Costa Brava continues to blast Medquist over Philips stock sale

By Lisa Kerner

Charlotte, N.C., Jan. 24 - Medquist Inc. investors led by Costa Brava Partnership III, LP expressed no confidence in the board of directors' ability to "discharge its fiduciary duties to the minority shareholders," citing alleged irreconcilable conflicts of interest suffusing the board.

The investors also cited the company's delinquent filings with the Securities and Exchange Commission, records produced by the company at Costa Brava's request and the Dec. 31, 2007 shareholders meeting as reasons for its lack of faith in the board.

Costa Brava made the comments in a Jan. 22 letter to MedQuist and included in a schedule 13D filing with the Securities and Exchange Commission.

The investor also accused MedQuist's board of being tainted by Philips Electronics NV's conflict of interest. Philips. the company's majority shareholder, has profited as MedQuist's largest vendor, the filing stated.

Philips controls four of the six current MedQuist board seats.

Since both MedQuist and Philips have "rebuffed Costa Brava's attempts to join the board to ensure that all shareholders are treated fairly in the sale process," Costa Brava said it intends to hold every member of the board liable if the board "engages in other misconduct that harms minority shareholder interests."

On Jan. 7, Costa Brava Partnership expressed concern over the sale of company stock by shareholder Koninklijke Philips Electronics NV and cited a conflict of interest of the Philips executives on MedQuist's board of directors.

As previously reported, in November, Philips said it would sell its 70% ownership of MedQuist if "a satisfactory price and other acceptable terms can be realized."

Costa Brava said it is prepared to seek injunctive relief and monetary damages caused by violations of the New Jersey Shareholders Protection Act, a prior SEC filing stated.

In December, MedQuist was ordered to provide Costa Brava with:

• Copies of certain minutes of meetings of MedQuist's board of directors and its audit and supervisory committees;

• Certain information related to the company's evaluation of a possible sale transaction;

• The resignation letters of the directors who resigned on Nov. 9; and

• Unredacted versions of the Sept. 23, 2004 and Sept. 21, 2007 OEM agreements with Philips Speech Recognition Systems GmbH, Philips Austria GmBH and Philips Speech Processing.

Costa Brava beneficially owns 5.2% of the Mt. Laurel, N.J., medical transcription technology and services company.

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