Judge dismisses claims against Telos
By Lynn Wolstenholme
A Maryland judge on April 15 dismissed all claims against Ashburn-based Telos that had been brought forth by Costa Brava Partnership III, L.P., a Boston-based activist hedge fund. The claims were dismissed with prejudice, meaning the judge found that Costa Brava's claims were dismissed for good reason and it cannot bring further action; however, an appeal is possible.
“We feel we are vindicated,” said Telos' chief executive officer, John Wood. “The activist hedge fund Costa Brava has failed in its efforts to extract dividend payments out of turn at the expense of our other shareholders. They are the short-term mercenaries and we are the long-term players.”
In October 2005, Costa Brava, which holds almost 16 percent of Telos Public Perferred Stock, filed a lawsuit in the Circuit Court of Baltimore City (where Telos is incorporated), claiming numerous discrepancies against Telos and asking for a $100 million payout from Telos stocks.
Some of those claims against Telos included not paying the hedge fund mandatory dividends on stock they held with Telos; issuing stocks that had characteristics of debt instruments; doing nothing to improve the company's insolvency or pay accrued dividends; and challenging bonus payments to Telos officers and directors.
The last three of those claims had been dismissed before the hearing March 11.
Judge Albert J. Matricciani Jr. wrote in his opinion of the case that there is “no contractual obligation with Telos to pay plaintiffs accrued [payment in kind] dividends at the time of the first scheduled redemption date or anytime thereafter.”
Payment-in-kind dividends, or PIK, are bonds, or stock, that may pay holders compensation in a form other than cash.
A spokesman for Costa Brava said the hedge fund is “disappointed in the judge’s decision.” There was no word on whether Costa Brava would appeal or what its plans are with the stocks it holds.
For the 16 years that Wood has been with Telos, he said the company has “been building the value for the long term for shareholders” and it has recently gained significant contracts with military and government agencies.
Wood is also the vice chairman of Loudoun’s Economic Development Commission and chairman of Loudoun's CEO Cabinet.“The big issue is that Telos does not have a tremendous amount of hard assets,” Wood said.
Since Telos is a defense technology contractor with intellectual property as opposed to tangible property, according to Wood, the accusations made by Costa Brava have affected Telos and its assets.
“Security implies trust and trust implies credibility,” Wood went on to explain. “They were attacking our brand, which is a big part of our equity.”
Contact the reporter at lwolstenholme@timespapers.com