|Activist Hedge Fund Costa Brava Fails in Suit Against Telos Corporation|
Monday January 7, 5:43 pm ET
Maryland Court Finds No Wrongdoing, Dismisses Two-Year-Old Case
ASHBURN, Va.--(BUSINESS WIRE)--The Circuit Court for Baltimore City today dismissed with prejudice all shareholder claims of wrongdoing against Telos, a Maryland Corporation, and its present and former directors and officers brought by activist hedge fund Costa Brava of Boston, Mass. The fund, which holds approximately 16 per cent of Telos exchangeable redeemable preferred shares (ERPS), sued Telos in 2005 in an attempt to force premature payment of dividends. Costa Brava subsequently filed several derivative claims alleging wrongdoing by Telos officers and directors.
The ruling against Costa Brava affirms the business judgment of two Special Litigation Committees (SLCs) that reviewed and evaluated matters raised in the derivative suit filed by the hedge fund related to its holdings in Telos’ Public Preferred Stock. The SLC was formed by Telos’ board of directors shortly after the 2005 suit was filed. The reports of both SLCs concluded no wrongdoing on the part of the company or its management.
In his order dismissing the claims, Judge Albert J. Matricciani, Jr. stated, “On the basis of the well-developed record and the extensive brief and arguments of counsel for the respective parties, the Court finds that the members of the 2nd SLC … and their legal advisors, were independent, disinterested and performed their duties in good faith….” The Judge continued, “Again, the plaintiffs have failed to prove otherwise….”
Over the course of the suit, the court has repeatedly ruled against Costa Brava, denying motions calling for the company to be placed in receivership, that the company be enjoined from selling any assets, and that the ERPS dividends be classified as debt rather than equity. At one point the Court issued a “cease and desist” order when Costa Brava inappropriately communicated with Telos’ bank.
“This is a resounding victory for Telos,” said John B. Wood, CEO of Telos. “We are gratified, but not surprised, that the Court ruled in our favor. Costa Brava’s attempt to litigate a change in the nature of their stock agreement — and to position themselves improperly ahead of other Telos stakeholders — has failed.”
“Costa Brava was not able to distract us from doing what we do best – providing IT solutions and services to the federal government,” said Wood. “This unwarranted and self-interested attack on the company is now behind us, and we look forward to building on the company growth and profitability our employees have achieved in 2007.”