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6 Oct 2006

Hedge Fund Whitebox Challenges Late Filing Company

Business process outsourcer Affiliated Computer Services (ACS), missed its extended filing date for its fiscal year ended June 30, 2006. Which was the time period allowed under Securities and Exchange Commission rules for an issuer to be deemed to have filed in a timely manner.

Hedge fund Whitebox Advisors LLC, is claiming that when the company defaulted on the terms of its bonds by not filing its annual reports on time, ACS should be required to to immediately repay nearly $260 million to its bondholders. That dollar figure was disclosed in a formal filing by ACS on Wednesday, but the company has previously said it was in a dispute over whether it was in default.

The company’s stock options grant practices have been under scrutiny by a team of outside counsellors, which is reviewing grants from 1994 to the present and related disclosures. ACS also said it that it has received an amendment from lenders under its March 2006 credit facility with respect to some covenants, including the requirement that the company deliver audited financial statements within 90 days of its fiscal year end.

Minneapolis-based Whitebox Advisors LLC said in a letter sent to ACS on Sept. 29 that the failure to file the annual report on time “due to an ongoing internal investigation over how the company granted stock options# triggered a condition in some of the company’s debt agreements that required the debts to be repaid immediately, rather than in 2015.

ACS said in the filing on Wednesday that it does not believe that it is in default, and therefore early repayment is not required. ACS filed a lawsuit with U.S. District Court, seeking a formal ruling on whether it in fact is in default.

Shares of ACS rose 47 cents to $52.47 in recent after-hours trade.

Whitebox claims on its website that it “is a trading firm not an investment firm. We continuously search for relatively short-term inefficient market behavior (arbitrage opportunities) to capture, with the expectation that most will bear fruit in less then a year.”