Ciplamed -- update on the CEO

Shareholders are referred to the various SENS announcements relating to the suspension of the CEO, Mr Smith, and the respective updates, released on 15 August 2012, 30 August 2012, 5 September 2012 and 19 September 2012 when we advised shareholders of the suspension and the various updates with regard to the disciplinary hearing (the hearing).

Shareholders are now advised that Mr Smith, via his legal advisors, Werksmans Inc., sent communication (the Communication) to the Cipla Medpro board of directors (the board) late on Friday afternoon (5 October 2012) cancelling his fixed term employment contract with immediate effect on the basis of an irretrievable breakdown in the working relationship with the Board and alleging that he was forced to resign. Mr Smith also indicated that he would institute legal action to claim damages in an amount which will be set out in correspondence to follow. The board intends to defend this action.

Mr Smith has chosen not to attend the hearing that was scheduled to commence at 9am today (8 October 2012). Until now the board has been unable to advise shareholders of the charges faced by Mr Smith so as not to prejudice the outcome of the hearing. The Board would now like to notify shareholders of some of the charges that had been put to Mr Smith that formed the basis of the Hearing which were to be assessed by the independent Chairman, Advocate Paul Pretorius SC.

A total of more than 20 charges were put to Mr Smith, some of which are:
*Gross misconduct and/or, dishonesty and/or serious breaches of his fiduciary duties and the company's memorandum of incorporation (MOI), its operating procedures, the Listings Requirements of the Johannesburg Stock Exchange (JSE) and the requirements of King III in that he caused bonuses determined by him in his sole discretion to be paid to inter alia himself in the amount of R1 600 000,00 (one million six hundred thousand rand) in respect of the 2010 financial year and R2 000 000,00 (two million rand) in respect of the 2011 financial year, when to his knowledge such bonuses had not been recommended by the Remuneration Committee (Remcom) and had not been approved by the board as required by the MOI, the JSE listings requirements and by law;
*Gross misconduct and/or dishonesty in purposely failing to alert the non-executive members of the board to the payments referred to in paragraph, well knowing that they were completely unaware of these payments and had not noticed these unauthorised payments, when approving the annual financial statements of the company for the 2010 financial year;
*Gross dishonesty in that on or about 20 June 2012, he wrote a letter to the board in terms of which he purported to apologise for his conduct referred to in 1 above and to acknowledge that the award and payment of the bonuses had not been authorised when he was not acting in a genuine and bona fide fashion when he did so;
*Gross misconduct and/or breaches of his fiduciary duties to act in the best interests of the company in that he made serious and disparaging allegations against the board when he alleged that he was pressurised, held to ransom and threatened into apologising and acknowledging his wrongdoing in respect of 1 above, which allegations were unfounded and without merit and had the effect of destroying the trust of the board in him;
*Gross dishonesty and/or breaches of his fiduciary duties towards the company in that in respect of the 2011 financial year, without the knowledge of the board, inter alia, he caused himself to be paid a 13,8% (thirteen comma eight percent) remuneration increase (based on guaranteed package) when the Board, advised by Remcom, had only approved a 7,5% (seven comma five percent) remuneration increase in respect of that financial year;
*Gross dishonesty, and/or serious breaches of his fiduciary duties to act in the best interests of the company, and/or serious breaches of the Companies Act No. 61 of 1973 (the 1973 Act) and/or the Companies Act No. 71 of 2008 (the 2008 Act), and/or gross abuse and/or misuse of company facilities, including its bank account, funds, administration, staff and/or tax status, in that:
1.He caused the company to provide loans and/or financial assistance to himself through a personal loan account with the company (Personal Loan Account), in respect of interest free loans advanced before 1 May 2011, without the requisite approval in terms of the 1973 Act and, in respect of loans advanced on or after 1 May 2011, without the requisite approval in terms of the 2008 Act; and /or
2.He caused the company to have approximately 45 (forty five) people on its books as employees, whereas such people were not employed by the company, but were nonetheless paid by the company on his behalf and debited against the Personal Loan Account and up to 1 March 2012 caused the Company to submit all the information to SARS under its own tax number for the EMP201 including PAYE, UIF and SDL; and/or
3.He caused the company to pay the insurance costs for his personal vehicles, fuel costs for non-work-related travel on the company petrol card and other expenses of a personal, non-work-related nature, which costs were debited to the Personal Loan Account; and/or
4.He caused the debit balance of the Personal Loan Account to be set-off against amounts owed by the company to a company associated with him (the balance of which was insufficient to absorb the balance of the Personal Loan Account), prior to the finalisation of the annual financial statements of the Company, which resulted in the annual financial statements of the Company not reflecting the Personal Loan Account, and the Board not becoming aware of such Personal Loan Account. The allegations in paragraph were identified through a forensic audit conducted by SizweNtsalubaGobodo Inc. subsequent to the suspension of Mr Smith.

The board will embark on a process to find a new CEO and in the interim Johan du Preez will continue to act as CEO. The board will continue to advise shareholders of any developments in this regard.

2012-10-08 08:05:21