SYDNEY, Australia and MONTREAL, Aug. 17, 2018 (GLOBE NEWSWIRE) -- TDM Growth Partners (TDM), a 12% shareholder in DAVIDsTEA Inc. (Nasdaq:DTEA), has sent the following letter to the Independent Directors of DAVIDsTEA.
The full text of the letter is as follows:
15 August 2018
To the Independent Directors of DavidsTea:
Pat De Marco
Ludwig Max Fischer
Peter Robinson
Cc:
Herschel Segal (Chairman and Chief Executive Officer of DavidsTea)
Emilia Di Raddo (Director of DavidsTea)
James Daly, Disclosure Operations (US Securities and Exchange Commission)
Georgia Tournas, Ernst & Young LLP (DavidsTea Auditor)
Adverse developments since Mr. Herschel Segal gained control of DavidsTea (“DTEA”)
Dear Sirs,
TDM owns over 12% of the issued capital of DTEA, and believes it is constructive to bring to the attention of fellow shareholders some concerning recent developments at DavidsTea.
Immediately following DTEA's Annual General Meeting (“AGM”) on 14 June 2018, Herschel Segal replaced the Board of Directors and appointed himself as Chairman and Chief Executive Officer of DTEA. In the short period of time since Mr Segal has controlled the business:
- The previous CEO, Mr Joel Silver was terminated immediately after the AGM.
- Three out of the six most senior executives in the Company have resigned - Head of Marketing/Ecommerce; Head of Logistics & Supply Chain; and Head of Human Resources.
- Two of the five independent directors have resigned, including the lead independent director Bill Clemen.
- DTEA is in breach of the NASDAQ listing requirements, having an insufficient number of Independent Directors on its Audit Committee – NASDAQ has warned that DTEA will be delisted unless the breach is cured.
- The share price has declined from $3.95 on the day prior to the AGM to $2.52 as at the date of this letter, a 36% decline.
These developments appear to confirm the fears which TDM and its fellow shareholders expressed prior to Mr Segal taking control of the Company.
We request the following responses from the Independent Directors of DavidsTea, being Ludwig Max Fisher, Pat De Marco and Peter Robinson:
- Following the departure of Mr Clemen, which of Ludwig Max Fisher, Pat De Marco, and Peter Robinson has assumed the position of lead Independent Director?
- Following the departure of Mr Roland Walton, head of Human Resources and Compensation Committee, who will replace him as Chair to lead the search for a new CEO?
- We understand DTEA only appointed a search firm in the last two weeks. What explains the delay in starting the recruitment process for a new CEO?
- Mr Joel Silver was terminated as CEO immediately after the AGM on 14 June. What has caused the delay in disclosure of the particulars of his termination? The Company has stated simply that Mr Silver has “left the Company”.
- Related party arrangements are typically a sensitive issue for shareholders. Mr Segal's daughter, Sarah Segal, was previously employed as Head of Product and Innovation at DTEA. Prior to the AGM Ms Segal was placed on paid leave. Is Ms Segal continuing to receive compensation from DTEA and if so, what is her role?
- Directors Bill Clemen and Roland Walton resigned from the board only 6 weeks after they joined the board, with no explanation. What is the reason for their resignations?
- Please confirm that the independent directors have discussed and set performance goals for the CEO, Mr Segal, as required by the Human Resources & Compensation Committee charter.
- Please confirm that the Audit Committee is currently able to fulfil its role which includes “overseeing the process for approval of all related-party transactions involving executive officers and directors”, in light of the Audit Committee now having an insufficient number of independent directors? If the Audit Committee is not currently performing this role, how is the obligation being met?
We note that on 31 July 2018 DTEA issued a press release rejecting a lawsuit brought against Hershel Segal and his private company Rainy Day Investments, by 12.8% shareholder Porchlight Equity.
Specifically, in relation to this lawsuit, please advise:
- The basis on which DTEA is "categorically rejecting" a lawsuit in which it is not a defendant.
- Whether Company has incurred or intends to incur legal or other expenses which are for the benefit of the defendants, Mr Segal and his private investment company Rainy Day Investments, as opposed to DTEA.
- Has a separate committee of the Board been formed to handle the clear conflict of interest between Mr Segal and DTEA in addressing the lawsuit? If not, please confirm Mr Segal has not personally promoted or authorized the Company’s response to the lawsuit.
- We understand law firm Fasken is currently acting for DTEA and that Fasken was acting for Mr Segal and Rainy Day Investments in the lead up to the AGM. Please confirm that DTEA is using separate legal counsel to that of Mr Segal and Rainy Day, recognizing the conflicts that using the same counsel would create.
Finally, we note that in his campaign to gain control of DTEA, Mr Segal made a statement that: "In order to improve operations and effect a financial turnaround, a unified Board of Directors is needed, one which shares a common vision for DavidsTea’s future."
With the departure of two of the five independent directors, within 6 weeks of their appointment, the DTEA board appears anything but unified. This is yet another indication that Mr Segal's leadership is ineffective and not supported within DTEA.
In our opinion, DTEA is an outstanding brand, however, for as long as Mr Segal is leading the business, as Executive Chairman or Chief Executive Officer, in our opinion the business will continue to lose good people and fall further and further behind its true potential.
The Independent Directors are ultimately responsible for managing the difficult governance situation precipitated by Mr Segal taking control of DTEA and appointing himself as Executive Chairman and CEO.
We request that the Company responds to the questions and concerns raised in this letter within five business days.
I have no doubt all shareholders will take a keen interest in additional information provided by DTEA.
Your Sincerely
Benjamin Gisz
Director, TDM Asset Management Pty Ltd
For more information:
Benjamin Gisz
TDM Asset Management
+61 2 8999 8816