COSTA BRAVA LETTER from 13d
[LETTERHEAD OF GIBBONS, DEL DEO, DOLAN, GRIFFINGER & VECCHIONE]
June 30, 2005
VIA CERTIFIED MAIL - R.R.R.
Board of Directors
Telos Corporation
19886 Ashburn Road
Ashburn, Virginia 20147
Re: Secure Info Corporation v. Xacta(1) and Telos Corporation
Gentlemen:
This law firm represents Costa Brava Partnership III, L.P., holder of the 12% Cumulative Exchangeable Redeemable Preferred Stock of Telos Corporation ("Telos"). We understand that SecureInfo Corporation ("SecureInfo") filed a lawsuit, and received a temporary restraining order, against Xacta, the principal subsidiary of Telos, Telos and David Wilson, Vice President for Product Management of Xacta ("Wilson"), alleging claims under certain Federal and state computer fraud and abuse laws, misappropriation of trade secrets, copyright infringement, trespass to chattels and wrongful taking of property of another (detinue).
We further understand that SecureInfo amended its complaint on June 16, 2005 to set forth new causes of action based upon the Racketeer Influenced Corrupt Organization Act ("RICO"), common law fraud and deceit, conspiracy to commit fraud, tortiuous interference with contract and combination to injure reputation, trade or business. John B. Wood (`Wood"), President, Chief Executive Officer and Chairman of the Board for Xacta and Telos, Richard Tracy ("Tracy"), Executive Vice President and Chief Security Officer of Xacta and Telos, and Wilson were named individually in the amended complaint.
As set forth in the amended complaint, the RICO predicate acts include multiple acts of alleged criminal copyright infringement, mail fraud, wire fraud, and possession /transmission of property obtained by fraud. The causes of action, according to the amended complaint, are based heavily upon Wood's, Tracy's and Wilson's own email correspondence as well as other email from agents/employees of Xacta and Telos.
In the amended complaint, SecureInfo alleges that Xacta and Telos conspired with Lon Berman of Berman Associates, Inc. ("Berman") to fraudulently obtain SecureInfo's Risk Management System ("RMS") software in order to gain SecureInfo's trade secret, confidential and copyright information. According to the amended complaint, Xacta and Telos allegedly hired Berman and provided funding to Berman to purchase a license for RMS under the guise of a fictitious Berman client engagement after attempts by Telos to obtain RMS through other means failed. As alleged by SecureInfo in the amended complaint, email correspondence purportedly shows that Berman's acts were directed by Tracy and Wilson with the direct knowledge of Wood.
(1) Principal Subsidiary of Telos
Allegations of fraud and RICO violations must be taken seriously by the Telos Board of Directors (the "Board") especially when such allegations involve the company's senior ranking officers. Moreover, the allegations of fraud and RICO violations in the amended complaint must be brought to the attention of the Audit Committee of the Board (the "Audit Committee") and Telos' independent auditors.
In connection with Telos' most recent annual report on Form 10-K and quarterly report on Form 10-Q filed with the Securities and Exchange Commission ("SEC") on April 18, 2005 and May 16, 2005, respectively, Wood, in his capacity as Telos' CEO, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, certified that he disclosed to the Audit Committee and Telos' independent auditors, any fraud, whether or not material, that involves management or other employees who have a significant role in Telos' internal control over financial reporting. As CEO, Wood clearly has a significant role in the internal control over financial reporting and, therefore, finds himself in the untenable position of reporting to the Audit Committee and Telos' independent auditors regarding the allegations in the amended complaint which relate to his own conduct, as well as that of Telos' Executive Vice President and Chief Security Officer.
In light of the foregoing and pursuant to Sarbanes Oxley Act (Section 301), it is clear that the Audit Committee must launch an immediate and thorough internal investigation of the allegedly fraudulent activity of its senior officers and, most importantly, depending on what the investigation reveals must consider whether Wood has the ability to continue to serve as CEO and Chairman and provide the certifications to Telos' annual and quarterly reports required by the SEC in light of his alleged role in the allegedly fraudulent activity. The Audit Committee must immediately devote the proper attention and resources to this matter as quickly as possible.
Very truly yours,
/s/ CHERYL A. GORMAN
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Cheryl A. Gorman
cc: Mr. Joel Flax, Goodman & Company, LLP Branch Chief
Securities and Exchange Commission, Corporate Finance-Branch 3 |
