading IoT platforms. We spoke

directly to key customers who underscored their positive view of the platform’s

capabilities, including a major automobile manufacturer who expects to expand its

relationship with the company. We were also happy to learn that a major beverage

manufacturer appears to be a likely new portal customer.

Nonetheless, the primary reasons put forth for the lack of new subscription revenue were a

lack of brand awareness and insufficient marketing heft. Additionally, the 6 month delay in

introducing the company’s IoT platform, finally rolled out in January of 2016, appears to

have been a costly event. Competitors with less robust platforms are described as

possessing superior marketing and brand strength. In the absence of new subscription

revenue, we believe the company’s platform would be far better leveraged in the hands of a

stronger, better capitalized entity. Recent comparable transactions suggest a sales price

would likely be meaningfully higher than the current share price. To wit, in 2013, PTC

purchased the IoT platform, and Covisint competitor, ThingWorx for $112 million, plus a

possible earn-out of up to $18 million. ThingWorx was reported to have only $10 million in

revenue in the 12 months following the acquisition. Multiple industry contacts inform us

that the ThingWorx platform is two notches below Covisint’s platform’s capabilities.

May 18, 2016

To be clear, Covisint boasts some compelling attributes. First, the company’s technology

platform is strong and highly recognized in the automobile industry, underscored by long-

term contracts. Second, it possesses a highly recurring subscription revenue stream, with

95% renewal rates, coupled with gross margins now over 50%, thanks to the company’s

successful decision to outsource low-margin service work under the leadership of the

company’s Chairman, Mr. Sam Inman III. Nonetheless, while it is true that the company has


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effectively replaced the revenue of the healthcare business it exited two years ago, the

company has been unable to grow its subscription revenue sufficiently to justify its cost

structure as a public company. Given the very high retention rate of its current revenue

stream, we have little doubt that the company would be highly attractive to a strategic or

financial investor.


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02 | Rosetta Stone Inc. June 22, 2015 Lexia now has eight consecutive quarters of double-digit year-over-year revenue growth

with mid-90% renewal rates. The company’s decision to combine Lexia Reading and K-12

language learning into Language Arts (LA), under the direction of proven education builder

Mr. Nick Gaehde, makes great sense. Our field checks indicate that Lexia is being very well

received in the marketplace and winning business as a result of its demonstrated efficacy

through measureable results and consequently becoming more widely known among

educators purchasing reading software. Lexia’s revenue has grown from $15 million at the

time of purchase to today’s $25 million run rate. Through discussions with knowledgeable

investors in the education space, we believe the LA segment itself, roughly $65 million in

revenue, is worth more than the company’s current enterprise value. M&A transactions in

the space are known to the board and don’t need to be reiterated here.

We were pleased to learn that the company does not view Fit Brains as core to its mission.

Given that Fit Brains’ revenue has grown from $2 million to $5 million, it is our belief that

selling it for at least its $12 million purchase price should be attainable and provide a nice

cash infusion.

In summary, we are very pleased with the Management team’s renewed focus on returning

RST to growth and profitability.


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03 | SeaChange International Inc. January 28, 2015 Since Mr. Samit’s arrival, the company has clearly identified its pure OTT software offering,

RAVE, to the marketplace. We believe RAVE will build on its recent contract with BBC and

secure additional important customer wins this year. SeaChange’s OTT offering is differentiated

given its ability to not just stream content, but to also leverage the company’s video-on-demand

(VOD) expertise that enables consumers to easily access content libraries by combining

Adrenaline back-office software with Nitro’s front-end user interface.

We are impressed with SeaChange’s recent acquisition of Timeline Labs, introduced by Mr.

Samit. Timeline’s initiative with NewCoin augments the company’s OTT offering. NewCoin,

which partners with industry giants Univision, Tribune and Fox to address measurement

deficiencies in the local TV advertising market, leverages Timeline’s data gathering capabilities

and adds additional clarity to the logic behind that purchase. Non-linear, multi-screen viewing is

growing and local broadcasters need new tools to measure not just TV but the full viewing

audience in order to better monetize their content. Currently, broadcasters are concerned that

they are not being properly compensated for non-linear viewing, something NewCoin seeks to

address in conjunction with the analytics developed at Timeline. These announcements

underscore Mr. Samit’s vision to exploit SeaChange’s unique industry position and deep

industry contacts to grow the company beyond serving traditional cable companies to now

serve consumers in whichever format they choose to view content.

September 30, 2014

We invested because we believe the company is exceptionally well-positioned to take advantage

of a major secular shift in how consumers view content. SeaChange sits squarely in front of the

transition to “TV Everywhere” and has the technology and customer base to succeed. We

applaud the Board’s leadership, and CEO Raghu Rau in particular, for implementing a clear

strategy three years ago to exit non-core hardware and media services businesses and focus its

R&D budget solely on next-generation software.

Our investment thesis is as follows:

We believe Adrenalin is viewed as the best-in-class third-party back office VOD software

architecture. In three years, SeaChange’s next-generation software has been selected by

about 50 companies, covering roughly 50 million subscribers. We believe SeaChange’s

future cash flow stream is fairly predictable as its software is rolled out to these

subscribers over the next several years. As well, we estimate an additional 30 million

subscribers will be added to Adrenalin’s footprint. Many of these potential subscribers

are with customers still using SeaChange’s Axiom software, which is 15 years old.


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Operational stress on an antiquated system will increasingly force customers to

upgrade.

We believe the adoption of SeaChange’s Nucleus home-gateway software platform by

Liberty Global, the world’s largest cable operator, illustrates the technological strength

of this product offering. Liberty Global’s recent public comments in its second quarter

conference call underscore its excitement and commitment to rolling out Nucleus more

broadly throughout its subscriber base.

Industry contacts have commented on the elegance and strength of the Adrenalin back-

office and Nucleus home-gateway combination. The traction that this dual-offering is

gaining among providers, and SeaChange’s reputation as an expert in the emerging

industry standard RDK protocol, should be recognized in the marketplace with

additional design wins. This belief was underscored in our industry discussions at last

week’s Cable-Tec conference in Denver, CO.

SeaChange’s Infusion ad insertion software and its recent entry into the direct Over-The-

Top (OTT) marketplace provide additional ways for shareholders to win, in our opinion.

Infusion is now being deployed by Virgin Media, and SeaChange’s OTT strategy was

validated by its high profile win with BBC.

Cisco acquired NDS in 2012 for 5x revenue, and it acquired single point solution

company BNI Video in 2011 for an estimated 10x revenue. While not suggesting

SeaChange will warrant these multiples in a transaction, it is clear to us that the current

stock market valuation at less than 1x enterprise value/revenue represents significant

value. We believe that SeaChange is sitting in front of continued cable vendor

consolidation as hardware-centric companies are increasingly challenged to

differentiate themselves with software offerings.

Finally, recent revenue declines are unrelated to next-generation software products, but

rather have been due to the expected obsolescence of legacy software products,

principally Axiom. Legacy product revenue will be down to just 10% of total revenue at

the end of this year. The bottoming out of legacy software declines presents a unique

opportunity to acquire stock at current prices.


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04 | Paratek Pharmaceuticals, Inc. (Formerly Transcept Pharmaceuticals, Inc.)

September 05, 2013 As Transcept’s largest shareholder, we want to register with the Board our strong belief that pursuing an acquisition makes little sense while the company’s shares trade at a substantial discount to the cash on its balance sheet. The Board has the opportunity to heed the straightforward wisdom and common sense of Warren Buffett, or otherwise rationalize strategies that no real independent, intellectually honest person would subscribe to. Mr. Buffett’s reflections on the question of share buybacks are instructive and worth quoting at some length. •1980 Letter to Shareholders. According to Buffett, if a business is “…selling in the market place for less than intrinsic value, what more certain or more profitable utilization of capital can there be than significant enlargement of the interests of all owners at that bargain price? The competitive nature of corporate acquisition activity almost guarantees the payment of a full or frequently more than full price when a company buys the entire ownership of another enterprise.” The “full price” reality is even more of a concern in today’s environment of broad asset appreciation. •1984 Letter to Shareholders. Buffett argues clearly, and persuasively, for buybacks below intrinsic value, as opposed to pursuing investment narratives involving alleged synergies. “The obvious point involves basic arithmetic: major repurchases at prices well below per-share intrinsic value immediately increase, in a highly significant way, that value. When companies purchase their own stock, they often find it easy to get $2 of present value for $1. Corporate acquisition programs almost never do as well and, in a discouragingly large number of cases, fail to get anything close to $1 of value for each $1 expended.” Further, “A manager who consistently turns his back on repurchases, when these clearly are in the interests of owners, reveals more than he knows of his motivations. No matter how often or eloquently he mouths some public relations-inspired phrase such as ‘maximizing shareholder wealth’, the market correctly discounts assets lodged with him.” This appears to well represent the market’s current view of Transcept’s management. •1994 Letter to Shareholders. In this letter, Buffett talks about the “sad fact” that most acquisitions will turn out poorly for shareholders; “…they usually reduce the wealth of the acquirer’s shareholders, often to a substantial extent. That happens because the acquirer typically gives up more intrinsic value than it receives.” •2011 Letter to Shareholders. “I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated.” This is not rocket science and the persistency of Mr. Buffett’s strong preference for stock buy-

backs over speculative acquisitions, commented on in shareholder letters spanning decades,

suggest that basic arithmetic and common sense don’t change over time.


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05 | Transact Technologies Inc.

TRANSACT TECHNOLOGIES INC January 11, 2012

TransAct has a leadership position in the gaming industry, which has strong worldwide,

long-term secular growth prospects and is uniquely positioned to benefit from the

adoption of slot machines worldwide. With over half of the company’s gaming revenue

coming from international markets, TransAct’s #1 market share in both Asia and

Europe position the company to take advantage of growth in Macau, Singapore and

other international markets.

TransAct enjoys a duopoly environment with high barriers to entry in its gaming

segment. Moreover, TransAct’s technological leadership is underscored by its 65%+

share of current printer shipments to the North American gaming industry. In fact only

does the company participate in a duopoly, the data strongly suggests that it is gaining

significant NA market share.

New casinos are choosing TransAct and entering into exclusive agreements. The

recently opened Resorts World Casino at Aqueduct Racetrack in NYC chose TransAct

for 100% of its slot floor. In December 2011, the company announced that the Epic 950

printer was also selected exclusively by Revel in Atlantic City.

The company’s introduction of a software-centric product allows casinos to interact directly

with their slot machine customers and “touch” highly-regarded carded players with a

sophisticated couponing system that will generate recurring software revenue, which may be a

game-changer for the industry. In fact, the Director of Slot Operations for Resorts stated, “We

were pleased to choose the Epic 950 printer from TransAct for our casino floor due to its

features and functions and capability to be connected to EPICENTRAL in the future.”

Under the leadership of CEO Bart Shuldman, the company has innovated, diversified and

won business seemingly above its weight-class. For instance, the win three years ago in

designing and supplying printers to McDonald’s for their new grill initiative and then

subsequently winning their coffee bar printer business demonstrates the strength of

TransAct’s collaborative and innovative culture.

The company continues to enjoy a long sole-source relationship with lottery terminal

industry leader GTech Industries.

The company’s 2011 acquisition of Printrex further diversified the business into the

oil/gas market at an attractive price.

Lastly, the company has accomplished all of the above while remaining debt-free.

Notwithstanding the above attractive attributes, we think it is likely that the company’s shares

remain underappreciated, reflecting a micro-cap market discount that could persist for some

time. U.S. stock funds witnessed a net $75 billion outflow in 2011, with a similar outflow in

2010. Given unusual levels of volatility in the global economy, and Eurozone uncertainty, we

believe investors will continue to lessen their exposure to equities in general and to micro-cap

shares in particular. As a result, even promising and niche-dominant enterprises could be open


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to persistent and significant liquidity discounts. As well, the EPICENTRAL sales cycle is turning

out to be longer than management originally anticipated.

We believe there are investors that can see past the current market inefficiencies and

appreciate the intrinsic value inherent in TransAct. These investors would likely be willing to

purchase the entire company and offer shareholders an opportunity to realize substantial value

on their current holdings. We believe there are both strategic and financial investors that would

understand the opportunity and want to capitalize on the existing market

environment. Corporations are sitting on record amounts of cash, earning little in the way of

interest income, and are interested in deploying their cash into higher returning investments,

much like TransAct did with its 2011 purchase of Printrex. Further, many financial buyers are

flush with cash and are looking to invest in stories that combine mature revenue streams with

identifiable secular growth opportunities, both of which are present at TransAct. When interest

rates begin to rise, the incentives to more opportunistically deploy cash will

diminish. Additionally, strategic buyers could provide greater resources to exploit additional

verticals, while providing more growth capital to roll-out EPICENTRAL in a more timely

fashion. In both instances, we believe buyers would be very attracted to a debt-free, positive

cash flow story that is well positioned to take advantage of growth in the gaming industry, both

domestically and internationally. Finally, management would be freed from the demands of

public ownership and able to focus 100% of its time on growing the business without the

diversion of such things as managing street expectations.


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06 | Tecumseh Products co. (acquired)

05/15/2012

New product introductions have been impressive. The new AE2 has received wide praise from

our customer contacts. The Company has expanded into the variable speed market with its

Masterflux brand. Varying speed compressors are differentiating, are not commodity-like, and

are applicable in a number of situations where efficiency is paramount, i.e., battery coolers,

electronics, medical/scientific. The Company’s Masterflux compressor possesses patented

controller algorithms.

Over 50 industry players were interviewed, including customers, competitors, engineers and

trade association officials, to assess the value of Tecumseh’s products in the

marketplace. Ultimately, this consulting firm valued Tecumseh between $237 and $334 million

(roughly $13 to $16 share) on a liquidation basis. In fact, we believe the Company possesses a

valuable going-concern commercial refrigeration compressor business, with $500 million plus

current revenues (50% of sales come from recurring aftermarket sales) – which is roughly 60%

of firm-wide sales, and is primarily generated in North America and Europe - that could

experience a 5% operating margin on its own, resulting in $25 million plus in operating income

that would be sheltered by the Company’s $394 million in carry-forward NOLs. Our summary

sum of the parts analysis is as follows:

Hyderabad, India (“HYD”) property (55 acres strategically located off of HWY 9, in close

proximity to the New and Old Central Business Districts as well as the city’s IT Park):

$67 million (this value was determined after applying a large track discount with an

immediate sale focus). Other sources, stemming from my own visit to HYD last

December, indicated a value of $2 million an acre for the 40 acres with frontage to

National Highway 9 and $0.75 million an acre for the 15 acre site sitting behind the

occupied parcel. In addition to being home to older technology companies like

Microsoft and Dell, HYD is increasingly the first choice for emerging 21st century

companies. Google chose HYD for its India headquarters. In 2010, Facebook chose HYD

for its first Asian office. HYD is known for its educated population, urban environment

and the business friendly climate found in Andhra Pradesh, and HYD in particular, and

has emerged as a leading destination for Western and Asian companies wanting a

presence in India. The real estate piece of the Tecumseh analysis we commissioned was

conducted by a leading worldwide real estate brokerage firm with offices in HYD. The

Tecumseh property area has emerged as a real estate development destination with a

focus on residential, commercial and IT developments. This region is close to the

National Highway 7/Nagpur Highway with good connectivity to major cities in India.

This property is the biggest parcel available in the area and our research indicates it is

well suited to be sub-divided for maximum value realization. Our research further

indicates that the local government is in fact actively supporting the transformation of


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the Balanagar Industrial Development area from an industrial oriented focus to

commercial, residential and IT development. The property sits near densely populated

residential areas like Kukatpally Housing Board, Ameerpet, Sanathnagar and Sanjeev

Reddy Nagar. Government zoning definitions have favorably changed and “Industrial”

classification now includes “IT” developments. (Residential, the highest use value,

would require a new zoning designation.) Adjacent to the Tecumseh property is a 3.3

acre parcel (originally industrial, recently rezoned as residential) that is now being

developed as higher-end residential housing. We believe it is possible that the

property’s highest value may result from entering into a joint venture with a Pan Asian

developer in order to participate in what we believe is significant development upside.

An immediate sale in the $1 million to $1.5 million per acre range may be selling out

cheap given the uniqueness of the asset, government support for development in the

area and the overall dynamics of HYD as an emerging Tier 1 city of India. The Company

could receive some upfront cash from a JV partner in this scenario. Finally, current

prices do not represent “bubble” prices, quite the contrary. Our research indicates that

this parcel’s value is likely one-half of peak pricing reached in 2007 (Rs 40,000 per sq

yard versus Rs 20,000 per square yard today for smaller parcels in the specific area of

the Company’s property). HYD remains India’s value proposition compared to Delhi

and Mumbai, but that seems to be changing. From a May 10, 2012 New York Times

article, 36 Hours in Hyderabad, India: “Situated in the southern state of Andhra Pradesh,

Hyderabad is a juxtaposition of old and new unlike any other city in India…. In the past,

Hyderabad was often overlooked as a tourism destination. But in recent years, sleek

hotels, restaurants and night spots that cater to the 20 and 30 somethings working in

the information technology industry have been attracting jet-setters from around the

world who come to discover the past and experience the rapidly evolving present.”

Plant in Ballabhgarh, Haryana (near Delhi): $25 to $30 million. As confirmed on the 1st

quarter 2012 conference call, this plant is expected to operate at full capacity this year,

which implies sales of about $70 million, up dramatically from 2011. Also confirmed on

Company’s 1st quarter call, this plant’s capacity is now estimated to be significantly less

dependent on Whirlpool than was the case just a few years ago. The Company’s new

“TH Stretch” and “THK DC Compass” products appear to be gaining the attention of

customers. In my tour of this plant, I was happy to see first-hand the Company’s

aggressive moves at reducing steel, copper and silver content and increasing aluminum

content in order to drive higher gross margins. As well, we applaud the Company for

having sold 5 excess acres in 2011 for roughly $0.7 million per acre, which generated

over $3 million.

Brazilian assets (a foundry and compressor plant): $40 to $60 million. Exit foundry and

plant to allow the Company to outsource the specific manufacturing of commercial

refrigeration compressors and higher-end R&F compressors. To be clear, a sufficient

presence in Brazil should be maintained in order to continue to receive non-income tax

refunds, e.g., a distribution center.

Non-Income Tax Refunds: $48 million. These payments, primarily from the Brazilian

government, have been consistent annual (December) events. For instance, the

Company received $37.2 million of refundable Brazilian non-income taxes in 2011.


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These values compare to a current market capitalization of roughly $60 million. The

Company’s balance sheet, as of March 31, 2012, is sufficiently liquid: $39.2 million in

cash, $6.1 million in restricted cash, $48 million in non-income tax refunds ($22.4

million of which is current) less $59.2 million debt. The Company has a credit line of

$45 million with PNC Bank expiring April 21, 2015 (borrowings under this facility

totaled $10.3 million with an additional $11.9 million of borrowing capacity under the

base formula as of March 31, 2012).

It is our belief that the Company’s full intrinsic value resides in a post-asset sale

narrative, coupled with a modest multiple to the cash flow generated by its commercial

refrigeration business, sheltered by Company NOLs , resulting in a total value exceeding

liquidation value.

The Board did an excellent job in putting in place the current management team. Jim Connor,

CEO, and Janice Stipp, CFO, strike us as honest and talented and their significant restructuring

experience makes them uniquely qualified to execute a turnaround. Prior to joining Tecumseh

in January 2010, Mr. Connor was a managing director of BBK, Ltd, a business and turnaround

management consulting firm. Prior to joining Tecumseh in October 2011, Ms. Stipp served as

CFO of Acument Global Technologies Corporation, a portfolio company of Platinum Equity, LLC,

a private equity firm, where

Tecumseh is one of only two companies that have greater than 10% market share of the $5.5

billion commercial refrigeration compressor market (Embraco ~20%; Tecumseh ~15%) and

benefits from the industry’s interest in durable, low-cost reciprocating compressors. The

commercial refrigeration compressor market is expected to grow between 4% and 6% annually

over the next several years from roughly 35 million units in 2010 to nearly 60 million units in

2020. Moreover, over 60% of the commercial compressor market is in North America and

Europe, both places with a strong Tecumseh presence. Whereas household R&F is a low

margin business with little opportunity for differentiation, and no repeatable aftermarket

business, commercial refrigeration is characterized by more customization (contrary to the

Chinese model of mass production) and aftermarket recurring revenue (which currently

represents 50% plus of the company’s commercial revenue as indicated by Mr. Connor on the

1st quarter conference call). Tecumseh’s strength and history lies in supplying compressors

used in cold display cases, beverage and water coolers, walk-in refrigerators and freezers and

vending machines. These compressors burn out, and get replaced.

Danfoss, a top ten competitor in the commercial compressor market, did a poor job, in our

opinion, of exiting its R&F business when it sold to Aurelius AG (an industry consolidator) in

2010 because it did not retain its high-end R&F business. As a result, its commercial customers

are forced to dual-source, which provides an opportunity for Tecumseh to take share.

Not long ago I personally sat in a commercial compressor distribution store to witness first-

hand the strength and persistency of the Company’s after-market business. Refrigeration

professionals came in with Tecumseh AE compressors from local businesses and requested

Tecumseh replacements. Alternative replacements can be used, but require additional labor to

properly fit. Thus, the business possesses what many investors covet in their investments:


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recurring revenue. Roughly 20 million of the annual 35 million commercial compressor

shipments go into North America and Europe, where Tecumseh has long held a market-leading

presence in the commercial refrigeration space.

To be clear, in addition to the North American and European commercial business, we believe

the Company possesses a significant opportunity, in India, in its recently introduced air-

conditioning outdoor condensing unit (compressor, condenser and fittings),

currently manufactured in HYD. There is increasing interest in this type of product from major

manufacturers and we believe this product offering should be retained by the Company

notwithstanding our strong belief that the HYD property’s best value will be realized in an

outright sale or a joint venture development opportunity. Our research indicates that the actual

manufacturing requirement of this product could easily be outsourced. To our knowledge,

Copeland does not have a product offering in this category. Air conditioning penetration in

India is about 3% and is expected to grow to 50% by 2020, on par with the penetration rate in

China today. We understand that the Company’s HYD facility possesses one of only two

privately operated government-approved compressor efficiency standard laboratories in the

country. We believe this laboratory enhances the Company’s credibility within the OEM market

as being a high quality manufacturer capable of delivering the energy efficiency standards

demanded by customers given the government’s strong interest in energy efficiency as a result

of significant power-grid constraints. We believe given the exact placement on the Company’s

campus, the testing facility could be carved out or relocated to maintain its value as an outdoor

condensing unit sales tool as well to retain the revenue it generates.

We think the Ballabhgarh R&F plant is a valuable asset, especially to Asian competitors

interested in the Indian market. By 2028, India’s population is expected to surpass

China. Given the current low 9% penetration rate for refrigeration in India, the demand for

household R&F compressors will grow with estimated 2020 penetration to be 50%, as in the

case of air-conditioning, and also on par with the penetration rate in China today. We

understand that Tecumseh is the sole non-captive compressor manufacturer in India. The

Ballabhgarh plant struck me as an impressive, exceptionally well maintained and operated

facility, sitting on a well-groomed 15 acre campus. We understand that this plant is the only

rotary compressor manufacturing plant in India and is the only reciprocating compressor plant

for refrigeration in India. Reciprocating compressors are well known for their durability and

longevity and are very popular for use in vending machines and ice machines. Our research

indicates that this plant’s commercial capacity is in fact growing and is now approaching 20% of

this facility given the Company’s long relationship with cooler manufacturers in India and the

Middle East. The plant’s growing commercial refrigeration business should be helpful in

marketing this valuable asset to potential buyers.

After a long anticipated development of a cold-chain in India, which is necessary to drive end-

market demand for residential refrigeration, one is finally well underway. With the growing

construction of India’s highway system, cold trucks can now be seen given the growing presence

of grocery and convenience stores possessing refrigerated/frozen goods. Further, with labor

costs rising in China, an Indian centered plant is well positioned to be competitive for years to

come and more profitably serve the Indian market. Tecumseh’s brand is solid in both India and


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the Middle East (which serves as the end-market for a significant amount of the Ballabhgarh

plant’s capacity). Bottom line, we believe this plant can be easily monetized.

In summary, having conducted in-depth research on Tecumseh, which has been validated by

well-regarded third-party research, our conclusion is that the Company should exit the majority

of its household R&F business, which is the source of its cash burn.


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EXHIBITS-

COMPILATION OF

LETTERS Company Name Date

01 Covisint Corporation June 15, 2016

May 18, 2016

02 Rosetta Stone, Inc. June 22, 2015

03 SeaChange International Inc January 28, 2015

September 29, 2014

04 Paratek Pharmaceuticals, Inc. December 16, 2013

December 3, 2013

October 3, 2013

September 19, 2013

September 04, 2013

05 Tecumseh Products Company February 20, 2013

January 22, 2013

January 14, 2013

May 14, 2012

06 TransAct Technologies, Incorporated November 7, 2012

April 10, 2012

January 11, 2012

07 KVH Industries, Inc. June 27, 2007


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01 | COVISINT CORP

SEC Link

June 15, 2016

Mr. Sam Inman

Chief Executive Officer

Covisint Corporation

26533 Evergreen Rd., Suite 500

Southfield, MI 48076

Dear Sam:

Per our telephone conversation last week on June 6th, I want to reiterate our position that a

costly proxy fight does not serve shareholders and should be avoided. To that end, simply

naming two new independent directors to run a strategic process and report their findings back

to the Board, and to shareholders, seems very reasonable. In this scenario, the company can

continue marketing its platform, of which you seem to remain quite confident, and shareholders

get to see what a third party would be willing to pay.

Upon returning from last week’s TU-Automotive Telematics conference in Novi, Michigan, it is

our belief that the company will warrant a significant premium to its current stock price in a

sale to a strategic buyer. Underscoring the company’s belief in the strength of its Identity

Management tools and its IoT platform, we confirmed that industry leaders, partners and

customers remain very positive in the platform’s capabilities. Industry contacts who are deeply

familiar with competing platforms – Telit, Aeris, PTC’s ThingWorx, GE’s Predix and IBM’s

Bluemix (the company’s chief competitor, as we understand, in last year’s Jaguar Land Rover

contract win) – indicate to us the superior depth, complexity and sophistication of the

company’s platform. A key industry participant said flatly that the Covisint platform was the

best platform among these leading IoT platforms. We spoke directly to key customers who

underscored their positive view of the platform’s capabilities, including a major automobile

manufacturer who expects to expand its relationship with the company. We were also happy to

learn that a major beverage manufacturer appears to be a likely new portal customer.

Nonetheless, the primary reasons put forth for the lack of new subscription revenue were a lack

of brand awareness and insufficient marketing heft. Additionally, the 6 month delay in

introducing the company’s IoT platform, finally rolled out in January of 2016, appears to have

been a costly event. Competitors with less robust platforms are described as possessing

superior marketing and brand strength. In the absence of new subscription revenue, we believe

the company’s platform would be far better leveraged in the hands of a stronger, better

capitalized entity. Recent comparable transactions suggest a sales price would likely be

meaningfully higher than the current share price. To wit, in 2013, PTC purchased the IoT

platform, and Covisint competitor, ThingWorx for $112 million, plus a possible earn-out of up to

$18 million. ThingWorx was reported to have only $10 million in revenue in the 12 months

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following the acquisition. Multiple industry contacts inform us that the ThingWorx platform is

two notches below Covisint’s platform’s capabilities.

One thing remains clear - shareholders should have the opportunity to make a decision as to

whether or not to sell the company. After all, we own the company. The current Board owns

very little stock and should not thwart the will of multiple large shareholders.

Respectfully,

/s/ Jim Roumell

Jim Roumell

President

Roumell Asset Management, LLC

02 | COVISINT CORP

SEC Link

May 18, 2016

Board of Directors

Covisint Corporation

26533 Evergreen Rd., Suite 500

Southfield, MI 48076

Roumell Asset Management, LLC owns approximately two million shares representing

approximately 5% of Covisint’s outstanding shares. The fiduciary responsibility of the

company’s directors to run an ethical operation that creates shareholder value should be the

primary and constant focus of the Board. It is now our strong belief that the company should

immediately hire a nationally recognized investment banker to review the company’s strategic

options, including the potential sale of the company.

To be clear, Covisint boasts some compelling attributes. First, the company’s technology

platform is strong and highly recognized in the automobile industry, underscored by long-term

contracts. Second, it possesses a highly recurring subscription revenue stream, with 95%

renewal rates, coupled with gross margins now over 50%, thanks to the company’s successful

decision to outsource low-margin service work under the leadership of the company’s

Chairman, Mr. Sam Inman III. Nonetheless, while it is true that the company has effectively

replaced the revenue of the healthcare business it exited two years ago, the company has been

unable to grow its subscription revenue sufficiently to justify its cost structure as a public

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company. Given the very high retention rate of its current revenue stream, we have little doubt

that the company would be highly attractive to a strategic or financial investor.

Further, we believe the company should immediately appoint at least two independent

directors to oversee the strategic review process to insure independence and provide

shareholders assurance of a genuine and sound process. We believe other Covisint

shareholders will be supportive of our idea and encourage all shareholders to immediately

make their views known to the Board.

Sincerely,

/s/ James C. Roumell

President


03 | ROSETTA STONE INC

SEC Link

June 22, 2015

Board of Directors

Rosetta Stone, Inc.

1919 N. Lynne Street, Suite 700

Arlington, VA 22209-1743

Dear Board of Directors:

Roumell Asset Management, LLC owns over 5% of Rosetta Stone’s (RST) outstanding shares. We

are patient, long-term investors in well-capitalized out-of-favor, overlooked and misunderstood

securities. We believe RST fits nicely in our portfolio and remains significantly undervalued. We

understand why certain private equity firms would be reaching out to the company now given

the company’s current market capitalization and recent operational challenges. However, we

would only be supportive of a buyout that fairly represents the value of the company and we

believe that amount is at a substantial premium to the current price.

Recently we met with new interim CEO, John Hass, Chairman Patrick Gross and Global

Enterprise & Education (E&E) President, Judy Verses. It is our view that these individuals make

up an exceptionally strong company nucleus. They have a well-articulated, thoughtful and

reasonable plan toward profitability with management incentives properly in place. Chairman

Gross has impressed us an astute businessman with a long record of success and

temperamentally fit to oversee what we believe is a very exciting new phase for the company.

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Mr. Hass, with his Goldman Sachs and operational background, appears to us to be well-suited

to take advantage of RST’s market opportunity, particularly with the assistance of experienced

cost-rationalizer Al Angrisani. To wit, he is proceeding with laser-like focus on the company’s

E&E business and combining three current technology platforms into one, which will result in

significant cost savings. Mr. Hass understands that the company’s brand is a valuable asset and

views Lexia as a likely homerun for the company. Lexia now has eight consecutive quarters of

double-digit year-over-year revenue growth with mid-90% renewal rates. The company’s

decision to combine Lexia Reading and K-12 language learning into Language Arts (LA), under

the direction of proven education builder Mr. Nick Gaehde, makes great sense. Our field checks

indicate that Lexia is being very well received in the marketplace and winning business as a

result of its demonstrated efficacy through measureable results and consequently becoming

more widely known among educators purchasing reading software. Lexia’s revenue has grown

from $15 million at the time of purchase to today’s $25 million run rate. Through discussions

with knowledgeable investors in the education space, we believe the LA segment itself, roughly

$65 million in revenue, is worth more than the company’s current enterprise value. M&A

transactions in the space are known to the board and don’t need to be reiterated here.

We were pleased to learn that the company does not view Fit Brains as core to its mission. Given

that Fit Brains’ revenue has grown from $2 million to $5 million, it is our belief that selling it for

at least its $12 million purchase price should be attainable and provide a nice cash infusion.

In summary, we are very pleased with the Management team’s renewed focus on returning RST

to growth and profitability. We also reiterate our patient approach to investing and allowing

management time to execute their strategy. However, ultimately Management and the Board of

course have a duty to maximize shareholder value and that includes the timely analysis and

consideration of all offers to purchase the company at a fair price. We can certainly see a

scenario where the combination into a larger organization would create massive value. As such,

we believe private equity or a strategic buyer would pay a price at a substantial premium to

today’s value. We strongly encourage Management and the Board to address all existing

acquisition inquiries. Moreover, we believe an investment banking firm should be immediately

engaged to run an independent process and communicate the results of that process back to

shareholders in a timely fashion and certainly within 90 days.

We appreciate the significant effort extended by the Board and Management team. We look

forward to supporting the success of RST.

Sincerely,



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04 | SEACHANGE INTERNATIONAL INC

SEC Link

January 28, 2015

Board of Directors

SeaChange International Inc

50 Nagog Park

Acton, MA 01720

Dear Members of the Board:

After watching the initial actions of newly appointed CEO, Jay Samit, over the past several

months, and after a lengthy meeting with Mr. Samit last week, we want to applaud the board’s

decision to hire him. Mr. Samit’s rich background in media and technology, his proven success

as an industry executive, and the energy he is bringing to the company is welcomed by RAM.

Since Mr. Samit’s arrival, the company has clearly identified its pure OTT software offering,

RAVE, to the marketplace. We believe RAVE will build on its recent contract with BBC and

secure additional important customer wins this year. SeaChange’s OTT offering is differentiated

given its ability to not just stream content, but to also leverage the company’s video-on-demand

(VOD) expertise that enables consumers to easily access content libraries by combining

Adrenaline back-office software with Nitro’s front-end user interface.

We are impressed with SeaChange’s recent acquisition of Timeline Labs, introduced by Mr.

Samit. Timeline’s initiative with NewCoin augments the company’s OTT offering. NewCoin,

which partners with industry giants Univision, Tribune and Fox to address measurement

deficiencies in the local TV advertising market, leverages Timeline’s data gathering capabilities

and adds additional clarity to the logic behind that purchase. Non-linear, multi-screen viewing is

growing and local broadcasters need new tools to measure not just TV but the full viewing

audience in order to better monetize their content. Currently, broadcasters are concerned that

they are not being properly compensated for non-linear viewing, something NewCoin seeks to

address in conjunction with the analytics developed at Timeline. These announcements

underscore Mr. Samit’s vision to exploit SeaChange’s unique industry position and deep

industry contacts to grow the company beyond serving traditional cable companies to now

serve consumers in whichever format they choose to view content.

Important to RAM, management has assured us that the balance sheet will remain cash-rich and

that the company is focused on rationalizing its R&D budget. We are supportive of the board’s

direction.

Sincerely,

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James C. Roumell

05 | SEACHANGE INTERNATIONAL INC

SEC Link

September 29, 2014

Board of Directors

SeaChange International Inc.

50 Nagog Park

Acton, MA 01720

To Board of Directors:

Roumell Asset Management, LLC owns over two million shares, approximately six percent, of

SeaChange’s common stock. We invested because we believe the company is exceptionally well-

positioned to take advantage of a major secular shift in how consumers view

content. SeaChange sits squarely in front of the transition to “TV Everywhere” and has the

technology and customer base to succeed. We applaud the Board’s leadership, and CEO Raghu

Rau in particular, for implementing a clear strategy three years ago to exit non-core hardware

and media services businesses and focus its R&D budget solely on next-generation software.

Our investment thesis is as follows:

We believe Adrenalin is viewed as the best-in-class third-party back office VOD

software architecture. In three years, SeaChange’s next-generation software has

been selected by about 50 companies, covering roughly 50 million subscribers. We

believe SeaChange’s future cash flow stream is fairly predictable as its software is

rolled out to these subscribers over the next several years. As well, we estimate an

additional 30 million subscribers will be added to Adrenalin’s footprint. Many of

these potential subscribers are with customers still using SeaChange’s Axiom

software, which is 15 years old. Operational stress on an antiquated system will

increasingly force customers to upgrade.

We believe the adoption of SeaChange’s Nucleus home-gateway software platform

by Liberty Global, the world’s largest cable operator, illustrates the technological

strength of this product offering. Liberty Global’s recent public comments in its

second quarter conference call underscore its excitement and commitment to rolling

out Nucleus more broadly throughout its subscriber base.

Industry contacts have commented on the elegance and strength of the Adrenalin

back-office and Nucleus home-gateway combination. The traction that this dual-

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offering is gaining among providers, and SeaChange’s reputation as an expert in the

emerging industry standard RDK protocol, should be recognized in the marketplace

with additional design wins. This belief was underscored in our industry

discussions at last week’s Cable-Tec conference in Denver, CO.

SeaChange’s Infusion ad insertion software and its recent entry into the direct Over-

The-Top (OTT) marketplace provide additional ways for shareholders to win, in our

opinion. Infusion is now being deployed by Virgin Media, and SeaChange’s OTT

strategy was validated by its high profile win with BBC.

Cisco acquired NDS in 2012 for 5x revenue, and it acquired single point solution

company BNI Video in 2011 for an estimated 10x revenue. While not suggesting

SeaChange will warrant these multiples in a transaction, it is clear to us that the

current stock market valuation at less than 1x enterprise value/revenue represents

significant value. We believe that SeaChange is sitting in front of continued cable

vendor consolidation as hardware-centric companies are increasingly challenged to

differentiate themselves with software offerings.

Finally, recent revenue declines are unrelated to next-generation software products,

but rather have been due to the expected obsolescence of legacy software products,

principally Axiom. Legacy product revenue will be down to just 10% of total

revenue at the end of this year. The bottoming out of legacy software declines

presents a unique opportunity to acquire stock at current prices.

We believe the Board ought to more fully exercise its own share buy-back plan. The buy-back

was increased earlier this year to $40 million, but we are disappointed that thus far a relatively

limited number of shares have actually been purchased. In our minds, the company needs no

more than $50 million in cash retained on its balance sheet and there are few capital allocation

options available that are superior to simply buying back stock given the company’s current

valuation. To wit, we want to own more of SeaChange’s actual business and own less cash. Put

simply, every share bought back near current levels will add value to existing shareholders and

we urge the Board to fully implement the company’s current buy-back plan. We encourage

other shareholders to express their views to the Board as well. To reiterate, we are strong

supporters of Mr. Rau and his team’s platform software vision, but we want to stress that capital

allocation needs to be addressed in addition to product execution.

Regards,

/s/ Jim Roumell



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06 | PARATEK PHARMACEUTICALS, INC.

SEC Link

December 16, 2013

Board of Directors

Transcept Pharmaceuticals, Inc.

1003 W. Cutting Blvd

Suite 110

Pt. Richmond, CA 94804


Roumell Asset Management, LLC filed a 13D on September 5, 2013 to begin a dialogue with the

board of directors to effectuate a change in the company’s direction. We recommended that the

company make a substantial cash distribution to shareholders, reduce expenses and begin a

strategic process that would ultimately result in the company being merged, sold or

liquidated. To that end, we believe the company has taken a number of positive and noteworthy

steps and we applaud those efforts. The company has in fact implemented a meaningful

workforce reduction, clearly identified its intention to merge, sell or liquidate and ended costly

human trials on its DHE initiative. Importantly, we were informed that the board has voted to

invite Matthew Loar, who we nominated on December 3, to join the board. We believe Mr. Loar

is exceptionally qualified, and his independent perspective will be an asset to all

shareholders. Mr. Loar is also a Transcept shareholder.

Moreover, we believe the company’s current process is a good one. We believe possible

reverse-merger alternatives ought to be explored in the context of a substantial cash

distribution to shareholders. Further, any reverse-merger candidate should be required to

invest additional capital into the new company to insure alignment of interests. The right

reverse-merger candidate would have the added benefit of allowing shareholders continued

optionality on Intermezzo.

As a result of these actions, and our cautious optimism that the company has a credible, value-

enhancing process underway, we have decided to abstain from voting in the upcoming

December 19th special shareholder meeting. We will continue to carefully monitor company

actions and act accordingly.

Lastly, we continue to believe Retrophin’s offer to buy Transcept for $4 per share was

inadequate. We believe the company is taking the right steps to realize far greater value from

the company’s assets.

ROUMELL ASSET MANAGEMENT, LLC

/s/ James C. Roumell, President.

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SEC Link

December 3, 2013

Secretary and Board of Directors


1003 W. Cutting Blvd., Suite #110

Point Richmond, CA 94804

Gentlemen,

Roumell Asset Management, LLC, Transcept’s largest shareholder, would like to nominate two

highly-qualified individuals to serve as members of the company’s board of directors. We

request that these individuals be nominated for election to the board and included in the

company’s proxy materials for its next annual meeting of shareholders in 2014.

Mr. Matthew Loar and Mr. Gerald Hellerman are eminently qualified to join Transept’s

board. Each has the requisite experience to add tremendous value to Transcept’s stated goal of

maximizing shareholder value in a timely manner. Mr. Loar has ten years’ experience as a CFO

with publicly-traded biopharmaceutical companies. Mr. Loar has been a key player in

completing a number of corporate collaborations for drugs in development, renegotiating

existing agreements and, in two instances, assuming all operating responsibilities of CEO. Mr.

Loar is 50 years of age and his current work and residence address is 322 Castilian Way, San

Mateo, California, 94402. His principal occupation currently is an independent financial

consultant, and he also serves on the board of Neurobiological Technologies, Inc. Mr. Loar

beneficially owns 54,755 shares of Transcept’s common stock.

Mr. Hellerman is 76 years of age and has a long and highly distinguished career that has

included extensive private and governmental experience. He received a number of performance

awards at the U.S. Department of Justice (“DOJ”), where he served as the Chief Financial Analyst

for the Antitrust Division and provided financial and corporate assistance to other DOJ

Divisions. Mr. Hellerman currently sits on the boards of five companies and has extensive

experience chairing company audit committees. Mr. Hellerman’s work and residence address is

5431 NW 21st Avenue, Boca Raton, Florida, 33496. He has been Managing Director of

Hellerman Associates for approximately 20 years. Hellerman Associates has provided financial

consulting and litigation support services, including expert testimony to law firms, investors,

DOJ, the Internal Revenue Service and the Department of Commerce. Assignments have

included financial and corporate analysis, corporate control, divesture, valuation, bankruptcy

reorganization and fraudulent transfer issues. Mr. Hellerman does not beneficially own any

Transcept securities.

We are separately sending you questionnaires completed by each of Mr. Loar and Mr.

Hellerman, which contain all of the information you should need to determine their respective

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qualifications andindependence. In the questionnaires, both have consented to being named in

the company’s proxy materials and agreed to serve as members of the company’s board of

directors if elected. Mr. Loar and Mr. Hellerman are willing to speak or meet with members of

the company’s board of directors, particularly members of the Nominating and Corporate

Governance Committee. Please note that there are no arrangements or understandings

between Mr. Loar and Mr. Hellerman or among Mr. Loar, Mr. Hellerman and Roumell Asset

Management with respect to serving on the Transcept board, other than their willingness to

serve at our request.

As indicated on our Form 4 filed on November 27, 2013 and submitted to the company on that

date, Roumell Asset Management beneficially owns over 1.9 million Transcept shares and has

beneficially owned over 5% of the company’s outstanding shares for more than a year. Other

than shares sold or transferred at the request of clients, Roumell Asset Management currently

intends to hold its Transcept shares through the date of the next annual meeting of

shareholders.

Sincerely,

ROUMELL ASSET MANGAGEMENT, LLC


James C. Roumell, President


SEC Link

October 3, 2013

Board of Directors



Suite 110


Transcept Pharmaceutical’s decision to partner with Shin Nippon Biomedical Laboratories, Ltd

(“SNBL”) is an astoundingly poor capital allocation decision, in addition to being dismissive of

its shareholder base. Major shareholders have expressed clear dissatisfaction with this

management team and the board of directors to no avail. Moreover, we have not witnessed one

independent shareholder step forward in support of management. Two weeks ago we

suggested to Mr. Oclassen and Mr. Raab that the company call a special meeting and let

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shareholders vote on whether to pursue an acquisition given the growing chorus of voices

against such a decision. Further, we made clear that Roumell Asset Management would commit

to live by the results of that vote if a majority of shareholders voted in favor of an

acquisition. The company evidently does not believe it could make a case to its shareholder

base, within a democratic process, and prevail. We find management’s and the board’s actions

to be dismissive of shareholders’ expressed concerns and will not idly stand by to this level of

shareholder disregard.

The deal with SNBL serves two interests. First, it’s a highly attractive, no-risk deal for

SNBL. Second, it serves Transcept’s management and board as a purported reason to exist as a

going-concern and thereby retain their jobs. Management would have us believe that Transcept

can invest $25 million (including estimated development costs) and somehow hit it big in the

migraine market. Migraines are a common ailment, with a large worldwide opportunity (as the

company cleverly notes), and as a result has been heavily researched and invested in by major,

far better capitalized companies than Transcept. It is highly naïve, or misleading, to suggest that

a $25 million investment can somehow be the solution to this common problem. Though

Intermezzo had a similar dynamic (which has, in fact, failed by all company standards), it was

nonetheless an approved drug at the time of investment by many current shareholders. If the

chances of success are so great for TO-2070, why wouldn’t SNBL, a company ten times the size

of Transcept, founded in 1957, pursue this initiative on its own? The reasons seem clear: the

odds of success are small and, consequently, SNBL has structured a deal wherein they get paid

an initial $1 million, outsource development costs, realize further milestone payments and

create a customer. To wit, “The partners anticipate entering into further agreements under

which SNBL would supply TSPT with nasal powder delivery devices and provide TSPT with

certain preclinical and clinical services to support TO-2070 development.”1 No doubt, SNBL

shareholders have been well served by its board and management.

Mr. Oclassen has repeatedly indicated that the company is focusing on late stage drugs, yet TO-

2070 is an early stage (preclinical) drug, albeit with an active ingredient that is already

approved. While it is true that the company is not spending much money up-front, they

curiously did not disclose anticipated development costs. They will likely spend up to $25

million on trials ($30 million was spent for development and trials for Intermezzo), the first of

which is scheduled for the second half of 2014. It will be at least 18 months before the FDA

comments on the results of that trial. Over that time, the company will spend approximately

$27 million on G&A, at the current burn rate. Thus, we could easily see half the cash or more

disappear over the next 18 months. There is no guarantee of approval, much less commercial

success. SNBL’s disinterest in going it alone, something it could well afford, is instructive of how

a well-respected, seasoned pharmaceutical company handicaps the probability of success.

Against the back-drop of the company’s reckless gamble is a route for shareholders to realize

substantial value. Retrophin’s offer suggests private market interest in Intermezzo today. This

company’s management team has had their chance and they should stop pursuing their own

interests. This board needs to step up on behalf of shareholders. This is America, and its most

fundamental corporate value – the vote - should be honored in a special meeting. As we argued

in our last letter, the board should immediately hire an investment bank to provide a fair,

transparent and open auction. Retrophin’s current offer of $4 per share, which the board


28


rejected as “not in the best interests of Transcept or its shareholders”, is inadequate in our

opinion, and we believe will be trumped in a fair auction.

In fact, a vote occurs daily in investors’ view of Transcept’s management and board. At a time

when the U.S. stock market trades at record levels, it is quite a distinction to have Transcept

shares trade below net cash. Investors think so poorly of this management team that it actually

assigns a negative value to their presence. The market’s reaction to the SNBL deal is instructive

of what’s in store for shareholders going forward if the board does not change direction – a deep

discount to a steadily declining cash balance. Yet still, management persists in wanting to fight

on with shareholders’ money.

The board of directors is comprised of the following individuals in addition to Mssrs. Raab and

Oclassen: Thomas Dietz, Chris Ehrlich, Thomas Kiley, Jake Nunn and Frederick Ruegsegger. We

invite any and all directors to publicly make a case as to why they are voting to pursue a

speculative acquisition (all pharmaceutical pursuits are speculative) in lieu of a ready-made

path for shareholders to maximize value for their holdings. Investors invested in Intermezzo, it

has not worked out as planned, and investors want to move on with their capital. Prior to this

acquisition, why had you, as directors and stewards of the company, almost never bought

Transcept stock on the open-market? If you believe in the company’s new direction, why are

you not buying stock now? And in light of the company’s results this year, how could you in

good conscience recently award management stock option grants, off schedule, with a $2.93

strike price? Based on the board’s precedent, if Transcept’s stock trades for $2 per share next

year, shareholders will be assaulted with another dilutive option issuance since management

evidently cannot be counted on if its options are underwater. Further, with so little ownership

of stock yourselves, how can you in good conscience deny the company’s actual shareholders

from a vote to decide the company’s way forward?

We encourage all shareholders to publicly make their views known to allow the board, and their

investors for those managing outside funds, to know where they stand. Finally, fellow

shareholders should know that the recent actions Roumell Asset Management has taken were

not decided casually. In over 15 years, this is only the third time we have filed a 13D filing

encouraging corporate change out of over 200 equity investments. We are not “quick-buck”

investors. Thus, it is an exceptionally rare event for us to determine that company actions are

so antithetical to investor interests to demand our active involvement. If investors would like to

learn more about Roumell Asset Management before supporting our approach, please visit

www.roumellasset.com.

Sincerely,




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SEC Link

September 19, 2013

Board of Directors



Suite 110


Roumell Asset Management is Transcept’s largest shareholder. In light of Retrophin, Inc.’s offer

to purchase the company on September 18, 2013, it is incumbent upon the Board to hire an

investment banker to solicit additional interest. It is the fiduciary duty of this Board to begin

this process immediately. We believe the Retrophin offer of $4 per share is woefully

inadequate, as it is basically a return of the company’s cash with little or no value ascribed to

Intermezzo. To be clear, we no longer, at current prices, believe the company should buy back

stock, but rather begin a fair and open auction process for a sale of the entire company.

In our minds, if the company is able to get back the full rights of Intermezzo from Purdue

Pharma, and thus roughly $18 million in revenue, there will be material interest in purchasing

this revenue stream. A company like Retrophin can very profitably add such a stream to its

portfolio, while incurring minimal marketing costs. Transcept’s bloated cost structure will

make profitability extremely challenging, if not unlikely, as it currently exists. We believe there

is a solid chance to reclaim Intermezzo from Purdue given that Purdue is no longer actively

marketing the drug and the valid reputational concern that it not be viewed as just sitting on the

drug without meeting its contractual obligations. We believe Intermezzo’s current revenue is

sticky and would be highly profitable for the right buyer. A price of $60 million for Intermezzo,

which would result in roughly $7 per share for Transcept shareholders, would still leave a buyer

with a likely free cash flow yield exceeding 20%. This analysis is based on industry contacts

who have informed us that a 90% gross margin would not be unrealistic for Intermezzo. If

Transcept is unable to repossess Intermezzo on its own, we believe there are companies willing

to put their efforts toward that end and will pay for that optionality.

Further, Glenn Oclassen, President and CEO, has maintained over the past several months that

shareholders are supportive of management. However, since our filing we have been contacted

by many shareholders who not only support our position, but have also indicated their deep

dissatisfaction with this management team. Moreover, the Board should take note that one of

its longest tenured shareholders and original backers, New Leaf Venture Partners, has lost faith

in this management team. We believe other early investors have also lost faith in Mr. Oclassen’s

leadership and the direction he has been trying to steer the company.

Lastly, we believe the company’s NOL protection plan is a blatant attempt to maintain the status

quo. However, we do not have sufficient information to underscore our belief. Thus, we request



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that the company make public an IRS Section 382 analysis to allow shareholders to confirm the

company’s stated objective.

We will continue to hold this Board responsible to its shareholders and to the growing chorus of

voices demanding it not pursue an acquisition. In light of Retrophin’s opening offer, it is clear

that there is interest in Intermezzo and highly probable that more interest can be found at

higher prices. Individual Board members’ reputations are on the line and they should act

accordingly. The Board failed its shareholders in not initiating a buyback when its stock

persistently sold for under $3 per share. It now has the opportunity to do the right thing in light

of private market interest in the company.





SEC Link

September 4, 2013

Board of Directors



Suite 110



Roumell Asset Management, LLC owns approximately 12.3% of Transcept’s outstanding shares.

As Transcept’s largest shareholder, we want to register with the Board our strong belief that

pursuing an acquisition makes little sense while the company’s shares trade at a substantial

discount to the cash on its balance sheet.

The Board has the opportunity to heed the straightforward wisdom and common sense of

Warren Buffett, or otherwise rationalize strategies that no real independent, intellectually

honest person would subscribe to. Mr. Buffett’s reflections on the question of share buybacks

are instructive and worth quoting at some length.

1980 Letter to Shareholders. According to Buffett, if a business is “…selling in

the market place for less than intrinsic value, what more certain or more

profitable utilization of capital can there be than significant enlargement of the

interests of all owners at that bargain price? The competitive nature of

corporate acquisition activity almost guarantees the payment of a full or

frequently more than full price when a company buys the entire ownership of

https://www.sec.gov/Archives/edgar/data/1178711/000101019213000074/schedule13d.htm


31


another enterprise.” The “full price” reality is even more of a concern in today’s

environment of broad asset appreciation.

1984 Letter to Shareholders. Buffett argues clearly, and persuasively, for

buybacks below intrinsic value, as opposed to pursuing investment narratives

involving alleged synergies. “The obvious point involves basic arithmetic: major

repurchases at prices well below per-share intrinsic value immediately increase,

in a highly significant way, that value. When companies purchase their own

stock, they often find it easy to get $2 of present value for $1. Corporate

acquisition programs almost never do as well and, in a discouragingly large

number of cases, fail to get anything close to $1 of value for each $1

expended.” Further, “A manager who consistently turns his back on

repurchases, when these clearly are in the interests of owners, reveals more

than he knows of his motivations. No matter how often or eloquently he mouths

some public relations-inspired phrase such as ‘maximizing shareholder wealth’,

the market correctly discounts assets lodged with him.” This appears to well

represent the market’s current view of Transcept’s management.

1994 Letter to Shareholders. In this letter, Buffett talks about the “sad fact” that

most acquisitions will turn out poorly for shareholders; “…they usually reduce

the wealth of the acquirer’s shareholders, often to a substantial extent. That

happens because the acquirer typically gives up more intrinsic value than it

receives.”

2011 Letter to Shareholders. “I favor repurchases when two conditions are met:

first, a company has ample funds to take care of the operational and liquidity

needs of its business; second, its stock is selling at a material discount to the

company’s intrinsic business value, conservatively calculated.”

This is not rocket science and the persistency of Mr. Buffett’s strong preference for stock buy-

backs over speculative acquisitions, commented on in shareholder letters spanning decades,

suggest that basic arithmetic and common sense don’t change over time. Trancept’s current

cash balance is about $74 million (June 30th balance of $78 million less three months’ estimated

cash burn), or roughly $3.90 per share. A conservative estimate of intrinsic value is cash plus

the value of Intermezzo, a drug we continue to believe in, and a drug I can attest to

personally. In fact, the drug works terrifically for middle of the night insomnia. Transcept spent

about $30 million to develop Intermezzo, before accounting for G&A, and Purdue has spent over

$100 million to bring the drug to market. The company must know that it cannot allocate

capital on the open market and get a better deal. Why try and introduce additional risks of the

FDA approval process and attaining consumer acceptance when a reasonable and substantive

shareholder enhancing strategy is right in front of the board? The company appears to be acting

out of a desire to perpetuate itself and the interests of its management, rather than those of its

owners. It appears that the Board has made the calculation that the present value of

management salaries (and options) trumps an honest allocation of company resources that

serve shareholders’ interests.


32


The facts are clear. Thus far, the company has failed to successfully bring a commercially viable

drug to market. Second, notwithstanding this failure, it issued stock options representing nearly

4% of the outstanding shares as an incentive for management to stay motivated and

engaged. We believe that success, not failure, should be rewarded. The Board is implying that

management’s sense of duty is so low that even after receiving their salaries and being given the

opportunity to participate in meaningful upside should their actions result in a favorable

outcome, they cannot be counted on to work hard with purpose and energy on behalf of

shareholders. The Board evidently believed that shareholders needed to hand over 3.8% of the

company’s value in order to be entitled to the continued services of management despite their

sub-par performance. Is the Board unaware of the industry’s dramatic workforce

reductions? Earlier this year, Astra Zeneca announced 5,000 new lay-offs in addition to the

30,000 since 2007. Talent is available, able and willing if current members of the management

team are not, absent more option grants.

We think the company ought to take three steps. First, begin an immediate, and meaningful,

buyback program while remaining liquid enough to pursue other possible Intermezzo

strategies. Second, continue to engage Purdue to determine the future of the Intermezzo

relationship. Third, immediately begin to right-size the business to a smaller company

positioned to sell itself once the Purdue relationship is defined or to simply focus exclusively on

Intermezzo with a much smaller and leaner organization. This is, in fact, what the company

should have done before diluting shareholders with their ill-conceived granting of

options. Fortunately, it is not too late to change course. To be clear, we remain positive on the

long-term prospects of Intermezzo, which is the drug that investors signed up to participate in.

If the company is determined to make an acquisition, then at the very least, any proposed

acquisition should be put to a shareholder vote. The company is at a critical juncture. It

currently enjoys being well-capitalized. Shareholders are due a minimum amount of respect

from the company in determining whether to pursue another drug initiative (particularly one

lacking current FDA approval) through a proposed purchase.

We will vigorously work to represent shareholders’ interests. We encourage fellow

shareholders to immediately make their views known to the Board and management before a

decision is made. We also encourage shareholders to reach out to us to register their views as

time is of the essence. We respectfully request a conversation with management to discuss the

contents of this letter in a timely manner.


/s/ James C. Roumell, President


33


11 | TECUMSEH PRODUCTS CO

SEC Link

February 20, 2013

Tecumseh Products Company

1136 Oak Valley Drive

Ann Arbor, MI 48108

Dear Board of Directors and Corporate Secretary:

We understand that Douglas M. Suliman, Jr. and Mr. Stephen P. Jackson, Jr. would agree to serve

as directors on the Board of Directors (the “Board”) of Tecumseh Products Company (the

“Company”), subject to certain conditions. Roumell Asset Management, LLC supports this

nomination and urges the Board to appoint Mr. Suliman and Mr. Jackson to the Board

immediately or, at a minimum, to expand the Board to seven members and include Mr. Suliman

and Mr. Jackson as director nominees in the proxy statement for the Company’s 2013 annual

meeting of shareholders.

We believe it would be difficult to attract two individuals to join the board of directors whose

talents and relevant experiences are more closely aligned with the Company’s strategic

objectives. Mr. Suliman has a long history in corporate restructuring, capital formation and

M&A transactions, and he possesses an enviable investment track record as a private

investor. In 2003 Mr. Suliman and his partners, led by The Baupost Group, acquired control of

NationsRent, a leading construction equipment rental company facing imminent

liquidation. Upon gaining control, Mr. Suliman served as Co-Chairman and Executive Director of

NationsRent and led the sale of the company in 2006 to Ashtead, plc. for $1 billion following a

successful turnaround. If Mr. Suliman were to join the Company’s Board, he would immediately

represent the largest shareholder among all directors, as we understand Mr. Suliman currently

holds 58,207 of the Company’s Class B shares.

Mr. Jackson is currently the Chief Accounting and Administrative Officer (effective February 13,

2013) of Freedom Group, Inc. (“Freedom” or “Remington”), immediately prior to this

promotion, he served as the Chief Strategy and Acquisition Integration Officer since January

2012. Freedom’s majority owner is Cerberus Capital Management, LP. Since 2007, Mr. Jackson

has had an active involvement in over 15 acquisition and divestiture transactions along with a

number of capital markets transactions. From April 2006 to January 2012, he served as

Freedom’s CFO. Prior to joining Remington in 2003, Mr. Jackson was with

PricewaterhouseCoopers and an Audit Partner in their Middle Market Advisory Services

group. While Mr. Jackson currently holds no Company shares, he brings proven skills, as

demonstrated by his success in the very demanding, results-oriented private equity

environment. Along with Mr. Suliman, Mr. Jackson would immediately bring a strong record of

operational, financial and restructuring experience to the Company that shareholders,

customers and employees deserve.



34


Mr. Suliman and Mr. Jackson need to be properly incentivized to engage their time and talents

on behalf of all shareholders of the Company. To wit, we support each receiving a grant of

100,000 restricted Class A shares to be issued upon the first year anniversary of their joining

the Board.

Such shares would cliff vest on the third anniversary of their joining the Board. In addition, we

support each receiving options to purchase up to 200,000 Class A shares, with an exercise price

equal to the fair market value of the Class A shares on the grant date and a term of five

years. One half of the options would vest on the second anniversary of their joining the Board

and the second half would vest on the third anniversary of their joining the Board. Accordingly,

if Mr. Suliman or Mr. Jackson do not serve on the Board until the first anniversary of their

joining the Board, they would forfeit all of this equity incentive. We also understand that this

proposed equity compensation would serve in lieu of the Company’s regular non-employee

director compensation. We feel the Company’s shareholder base should, and would, welcome

these individuals joining the Board and be supportive of their proposed purely equity-based

compensation structure.

As of the date of this letter, Roumell Asset Management beneficially owns approximately 19% of

the Class A shares and approximately 11% of the Class B shares. There are no arrangements or

understandings between Roumell Asset Management and either of Mr. Suliman or Mr. Jackson

or their respective employers with respect to our support of their nominations to serve on the

Board.

Additionally, we would like to again reiterate our strong preference that the Board elect Mr. Jim

Connor to the additional position of Chairman of the Board. We highlight two specific reasons

for this recommendation. First, our diligence confirms that customers have come to view Mr.

Connor as the face of the Company. We have talked with several of the Company’s customers. It

is clear that they believe the Company’s recent product introductions and management team is

a welcome and refreshing change from years past, when there was little innovation and a

confusing leadership structure. Customers credit Mr. Connor for bringing about these

changes. Second, we believe Mr. Connor has earned the respect and trust of shareholders, in

general, and Roumell Asset Management, in particular. We understand that combining the

Chairman and CEO roles has come under criticism in recent years. However, in this instance,

the Company must continue to communicate operational continuity and consistent

leadership. We believe Mr. Connor’s taking on the role of Chairman will accomplish both

goals. If the Board decides to alter this arrangement after a period of time, it will have more

information and be better positioned to make the decision to separate the roles. Today,

however, we believe a strong consistent unifying voice is what investors, customers and

employees desire and need.

As we have previously stated, we believe there is substantial underlying intrinsic value in the

Company and a sale of the Company today may not fully realize such value. Recent

conversations with major customers underscore our belief. We understand that customers are

welcoming the new AE2 compressor, have begun designing it into new commercial refrigeration


35


equipment and believe the Company has emerged from a period of underinvestment and is well

positioned in the industry going forward. The interest of Messrs. Suliman and Jackson to

become involved in the Company’s turnaround further confirms our investment thesis. We also

welcome the recent addition of Ms. Stephanie Hickman Boyse to the Board, bringing a much-

needed perspective of an independent, proven operating executive with relevant industry

experience.

Finally, we would urge shareholders (A and B) to immediately make their views known to the

Board. It is important that this Board know whether shareholders support the inclusion of

these nominees on its slate under the terms outlined above. We believe shareholders will be

well-served by Mr. Suliman and Mr. Jackson and urge all shareholders to support these

individuals. Roumell Asset Management, LLC has sought to work constructively in a cooperative

manner on behalf of all shareholders.

ROUMELL ASSET MANAGEMENT,

LLC




SEC Link

January 22, 2013

Dear Board of Directors of Tecumseh Products Company:

In light of Mr. Herrick stepping down as Chairman, we want to update our thoughts to the

board. First, we believe Mr. Herrick took an appropriate step in enabling the company to move

forward in a manner that we believe will maximize shareholder value. In a previous round of

ownership, in 2009, Roumell Asset Management supported the Herrick slate and we remain of

the belief that we voted correctly. The Herrick slate immediately improved governance, put an

end to egregious executive compensation and put in place first rate managers, the core of which

are still in place today. For these efforts, we applaud the Herrick slate and the leadership of

Kent Herrick in particular. We recognize that agreeing to fundamental change for a company

founded and managed by prior family generations is difficult to accept. We honor Mr. Herrick’s

stewardship over the past three years and hope the current management team will continue to

benefit from his counsel, particularly regarding product development. Mr. Herrick represents

significant aggregate family ownership, and his industry knowledge is both deep and unique.



36


We no longer believe outside capital is necessary and want to withdraw our previous

recommendation that the board invite, on a preferred share basis, outside investors in on

Tecumseh’s turnaround initiatives. We believe management is up to the task of executing a

turnaround plan that should generate significant cash from asset monetization opportunities.

We strongly encourage the board to immediately begin working with the individual,

representing a Brazilian company, we identified in our January 14th letter to sell its Brazilian

assets. This will accomplish two things. First, it will result in a significant cash infusion and

effectively allow the company to self-finance its turnaround. Second, it will allow the company

to exit, to the precise extent it desires, its household R & F business, a poor business that does

not reliably generate cash. In effect, this would be like doing a sale leaseback on an office

building but then only needing to lease half the space of the building upon sale. As indicated in

the January 14th letter, entering into long-term supply agreements with the buyer for specific

compressor lines determined to be appropriate is desirable and doable. We continue to believe

the company should actively push ahead with monetizing non-core assets in India as well, which

we believe offer substantial and unrecognized value.

In addition, it is our strong opinion that cash raised from monetizing non-core assets should

immediately be returned to shareholders in the form of special dividends. We fully support the

company maintaining adequate liquidity and the necessary funds to appropriately invest in its

core commercial business, but we believe shareholders are due excess cash in the form of a

special dividend.

Additionally, we want to recommend the board announce its intentions regarding the following

issues promptly:

An indication that it will at some point in the near future put forth a plan to collapse

the A/B share classes into one share class.

We recommend that Jim Connor be nominated as the company’s new Chairman, as

well as maintain his CEO role.

We suggest that Mike Noelke, Executive VP of Global Sales, be considered for a board

seat.

Lastly, we are aware of rumors that we believe are legitimate that the company received

interest from well regarded private equity firms, for the whole company, at roughly the $8

level. We commend the board for not accepting any offers at this level. An outright buyer

would not have the benefit of the company’s significant NOLs, approximately $400 million,

which even at twenty cents on the dollar, are worth an additional $4 per share to existing

shareholders. If NOLs were transferable, an $8 buyer would likely become a $12 buyer, and still

meet its own return objectives. A private equity buyer of even $8 is building in a long term

return that we believe current shareholders should enjoy. Thus, at this point, we would not

support any offer below $10 per share.


37


We understand the board may not be able to execute on some of these items presented above in

the near term, but we believe the company can state its intentions clearly. With such clarity, we

will continue to support this board and its management team. As we have long maintained, we

believe the management expertise is in place to begin a sound restructuring plan that will

enable Tecumseh to raise significant cash, become free cash positive and have that cash flow

sheltered for years to come.

ROUMELL ASSET MANAGEMENT




SEC Link

January 14, 2013

Dear Board of Directors of Tecumseh Products Company:

Following a meeting between Jim Roumell and Kent Herrick, the Chairman of Tecumseh’s board

of directors (the “Board”), on Friday, January 11, 2013, we felt compelled to share certain

information with other shareholders. Also, while we have been a patient and generally passive

investor, based again on this meeting, we believe it is in our and other shareholders’ best

interest for us to voice our opinions on certain matters and to, hopefully, influence management

and the Board to take steps to maximize the value of Tecumseh for all shareholders.

As we have said to you before, we believe CEO Jim Connor has clearly demonstrated leadership

and vision in moving Tecumseh into a new era while leveraging the considerable strength that

comes from the company’s long history as a leading compressor manufacturer, and we believe

Mr. Connor is supported by a strong management team and capable Board led by Chairman

Herrick, who has delivered on his promise for a more transparent company with stronger

internal corporate governance controls since assuming his current role. In short, we believe the

company has made significant positive steps on an operational level, but we believe more

should and can be done to maximize shareholder value.

That said, the confidence we have in the company’s management team appears to have been

well-founded. In the company’s last quarterly earnings announcement, on a year-over-year

basis, sales increased 5.2% (16.6% if unfavorable currency changes are excluded) due to “net

volume and mix increases” while gross margins increased from 2.5% to 8.7%. The company

noted that it had “acquired new customers in the European market as a result of a European

competitor that ceased production earlier in 2012.” Moreover, the company’s suite of

Masterflux variable speed compressors and its new suite of condensing units offer meaningful

growth opportunities.



38


In the latter part of 2012, we were approached by two separate individuals who showed

substantial interest in the company. In one instance, an individual, representing, in his words,

“a large Brazilian company,” expressed a strong desire of this firm to purchase Tecumseh’s

Brazilian assets (compressor plants and foundry) and suggested a potential market value

between $50 million and $125 million. This individual indicated willingness on the part of the

company he is representing to enter into any supply agreements so as not to disrupt any

compressor lines Tecumseh may want to retain. We referred this individual to the company’s

outside counsel, and we have not been a party to any contacts, conversations or negotiations

between this individual and the company. Last week, this individual expressed to us his deep

frustration at what he perceives to be Tecumseh’s unwillingness to enter into an agreement to

allow the entity he represents to purchase the Brazilian assets. This individual indicated to us

that he did in fact meet with the company on two occasions but feels his proposal is being

effectively ignored. Given current business trends, the company may have a legitimate basis for

keeping the Brazilian compressor manufacturing assets; however, if this is the case, the

company should explain its rationale to shareholders. In this regard, we do not see the need for

a foundry in Brazil, so this asset seems ripe for monetization.

In a separate instance, we were approached by a highly-regarded private investor interested in

investing in Tecumseh on a preferred stock basis, with a proposed dividend rate below the

company’s current cost of debt capital and with interest payments potentially being deferred

and at a strike price significantly above the company’s current share price, so long as he could

have a significant voice on, but not control of, the Board. We referred this investor to the

company and were not a party to any negotiations between this investor and the company. This

investor expressed a view similar to ours in that he believed the company possessed a strong

set of assets, a legacy brand and on a restructured basis could shelter its earnings given its $400

million loss carry forwards. This investor, and his partner, have blue chip investment

backgrounds and have a recognizable and identifiable track record of successfully turning

around companies. We referred this investor to the company’s outside counsel because we

believe this individual’s long-term capital commitment, background and vision would all

increase the likelihood of a successful Tecumseh turnaround.

What appears clear to us is that Tecumseh possesses asset value significantly above what is

reflected in its current share price, and that there are parties interested in purchasing discrete

assets, as well as a highly respected investor who seems to have a keen interest in participating

in the company’s turnaround and is willing to commit significant capital to that end. We are

concerned that the company is not sufficiently considering these, and possibly other, legitimate

ideas being put forth, and we believe the overtures we are aware of, if pursued and

consummated, would unlock shareholder value.

We continue to believe that Mr. Connor has ably assembled a strong management team and has

shown leadership in reducing costs, introducing new products and entering new markets. Mr.

Connor was kind enough to make a presentation to our investors in September 2012 and was

very well-received by our investors. Jim Roumell’s visit with line managers in India indicated

that Mr. Connor has gained their confidence and respect. The company’s current stability

is welcome and the current management team’s efforts deserve recognition. The company

additionally appears poised to benefit from currency and commodity cost changes. Mr. Connor,


39


Ms. Stipp, Mr. Noelke and Mr. Hudson all seem to demonstrate the requisite skills to ably fulfill

their duties, and the operational momentum they’ve generated should be supported in their

continuing efforts, while at the same time encouraged to consider strategic asset divestitures

and possible investments to enhance the company’s capital structure.

Notwithstanding our confidence in this management team, we believe the Board should

immediately engage in substantive negotiations with the interested outside investor that seems

willing to invest on a preferred-share basis and provide the investor meaningful board

representation in return for his capital infusion. We believe this would be beneficial to

shareholders in a number of ways. First, it would provide significant Board talent from highly-

regarded individuals with blue-chip investment backgrounds. Second, it would reduce the

company’s cost of capital, as we would expect the preferred rate to be below the company’s

current cost of debt capital. Third, it could increase the company’s cash flow if the preferred

interest payments were deferred and paid in the future, such as upon a future sale or

recapitalization of the company. Fourth, it should allow shareholders to benefit from the

company’s NOLs as the company’s initiatives begin to generate more cash (i.e., shareholders

would effectively lose value for the NOLS in an outright sale given change of control restrictions

on NOL use). Fifth, it would immediately establish a strike price meaningfully above the

company’s current share price and clearly signal to the market that serious, long-term investors

want in on the Tecumseh story. The dilution that would occur longer term as the company’s

market value grows (there would be no immediate dilution given the cash infusion and the

strike price in relation to the current share price) we believe will be more than offset by the

above positive contributions.

We encourage other shareholders (A and B), to express their views to the Board. We believe

serious and strategically beneficial transactions have been proposed to the company, and if this

Board cannot, or will not, actively and aggressively pursue these, and any other bona fide

proposals, the Board should explain why the status quo trumps what appear to be value-added

transactions. We are supportive of the transactions outlined above, supportive of a Board with

a like-mind, and hope the current Board is of like-mind and will timely and aggressively act.

It should be noted that our business model is not that of an activist shareholder. In fact, in our

fourteen year history, this is only the second time that we have filed a Schedule 13D seeking

significant and fundamental changes to a company. We do not have a reputation for being

difficult or for cavalierly calling for company change. We have become active with the sole

purpose of protecting shareholder interests and to insure that those interests are not

subjugated to any personal agendas. We are open to talking with the company about the issues

raised in this letter and about methods to maximize shareholder value. We will vigorously work

to insure that the interests of the company’s owners to maximize value prevail and strongly

suggest that other shareholders demand the same.

We have been a long-term, supportive and passive investor in Tecumseh, and we intend to

maintain our stake in the company, other than sales and transfers we are required to make

when clients liquidate or transfer their accounts.

ROUMELL ASSET MANAGEMENT


40


______________________________



SEC Link

May 14, 2012

Board of Directors

Tecumseh Products Company

1136 Oak Valley Drive

Ann Arbor, Michigan 48108

To Board of Directors:

Roumell Asset Management, LLC owns 22% of the Tecumseh A shares and 13% of the

Tecumseh B shares. Given our level of ownership, we would like to use this forum to

respectfully share our views on Tecumseh Products Company with its Board of Directors. Our

investment in the Company rests on our strong belief that notwithstanding current negative

operating cash flows, which are being partially offset by consistent non-income tax refunds, the

Company possesses a number of discrete, identifiable assets that can be monetized at values

substantially above the Company’s current market capitalization. We were happy to hear on the

1st quarter 2012 conference call that second quarter guidance is, in fact, for positive cash

generation and overall revenue growth in 2012. While the Company has a solid and profitable

franchise in its commercial refrigeration compressor business, characterized by very persistent

top-line revenue, the profitability of the residential business has been driven down by low cost

Asian imports. The Company’s cash burn is a function of the household R&F (refrigerators and

freezers) business, which we believe management should exit and which masks a healthy, cash

generating commercial refrigeration business that has 50%+ recurring revenue from

aftermarket replacements and is protected from low cost imports due to more customization

and heavier shipping weights. In fact, as noted on the 1st quarter 2012 conference call, North

America commercial business was up in 2011. European commercial business was down

modestly in 2011, in-line with competitors.

We have faith in this management team and the Board, and we believe the Company when it

stated in its 4th quarter 2011 and 1st quarter 2012 earnings releases: “We are undertaking a

comprehensive review of our Company, including our product portfolio, market position,



41


overall competitive positioning, and manufacturing footprint.” We think the Company has

ample liquidity to allow it to execute a restructuring plan. These actions will result in an

attractive core commercial refrigeration centric business, leveraging an 80 year old footprint

and brand, energized by a new suite of upgraded commercial products and what would then be

a cash-rich balance sheet, even after returning substantial asset sale proceeds to shareholders,

as suggested below.

We believe Jim Connor, CEO has clearly demonstrated leadership and vision in moving

Tecumseh into a new era while leveraging the considerable strength that comes from the

Company’s long history as a leading compressor manufacturer. New product introductions

have been impressive. The new AE2 has received wide praise from our customer

contacts. The Company has expanded into the variable speed market with its Masterflux

brand. Varying speed compressors are differentiating, are not commodity-like, and are

applicable in a number of situations where efficiency is paramount, i.e., battery coolers,

electronics, medical/scientific. The Company’s Masterflux compressor possesses patented

controller algorithms. We believe Mr. Connor is supported by a strong management team and

capable Board led by Chairman Kent Herrick, who has delivered on his promise for a more

transparent Company with stronger internal corporate governance controls since assuming his

current role.

We have been patient shareholders. However, we believe the time has come to execute now

and without delay. Moreover, it is our strong opinion that cash raised from monetizing non-

core assets should immediately be returned to shareholders in the form of special dividends.

In 2011, to buttress our own research efforts, we engaged a highly-regarded and recognized

strategic market information consulting firm with a 50 year history and experience in analyzing

manufacturing businesses, to conduct a deep review of the Company’s assets, operations and

competitive position in the industry. The firm conducted a thorough research process. Over 50

industry players were interviewed, including customers, competitors, engineers and trade

association officials, to assess the value of Tecumseh’s products in the marketplace. Ultimately,

this consulting firm valued Tecumseh between $237 and $334 million (roughly $13 to $16

share) on a liquidation basis. In fact, we believe the Company possesses a valuable going-

concern commercial refrigeration compressor business, with $500 million plus current

revenues (50% of sales come from recurring aftermarket sales) – which is roughly 60% of firm-

wide sales, and is primarily generated in North America and Europe - that could experience a

5% operating margin on its own, resulting in $25 million plus in operating income that would be

sheltered by the Company’s $394 million in carry-forward NOLs. Our summary sum of the

parts analysis is as follows:

Hyderabad, India (“HYD”) property (55 acres strategically located off of HWY 9, in close

proximity to the New and Old Central Business Districts as well as the city’s IT Park):

$67 million (this value was determined after applying a large track discount with an

immediate sale focus). Other sources, stemming from my own visit to HYD last

December, indicated a value of $2 million an acre for the 40 acres with frontage to

National Highway 9 and $0.75 million an acre for the 15 acre site sitting behind the


42


occupied parcel. In addition to being home to older technology companies like Microsoft

and Dell, HYD is increasingly the first choice for emerging 21st century companies.

Google chose HYD for its India headquarters. In 2010, Facebook chose HYD for its first

Asian office. HYD is known for its educated population, urban environment and the

business friendly climate found in Andhra Pradesh, and HYD in particular, and has

emerged as a leading destination for Western and Asian companies wanting a presence

in India. The real estate piece of the Tecumseh analysis we commissioned was

conducted by a leading worldwide real estate brokerage firm with offices in HYD. The

Tecumseh property area has emerged as a real estate development destination with a

focus on residential, commercial and IT developments. This region is close to the

National Highway 7/Nagpur Highway with good connectivity to major cities in India.

This property is the biggest parcel available in the area and our research indicates it is

well suited to be sub-divided for maximum value realization. Our research further

indicates that the local government is in fact actively supporting the transformation of

the Balanagar Industrial Development area from an industrial oriented focus to

commercial, residential and IT development. The property sits near densely populated

residential areas like Kukatpally Housing Board, Ameerpet, Sanathnagar and Sanjeev

Reddy Nagar. Government zoning definitions have favorably changed and “Industrial”

classification now includes “IT” developments. (Residential, the highest use value,

would require a new zoning designation.) Adjacent to the Tecumseh property is a 3.3

acre parcel (originally industrial, recently rezoned as residential) that is now being

developed as higher-end residential housing. We believe it is possible that the

property’s highest value may result from entering into a joint venture with a Pan Asian

developer in order to participate in what we believe is significant development upside.

An immediate sale in the $1 million to $1.5 million per acre range may be selling out

cheap given the uniqueness of the asset, government support for development in the

area and the overall dynamics of HYD as an emerging Tier 1 city of India. The Company

could receive some upfront cash from a JV partner in this scenario. Finally, current

prices do not represent “bubble” prices, quite the contrary. Our research indicates that

this parcel’s value is likely one-half of peak pricing reached in 2007 (Rs 40,000 per sq

yard versus Rs 20,000 per square yard today for smaller parcels in the specific area of

the Company’s property). HYD remains India’s value proposition compared to Delhi and

Mumbai, but that seems to be changing. From a May 10, 2012 New York Times article,

36 Hours in Hyderabad, India: “Situated in the southern state of Andhra Pradesh,

Hyderabad is a juxtaposition of old and new unlike any other city in India…. In the past,

Hyderabad was often overlooked as a tourism destination. But in recent years, sleek

hotels, restaurants and night spots that cater to the 20 and 30 somethings working in

the information technology industry have been attracting jet-setters from around the

world who come to discover the past and experience the rapidly evolving present.”

Plant in Ballabhgarh, Haryana (near Delhi): $25 to $30 million. As confirmed on the 1st

quarter 2012 conference call, this plant is expected to operate at full capacity this year,

which implies sales of about $70 million, up dramatically from 2011. Also confirmed on

Company’s 1st quarter call, this plant’s capacity is now estimated to be significantly less

dependent on Whirlpool than was the case just a few years ago. The Company’s new “TH

Stretch” and “THK DC Compass” products appear to be gaining the attention of


43


customers. In my tour of this plant, I was happy to see first-hand the Company’s

aggressive moves at reducing steel, copper and silver content and increasing aluminum

content in order to drive higher gross margins. As well, we applaud the Company for

having sold 5 excess acres in 2011 for roughly $0.7 million per acre, which generated

over $3 million.

Brazilian assets (a foundry and compressor plant): $40 to $60 million. Exit foundry and

plant to allow the Company to outsource the specific manufacturing of commercial

refrigeration compressors and higher-end R&F compressors. To be clear, a sufficient

presence in Brazil should be maintained in order to continue to receive non-income tax

refunds, e.g., a distribution center.

Non-Income Tax Refunds: $48 million. These payments, primarily from the Brazilian

government, have been consistent annual (December) events. For instance, the

Company received $37.2 million of refundable Brazilian non-income taxes in 2011.

These values compare to a current market capitalization of roughly $60 million. The

Company’s balance sheet, as of March 31, 2012, is sufficiently liquid: $39.2 million in

cash, $6.1 million in restricted cash, $48 million in non-income tax refunds ($22.4

million of which is current) less $59.2 million debt. The Company has a credit line of

$45 million with PNC Bank expiring April 21, 2015 (borrowings under this facility

totaled $10.3 million with an additional $11.9 million of borrowing capacity under the

base formula as of March 31, 2012).

It is our belief that the Company’s full intrinsic value resides in a post-asset sale

narrative, coupled with a modest multiple to the cash flow generated by its commercial

refrigeration business, sheltered by Company NOLs , resulting in a total value exceeding

liquidation value.

The Board did an excellent job in putting in place the current management team. Jim Connor,

CEO, and Janice Stipp, CFO, strike us as honest and talented and their significant restructuring

experience makes them uniquely qualified to execute a turnaround. Prior to joining Tecumseh

in January 2010, Mr. Connor was a managing director of BBK, Ltd, a business and turnaround

management consulting firm. Prior to joining Tecumseh in October 2011, Ms. Stipp served as

CFO of Acument Global Technologies Corporation, a portfolio company of Platinum Equity, LLC,

a private equity firm, where she assisted in divesture activities. Further, we applaud the

Board’s executive compensation plan that sets stringent operational goals for management to

earn bonuses, of which 60% of the total annual incentive bonus goes toward long-term equity

incentives. The current bonus plan stands in stark contrast to the period before 2010.

Upon shedding the household R&F business, we believe shareholders will own a profitable and

entrenched commercial refrigeration business that will have the benefit of operating with over

$394 million in carry-forward NOLs, leaving it effectively a tax-free entity for many years to

come. Tecumseh is one of only two companies that have greater than 10% market share of the

$5.5 billion commercial refrigeration compressor market (Embraco ~20%; Tecumseh ~15%)

and benefits from the industry’s interest in durable, low-cost reciprocating compressors. The


44


commercial refrigeration compressor market is expected to grow between 4% and 6% annually

over the next several years from roughly 35 million units in 2010 to nearly 60 million units in

2020. Moreover, over 60% of the commercial compressor market is in North America and

Europe, both places with a strong Tecumseh presence. Whereas household R&F is a low

margin business with little opportunity for differentiation, and no repeatable aftermarket

business, commercial refrigeration is characterized by more customization (contrary to the

Chinese model of mass production) and aftermarket recurring revenue (which currently

represents 50% plus of the company’s commercial revenue as indicated by Mr. Connor on the

1st quarter conference call). Tecumseh’s strength and history lies in supplying compressors

used in cold display cases, beverage and water coolers, walk-in refrigerators and freezers and

vending machines. These compressors burn out, and get replaced.

Danfoss, a top ten competitor in the commercial compressor market, did a poor job, in our

opinion, of exiting its R&F business when it sold to Aurelius AG (an industry consolidator) in

2010 because it did not retain its high-end R&F business. As a result, its commercial customers

are forced to dual-source, which provides an opportunity for Tecumseh to take share.

Not long ago I personally sat in a commercial compressor distribution store to witness first-

hand the strength and persistency of the Company’s after-market business. Refrigeration

professionals came in with Tecumseh AE compressors from local businesses and requested

Tecumseh replacements. Alternative replacements can be used, but require additional labor to

properly fit. Thus, the business possesses what many investors covet in their investments:

recurring revenue. Roughly 20 million of the annual 35 million commercial compressor

shipments go into North America and Europe, where Tecumseh has long held a market-leading

presence in the commercial refrigeration space.

To be clear, in addition to the North American and European commercial business, we believe

the Company possesses a significant opportunity, in India, in its recently introduced air-

conditioning outdoor condensing unit (compressor, condenser and fittings),

currently manufactured in HYD. There is increasing interest in this type of product from major

manufacturers and we believe this product offering should be retained by the Company

notwithstanding our strong belief that the HYD property’s best value will be realized in an

outright sale or a joint venture development opportunity. Our research indicates that the actual

manufacturing requirement of this product could easily be outsourced. To our knowledge,

Copeland does not have a product offering in this category. Air conditioning penetration in

India is about 3% and is expected to grow to 50% by 2020, on par with the penetration rate in

China today. We understand that the Company’s HYD facility possesses one of only two

privately operated government-approved compressor efficiency standard laboratories in the

country. We believe this laboratory enhances the Company’s credibility within the OEM market

as being a high quality manufacturer capable of delivering the energy efficiency standards

demanded by customers given the government’s strong interest in energy efficiency as a result

of significant power-grid constraints. We believe given the exact placement on the Company’s

campus, the testing facility could be carved out or relocated to maintain its value as an outdoor

condensing unit sales tool as well to retain the revenue it generates.


45


We think the Ballabhgarh R&F plant is a valuable asset, especially to Asian competitors

interested in the Indian market. By 2028, India’s population is expected to surpass

China. Given the current low 9% penetration rate for refrigeration in India, the demand for

household R&F compressors will grow with estimated 2020 penetration to be 50%, as in the

case of air-conditioning, and also on par with the penetration rate in China today. We

understand that Tecumseh is the sole non-captive compressor manufacturer in India. The

Ballabhgarh plant struck me as an impressive, exceptionally well maintained and operated

facility, sitting on a well-groomed 15 acre campus. We understand that this plant is the only

rotary compressor manufacturing plant in India and is the only reciprocating compressor plant

for refrigeration in India. Reciprocating compressors are well known for their durability and

longevity and are very popular for use in vending machines and ice machines. Our research

indicates that this plant’s commercial capacity is in fact growing and is now approaching 20% of

this facility given the Company’s long relationship with cooler manufacturers in India and the

Middle East. The plant’s growing commercial refrigeration business should be helpful in

marketing this valuable asset to potential buyers.

After a long anticipated development of a cold-chain in India, which is necessary to drive end-

market demand for residential refrigeration, one is finally well underway. With the growing

construction of India’s highway system, cold trucks can now be seen given the growing presence

of grocery and convenience stores possessing refrigerated/frozen goods. Further, with labor

costs rising in China, an Indian centered plant is well positioned to be competitive for years to

come and more profitably serve the Indian market. Tecumseh’s brand is solid in both India and

the Middle East (which serves as the end-market for a significant amount of the Ballabhgarh

plant’s capacity). Bottom line, we believe this plant can be easily monetized.

Finally, the Company has talked about the opportunity it believes it has for entering into a joint

venture with a Chinese partner to introduce its commercial compressor expertise into

China. Mike Noelke, Senior VP for Global Sales, appears to have made several trips to China over

the past year, as was noted at the Company’s recent shareholder meeting. We believe Mr.

Noelke was a solid hire by this Board given his 32 year career at Sporlan, a Parker Hannifin

Corporation company, where he was Global VP of Business Development. We have a strong

recommendation regarding this potential opportunity: Do not enter into a joint venture with a

Chinese partner without receiving an appropriate amount of cash up-front.

In summary, having conducted in-depth research on Tecumseh, which has been validated by

well-regarded third-party research, our conclusion is that the Company should exit the majority

of its household R&F business, which is the source of its cash burn. Proceeds from asset sales in

India and Brazil should be returned to shareholders in the form of special

dividends. Acquisitions should not be considered. Our belief is that the commercial

refrigeration business will generate positive cash flows which are further enhanced by the

Company’s significant carry-forward NOLs. While the Company is currently unable to generate

consistent, positive operating cash-flow, it is nonetheless an exceptionally asset-rich

company. That said, it is imperative that the Board act immediately to generate cash from asset

sales, thereby strengthening its liquidity, while providing the necessary time to re-position the

Company as a strong commercial refrigeration compressor centric company leveraging its

enviable 80 year old history and footprint.


46


Finally, we believe the Company’s class A/B share structure is a turn-off to many potential

investors given the supermajority status of B shareholders and should be immediately reviewed

by the Board with the goal of creating one share class. Many quality, long-term investors will

not consider investing in the Company’s shares given its antiquated ownership structure.

For the many reasons cited above, we continue to be long-term shareholders in this

misunderstood, and deeply undervalued, security and remain quite excited about the value

enhancing opportunities that lie in front of the Company. During the Company’s 1st Quarter

conference call, Mr. Connor was asked whether he was committed to maximizing shareholder

value in whatever manner that goal was best achieved and he quickly, unequivocally and

persuasively answered, “Absolutely.” We assume that since the Company has for two

consecutive quarters announced, “We are undertaking a comprehensive review of our

Company,” that it is has identified a number of discrete asset monetization options and

encourage them to move forward quickly with their plans.

Sincerely,




15 | TRANSACT TECHNOLOGIES INC

SEC Link

November 7, 2012

Board of Directors

TransAct Technologies, Incorporated

One Hamden Center

2319 Whitney Avenue, Suite 3B

Hamden, CT 06518


We urge the Board to immediately form a special committee and hire an investment banking

firm to pursue a sale of TransAct Technologies, Inc. We have had discussions with two

companies that operate in a related industry to that of TransAct and that have, in the past,

expressed an interest in discussing a potential transaction with TransAct. We have not

discussed or formulated any plans or proposals for TransAct with these companies, nor are we

aware that these companies have any plans or proposals with respect to a strategic transaction



47


with TransAct. As a result of our discussions with these companies, it is our belief that neither

company will pursue a hostile transaction and that neither company thinks the TransAct board

is open to a friendly transaction. We understand that one of these companies has approached

TransAct in the past and was rebuffed. We strongly believe buyers will emerge if the company

initiates the process to put itself up for sale.

Bart Shuldman has been CEO of TransAct since June 1996. The company went public in August

1996 at a split adjusted share price of $5.67. Under Mr. Shuldman’s direction, the stock has

generated a total return of 34%, as compared to 207% for the Russell 2000 Index. Mr.

Shuldman has received total compensation, as reported in the company’s annual meeting proxy

statements, of over $8.1 million in the aggregate over the last ten years, an amount equal to 40%

of TransAct’s $20.5 million net earnings over that time period. Adding in compensation paid to

Steven DeMartino, President and Chief Financial Officer, TransAct’s top two executives have

earned 59.4% of the company’s net earnings over the last ten years. The median of Mr.

Shuldman’s compensation as a percent of net earnings over the last five years is more than

three times as much as the comparable figure for CEOs of the peer group of companies used by

TransAct’s compensation committee. According to Mr. Shuldman’s most recent Form 4 filing, he

directly owns 32,442 shares of stock. It is clear that Mr. Shuldman’s annual compensation has a

far greater impact on his financial well-being than does his ownership of TransAct stock. This

seems to shed light on why Mr. Shuldman has insisted on pursuing a going concern strategy. It

is unclear why this Board has allowed this to go on for so long.

We believe there are substantial cost and revenue synergies that would be realized through

consolidation. We believe, therefore, that more value can be extracted from a strategic buyer

than can be extracted by management operating TransAct on a stand-alone basis.

Mr. Shuldman has lost credibility with investors due to his history of overly promotional

statements. The poor return in TransAct stock this year, against a strong market backdrop, is

indicative of the loss of this all important corporate currency. The company is unlikely to

receive a premium multiple because of its compromised standing in the investment

community. As a stark example of how Mr. Shuldman has lost credibility in the investment

community, we offer the following summary progression of his comments regarding the

company’s first software product. All quotes are from Bart Shuldman derived from earnings call

transcripts.

Third Quarter 2010

“We announced the introduction of the EPICENTRAL Print System, our first software product

which we believe is a groundbreaking solution for casinos.”

Fourth Quarter 2010

“Our sales people are out closing orders now…We've got [EPICENTRAL] being tested and now we

are out closing orders.”

First Quarter 2011


48


“We're very optimistic that the EPICENTRAL Print System will begin contributing to the top and

bottom line in 2011 and our expectations remain high for the system in the coming years…The

pipeline is quite big.”

Second Quarter 2011

“We believe this contract will be the first of many to come for the EPICENTRAL Print System and

we should see the first contributions of revenue from the system in the third quarter… Our

expectations for the EPICENTRAL Print System remain as high as ever…[The pipeline] has not

changed; if anything it has gotten better. We're working to close the deals. I can tell you that a lot

of the casinos have put it into their budget for next year.”

Third Quarter 2011

“We remain as positive and excited about the opportunity for significant revenue growth from our

EPICENTRAL Print System as we have ever been… We look forward to many more installations of

EPICENTRAL Print System in the near future.”

In late 2011 Mr. Shuldman began backing away from his bullish tone from previous calls, stating

“the sales cycle is a bit longer than we thought it would be…we think the sales cycle for

EPICENTRAL is in that 12 to 18 month range.” On the second quarter 2012 earnings conference

call, Mr. Shuldman backed away further from EPICENTRAL in response to our questioning

whether the product would turn out to be as successful as the company originally

anticipated. Mr. Shuldman stated, “I think it's wrong to hold on to EPICENTRAL as the only

success criteria for TransAct.”

TransAct executives mentioned “EPICENTRAL” 65 times on earnings conference calls between

November 2010 and November 2011. Contrary to Mr. Shuldman’s comments on the first and

second quarter 2011 conference calls, EPICENTRAL contributed nothing to 2011 revenue and

earnings. Currently, the company has one paying EPICENTRAL customer.

In 2011, as he was hyping EPICENTRAL, Mr. Shuldman sold 130,750 shares of TransAct stock at

an average price of $9.90 for nearly $1.3 million in proceeds. None of these proceeds have been

reinvested in TransAct stock, other than through the exercise of stock options, even as the stock

has declined substantially from his $9.90 average sale price.

This is far from the first time Mr. Shuldman has issued grandiose statements about the

company’s future prospects, only to have the results fall well short of his statements. In the

year-end 2004 earnings release, Mr. Shuldman stated, “we expect…a doubling of revenue and a

tripling of diluted earnings per share from 2004 to 2008. Overall, we expect revenues for 2005

will be in the range of $70 million to $74 million, with net income in the range of $0.58 to $0.65

per share.” Actual 2005 revenue and earnings per share were $51 million and $0.04,

respectively. Based on its 2004 revenue and earnings, its goal by 2008 was revenue of $120

million and earnings per share of $1.53. More than seven years later,


49


TransAct has failed to achieve any of the goals stated in that 2004 earnings release. The $0.51 of

earnings per share generated in 2004 still remains the highest in the company’s history, and

those earnings were helped by extremely favorable industry dynamics with the emergence of

ticket-in, ticket-out slot machines and unfettered casino capital spending budgets. In the twelve

months prior to TransAct’s year-end 2004 earnings release, Mr. Shuldman sold 79,900 shares

for over $1.7 million of proceeds. During the following twelve months, the stock declined 44%.

Although TransAct’s recently announced food safety products appear interesting, they do not

resolve the company’s fundamental challenges. The company’s history of over-promising and

under-delivering restrains our enthusiasm for these new products, and imparts skepticism that

the results over the next few years will be much different than the last few years. Mr.

Shuldman’s salesmanship in lieu of actual results cannot be tolerated any longer. We have been

contacted by other TransAct shareholders who share our dissatisfaction with the company’s

performance in general and Mr. Shuldman’s performance in particular. We don’t intend to act in

concert with any other TransAct shareholder, but it is absolutely imperative that other

shareholders register their opinions with the Board. We urge shareholders to copy us on their

communications with the Board. My email and mailing addresses are below. For those

shareholders who manage money on behalf of clients, given the information we have presented

in this letter, we believe it would be difficult not to voice your opinions to the Board and still

claim fiduciary responsibility to your clients.

It is important to note that, since the founding of our asset management business 14 years ago,

Roumell Asset Management has been a patient and passive investor in all of our holdings. This

is the first time we have ever called for the sale of a company. We so strongly believe that

maximum value in this situation can only be created through a sale of the company that we felt

compelled to actively advocate for such a transaction for the benefit of our investors and all

TransAct shareholders.

Sincerely,


James C. Roumell

[email protected]

Roumell Asset Management

2 Wisconsin Circle, Suite 660

Chevy Chase, MD 20815


50



SEC Link

April 10, 2012

Board of Directors

TransAct Technologies, Incorporated

One Hamden Center

2319 Whitney Avenue, Suite 3B

Hamden, CT 06518

Dear Members of TransAct Board of Directors:

On January 11, 2012, Roumell Asset Management, LLC filed a Schedule 13D that, among other

things, encouraged the Board to undertake a strategic review of TransAct’s position in the

marketplace. Simultaneous with our filing, we sent the Board a respectful letter providing the

underlying reasoning to our filing. We believed that as a 15% shareholder, representing

roughly 3x the amount of shares owned by company insiders, we would be entitled to a meeting

with the Board and an open, thoughtful discussion of our views. In contrast, not only has the

company dismissed our input, but the Board has chosen not even to respond to us in writing, as

we requested in a phone call with Mr. Bart Shuldman, Chairman and CEO.

It should be pointed out that in Roumell Asset Management’s 13-year history, we have never

filed a 13D encouraging a company to seek a strategic review. In this instance, the software

component of EPICENTRAL was demonstrably promoted by Mr. Shuldman on earnings

conference calls beginning in March 2011. However, since there have been so few actual

software sales, it appears possible that TransAct will remain primarily a hardware

company. Accordingly, monetization to a larger hardware company that can extract savings,

synergies and leverage scale and size may be the best way to maximize shareholder value.

We were pleased by the recent announcement of Transact’s second order for EPICENTRAL, this

one for the Revel Casino in Atlantic City. Our hope is that the company is successful in gaining

traction with EPICENTRAL over the next several months, thereby adding substance to the

strategy of transitioning from a pure hardware company to one with a significant software

component.

We are respectful of TransAct’s other shareholders apparently wanting to provide the company

more time in rolling out EPICENTRAL. However, we are also aware that for many of these

shareholders patience is not unlimited and, although they seem currently inclined to give the

company the benefit of the doubt, it is not an open-ended commitment on their part.

Finally, we have reached out to potential interested strategic buyers, as we indicated we would

possibly do in our January filing, and we have identified two well-capitalized companies in

related industries that expressed initial interest in discussing a potential transaction with

TransAct. We have not discussed or formulated any plans or proposals for TransAct with either

https://www.sec.gov/Archives/edgar/data/1017303/000101019212000025/transactschedule13da.htm


51


company, nor are we aware that either company has any plans or proposals with respect to a

strategic transaction with TransAct. However, these companies have cash on hand and are

generally looking to do accretive acquisitions, which we believe TransAct would be even at

prices significantly above the current share price. These companies’ interest may wane,

particularly if they are able to source other opportunities while the Board refuses to even have a

discussion.

We will remain vigilant in holding the Board accountable to its shareholders and in doing

everything in our power to maximize the return to the company’s owners, its shareholders. In

the meantime, it would be nice to see management and/or the Board engage in open-market

purchases on behalf of their own personal accounts of the company’s stock given their

confidence in EPICENTRAL.

We urge other shareholders to register their views with the TransAct Board. There is real

interest in having discussions with the company today by strategic parties, and we see no

downside to the Board hearing what these companies have to say.

Sincerely,


James C. Roumell


SEC Link

January 11, 2012

Dear Members of the TransAct Technologies Board of Directors,

Roumell Asset Management, LLC owns approximately 1.45 million shares of TransAct

Technologies common stock, representing roughly 15.3% of the outstanding shares. Our

ownership is based on our belief in the company’s current and future business prospects. To

wit:

TransAct has a leadership position in the gaming industry, which has strong worldwide,

long-term secular growth prospects and is uniquely positioned to benefit from the

adoption of slot machines worldwide. With over half of the company’s gaming revenue

coming from international markets, TransAct’s #1 market share in both Asia and

Europe position the company to take advantage of growth in Macau, Singapore and

other international markets.



52


TransAct enjoys a duopoly environment with high barriers to entry in its gaming

segment. Moreover, TransAct’s technological leadership is underscored by its 65%+

share of current printer shipments to the North American gaming industry. In fact only

does the company participate in a duopoly, the data strongly suggests that it is gaining

significant NA market share.

New casinos are choosing TransAct and entering into exclusive agreements. The

recently opened Resorts World Casino at Aqueduct Racetrack in NYC chose TransAct

for 100% of its slot floor. In December 2011, the company announced that the Epic 950

printer was also selected exclusively by Revel in Atlantic City.

As reported, recent North American shipments relative to slot unit sales are as follows:

Unit Sales Growth Comparison

Slot Unit Sales TACT Gaming

Growth Unit sales Growth

2010 Q4 -8.6% 57.5%

2011 Q1 3.8% -11.4%

2011 Q2 2.9% 14.9%

2011 Q3 31.2% 58.5%

*Note: TransAct’s 2010 Q4 unit sales growth reflects a large order received from a slot supplier

that was subsequently cancelled by the end customer and, as a result, the supplier had to work

through excess inventory in 2011 Q1 and did not order at a normalized level. Industry sales growth

numbers are from Roth Capital.

The company’s introduction of a software-centric product allows casinos to interact

directly with their slot machine customers and “touch” highly-regarded carded players

with a sophisticated couponing system that will generate recurring software revenue,

which may be a game-changer for the industry. In fact, the Director of Slot Operations

for Resorts stated, “We were pleased to choose the Epic 950 printer from TransAct for

our casino floor due to its features and functions and capability to be connected to

EPICENTRAL in the future.”

Under the leadership of CEO Bart Shuldman, the company has innovated, diversified and

won business seemingly above its weight-class. For instance, the win three years ago in

designing and supplying printers to McDonald’s for their new grill initiative and then

subsequently winning their coffee bar printer business demonstrates the strength of

TransAct’s collaborative and innovative culture.

The company continues to enjoy a long sole-source relationship with lottery terminal

industry leader GTech Industries.

The company’s 2011 acquisition of Printrex further diversified the business into the

oil/gas market at an attractive price.

Lastly, the company has accomplished all of the above while remaining debt-free.


53


Notwithstanding the above attractive attributes, we think it is likely that the company’s shares

remain underappreciated, reflecting a micro-cap market discount that could persist for some

time. U.S. stock funds witnessed a net $75 billion outflow in 2011, with a similar outflow in

2010. Given unusual levels of volatility in the global economy, and Eurozone uncertainty, we

believe investors will continue to lessen their exposure to equities in general and to micro-cap

shares in particular. As a result, even promising and niche-dominant enterprises could be open

to persistent and significant liquidity discounts. As well, the EPICENTRAL sales cycle is turning

out to be longer than management originally anticipated.

We believe there are investors that can see past the current market inefficiencies and

appreciate the intrinsic value inherent in TransAct. These investors would likely be willing to

purchase the entire company and offer shareholders an opportunity to realize substantial value

on their current holdings. We believe there are both strategic and financial investors that would

understand the opportunity and want to capitalize on the existing market environment.

Corporations are sitting on record amounts of cash, earning little in the way of interest income,

and are interested in deploying their cash into higher returning investments, much like

TransAct did with its 2011 purchase of Printrex. Further, many financial buyers are flush with

cash and are looking to invest in stories that combine mature revenue streams with identifiable

secular growth opportunities, both of which are present at TransAct. When interest rates begin

to rise, the incentives to more opportunistically deploy cash will diminish. Additionally,

strategic buyers could provide greater resources to exploit additional verticals, while providing

more growth capital to roll-out EPICENTRAL in a more timely fashion. In both instances, we

believe buyers would be very attracted to a debt-free, positive cash flow story that is well

positioned to take advantage of growth in the gaming industry, both domestically and

internationally. Finally, management would be freed from the demands of public ownership

and able to focus 100% of its time on growing the business without the diversion of such things

as managing street expectations.

As TransAct’s largest shareholder, we have patiently waited for the company to consider a bold

move, and we believe the window of opportunity is open. Accordingly, we encourage the Board

to immediately undertake an extensive review of all strategic opportunities in order to

maximize shareholder value. An outside, independent party should be engaged to advise the

Board and explore all strategic alternatives that would best position the company for future

growth and maximize current shareholder value.

I will be in contact with the company shortly to further discuss these ideas and how best to

proceed.

Sincerely,


James C. Roumell


54


18 | KVH INDUSTRIES INC \DE\

SEC Link

June 27, 2007

KVH Industries, Inc.

Board of Directors

50 Enterprise Center

Middletown, RI 02842-5279

Attention:

Arent H. Kits van Heyningen, Chairman of the Board

Martin A. Kits van Heyningen, Chief Executive Officer

We currently own 1,246,000 shares of KVH Industries, Inc. stock, or roughly 8.3% of

outstanding shares. We are impressed with the company's history of technology innovation, its

multiple commercial end-market opportunities as well as its defense business, particularly with

the emergence of remote controlled weapons systems. The company has long been

conservatively managed; and we appreciate that aspect of its history as well.

Although truly strategic opportunities should not be overlooked, it would be hard for us to

imagine a more compelling acquisition opportunity than repurchasing KVHI stock at a price

below $10/share. Given the menu of commercial products (serving the marine, RV and

automobile markets), and the emergence of new applications for the company's gyroscopes

because of the CROWS program and others like it, we feel the company's plate is full and that

the opportunities for organic growth are plentiful.

We respectively urge the Board to seriously weigh any acquisition idea against the very

compelling investment opportunity presented by buying back KVH stock at current levels. To

wit, we note the following valuation metrics: 40%+ of market capitalization is represented by

cash; the enterprise value to sales ratio is less than 1x; and free-cash flow is positive while

overall commercial business continues to improve and new defense programs provide reason

for optimism. In our view, KVHI common stock is a compelling investment that would be hard to

duplicate.

Sincerely,


James C. Roumell

Roumell Asset Management, LLC.

https://www.sec.gov/Archives/edgar/data/1007587/000101019207000135/kvhi-roumell13d.txt

Snowball Research 1 Introduction - ValueWalk · 2016-08-16 · Snowball Research – Special report...

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Transcript of Snowball Research 1 Introduction - ValueWalk · 2016-08-16 · Snowball Research – Special report...