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Wegener Averts A Proxy Confrontation

Tiny cable-equipment supplier Wegener Corp. appears to have averted a nasty proxy fight — at least for the time being — with one of its largest shareholders, Philadelphia investor David Wright.

Wright, who had been an outspoken critic of Wegener, agreed last week not to launch a proxy battle against the maker of digital signal processors, network control, conditional access and satellite receivers for cable companies and commercial programmers; agreed not to acquire any of its assets; and agreed not to support any individual or group attempting to amass more than a 20% interest in Wegener stock, according to an 8-K filing with the Securities and Exchange Commission on Oct. 3. Wright also agreed not to submit any shareholder proposals at Wegener's next annual meeting, scheduled for January.


In return, Wegener agreed to amend its “poison pill” shareholder-rights plan — setting a 20% trigger for the plan, instead of the previous 15% — and has agreed to pay Henry Partners, Matthew Partners and Henry Investment Trust (the three funds controlled by Wright) for its fiscal 2006 proxy-solicitation costs and fees up to a maximum of $150,000.

“It's over,” Wegener treasurer and chief financial officer C. Troy Woodbury said, regarding the company's battles with Wright.

But only for a year. According to the SEC filing, Wright has agreed not to launch a proxy fight until 10 business days prior to the deadline for submitting board nominees for Wegener's 2008 annual meeting.

The agreement provides a temporary cease-fire to what has been a year-long battle between Wright — one of Wegener's largest shareholders, with about 8% of outstanding shares — and Wegener management.

Wright fired his first shot across the equipment maker's bow on Sept. 29, 2005, when after management's refusal to accept his phone calls, he filed a 2,400-word screed against Wegener management with the SEC, mapping out his strategy. Basically, it was fire management or sell the company.

Wright chafed at Wegener's poor financial performance (three consecutive years of operating losses) and continued his campaign for the rest of that year. That effort paid off at Wegener's Jan. 31, 2006, annual meeting when Wright and his associate, New York University Law School professor Jeffrey Haas, each won seats on Wegner's board of directors.


The path to winning those board seats was not without controversy.

In February, Wright sued in Delaware Chancery Court, objecting to Wegener's decision to increase the number of its board of directors to nine from seven, a move Wright claimed was geared toward securing board seats for two directors he opposed: Wegener chairman and CEO Robert Placek and retired cable-industry executive Wendell Bailey. In the suit Wright claimed that Placek and Bailey did not receive enough votes to gain re-election to the board at the Jan. 31 annual meeting.

Wright apparently had a change of heart — he dropped the suit on March 17, less than a month after he filed it. Wright declined to comment and referred all questions to Wegener.

Bailey, a long-time cable and broadcast executive and former VP of science and technology at the National Cable & Telecommunications Association, died on Sept. 26, leaving an open spot on the board.

As part of the October agreement, Wegener said it would appoint a search committee to find an independent board member to replace Bailey and will nominate one or more individuals by Nov. 15. Wegener said in the filing that it would solicit input from stockholders — other than Wright — for potential nominees.


Woodbury said that he does not expect another proxy battle with the new board member.

“We certainly don't anticipate that,” Woodbury said. “He's on the board; both he and Jeff Haas are working very cooperatively and the board's working very well together, I think in a very productive way.”

Wright's initial beef with Wegener was its poor operating performance. In a slew of proxy filings over the past year, Wright repeatedly referred to Wegener's declining revenue and net losses over the past five years. Although revenue increased 21% in fiscal 2005 to $21.9 million, net losses nearly tripled to $5.7 million from $2.1 million in the prior year.

And this year isn't expected to be much better.

Wegener also said in that 8-K filing last week that fourth quarter revenue would be in the range of $4 million to $4.5 million, well short of its previous target of $5.4 to $6.4 million.

As a result, Wegener said it will report a “significant loss” in the fourth quarter and fiscal year ended Sept. 1, 2006. Wegener added that due to the inconsistent nature of its large project-oriented business, it will no longer provide revenue guidance.

“We are implementing plans to progressively add more stand-alone products to our portfolio to help minimize this effect,” Placek said in a statement.


In the filing, Wegner said the shortfall was due to unexpected problems with product development that affected shipments. The company also said that its bookings for the fourth quarter were below expectations.

“We have now identified the source of the problem that we saw with the product development; however, the problem resolution came too late to enable shipments within the quarter,” Wegener president Ned Mountain said in a statement.

Wegener shareholders were likely more concerned about the revenue shortfall. Wegener's stock dipped as low as 96 cents per share on Oct. 3 (down 29 cents, or 23%) before rebounding to $1.16 each in 4 p.m. trading (down 9 cents or 7.2%).