SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
<Table>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</Table>
OPENWAVE SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
HARBINGER CAPITAL PARTNERS MASTER FUND I, LTD., HARBINGER CAPITAL
PARTNERS SPECIAL SITUATIONS FUND, L.P., JAMES L. ZUCCO AND ANDREW J. BREEN
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
NEWS RELEASE
For Immediate Release: January 8, 2007
HARBINGER FURNISHES DEFINITIVE PROXY MATERIALS TO OPENWAVE SYSTEMS, INC.
STOCKHOLDERS
Harbinger will Begin Soliciting Proxies on January 8, 2007
New York, New York / PRNewswire / On January 8, 2007, Harbinger Capital Partners
filed definitive proxy material (the "Proxy") with the Securities and Exchange
Commission (the "SEC"). The Proxy was furnished by Harbinger, James L. Zucco
("Mr. Zucco") and Andrew J. Breen ("Mr. Breen") to the stockholders (the
"Stockholders") of Openwave Systems Inc. ("the Company") (NASDAQ: OPWV) in
connection with the solicitation by Harbinger, Mr. Zucco and Mr. Breen of
proxies to be voted at the Company's 2006 Annual Meeting of Stockholders (the
"Annual Meeting"). The Annual Meeting will be held on Wednesday, January 17,
2007 at 8:30 a.m. PST at the Company's offices located at 2100 Seaport
Boulevard, Redwood City, California 94063.
The Proxy statement and form of Proxy will be mailed to Stockholders on or
about January 8, 2007. Harbinger and Messrs. Zucco and Breen are
soliciting proxies from Stockholders in order to elect Mr. Zucco and Mr.
Breen to the Board of Directors of the Company (the "Board") as Class III
-----
directors. Harbinger is asking Stockholders to elect Mr. Zucco and Mr.
Breen to replace the current Class III directors.
Harbinger Capital Partners has outlined initiatives to improve Openwave's
strategy and performance and believes that the significant industry expertise
and directly relevant experience of the Harbinger nominees will enable them to
help the Company implement these changes. Harbinger's initiatives aim to reverse
the Company's deteriorating performance, increase shareholder value and enable
the Company to successfully capitalize on its market opportunity.
"We are seeking to elect nominees to the Board because we are disappointed with
the performance of the Company's stock and with the strategic direction of the
Company," said Howard Kagan, a Managing Director of Harbinger Capital Partners.
"We strongly believe that in order for stockholders to mitigate and reverse the
losses they have suffered and to take full advantage of the Company's true
potential, significant immediate changes are required. Furthermore, while we are
pleased that the Company has authorized a share buyback program, as we
encouraged them to do, we believe that the amount is inadequate and we would
like further assurances that any such program be executed in a timely manner."
Included in the Proxy material filed today by Harbinger Capital Partners is the
following message to Stockholders:
PROTECT YOUR INVESTMENT -- VOTE THE ENCLOSED GREEN PROXY CARD TODAY!
Dear Fellow Stockholder:
Harbinger Capital Partners is the owner of 10 million shares of Openwave
Systems, Inc., representing approximately 10.6% of the outstanding shares. We
are extremely disappointed and frustrated with the deteriorating shareholder
value at the hands of the present Board of Directors. We strongly believe that
the Board of Directors cannot continue business as usual and that the Board
needs new and independent directors with fresh ideas to help reverse a downward
spiral. Harbinger is running an opposing slate of two nominees, Messrs. Zucco
and Breen, who we believe can achieve that objective. IT IS NOT OUR OBJECTIVE TO
TAKE CONTROL OF THE BOARD, BUT TO ADD NEW INDIVIDUALS WITH
-2-
NEW SKILLS SETS TO CREATE SHAREHOLDER VALUE. PLEASE SUPPORT OUR EFFORTS BY
VOTING THE ENCLOSED GREEN PROXY CARD TODAY.
CHANGE IS NEEDED TO STOP THE DESTRUCTION OF SHAREHOLDER VALUE AT
OPENWAVE
OPENWAVE'S STOCK PRICE HAS DROPPED MORE THAN 70% FROM ITS ANNUAL HIGH OF
$22.59 ON 4/19/06. This drop was due in part to an options backdating inquiry
but was primarily due to the Company's failure to meet product sales guidance
which had previously been announced to the market. While we are pleased that the
options issues are largely resolved, we share the view of many in both the
industry and investment community that there are other looming issues which
continue to negatively impact the Company and its stock price.
Over the last 9 months, the Company has experienced delays in development
and deal flow for new products, an increasing percentage of revenue from
professional services as compared with software license sales, and a bloated
cost structure that assumes overly optimistic revenue projections for the next
two years. ALL OF THESE FACTORS HAVE RESULTED IN MANAGEMENT LOSING CREDIBILITY
WITH MANY OF ITS INVESTORS.
WE BELIEVE IN THE POTENTIAL FOR A STRONG FUTURE AT OPENWAVE
Despite this, we believe in the Openwave story, and continue to be
impressed with its technology, its enviable position with wireless service
providers and the substantial amount of cash on its balance sheet. However, we
share the concerns we have heard this year from many other stockholders and the
research community regarding the challenging position the Company is facing and
the failure to execute over recent quarters. Revenue and earnings have been
dismal and we have noted a disturbing drift toward service revenues and away
from more lucrative software license revenues. Furthermore, as the Company has
stated, consolidation in the telecom industry has resulted in fewer customers
and more restrained spending, making for a more challenging business
environment.
At the same time, Openwave has been delayed in bringing new products to
market. Since the Company's future success is directly tied to customer adoption
of data services -- which has been slower than predicted and might develop over
a longer time frame than the Company projects -- we believe the Board of
Directors should take a fresh look at the Company's strategy and business
position, reassessing its capital investment spending and leadership,
particularly in product development and sales. The Board should examine the
wisdom and return on investment of its growth by acquisition strategy, and
consider reducing its overhead levels until new momentum builds. The Board
should also evaluate returning Openwave's excess cash to stockholders.
WE HAVE A PLAN TO RESTORE STOCKHOLDER VALUE AT OPENWAVE
Harbinger Capital Partners believes Openwave has as compelling an
opportunity as any in the industry to capture future infrastructure business due
to its historically strong position with the mobile browser and MAG products.
However, the Company cannot simply rely on its legacy position for data
services, as the next generation of products will see larger players offering
competing products integrated with their hardware, software (especially voice),
and service offerings. The Company must focus on offering service providers an
independent open-source solution as an alternative to proprietary data solutions
which lock them into a single vendor and platform. Though the Company's legacy
position with wireless service providers gives it a competitive advantage, we
believe the Company must implement immediate changes to ensure that it can
bridge this challenging transition period.
-3-
Based on our analysis of the Company, the industry and the current market
environment, we recommend that the Board examine the following proposals for
improving profitability, strengthening the Company's franchise and increasing
shareholder value. We believe that bringing a new perspective to the Board to
evaluate these important questions is an important part of ensuring a turnaround
in the Openwave story. Our nominees will be committed to pursuing the following
agenda:
IMMEDIATELY REDUCE QUARTERLY OPERATING EXPENSES TO APPROXIMATELY $50 MILLION.
The Company has disclosed its intention to reduce SG&A expenses to a lower
percentage of revenue. However, this assumption is based on aggressive revenue
growth by some future date and not on meaningful cost reductions. Given the
uncertainty of deal flow for new products as well as declining revenues and
pricing pressure for legacy products, the Company's revenue is more likely to
remain in its current range for the next several quarters and therefore there
must be some contribution to margin generated by reducing costs. We believe that
the Company can make reductions to be more in line with comparables without risk
to R&D, as most cuts can be made in SG&A through office consolidation, reduction
in redundant headcount, sales reorganization, and other administrative cost
reductions.
We plan to investigate office, IT, and personnel expenses, along with a
hiring slowdown by ensuring that senior management approves all new hire
requisitions. We believe there are excess costs stemming from the lack of
consolidation of offices and process integration of the many acquisitions.
Openwave officially lists over 20 offices worldwide, and a recent check of their
current job listings on their website reveals nearly 50 hiring offices. Many of
these offices are hiring non-sales staff and multiple offices exist within the
same region. In addition, the Company has been hiring rapidly in the services
organization on a worldwide basis. Management has told us that they hire
services personnel at customer sites. While some long-term services contracts
may require local personnel, this is not an efficient practice to ensure
resources can achieve maximum utilization across customers. We also believe cost
savings will arise from the product review process outlined below. Many of these
excess costs are a direct result of the failure to integrate past acquisitions
efficiently and can be accomplished without impairing future growth. A properly
aligned cost structure will lead to improved profitability and investor
confidence in management.
PRUNE NON-PERFORMING PRODUCT LINES TO FURTHER REDUCE COSTS.
As important as it is to maintain support for customers of legacy
software, many of the Company's aging lower-margin products no longer warrant
continued investment. This allocation of resources distracts management, the
sales organization, and R&D employees from what is really important --
developing and selling current/new products. If a product is no longer strategic
or performing, it should be moved out of the product group. The Company needs to
apply a specific set of investment metrics against all current and planned
products. This should include a thorough and consistent evaluation of the ROI,
market size, potential customer uptake, sustainable engineering and maintenance
spend as a percentage of revenue, and new sales growth as a percentage of total
recurring revenue. Products that do not meet the criteria for continued
investment should be sold, or turned over to the services team for high-margin
custom-only projects and/or end-of-life wind down.
USE PROFESSIONAL SERVICE ONLY TO SUPPORT SOFTWARE SALES AND DEPLOYMENT
Along with a margin drag from commoditized products, Openwave suffers from
an increasing reliance on lower margin services revenue. As most stockholders
know, Openwave should strive for a mix of business that merits it trading at
software development company multiples, not the lower multiples of a
services/consulting company. We feel the Company should try to limit its
services revenue to no more than 25% of its overall revenue mix. We urge the
Company to only seek and accept professional services business that supports the
sale and usage of its core software
-4-
products. Also, for that portion of the business that must remain in services,
the Company should take immediate steps to increase services margins by moving
certain functions to lower cost offshore locations and by shifting some business
to systems integrator partners. In addition, we recommend that the Company's
reorganized sales teams have a separation of "church and state" between
licensing and services. If the same sales person is selling both services and
licenses to a customer, there will be a tendency to close services deals and
discount high-margin licenses.
ESTABLISH A UNIFIED AND FOCUSED "PLATFORM" VISION FOR YOUR OVERALL PRODUCT
OFFERING WITH YOUR MOST STRATEGIC CORE PRODUCTS.
The Company is supporting a very broad product line with a divergent mix
of products for each customer. It has now embarked upon creating significant new
technology (OPPS and ODP), which is unproven in the marketplace and has only
minor tie-ins to existing products. Furthermore, perceived delays in the product
development and release of these new products have caused investors to worry
about the future of the Company. We urge the Company to develop a unified vision
and customer message with a coherent business, market, and technology strategy.
The value proposition should clearly communicate that an investment in the
Openwave platform can be leveraged across multiple applications and product
generations, including customized projects and third party plug-ins. The
Company's customers then know they have a long-term investment where new and
custom applications (e.g. LBS, friend finder, music delivery, personalized
portal) are seamless add-ons, not independent product silos. The Company will
benefit from tighter rationalization of investment in product R&D as well as a
move away from products being highly customized for each customer by the core
engineering group.
IMMEDIATELY COMMENCE A SIGNIFICANT SHARE REPURCHASE PROGRAM
As of 9/30/06, the Company had cash and cash investments totaling $505.1
million and net cash (after deducting the convertible debt) of approximately
$355 million. While we recognize that a strong balance sheet is needed in order
to compete for business in Openwave's end markets, we feel strongly that the
amount of cash currently on hand could only be justified by management's desire
to make acquisitions, especially since the Company should be operating cash flow
positive this year. Furthermore, while we recognize that acquisitions are an
important part of any growth strategy, we do not think funding large-scale
acquisitions at this point in time would be a prudent use of this capital.
The past acquisitive nature of the Company has contributed to its bloated
cost structure and as a result, we are wary of the Company's ability to
identify, value and integrate appropriate acquisition targets. The acquisition
of Musiwave exemplifies this track record. While we are excited about the
prospects for growth and revenue diversification that Musiwave provides, we feel
strongly that management overstated how accretive the Musiwave acquisition would
be, and has not done enough to extract synergies from this acquisition. Given
these issues and our view that the stock is inexpensive relative to its
intrinsic value, we believe the Company should take steps to implement a $200
million share repurchase program or Dutch auction tender, reducing current
shares outstanding by approximately 25% based on the stock price on 12/26/06.
This would leave the company with net cash of approximately $155 million (gross
cash of twice the outstanding debt) which should provide ample financial
flexibility.
ADDRESS LEADERSHIP ISSUES WHICH HAVE STIFLED THE DEVELOPMENT OF A CLEAR STRATEGY
Over the past 2 months, Harbinger Capital Partners has had multiple
discussions with senior management at Openwave, including David Peterschmidt,
CEO, in order to better understand the Company's vision during this period of
transition. We believe that a coherent, well thought-out strategy which has been
debated and agreed upon by senior management and the Board is necessary to guide
any Company. We are concerned that the actions taken by the Company in August of
2006
-5-
to remove a great number of key senior managers, including its chief marketing
officer, chief administrative officer, chief operating officer and chief
strategy and business development officer, creates a dangerous level of turnover
and a lack of cohesion among senior management which has directly impacted the
development of a unified strategy. More recently, the resignation of David
Whalen, senior vice president and general manager of worldwide sales, gives us
additional cause for concern regarding turnover at the senior management level.
In fact, it seems to us that the senior management strategy changes very
frequently, as with the elimination of the new chief marketing officer less than
a year after she was brought on by Mr. Peterschmidt with great fanfare. We
believe these management cuts and departures are indicative of an unhealthy
level of disagreement at the senior level which has contributed to the lack of a
clear, executable strategy for the Company. The Board should take steps to
identify the cause of this conflict and remedy it. We are concerned that the
Board may be hearing of these management issues only through the voice of Mr.
Peterschmidt. While this may be appropriate in a more stable situation, the
level of turnover here demands more Board involvement in senior management
morale and direction.
BRING A FRESH PERSPECTIVE TO THE BOARD
Harbinger Capital Partners has submitted two nominees for the Class III
director seats which are up for election at this year's annual meeting. As is
evidenced from their biographies, which are described in our proxy, Andrew Breen
and James Zucco have both the deep industry expertise to understand how
Openwave's customers purchase software and services, as well as the
operating/strategic experience to help implement a plan which addresses the
myriad of issues facing the Company. We are also confident that the Board would
benefit from debating these issues and formulating its plan without the direct
influence of Mr. Peterschmidt as a Board member.
We are excited about Openwave's market opportunity and believe that steps
can be taken to dramatically improve the Company's operating performance, bring
discipline to management of costs and products, and increase shareholder value.
The first course of action for the Company should be to re-assess how best to
capitalize on its market opportunity and our Board nominees are in a unique
position to help the Company work through this process.
However, if it becomes clear during the course of this analysis that the
Company cannot achieve its goals in the current competitive environment, then
there is a danger that Openwave could slowly turn into a consulting services
business, which would result in a permanent loss in shareholder value. Instead,
a sale to a strategic buyer may be the best way to maximize shareholder value by
ensuring a strong leadership team will be available to take advantage of
Openwave's great products. We trust that the Board would seriously consider this
option as well.
We hope that you will support our efforts to add a stockholder voice to
the Openwave Board by voting the enclosed GREEN proxy card. If you have any
questions or need assistance in voting your shares, please call our proxy
solicitor, MacKenzie Partners, Inc., by telephone at (800) 322-2885 or by email
at proxy@mackenziepartners.com.
Sincerely,
Howard Kagan
Managing Director
Harbinger Capital Partners
For further information contact:
John W. McCullough
Vice President and Associate General Counsel
Harbert Management Corporation
Telephone: (205) 987-5576
E-mail: Jmccullough@harbert.net
or
John Dooley
Taylor Rafferty
Telephone: (212) 889-4350
Email: harbinger@taylor-rafferty.com