Red Oak Cries Foul Over Board Vote

May 22 2013 | 10:31am ET

Hedge fund Red Oak Partners has sued to overturn Digirad Corp.'s May board election, alleging that the company effectively stole it.

Red Oak accused Digirad of voting some 6% of shares that had been bought back by the company, among other improprieties, and have asked the Delaware Chancery Court to order a new election.

"We are greatly disappointed with Digirad’s insiders as we do not believe they held a fair election of Directors," Red Oak founder David Sandberg said. "Per the June 29, 2012 agreement, this same slate of Digirad Directors agreed to hold what we expected to be a fair election by May 5, 2013 when they asked us not to contest their re-election at that time. Instead we have learned, based on information provided to us by the independent Inspector of elections, Broadridge, and others, that Digirad’s insiders generated and we allege improperly voted a proxy card for its treasury shares (approximately six percent of shares) in favor of its Directors and proposals early in the contest despite such shares being not legally eligible to be voted because they are shares which no longer exist—they are shares that have been bought back and were retired or available for re-issuance."

Red Oak also alleges that Digirad and its adviser, Investorcom, refused to allow it to track the treasury shares, and inflated the management slate's vote totals in preliminary results. The hedge fund also objects to Digirad's decision to withhold its first-quarter results until the business day after the annual meeting.

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