Ready for rumble at TVI meeting

June 18, 2008|By JAY HANCOCK

TVI Corp.'s directors would have more credibility in arguing for the status quo if the company's shares had traded for more than 50 cents any time recently.

Or if the seller of first-responder equipment hadn't lost $30 million last year. Or if directors hadn't built impermeable barriers against hostile takeovers.

The two insurgents who hope to join the five-seat board probably won't get TVI's shares back to $5, a level last achieved in 2005. But the guys in charge have been trying for three years, with demonstrable failure.

Look for that rarest of events at the company's Friday shareholder meeting: a choice of board members in which incumbents might get ejected. The bloom may be off the defense investment boom. But this penny-stock homeland-security company is still attractive enough to cause a fight, even if it's something of a family feud.

"This board has done too little too late, and they're not moving aggressively enough to turn the company around," says Allen Bender, 77, who owns more than a million TVI shares - about 4 percent of the company - and was the chief executive officer from 1995 to 2002.

Two proxy-advisory services apparently agree. RiskMetrics Group and Glass Lewis have recommended votes for Bender and Jeffrey Squires, 62, an attorney who was on TVI's board in the 1990s.

"Given the company's weak stock performance, poor financial performance, questionable governance practices and lack of visible progress in its turnaround," RiskMetrics said, Bender and Squires are "more likely to create long-term shareholder value." RiskMetrics is especially critical of TVI's "poison pill," which gives existing shareholders the right to buy cheap new stock during a hostile takeover attempt.

Like many companies, Glenn Dale-based TVI was positioned to thrive on the appropriations surge that followed the 2001 terrorist attacks. The company sells decontamination systems, portable medical shelters and other equipment that became highly sought after as the country prepared for a possible repeat of 9/11.

The stock, stuck below a dollar for years, rose to $6 in 2004. But to the surprise of many, the emergency equipment market deflated as defense money got diverted to the war in Iraq.

To try to adjust, TVI bought a party-tent rental company, which flopped as an investment. Last year, the board dismissed CEO Richard Priddy and Executive Vice President Charles Sample for what it said were "questionable business transactions" in which the company overpaid $1.7 million for supplies. The Securities and Exchange Commission and the Justice Department are investigating, TVI told investors last month.

To replace the executives, the board turned to its own. It named retired Gen. Harley A. Hughes, a director since 2003, as CEO and Donald C. Yount Jr., a director since 2005, as executive vice president.

Hughes and Yount didn't respond to messages, but in proxy materials and calls with investors the company claims a turnaround is on the way.

It is cutting costs and expects to turn an operating profit in the third quarter. It is developing new products and booking multimillion-dollar orders for respirator filters, a business TVI bought a few years ago that Bender acknowledged has worked out relatively well.

"We can see the highway through the woods," Hughes said on a conference call last month.

Former CEO Bender denies, not entirely convincingly, that the contest is about ego as much as dollars.

"I was a staunch supporter" until TVI bought the tent company, he said. "It's purely a business decision. I was quite happy. I was retired. My goal is to get my portfolio back up again."

Bender and Squires say they don't want to fire management; they just want to bring new perspective to the board. TVI needs to integrate businesses it runs as separate companies, Bender says. It should cut costs more quickly and concentrate more on manufacturing its own equipment rather than reselling others' products, he says.

The company blasts the two for what it says is an expensive distraction.

"DON'T LET BENDER AND SQUIRES DERAIL THE TURN-AROUND," says the headline on one of the letters to shareholders.

TVI offered Bender a board seat last month, but he rejected it, wanting two spots and saying the position was only short term. Last year, Squires proposed a $600,000 investment in TVI that would have given him two board seats and what the company calls "highly dilutive" stock warrants.

With that description, "they tried to make me sound like a financial pirate," said Squires. His offer, he acknowledged, was "aggressive," but he said he expected TVI to make a counterproposal. It didn't.

The directors whom Bender and Squires want to kick out are Todd Parchman, 53, and Richard Sullivan, 75. Sullivan was vice chairman of Baltimore brokerage Ferris, Baker Watts and CEO of Cargill Detroit, an industrial design and engineering firm, among many positions. Parchman is a co-founder of Parchman, Vaughan & Co., a small Baltimore investment bank, and used to run Ferris' investment banking business.

Both have impressive credentials. On the other hand, it is difficult to argue that, as a whole, the current board is doing its job.

Not the least interested in TVI's future is BB&T, its banker, to whom it owes more than $20 million. BB&T has shown "tremendous confidence and patience," in TVI, the company says.

The dissidents might not win Friday's contest. But confidence and patience, the vote should show, aren't what many shareholders are feeling.

jay.hancock@baltsun.com

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Find Jay Hancock's blog on business news at baltimoresun .com/hancockblog .

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