CDC signals defeat in lawsuit brought by noteholder, plans to appeal

By Angela McDaniels

Tacoma, Wash., July 1 - CDC Corp. expects the New York Supreme Court to enter a judgment in favor of Evolution Capital Management LLC, according to a 6-K filing with the Securities and Exchange Commission.

The company has been fighting a protracted legal battle with Evolution, the last remaining non-affiliated holder of its 3.75% senior exchangeable convertible notes due November 2011.

The dispute involves a put option that CDC said is no longer exercisable. Evolution believes this is a default and is seeking the repayment of its convertibles plus $68 million of damages.

On Tuesday, the court granted Evolution's motion for summary judgment in its case against CDC. An order has not been entered yet, but the court is expected to enter judgment in favor of Evolution within about 30 days, according to the filing.

CDC's lawsuit against Evolution remains pending. CDC alleges breach of non-disclosure agreements, breach of the note purchase agreement relating to convertibles, breach of the convertibles and tortious interference with business relations.

The company is seeking at least $795 million of damages from Evolution, which includes $295 million of compensatory damages and $500 million of punitive damages.

In Friday's SEC filing, CDC said it plans to file several motions and pleadings with the court, including a request for a stay of the judgment pending appeal. The company believes it has the ability, through a combination of internal and external funding, to post a bond, which means any judgment would not have to be paid during the appeals process, which could take about a year.

CDC said its management has continued to evaluate alternatives for addressing the Evolution litigation, including the potential repayment of any remaining amounts owed under the notes.

As previously reported, CDC and CDC Delaware Corp. - the holder of $124,775,000 principal amount of notes - amended the notes on Nov. 11, 2009 to change the definition of qualified initial public offering to provide that CDC Software Corp., CDC Games or any of their respective subsidiaries can consummate a qualified IPO and to reduce the amount of proceeds needed to achieve a qualified IPO to $40 million from $100 million.

As a result of the change, the company believes the put option previously granted to noteholders is no longer exercisable. CDC said the put option would have required it to pay $54.1 million no later than Dec. 16, 2009, which includes the principal amount of notes held by Evolution plus accrued interest at the rate of 12½% retroactive to the issue date of Nov. 13, 2006.

CDC is a Hong Kong and Atlanta-based enterprise software and new media company.

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