Ephraim Fields of Echo Lake Capital Issues Letter to Independent Board Members of Edgewater Technology, Inc.

Ephraim Fields of Echo Lake Capital Issues Letter to Independent Board Members
                        of Edgewater Technology, Inc.

- Questions qualifications of Directors

- Notes Directors have little relevant industry experience, but for some
reason have extensive experience in the non-profit and marketing fields

- Notes poor performance of certain Directors while at previous employers

- Criticizes Board for poor performance, excessive compensation, and
misaligned incentives

- Notes longstanding underperformance of stock price

- Cautions against using capital for an acquisition, especially considering
failure to detect fraud during previous acquisition

- Demands Board explore strategic alternatives to maximize shareholder value

PR Newswire

NEW YORK, Oct. 10, 2013

NEW YORK, Oct. 10, 2013 /PRNewswire/ --Mr. Ephraim Fields of Echo Lake
Capital today announced he had issued the following letter to the Independent
Board Members of Edgewater Technology, Inc. (EDGW). In his letter Mr. Fields,
among other things, analyzed the backgrounds of the Independent Board Members
and raised questions about their qualifications to serve as Board Members.

October 8, 2013

To the Independent Members of the Board of Directors:

As longstanding shareholders of Edgewater Technology, Inc. ("EDGW" or the
"Company"), we remain deeply concerned by your continuing failure to act in
the best interest of all shareholders.

As our previous letters have illustrated, EDGW's stock has repeatedly and
significantly underperformed various benchmarks. One of many, glaring
examples of this poor performance can be seen by reviewing EDGW's performance
since Ms. Shirley Singleton became CEO on January 9, 2002. Since that day,
almost 12 years ago, EDGW's stock has returned only 50%, while the S&P 500 has
returned 83%, implying EDGW shareholders would have made almost 70% more money
(and benefited from significantly greater liquidity) by investing in the S&P
500 instead of Ms. Singleton. We find this underperformance to be
unacceptable and fail to understand why you do not as well.

As our previous letters have also illustrated, during this time of dramatic
underperformance, you have, shockingly, not only retained the services of both
Ms. Singleton and other senior executives whom we believe have contributed to
the stock's poor performance, but you have also provided them with
increasingly generous compensation. Since several of you left your previous
jobs prematurely, you hopefully understand that an ethical board of directors
cannot continually reward poor performance.

We also believe you have inexcusably failed to implement various initiatives
that could have easily created immediate and significant long-term shareholder
value. For example, you could have (i) more aggressively returned capital to
shareholders (why does EDGW, after all these years, continue to retain so much
cash?), (ii) put the company up for sale (why does this tiny, illiquid company
remain public?), or (iii) terminated Ms. Singleton whose poor performance and
excessive compensation (we believe) have hurt EDGW's shareholders and other
stakeholders (how many other CEOs keep their jobs and get increased
compensation after almost 12 years of repeated underperformance?). 

Perhaps you have been unwilling to implement shareholder-friendly initiatives
because you are unwilling to do anything that might jeopardize the generous
compensation you receive as members of EDGW's Board of Directors (the
"Board"). Each of you is paid generously for your Board services. Last year
alone your average compensation was $81,000, a 9% increase from the previous
year. Obviously if EDGW was sold or Ms. Singleton was terminated, you would
likely lose your generous Board compensation. Our concerns about your
financial motivations are further heightened because most of you personally
own very little stock, particularly in light of how many years you have each
served on the Board. Consequently, your incentives do not appear to be
aligned with those of EDGW's shareholders. 

Another possible explanation for your failure to act in shareholders' best
interests is that you are simply unqualified to serve as EDGW Board members.

After researching your backgrounds, we became deeply concerned because:

  oMost of you lack experience in industries that are relevant to EDGW.
    Amazingly, almost all of you have had careers in the non-profit or
    marketing industries, and we wonder how helpful that experience is in
    guiding a for-profit, IT consulting company like EDGW.
  oCollectively you appear to lack many skills critical to a well-functioning
    board including accounting, capital allocation, corporate finance, M&A,
    and strategic planning.
  oIt appears that several of your previous companies did not perform well
    under your leadership.
  oYour average tenure on the Board is almost nine years, which suggests
    that, despite EDGW's historically poor performance, little effort has been
    made to recruit new directors who could add value to the Company.
  oMost of you have never served on the board of another publicly traded
    company. This is alarming because it suggests you may lack a basic
    understanding of how other public company boards function and how to best
    fulfill your fiduciary responsibility.
  oThe two of you who do serve on the boards of other public companies both
    sit on the board of the same company. We often find such (unnecessary)
    board interlocking to be a sign of poor corporate governance and
    reflective of an "old boy's network," neither of which are good for EDGW
    shareholders.

Below is a more detailed review of your backgrounds which we believe supports
our concerns about your Board candidacy:

Daniel O'Connell, age 64:

  o"Is an attorney and has substantial experience in real estate development,
    government relations and international business."
  oHowever, EDGW does not own any real estate, has limited international
    operations and does limited business with government agencies….so we
    wonder how helpful his background can really be to EDGW.
  oCurrently serves as the president of a non-profit civic and educational
    association, which obviously faces vastly different issues than does a
    for-profit, publicly traded entity like EDGW.
  oIs an attorney, but we wonder when he last practiced law and if his area
    of specialty (which appears to be real estate development) is really
    relevant to EDGW.
  oHas not served on the board of any other public company.

Nancy Leaming, age 66:

  oHas been an independent consultant for the past 8 years.
  oPrior to that she spent almost 20 years working at Tufts Health Plan, a
    non-profit health maintenance organization, where she was most recently
    president and CEO.
  oAccording to a published report, in June 2005 she left Tufts Health Plan
    "amid significant declines in membership and escalating operating losses."
  oRegardless of her performance at Tufts Health Plan, we wonder if her
    extensive experience at a private, non-profit entity is helpful to a
    publicly traded, for-profit entity like EDGW.
  oServes on the board of two other publicly traded companies, Biogen Idec
    Inc. (BIIB) and Hologic Inc. (HOLX). Relative to EDGW, these companies
    operate in completely different industries, are significantly larger and
    face completely different strategic, operational and financial
    challenges. So, we question how helpful her experience with these other
    boards truly is to EDGW.
  oWe find it troubling that she and another EDGW Board member both serve on
    the board of Hologic, Inc. and we are concerned about the ramifications of
    such (unnecessary) board interlocking.

Paul E. Flynn, age 63:

  oIs a commercial loan officer at People's United Bank.
  oEDGW's Board supports his candidacy in part because of his "public company
    experience." However, the only public company experience he appears to
    have is as an employee of a public company. He is not on the board of his
    employer and it is unclear as a loan officer how senior he truly is within
    his own company.
  oHe has not served on the board of any other public company…despite EDGW's
    Board's highlighting his "public company experience."

Wayne Wilson, age 64:

  oHas been an "independent business advisor" for the past ten years.
  oPrior to that, he spent seven years working at PC Connection, Inc., a
    direct marketer of personal computers. His last position there was
    president, a role he held from March 26, 1998 until he entered into a
    "Separation Agreement" (with severance) effective September 30, 2002.
    During this time period, PC Connection's stock price declined over 70% and
    dramatically underperformed the S&P 500.
  oRegardless of his performance at PC Connection, we wonder if his
    experience at this direct marketing company is helpful to an IT consulting
    company like EDGW.
  oServes on the board of three other publicly traded companies, ARIAD
    Pharmaceuticals, Inc. (ARIA), FairPoint Communications, Inc. (FRP) and
    Hologic, Inc. Relative to EDGW, these companies operate in completely
    different industries, are significantly larger and face completely
    different strategic, operational and financial challenges. So, we wonder
    how helpful his experience with these other boards truly is to EDGW.
  oWe find it troubling that he and another EDGW Board member both serve on
    the board of Hologic, Inc. and we are concerned about the ramifications of
    such (unnecessary) board interlocking.

Paul Guzzi, age 70:

  oHas served as the president of a non-profit entity for the past 17 years.
  oEDGW's Board supports his candidacy in part because of "his experience
    with other technology companies." However, it is unclear how much recent
    and relevant experience he has had with technology companies since he left
    his vice president position at Data General twenty years ago.
  oHas not served on the board of any other public company.

Michael Loeb, age 57:

  oIs a private investor, builder, and operator of consumer marketing
    businesses. He co-founded a company that grew to become the largest
    seller of consumer magazine subscriptions in the US. He also served as
    consumer marketing director for Sports Illustrated and vice president of
    consumer marketing for Entertainment Weekly.
  oWhile he appears to have had a successful career, we wonder how his
    experience in the consumer marketing and magazine industries is helpful to
    an IT consulting company like EDGW.
  oEDGW's Board supports his candidacy in part because he "has extensive
    management and leadership experience in early-stage companies."
  oHowever, EDGW has been in existence for over 20 years and caters to Global
    2000 companies, so we wonder why someone experienced with "early-stage
    companies" is really an appropriate Board member for EDGW.
  oHas not served on the board of any other public company.

Considering the above listed facts, we think any reasonable person would have
grave concerns about your qualifications to be EDGW Board members. We believe
there are tens of thousands of people who are more qualified than you are to
be EDGW Board members. Considering your questionable qualifications, EDGW
shareholders should ask themselves why you were even asked to join the Board
in the first place. We can only assume it was because Ms. Singleton wanted a
Board which would "rubber stamp" her proposals as opposed to a Board which
would act in the best interests of all shareholders.

For many years you have personally enriched yourselves and lined your own
pockets while EDGW shareholders have needlessly suffered. Your refusal to
fulfill your fiduciary responsibility to act in the best interest of
shareholders is reprehensible. We believe that other companies with whom you
do (or hope to do) business with will become increasing aware of your failures
at EDGW and elsewhere and will reassess their business relationships with
you. 

Despite our disappointment with your performance, we believe you can easily
redeem yourselves by immediately exploring alternatives designed to maximize
shareholder value. If you do not, we will have no choice but to even more
aggressively pursue our rights as shareholders, which will, among other
things, result in you receiving even more unflattering attention.

Finally, we caution you not to use EDGW's capital for an acquisition. You and
senior management have proven to be highly inefficient at operating EDGW, so
we have no reason to believe you will be more successful running an even
larger company. Furthermore, acquisitions are inherently risky and we
question your ability to identify and due diligence appropriate acquisition
targets, especially since six months after you purchased Fullscope, you
discovered fraud and embezzlement at the company. EDGW shareholders should
ask themselves (i) why you failed to discover this fraud during due diligence
and before the acquisition closed, (ii) whether EDGW overpaid for the
acquisition in light of the subsequently discovered fraud, and (iii) whether
EDGW will ever recover the millions of dollars that have been spent trying to
recoup the embezzled money.

We hope your response to this letter will be to finally do what is in the best
interests of all shareholders.

For your reference, the other letters we have sent to you and publicly
released can be found at:

  ohttp://www.marketwire.com/press-release/ephraim-fields-echo-lake-capital-issues-letter-independent-board-members-edgewater-technology-1727857.htm
    and
  ohttp://www.marketwire.com/press-release/ephraim-fields-of-echo-lake-capital-issues-letter-to-ceo-of-edgewater-technology-inc-1753130.htm

Sincerely,

Ephraim Fields

Contact: Ephraim Fields at (212) 259-0530

SOURCE Echo Lake Capital
 
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