SAN FRANCISCO, April 4, 2014 /PRNewswire/ -- A group of
Novatel Wireless, Inc. (NASDAQ: NVTL) (the "Company") investors by
the name of Novatel Shareholders for Change, who currently own
approximately 8.0% of Novatel's shares outstanding, issued an open
letter to Novatel shareholders today announcing its plans to
reconstitute the Company's Board of Directors with two new and
highly-qualified independent directors at the Company's 2014 annual
meeting of shareholders. A copy of the letter can be found at
http://tinyurl.com/NovatelLetter.
The full text of the letter follows.
Open Letter to Novatel Shareholders
April 4, 2014
Dear Fellow Novatel Shareholder:
We are a group of concerned Novatel Wireless, Inc. investors by
the name of Novatel Shareholders for Change, and we
collectively own an aggregate of 2,739,652 Novatel shares,
constituting approximately 8.0% of the Company's shares
outstanding. Like many of you, we are extremely disappointed
with Novatel's persistently weak operating results and its many
years of declining shareholder value. We believe that poor
leadership, enabled by a consistent lack of Board oversight, has
created a culture where routine underperformance is
acceptable. Simply put, we believe that the current Board has
failed shareholders.
In the upcoming weeks we intend to file proxy materials with the
Securities and Exchange Commission to be used to solicit votes for
the election of two new and highly-qualified director nominees at
Novatel's 2014 annual meeting of shareholders (which is expected to
take place in early June) (the "2014 Annual Meeting").
The decision to undertake this campaign was made after very
careful consideration and a thorough study of the facts. It
is important for you to know that we are not short-term oriented
stock traders seeking to generate a quick return on our investment
before moving on to other undervalued companies with
underperforming, entrenched Board members. To the contrary,
we are long suffering Novatel shareholders who have invested a
significant portion of our personal net worth into Novatel shares.
We are profoundly disappointed with management's inability to
effectively manage the business and with this Board's abject
failure to safeguard shareholder value over the past five years – a
period during which most of Novatel's competitors have materially
improved their operating results and share prices. As a
result, we believe that new Board leadership is not only warranted,
but absolutely necessary.
Listed below are several alarming facts that support our
conclusion and underscore our commitment to change at Novatel.
NOVATEL'S DECLINING MARKET VALUE AND UNDERPERFORMING STOCK
PRICE ARE UNACCEPTABLE
As you can see in the graph and table below, Novatel's stock
price has drastically underperformed both its peers and the NASDAQ
Composite over the past five years. We believe that
management's poor decision making, its deteriorating credibility
with Wall Street, and the Board's inability, or unwillingness, to
take corrective action have all contributed to this dismal
performance.
Since April 2009 Novatel has
lost approximately $150 million in
shareholder value while competitors' stock prices have soared.
In addition, from fiscal year-end 2009 through fiscal year-end
2013, shareholder equity has declined from approximately
$210M to approximately $45M.
Company
|
5-Year Stock Price
Performance
(April 2009 to
April 2014)
|
Value of $100,000
Invested in April 2009
|
Novatel
Wireless
|
-75%
|
$25,000
|
NASDAQ
Composite
|
+159%
|
$259,000
|
CalAmp
Corp
|
+4,468%
|
$4,568,000
|
Sierra
Wireless
|
+403%
|
$503,000
|
Netgear,
Inc.
|
+159%
|
$259,000
|
Other major concerns that compel us to act at this time include
the following:
NOVATEL'S ONGOING OPERATING LOSSES ARE NOT
SUSTAINABLE
Over the past 5 years Novatel has lost nearly $200 million in net income and on March 6, 2014, the Company reported its
16th consecutive quarterly net loss.
NOVATEL'S DECLINING CASH BALANCE IS CONCERNING
Five years ago Novatel had cash and marketable securities of
approximately $136 million (at fiscal
year-end 2009 cash and marketable securities were approximately
$176 million). During fiscal year
2013 alone, Novatel burned through approximately $35 million in cash, ending the year with a cash
balance of $25.5 million.
NOVATEL SUFFERS FROM POOR RESEARCH & DEVELOPMENT
INVESTMENTS AND AN INABILITY TO MONETIZE VALUABLE INTELLECTUAL
PROPERTY
Novatel has managed its R&D investments recklessly and
without a clear aim and purpose. Over the past five years, Novatel
has spent approximately $264 million
on R&D. Despite this enormous investment, shareholders
are left to wonder why the value of their stock has declined by
75%, approximately $150 million, over
the same period. Moreover, we believe the Company has failed
to monetize the true worth of its intellectual property
portfolio.
FIVE BOARD MEMBERS HAVE PRESIDED OVER PRONOUNCED VALUE
DESTRUCTION SINCE 2009 AND OWN VERY LITTLE STOCK OUTRIGHT
Excluding the CEO, the members of the Board collectively own
less than 0.5% of Novatel's total shares outstanding, despite the
fact that five of the six directors have served on the Board since
2009.
Director
|
Director
Since
|
Total Shareholder
Return (TSR)
During
Tenure
|
NASDAQ
TSR
During
Tenure
|
Comment
|
David
Werner
|
2004
|
-89.4%
|
+115.0%
|
Term expires this
year
|
Russell
Gerns
|
2009
|
-87.6%
|
+111.4%
|
Term expires this
year
|
James
Ledwith
|
2008
|
-88.1%
|
+76.8%
|
|
Gen. John
Wakelin
|
2009
|
-81.9%
|
+152.25%
|
|
Peter
Leparulo
|
2003;
CEO 2008
|
-79.0%
since becoming
CEO
|
+68.8%
since becoming
CEO
|
Chairman since
2006;
Chair/CEO since
2008
|
THE PROPOSED LITIGATION SETTLEMENT FOR ALLEGED INSIDER
TRADING IS, IN OUR OPINION, ABSOLUTELY UNCONSCIONABLE
On December 6, 2013, Novatel
entered into a $16 million
settlement agreement to end litigation related to insider trading
allegations that named the Company and five of its current and
former officers (including Novatel's current Chairman & CEO
Peter Leparulo) as defendants.
Under the terms of the proposed settlement, the Company will
pay $6 million in cash, issue shares
of the Company's common stock with a value of $5 million, and issue a $5
million secured promissory note with a 5% interest rate.
We have serious concerns about the extent of the Board's
independent investigation into these allegations, the
appropriateness of this settlement, and whether this settlement was
in the best interests of shareholders. As such, we intend to
probe further into the handling of this investigation to ensure
shareholder interests were represented adequately and fairly inside
the boardroom.
THE RECENT REGISTRATION STATEMENT ENABLING THE COMPANY TO
OFFER NEW SECURITIES VALUED UP TO $75
MILLION HAS THE POTENTIAL FOR MASSIVE SHAREHOLDER
DILUTION
On March 6, 2014, management
stated during the Q4 earnings call that the Company has sufficient
cash to complete its restructuring plan and return to
profitability. Despite this, on March
14, 2014, Novatel filed a registration statement with the
Securities and Exchange Commission relating to the proposed
issuance and sale of securities up to an aggregate offering price
of $75 million.
We believe that any stock-related financing executed at the
value of today's stock price (which could conceivably dilute
non-participating shareholders' ownership by more than half) would
be irresponsible and bring into question this Board's ability to
uphold its fiduciary duty to shareholders. Furthermore,
considering this Board's poor track record of supervising the
Company's finances, we believe shareholders would be much better
served if the Company refrained from any material strategic or
financial transaction until after the board is reconstituted.
IN OUR OPINION, NOVATEL SHAREHOLDERS DESERVE
BETTER
Despite the ongoing operating losses and the associated alarming
cash burn under the current leadership regime, and notwithstanding
the precipitous decline in shareholder value over the past five
years, we remain confident that, under the right leadership and
direction, Novatel can become a high-performing business.
However, we believe the market will continue to apply a significant
discount to the value of Novatel's businesses until investor
confidence is restored.
In our opinion, the most effective and judicious way to enhance
Novatel's position and rebuild investor confidence in its business
is by immediately reconstituting the Board with two new and
seasoned professional business leaders that have deep operational
and relevant industry experience. If elected, our nominees
will bring a fresh perspective into the boardroom and act as
advocates for shareholders to ensure that management is held
accountable for its performance.
Our nominees are Alex Mashinsky
and Richard Karp.
Alex Mashinsky is a
successful tech entrepreneur, operating executive and technology
investor with a consistent track record of identifying and
pioneering core technology for the Internet, Telecom and Web
Marketplaces. Mr. Mashinsky holds over fifty patents and is
considered to be one of the pioneers of VoIP. As Managing
Partner of Governing Dynamics, an early stage venture capital firm,
Mr. Mashinsky has invested in over fifty startups and founded
companies including GroundLink in 2005, Transit Wireless in 2004,
Elematics in 2000, and Arbinet in 1996.
Richard Karp is a
cost-conscious, savvy business professional with extensive
operating experience with numerous technology companies. Mr.
Karp received a B.S. degree in science from the California Institute of Technology, a M.S. degree
in mathematics from the University of
Wisconsin, and a Ph.D. in computer science from Stanford
University. Subsequent to this, Mr. Karp managed several
private and publicly-traded companies, including Catapult
Communications, a manufacturer of telecom test equipment, which he
founded in 1985 and took through its IPO before it was sold to Ixia
(Nasdaq: XXIA) in 2009 for $105
million.
These two individuals are well-respected, proven business
leaders with decades of experience in technology companies.
We firmly believe that the addition of these two well-respected
operators to a reconstituted Board will result in a Company that is
more capable of achieving long-term profitable growth.
Over the past two weeks we have reached out to the Company in an
effort to engage in private negotiations aimed at addressing our
concerns and avoiding a costly and distracting proxy contest.
We remain open to continuing our discussions with the Board
regarding its composition, and are amenable to reaching a mutually
agreeable resolution to reconstitute the Board in a manner that is
in the best interests of all shareholders. However, if an agreement
is not reached, Novatel Shareholders for Change is fully prepared
to solicit the support of its fellow shareholders to elect two new
directors at the 2014 Annual Meeting who are committed to
representing the best interests of all Novatel shareholders.
We look forward to speaking with you soon.
Sincerely,
Novatel Shareholders for Change
CERTAIN INFORMATION CONCERNING THE
PARTICIPANTS
Cobb H. Sadler, Edward T. Shadek, Robert
Ellsworth, Alex Mashinsky and
Richard A. Karp (collectively, the
"Participants") intend to make a preliminary filing with the
Securities and Exchange Commission ("SEC") of a proxy statement and
accompanying proxy card to be used to solicit votes for the
election of a slate of director nominees at the 2014 annual meeting
of shareholders of Novatel Wireless, Inc., a Delaware corporation (the "Company").
THE PARTICIPANTS STRONGLY ADVISES ALL STOCKHOLDERS OF THE
COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS
THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO
CHARGE ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. IN
ADDITION, THE PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE
COPIES OF THE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST.
As of the date of this filing, Mr. Sadler directly owns 79,900
shares of common stock, par value $0.001 per share (the "Common Stock") of the
Company. As of the date of this filing, Mr. Shadek
beneficially owns 1,773,164 shares of Common Stock. As of date of
the filing, Mr. Ellsworth beneficially owns 818,388 shares of
Common Stock. As of the date of this filing, Mr. Mashinsky directly
owns 68,200 shares of Common Stock. Mr. Karp does not own any
shares of Common Stock.
Investor Contact
Cobb Sadler
Catamount Strategic Advisors, LLC
415-240-4222
Cobb@Catamountllc.com
Media Contact
Damien Park
Hedge Fund Solutions, LLC
215-325-0514
dpark@hedgerelations.com
Photo
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SOURCE Novatel Shareholders for Change