A group of Novatel Wireless, Inc.
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.
Novatel vs. NASDAQ 5-Year Stock Price 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.
5-Year Stock Price
Company Performance Value of $100,000 Invested in
April 2009
(April 2009 to April 2014)
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 16^th 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.
Total Shareholder Return NASDAQ TSR
Director Director (TSR) Comment
Since During Tenure
During Tenure
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 2009 -81.9% +152.25%
Wakelin
+68.8% Chairman since
2003; -79.0% 2006;
Peter Leparulo since
CEO 2008 since becoming CEO becoming CEO 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 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
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