NEW YORK--(BUSINESS WIRE)--Wynnefield Capital (“Wynnefield”), a long-term investor in CDC Software Corporation (NASDAQ: CDCS) (“the Company”), today released a letter demanding that the Company’s Board of Directors (“the Board”) terminate CEO Peter Yip from all of his offices and positions with the Company – and that any directors not acting to do so, should immediately resign their own positions. Wynnefield calls the following events to the attention of the Company’s shareholders:
- The New York State Supreme Court sanctioned CDC Corporation on June 29th for submitting patently false testimony, willfully disregarding its discovery obligations and advancing factually and legally unsupportable defenses and claims – and the Court indicated that it was considering imposing personal sanctions against Mr. Yip based on his deposition and affidavit testimony. At the time of the Court Order, Dr. Raymond Ch’ien was the Chairman of CDC Corporation, and resigned the day before CDC Corporation filed for voluntary bankruptcy;
- An independent investigation, conducted by a Special Committee comprised of independent Board members from the Company and CDC Corporation, recommended Mr. Yip’s removal as CEO. The Board unanimously determined that “it was not in the best interests of the Company and its shareholders for Mr. Yip to continue to serve as the Company’s Chief Executive Officer”; and
- On November 10th, the Company’s Auditors, Deloitte & Touche (“Deloitte”) resigned because “Deloitte would not rely upon representations of Mr. Yip or those influenced or controlled by him...”
On October 12th, facing potential removal, Mr. Yip threatened legal action against the Board. Immediately following Dr. Lee Lam’s resignation as Chairman of the Board, on October 16th, at the Board meeting - then chaired by Dr. Raymond Ch′ien – the Board voted to allow Mr. Yip to remain with the Company, with Dr. Ch’ien voting twice, including the decisive vote in favor of Mr. Yip.
Given the findings of the Court, the results of the independent investigation of the Board and the resignation of the Company’s independent auditors, clearly the Board has failed to fulfill its fiduciary duty to the shareholders to terminate Mr. Yip’s service with the Company. The fact that Dr. Ch’ien – who also serves as Chairman of Hang Seng Bank, and as an independent director of Swiss Reinsurance Company and Hong Kong Mercantile Exchange, among other companies – and another unnamed Board collaborator continue to protect Mr. Yip is a breach of good governance practices and their duties of loyalty and care. It’s hard to believe that an individual of Dr. Ch’ien’s business stature would endorse these questionable governance practices. Wynnefield believes that the CDC Software Board must immediately terminate all affiliations with Mr. Yip or resign their own positions on the Board.
Wynnefield had written to the Board on November 10th, insisting that the Board act by November 18th. To date, the Board has not yet acted on Wynnefield’s recommendation.
Full text of Wynnefield’s letter follows:
November 10, 2011
| Board of Directors |
| CDC Software Corporation |
| 2002 Summit Boulevard |
| Atlanta, GA 30319 |
| USA |
| Attn: Dr. Raymond K.F. Ch’ien, Chairman |
Dear Members of the Board of Directors:
Following up on our letter to you dated July 16, 2011 on behalf of Wynnefield Partners Small Cap Value, L.P., Wynnefield Partners Small Cap Value, L.P.I. and Wynnefield Small Cap Value Offshore Fund (the “Wynnefield Capital Funds”) which collectively own or have an economic interest equivalent to 12.3% of the public float of the Class A Common Stock of CDC Software Corporation (the “Company”), we write to express our outrage over the Board of Director’s (the “Board”) failure to adequately address the harm to our Company caused by Vice Chairman Peter Yip, as documented in our Company’s 6-K dated October 20, 2011.
To briefly recap events as reported by our Company:
- On June 29, 2011, Judge Charles E. Ramos, NYS Supreme Court, sanctioned our Company $150,000, having determined that our Company had submitted “patently false testimony.” This followed the Judge’s verbal confirmation at the June 28, 2011 hearing that he was considering imposing personal sanctions against Mr. Yip, the Company’s then CEO, based upon his deposition and affidavit testimony.
- In response, the Board formed a Joint Special Committee (the “Committee”) of independent directors to investigate the matter, which in turn engaged the highly respected law firm of Paul Hastings LLP to assist the Committee in its investigation.
- Although the Board placed Mr. Yip on administrative leave as CEO pending the results of the investigation, he was allowed to continue to serve as Vice Chairman of the Board.
- On October 4, 2011 following the results of the investigation by Paul Hastings, the Committee unanimously determined that Mr. Yip provided false testimony under oath in a legal proceeding and recommended that he be removed as CEO.
- On October 12, 2011 the Board unanimously accepted the recommendation of the Committee, found that Mr. Yip exercised managerial direction while on administrative leave (another terminable offence) and determined that “it was not in the best interests of the Company and its shareholders for Mr. Yip to continue to serve as the Company’s Chief Executive Officer”. [Company’s 6-K dated October 20, 2011, p.4].
Yet, despite the findings of independent counsel, the unanimous recommendation of the Special Committee, the defiance of a Board resolution and the unanimous vote of the Board that Mr. Yip had committed perjury and be removed as the Company’s CEO, in the face of threatened legal action by Mr. Yip, on October 16, 2011, in what we can only believe to be acts of supreme cowardice – Dr. Lee Lam resigned as Chairman of the Board and as a director and was replaced by Dr. Raymond Ch′ien – and then, abandoning any pretext of fulfilling their fiduciary duty to all shareholders, the reconstituted Board then voted 3 to 2 – with Dr. Ch′ien voting twice – to place Mr. Yip on “medical leave” as he had requested, while continuing to allow him to serve (apparently unaffected by his medical disability) as Vice Chairman of the Board.
Such abdication of the Board’s fiduciary duty is unacceptable to Wynnefield Capital, just as we believe it is to the other shareholders – other than Mr. Yip, Dr. Ch’ien and their fellow collaborator on the Board.
We applaud the courage of those two Board members who have acted honorably and with firm conviction by appropriately fulfilling their fiduciary duty by voting in favor of upholding the termination of Mr. Yip.
We call upon those Board members who voted in favor of granting Mr. Yip “medical leave” to immediately reconsider their irresponsible and unacceptable actions, and vote to terminate Mr. Yip from all of his offices and positions with our Company – or follow the lead of Dr. Lam and resign.
Should Dr. Ch′ien and the other Board member who has turned a blind eye to Mr. Yip’s transgressions refuse to follow our recommendation and fail to publicly announce by Friday, November 18, 2011 that the Board has taken appropriate actions against Mr. Yip in accordance with the Board’s original determination, we shall publicly bring our concerns and this letter to the attention of our Company’s other shareholders.
| Very truly yours, |
| Nelson Obus |
| Managing Member & President |
| cc: Peter Yip, Vice Chairman |
| Chung Kiu Wong, Director |
| Frank K. Au, Director |
| Sin Just Wong, Director |
EDITOR’S NOTE
Within the text of Wynnefield’s letter, the phrase “our Company” refers to CDC Software.
ABOUT WYNNEFIELD CAPITAL
Wynnefield Capital, Inc., with its affiliates, is a long-term shareholder of CDC Software Corporation, holding or having an economic interest in approximately 12.3% of the public float of the Company’s Class A Common Stock. Established in 1992, Wynnefield Capital is a value investor specializing in U.S. small cap situations that have company- or industry-specific catalysts.