04.23.2007 -- For the Third Time, Court Denies Hedge Fund's Attempt to Litigate Returns from Telos Corporation
Ruling Once Again Favors Security Solutions Provider Facing Spurious Claims of Activist Hedge Fund, Costa Brava
Ashburn, VA -- April 23, 2007 -- The Circuit Court for Baltimore City has, for the third time in just over a year, denied legal motions filed against Telos Corporation by Costa Brava Partnership III, L.P., a Boston-based hedge fund. Costa Brava previously had a motion for receivership denied and a motion for preliminary injunction regarding the sale of assets dismissed. Most recently, Costa Brava’s motion regarding notice of any sale of assets of Telos outside the ordinary course of business was denied.
John B. Wood, CEO of Telos said, “As we said in our memorandum to the court, Costa Brava clearly refuses to take no for an answer. The Court agreed in this third ruling against Costa Brava in its series of nuisance filings. Not satisfied that their stock value has increased by nearly 200 percent in less than two years, Costa Brava wants to litigate even higher returns, an act that could have detrimental effects on our other shareholders and our employees.”
The activist hedge fund was demanding that Telos be prohibited from pursuing or closing any sale of assets until after May 31, 2007. That is the date that Costa Brava hopes to elect two new Class D directors of their choosing to the Telos Board of Directors.
In his order, Judge Albert J. Matricciani, Jr. stated, “This Court is of the opinion that Costa Brava’s motion for a preliminary injunction must fail because plaintiffs are unable to establish the likelihood of success on the merits.” The Judge went on to say: “Moreover, even if the Court were to assume that there is a transaction pending that may be consummated before May 31, 2007 Maryland corporation law does not permit plaintiffs to challenge such a transaction so long as it is approved by a majority of disinterested directors.”
The special meeting to elect two new Class D directors, at the behest of Costa Brava, is scheduled for May 31, 2007. Costa Brava was previously given an opportunity to elect Class D directors at the annual meeting in December 2006, but failed to pursue that opportunity. The Court recognized Costa Brava’s “earlier reluctance” to fill the directorships and found that Telos was “not in violation of any statutory, charter or by-law requirements with respect to the pending election of those directors.”
The same Court in the past has addressed several claims by the activist hedge fund, including a recent opinion regarding Costa Brava’s demand that Telos be placed into receivership. The Court stated:
It is evident from a review of the 1989 Registration Statement filed with the SEC, that plaintiffs have not been denied any rights as defined by the proxy statement and prospectus forming the terms of the public preferred stock. The public preferred shareholders’ minority equity interest in Telos does not provide a guarantee in payment of dividends or redemption of their stock. The public preferred ranks junior to all senior stock and debt of the company and plaintiffs knew from the registration statement for the public preferred stock that the stock represented a minority interest in the corporation. Under Maryland law, the payment of dividends and redemption of such stock is subject to the availability of funds. Thus, the Court finds that plaintiffs have failed to put forth facts that demonstrate fraud or oppression…
Wood said that Telos, whose stock over the past five years has outperformed the NASDAQ composite by 100 percent, “is committed to treating all shareholders equitably and continuing to focus on our role as a trusted provider of security solutions to U.S. government agencies and the Department of Defense.” |
