DEF 14A 1 formdef14a.htm TELOS CORPORATION DEF 14A 5-13-2014

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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the Securities Exchange Act of 1934

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TELOS CORPORATION
19886 Ashburn Road
Ashburn, Virginia 20147-2358

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 13, 2014

            NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Telos Corporation, a Maryland corporation (the “Company”), will be held in the auditorium at the Company’s headquarters located at 19886 Ashburn Road, Ashburn, Virginia, 20147-2358, on Tuesday, May 13, 2014 at 10:00 a.m. Eastern Daylight Savings Time, for the following purposes:

1. ELECTION OF DIRECTORS: To elect nine Class A/B Directors to the Board of Directors to serve until the 2015 Annual Meeting of Stockholders or until their successors are elected and qualified;

2. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM: To ratify the selection of BDO USA, LLP to serve as the Company’s independent registered public accounting firm;

3. ADVISORY VOTE ON EXECUTIVE COMPENSATION: To approve, on an advisory basis, the compensation of the Company’s named executive officers or “say-on-pay”; and

4. OTHER BUSINESS: To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof.

            The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

The Board of Directors has fixed the close of business on April 7, 2014 as the record date for determining the stockholders entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof.

            Holders of record of the Company’s Class A and Class B Common Stock who plan to attend the meeting in person should mark the attendance box on their proxy card and bring the proxy card with them to the meeting. Beneficial owners of the Company’s Class A and Class B Common Stock and 12% Cumulative Exchangeable Redeemable Preferred Stock that is held by a bank, broker or other nominee will be required to provide adequate proof of ownership. In addition, due to the security requirements of the Company’s headquarters, all stockholders will be required to provide personal identification for admission to the Annual Meeting.

By order of the Board of Directors

Helen M. Oh
Secretary

Ashburn, Virginia
April 22, 2014

TELOS CORPORATION
19886 Ashburn Road
Ashburn, Virginia 20147-2358
 
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 2014

This Proxy Statement is furnished by Telos Corporation, a Maryland corporation (“Telos” or the “Company”), to the holders of the Company’s Class A and Class B Common Stock (collectively, the “Common Stock”) and 12% Cumulative Exchangeable Redeemable Preferred Stock (“Public Preferred Stock”) in connection with the Annual Meeting of Stockholders (“Annual Meeting”) of the Company to be held in the auditorium at the Company’s headquarters located at 19886 Ashburn Road, Ashburn, Virginia 20147-2358 on May 13, 2014, 10:00 a.m. Eastern Daylight Savings Time, or any adjournment of it, for the purposes set forth in the accompanying Notice of Annual Meeting of Stockholders (“Annual Meeting Notice”).  The Company expects to begin mailing the Annual Meeting Notice, this Proxy Statement, and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Form 10-K”) to all stockholders of record on or about April 22, 2014.  On the same date, the proxy card will be mailed to all holders of record of the Company’s Common Stock. The Company’s Board of Directors is soliciting proxies solely for the election of the Class A/B Directors, the approval, on an advisory basis, of the compensation of the Company’s named executive officers, and the ratification of the Company’s independent registered public accounting firm.

The entire cost of soliciting these proxies will be borne by the Company.  As needed, the Company will request brokers and others to send proxy forms and other proxy material to the beneficial owners of the Common Stock and reimbursement will be provided for any reasonable expenses incurred in so doing. If necessary, the Company may also request its employees to solicit proxies from the stockholders personally or by telephone.  The Company may retain a proxy solicitor to assist in the solicitation of proxies, for which the Company would pay usual and customary fees.
 
This Proxy Statement is being mailed to holders of the Common Stock and the Public Preferred Stock on or about April 22, 2014 together with a proxy card (to holders of Common Stock only), the Annual Meeting Notice and the 2013 Form 10-K.
 
Important notice regarding the availability of proxy materials for the Telos Corporation Annual Meeting of Stockholders to be held on May 13, 2014: The Annual Meeting Notice, this Proxy Statement and the 2013 Form 10-K are available at https://materials.proxyvote.com/87969B.

Voting Procedures

Record Date.  The record date for determining the stockholders entitled to vote at the Annual Meeting is April 7, 2014 (“Record Date”).  As of April 7, 2014, there were 40,218,461 shares of Class A Common Stock and 4,037,628 shares of Class B Common Stock outstanding and entitled to vote at the Annual Meeting.

Votes.  Each holder of Common Stock is entitled to one vote per share of Common Stock held in the election of Class A/B Common Directors and any other issue to be decided at the Annual Meeting. Cumulative voting is not permitted.
 
Quorum and Vote Required.  A quorum consists of stockholders representing, either in person or by proxy, a majority of the votes entitled to be cast at the Annual Meeting.  Banks, brokers, and other nominees do not have the authority to vote your uninstructed shares in the election of directors or the advisory vote on executive compensation.  If a beneficial owner of the Common Stock does not instruct its bank, broker, or other nominee how to vote its shares in the election of directors, or the advisory vote on executive compensation, no votes will be cast on that beneficial owner’s behalf.  These broker non-votes are counted for purposes of determining whether a quorum is present and will have no effect on the result of the vote on the issues on the ballot.
 
Directors are elected by a plurality of the votes cast if a quorum is present. The affirmative vote of a majority of votes cast at the Annual Meeting if a quorum is present is required to ratify the appointment of the independent registered public accounting firm.
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Voting Methods.  Holders of the Common Stock may vote by (1) signing, dating and mailing the enclosed proxy card in the postage paid envelope provided or (2) attending the Annual Meeting and voting their shares in person. If shares of the Common Stock are held in the name of a bank, broker or other nominee, the beneficial owner of those shares must provide the bank, broker, or other nominee with instructions on how to vote those shares by following the voting instructions provided by the bank, broker, or other nominee.  A beneficial holder may not vote any shares held in the name of a bank, broker, or other nominee unless the beneficial holder obtains a “legal proxy” from the bank, broker, or other nominee.

If any nominations for Class D Directors had been received, holders of the Public Preferred Stock would have been eligible to vote at the Annual Meeting on the election of such Class D Directors and on no other matter before the Annual Meeting; however, since no nominations for Class D Directors were received, holders of Public Preferred Stock are not eligible to vote on any issue before the Annual Meeting.
 
Meeting Attendance.  Registered holders of the Common Stock who plan to attend the meeting in person should mark the attendance box on their proxy card and bring the proxy card with them to the meeting. Beneficial owners of the Common Stock and the Public Preferred Stock that is held by a bank, broker or other nominee must provide adequate proof of ownership.  In addition, due to security requirements at the Company’s headquarters, personal identification will be required for admission to the Annual Meeting.

Revocation of Proxies.  A registered holder of the Common Stock who has provided a proxy may revoke the proxy at any time before the underlying shares are voted at the Annual Meeting by:

(1) Executing a proxy dated later than the most recent proxy given and mailing it to:

Corporate Secretary
Telos Corporation
19886 Ashburn Road
Ashburn, VA 20147

(2) Appearing in person and voting using a ballot at the Annual Meeting; or

(3) Filing an instrument of revocation with the Inspector of Elections at the Annual Meeting.

If shares of the Common Stock are held in the name of a bank, broker, or other nominee, the beneficial owner of those shares must contact the bank, broker, or other nominee in order to change a vote.  The Inspector of Elections will record each vote according to the latest instructions received from the respective stockholder.
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Election of Directors

The Company’s Board of Directors is comprised of eleven members.  Nine of the eleven directors are elected by the holders of the Common Stock and are designated “Class A/B Directors.”  At any time that dividends on the Public Preferred Stock are in arrears and unpaid for three consecutive full semi-annual periods, the holders of the Public Preferred Stock are entitled to elect two members to the Company’s Board of Directors.  Accordingly, on June 18, 2007, the holders of the Public Preferred Stock elected Seth W. Hamot and Andrew R. Siegel to the Company’s Board of Directors.  All of the directors hold office until the next annual meeting of stockholders and until their successors are elected and qualified.  The terms of Messrs. Hamot and Siegel, the Class D Directors, will continue until their respective successors are elected and qualified.
 
Class A/B Director Nominees.  The Company’s Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee, has nominated the following individuals for election as Class A/B Directors by the holders of the Common Stock:  John B. Wood, Bernard C. Bailey, David Borland, William M. Dvoranchik, Lt. Gen. (ret) Bruce R. Harris, Lt. Gen. (ret) Charles S. Mahan, Jr., Maj. Gen. (ret) John W. Maluda, Robert J. Marino, and Vice Admiral (ret) Jerry O. Tuttle.
 
Biographical Information Concerning Class A/B Director Nominees.  Information concerning the nominees for election as Class A/B Directors appears below.

Name
Age
Biographical Information
 
John B. Wood
 
50
President, Chief Executive Officer, Chairman of the Board of the Company.  Mr. Wood joined the Company in 1992 as Executive Vice President and Chief Operating Officer (“COO”) and in 1994 was named President and Chief Executive Officer (“CEO”). In March 2000 he was appointed to the newly created position of Executive Chairman of the Board, which he held until he became Chairman of the Board subsequent to a restructuring of the Board of Directors in 2002. In January 2003, Mr. Wood resumed the positions of President and CEO.  Mr. Wood has also served as Chairman of Enterworks, Inc., since January 1996; and as CEO of Enterworks, Inc. from January 1996 to November 2005.  From January 2005 to December 2007, Mr. Wood served as Enterworks, Inc.’s Executive Chairman. Since January 2008, Mr. Wood has served as Enterworks, Inc.’s Non-Executive Chairman. Prior to joining the Company, Mr. Wood worked on Wall Street for Dean Witter Reynolds, UBS Securities, and his own boutique investment bank.  Mr. Wood graduated from Georgetown University where he earned a Bachelor of Science in Business Administration in finance and computer science. Mr. Wood also serves on several advisory boards and one foundation board. Mr. Wood is the brother of Mr. Emmett J. Wood, the Executive Vice President, Marketing & Strategy, of the Company.
 
As the Chief Executive Officer of the Company, Mr. Wood provides the Board with not only the knowledge of the daily workings of the Company, but also with the essential experience and expertise that can be provided only by a person who is intimately involved in running the Company. Mr. Wood’s broad knowledge and experience with the Company, its stockholders, partners, and vendors resulting from his long tenure with the Company is invaluable to the Board.
 
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Name
Age
Biographical Information
 
Bernard C. Bailey
60
Chairman, CEO of Authentix, Inc., a privately held authentication company, since 2012.  Dr. Bailey’s career spans over three decades of management experience in the high technology and security industries.  Prior to Authentix he ran his own consulting company, Paraquis Solutions, LLC.  From August 2002 to September 2006 he served as President and CEO of Viisage Technology, Inc. (NASDAQ:VISG), a leading provider of advanced technology identity solutions.  Under his four years of leadership, Viisage’s market capitalization grew from $60 million to over $1 billion. During that period, the company executed nine acquisitions, eventually culminating in the formation of L1 Identity Solutions, a NYSE listed company (NYSE:ID).  Prior to Viisage, from January 2001 to August 2002, Dr. Bailey served in various executive roles, including COO at Art Technology Group, a leading provider of e-commerce software. From 1984 to 2001, Dr. Bailey held a variety of finance, sales, marketing, and operations positions at IBM, where he also served in executive roles involved in the growth and development of IBM Global Services’ systems integration and consulting business lines. Dr. Bailey has been a member of the Company’s Board of Directors since October 2006.  In addition to his duties with Authentix and Telos, Dr. Bailey serves as a director on the board of Analogic Corp. (NASDAQ:ALOG).  Previously, until April 2011, Dr. Bailey also served on the Board of Spectrum Control, Inc. (NASDAQ:SPEC) and until January 2012, on the board of Identive Corporation (NASDAQ:INVE).  He also served as Chairman of the Board of LaserCard, Inc. (NASDAQ: LCRD) until June 2010.  Dr. Bailey serves as an adjunct faculty member in the Weatherhead School of Management at Case Western Reserve University.  He is also a trustee for the Committee for Economic Development.  Dr. Bailey holds a Masters level certificate from the American College of Corporate Directors, a public company director education and credentialing organization.
 
Dr. Bailey has significant experience in finance matters and within the Company’s industry.  He has served as a financial expert witness in Delaware’s Court of Chancery and is on the Board of Advisors of Egis Capital Partners, a private equity fund focused on the security industry.  Dr. Bailey holds a PhD in Management, having completed his dissertation on corporate governance.  He has written and spoken extensively on corporate governance issues.  He has also served on a number of boards of public companies, and the experience gained by serving on those boards make him a valuable resource for the Board and the Company.
 
David Borland
66
President, Borland Group, an information technology consulting company, since January 2004. Mr. Borland was elected to the Board of Directors in March 2004 after retiring as Deputy Chief Information Officer (“CIO”) of the U.S. Army with more than 30 years of experience in the U.S. Government. Mr. Borland’s U.S. Army career experience also includes serving as Vice Director of Information Systems for Command, Control, Communications, and Computers; Director of the Information Systems Selection and Acquisition Agency; and numerous other positions. From 1966 through 1970, Mr. Borland served in the U.S. Air Force. Mr. Borland received numerous awards, including the Meritorious Presidential Rank Award for Senior Executive Service Members (1996 and 2003), the Distinguished Presidential Rank Award (2000), and the U.S. Army Decoration for Exceptional Civilian Service (1998 and 2003).
 
Mr. Borland’s industry experience and extensive service with the U.S. Army and the U.S. Air Force make him a valuable member of the Board of Directors.
 
William M. Dvoranchik
67
Chairman, Chief Executive Officer, Life is Great, LLC, a privately held consulting and services firm, since 2001. Mr. Dvoranchik was elected to the Company’s Board of Directors in October 2006. In 2001, he retired as President of the Federal Government sector of Electronic Data Systems (“EDS”), where he oversaw all aspects of EDS’ relationship with the U.S. government. His career at EDS spanned over 30 years and he gained valuable experience as a leader in the brokerage, insurance, and banking and thrift industries before focusing on the U.S. government sector. From 1985 until his retirement in 2001, in addition to the Federal Government sector, Mr. Dvoranchik participated in and led EDS projects in the intelligence community, state and local governments, and international public sectors, in particular in Australia, Great Britain, and Asia. During this time, he led efforts that brought in new revenues in excess of $10 billion for EDS. For over 20 years, Mr. Dvoranchik served as chairman of the board of the EDS Employees Federal Credit Union, with assets of more than $400 million. He presently serves as director of QBase, LLC, a privately held analytic services company.
 
Mr. Dvoranchik’s extensive senior management experience in the U.S. government sector provides a valuable resource to the Board and the Company.
 
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Name
Age
Biographical Information
 
Lieutenant General Bruce R. Harris (USA, Ret.)
79
Retired, U.S. Army Lieutenant General.  General Harris was elected to the Board in August 2006. He retired from the U.S. Army in September 1989 after more than 33 years of continuous active duty. At the time of his retirement, General Harris was the Director of Information Systems for Command, Control, Communications and Computers in the Office of the Secretary of the Army, Washington, D.C. In that capacity he served as the principal advisor to the Secretary and Chief of Staff of the Army on all aspects of policy, planning, resourcing and acquisition of communications, automation, information management and command and control systems in the U.S. Army. Since his retirement, General Harris has worked with many of America's leading corporations as a consultant on matters relating to the development of strategic and business plans, resource planning and budget formulation. Until December 2013, General Harris served as a director of Hunter Defense Technologies, a privately held company focused on the development of comprehensive solutions to provide shelter, heat, power generation and chem/bio protection for a wide variety of military and homeland security applications.
 
General Harris has extensive experience with the U.S. Army, including the U.S. Defense Security Service, which is very valuable to the Board and the Company.
 
Lieutenant General Charles S. Mahan, Jr. (USA, Ret.)
 
67
Retired, U.S. Army Lieutenant General.  General Mahan has been a member of the Board of Directors since August 2006.  General Mahan served as Vice President and General Manager of the Law Enforcement and Security strategic business unit of DynCorp International, a company providing technology and professional services solutions to government and commercial clients worldwide, from January 2007 to July 2008.  From July 2006 to December 2006, he served first as President and Chief Operating Officer of Horne Engineering Services, LLC, an engineering services firm, and then as Chief Operating Officer of Horne International, an affiliate of Horne Engineering Services, LLC. From July 2005 to July 2006, he was Vice President of Homeland Security and Defense for SAP Public Services, Inc. (a U.S. business unit of the German software giant, SAP AG), where he led both SAP’s Homeland Defense practice and its business development efforts supporting federal, state, and local government organizations. Immediately following his November 2003 retirement from the U.S. Army, General Mahan joined The Home Depot, Inc., a home repair materials company, serving as Senior Director of its Government Solutions Group.  He currently serves as a director on the board of O’Neil and Associates, a privately owned documentation management company. He also serves on the national board of trustees for the Fisher House Foundation, which supports wounded veterans and their families during rehabilitation at our Military Medical Centers. From 2009 to 2011 General Mahan also served on the Board of Spectrum Control, Inc. (NASDAQ:SPEC). General Mahan holds a Professional Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization.
 
General Mahan’s comprehensive experience with the U.S. Army and service with two defense contractors make General Mahan a valuable resource for the Board and management.
 
Major General John W. Maluda (USAF, Ret.)
60
Retired, U.S. Air Force Major General.  General Maluda was elected to the Board in October 2009. He retired from the U.S. Air Force in September 2009 after more than 34 years of continuous active duty. At the time of his retirement, General Maluda was Director of Cyberspace Transformation and Strategy, in the Office of the Secretary of the Air Force, and Chief Information Officer. In that capacity, he shaped doctrine, strategy, and policy for communications and information activities and served as the functional advocate for 30,000 personnel. Prior to that, General Maluda was Vice Commander, 8th Air Force, Barksdale Air Force Base, Louisiana. General Maluda enlisted in the Air Force in 1973 and received his commission in 1978 as a distinguished graduate of the ROTC program at Troy State University, Alabama. His career highlights included serving at three major commands, with unified combatant commands, a defense agency, the White House and the Air Staff. General Maluda’s staff experience included positions at Headquarters U.S. Air Force, Air Combat Command, U.S. Air Force in Europe, Air Force Special Operations Command, U.S. Space Command and the White House Communications Agency. General Maluda holds a Bachelor of Science in Electrical Engineering from Auburn University, a Masters Degree in Systems Management from the University of Southern California, and Masters Director Certification from the American College of Corporate Directors, a public company director education and credentialing organization.
 
General Maluda’s comprehensive experience with the U.S. Air Force and broad industry insight make him a valuable member of the Board of Directors.
 
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Name
Age
Biographical Information
 
Robert J. Marino
77
Retired, Executive Vice President, Special Projects for the Company until February 28, 2013.  Mr. Marino joined the Company in 1988 as Senior Vice President of Sales and Marketing. In 1990, his responsibilities were expanded to include Program Management in addition to Sales and Marketing. In January 1994, Mr. Marino was appointed President of Telos Systems Integration, and in January 1998, he was appointed Chief Sales and Marketing Officer of the Company, a position he held until June 2004 at which time he was appointed Executive Vice President for Special Projects.  Prior to joining the Company in February 1988, Mr. Marino held the position of Senior Vice President of Sales and Marketing with Centel Federal Systems and M/A.com Information Systems, both of which are U.S. Government contractors.  Mr. Marino was elected to the Board of Directors in June 2004.
 
Mr. Marino served the Company for 25 years and as a board member remains a valuable advisor to the Company’s various business lines.
 
Vice Admiral Jerry O. Tuttle (USN, Ret.)
79
Retired, U.S. Navy Vice Admiral.  Admiral Tuttle was elected to the Board of Directors in August 2006. He retired from the U.S. Navy in 1993 following a 40-year career that included assignments to numerous attack and fighter squadrons as well as leadership of key information technology programs. Admiral Tuttle is widely regarded as an information technology strategist, having created the Navy’s C41 Joint Operations Tactical System. In 1989, he became Director, Space and Electronic Warfare, an assignment he held until retirement. Since February 2002, he has been President and CEO of J.O.T. Enterprises, an information systems and command, control, communications, intelligence, surveillance and reconnaissance consulting company. His previous executive positions were: June 2000 to February 2002, President of REL-TEK Systems & Design (now Savantage Financial Services), an employee-owned software development firm; 1996 to 2000, President of ManTech International’s largest subsidiary, ManTech Systems Engineering; and 1993 to 1996, Vice President for business development and chief staff officer with Oracle Government. In addition to his duties with the Company, Admiral Tuttle serves as chairman of the board for the U.S. subsidiary of Systematic Software Engineering, a Danish software development company.
 
Admiral Tuttle has in-depth U.S. government insight due to his 40 years of service with the U.S. Navy. His comprehensive experience provides valuable guidance regarding the U.S. defense industry.
 

The Board of Directors of Telos recommends that the Class A/B Director nominees named above be elected by the holders of the Company’s Common Stock.

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No Class D Director Nominees.  The Company did not receive nominations for Class D Directors. As a result, the terms of Messrs. Hamot and Siegel will continue after the Annual Meeting until their respective successors are elected and qualified.

Biographical Information Concerning Class D Directors

Name
Age
Biographical Information
 
Seth W. Hamot
52
Managing Member, Roark, Rearden & Hamot Capital Management, LLC (“RRHCM”), and owner of Roark, Rearden & Hamot, Inc. (“RRHI”), since 1997, and President of Roark, Rearden & Hamot, LLC (“RRH”) since 2002.  RRH is a general partner of, and RRHCM is the investment manager to, Costa Brava Partnership III L.P. (“Costa Brava”), whose principal business is to make investments in, buy, sell, hold, pledge and assign securities. Mr. Hamot has been a director of the Company since June 18, 2007.  Mr. Hamot was nominated for election by Costa Brava, a holder of the Public Preferred Stock.  Mr. Hamot is presently also the chairman of Spy, Inc. (NASDAQ: Spy), an eyewear company, and a director of Piksel, Inc.  Previously, he served as chairman of TechTeam Global, Inc. and Bradley Pharmaceutical, Inc.
 
Mr. Hamot was elected pursuant to the Company’s governing documents by the holders of the Public Preferred Stock and his election is not subject to any recommendations for election by the Board.
 
Andrew R. Siegel
45
Managing Member, White Bay Capital Management, LLC.  Mr. Siegel has been a director of the Company since June 18, 2007.  Mr. Siegel was nominated by Costa Brava, a holder of the Public Preferred Stock.  Mr. Siegel was a Senior Vice President of RRHCM from 2005 to December 2008. Prior to joining RRHCM, from July 2003 to February 2004, Mr. Siegel was a member of DebtTraders Ltd. Previously, Mr. Siegel served on the Board of TechTeam Global, Inc.. Mr. Siegel received a Bachelor’s Degree from American University and a Masters Degree in Business Administration from the University of Maryland.
 
Mr. Siegel was elected pursuant to the Company’s governing documents by the holders of the Public Preferred Stock and his election is not subject to any recommendations for election by the Board.
 

If the Company had received nominations for Class D Directors, holders of the Public Preferred Stock would have been eligible to vote at the Annual Meeting on the election of Class D Directors and on no other matter before the Annual Meeting.
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Biographical Information Concerning the Company’s Executive Officers

Set forth below is biographical information concerning our executive officers, who are appointed by the Board of Directors and serve until their successors are appointed and qualified.

Name
Age
Biographical Information
 
Michele Nakazawa
56
Executive Vice President, Chief Financial Officer. Ms. Nakazawa joined the Company in March 2004 as Vice President and Controller.  Ms. Nakazawa was promoted to Senior Vice President and appointed to serve as CFO in January 2005, and promoted to Executive Vice President in 2008. Ms. Nakazawa has 30 years experience in finance and accounting. Prior to joining the Company, she held various positions, including CFO of Ubizen, Inc., a U.S. subsidiary of a publicly held Belgian company, from 1999 to 2003; Controller and Treasurer of National Security Analysts, Inc. from 1991 to 1997; and financial analyst for Federal Systems Division of IBM, Inc. from 1983 to 1990.  Ms. Nakazawa is also a former Director and Treasurer for HealthWorks for Northern Virginia, a non-profit community health center.  Ms. Nakazawa is a Certified Public Accountant and holds a Masters of Science in Accounting from American University and a Bachelor of Arts in Chemistry from Goucher College.
 
Edward L. Williams
53
Executive Vice President, Chief Operating Officer. Mr. Williams joined the Company in 1993 as a Senior Vice President responsible for finance, pricing, purchasing, and Defense Contract Audit Agency compliance.  In 1994, his responsibilities were expanded to include accounting and business development.  In 1996, Mr. Williams was appointed to manage the Company’s networking business unit.  In 2000, his responsibilities were expanded to include management of the Company’s operations.  Mr. Williams was named Executive Vice President and COO in 2003 and Interim CFO in October 2003.  He stepped down as Interim CFO of the Company in January 2005.  Prior to joining the Company, Mr. Williams was the CFO for Centel Federal Systems and M/A.com Information Systems, both of which are U.S. Government contractors.   Mr. Williams has a Bachelor of Science in Finance from the University of Maryland.
 
Jefferson V. Wright
58
Executive Vice President, General Counsel. Mr. Wright joined the Company as of December 31, 2012 as Executive Vice President and General Counsel.  Prior to joining the Company, Mr. Wright was a principal at Miles & Stockbridge P.C. (the “Firm”), a leading Mid-Atlantic regional law firm with its principal office in Baltimore, Maryland, where he practiced law for approximately 31 years.  Mr. Wright’s practice concentrated on the field of litigation, focusing primarily on the litigation, arbitration, mediation and resolution of complex business, corporate, commercial and financial disputes and related business and risk management advice.  He has represented clients involved in many industries, including cyber security, telecommunications and information technology, financial services and banking, manufacturing, insurance, real estate, and the public sector, and has handled hundreds of cases at all levels of state and federal courts and in commercial arbitrations throughout the mid-Atlantic region and many other jurisdictions around the country.  Mr. Wright served on the board of directors of the Firm, as part of the core management team of the Firm, as Chair of the Firm’s Litigation Department and in various other capacities with the Firm for many years.  Mr. Wright also served in the roles of the Firm’s General Counsel, Ethics Counsel, and the principal in charge of loss prevention and risk management for more than 20 years.  Mr. Wright was admitted to practice in the State of Maryland in 1981 and as a Virginia Corporate Counsel in the Commonwealth of Virginia in 2013.  He is a member of the Bars of various courts, including the United States District Court for the District of Maryland (where he serves on the Bench-Bar Liaison Committee), the United States Court of Appeals for the Fourth Circuit, and the Supreme Court of the United States, among others, and the Maryland State Bar Association, the Virginia State Bar, the American Bar Association, and the Federal Bar Association.
 
Prior to joining Miles & Stockbridge in 1981, Mr. Wright clerked for J. Dudley Digges, Associate Judge on the Court of Appeals of Maryland, that State’s highest court.
 
Mr. Wright was educated at Georgetown University Law Center in Washington, D.C. (J.D., 1980, with Honors), Tufts University in Medford, Massachusetts (B.A., 1977, Magna Cum Laude), and Landon School in Bethesda, Maryland.
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Emmett J. Wood
43
Executive Vice President, Marketing & Strategy. Mr. Wood joined the Company in 1996 and worked in various roles at the Company and Enterworks, Inc. in both a marketing and business development capacity. He worked on the federal sales team, commercial and partner/channel groups and most recently served as director of commercial and channel sales. In January 2010 he was promoted to Vice President, Marketing.  He is responsible for brand management, marketing communications, sponsorships and events, media and analyst relations, government relations, employee communications and corporate community relations. On April 1, 2013, Mr. Wood was promoted to his current position.  In addition to his duties related to marketing, Mr. Wood works with senior management in developing the overall corporate strategy and planning.  Previously, he also worked in the sales and marketing groups at Dow Jones, Inc. and The Wall Street Journal.  Mr. Wood is a graduate of Georgetown University, with a B.A. in political science.  Mr. Wood is the brother of Mr. John B. Wood, the President, Chief Executive Officer and Chairman of the Board of the Company.
 
Brendan D. Malloy
48
Senior Vice President, General Manager, Cyber Operations & Defense. Mr. Malloy joined the Company in 1996, serving initially as a senior account executive before being promoted to director of Department of Defense (“DoD”) Sales, and later to Vice President of DoD Sales. In January 2005, he was appointed Senior Vice President of sales. He currently leads the Cyber Operations & Defense organization, which consists of the former Secure Networks and Information Assurance group, in support of opportunities in DoD, federal agencies, and the intelligence community.  In addition, this organization includes the Emerging Technologies group tasked to creating innovative, customer-tailored solutions for government and commercial enterprises.   He previously held sales positions with QMS Federal and Printer Plus. Mr. Malloy is a 1988 graduate of Curry College.
 
Richard P. Tracy
53
Senior Vice President, Chief Security Officer, Chief Technology Officer. Mr. Tracy joined the Company in October 1986 and held a number of management positions within the Company. In February 1996, he was promoted to Vice President of the Telos information security group and in this capacity established a formidable information security consulting practice. In February 2000, Mr. Tracy was promoted to Senior Vice President for operations and helped launch the Xacta business lines, the Company’s segment focusing on information security. Since that time, Mr. Tracy has pioneered the development of innovative and highly scalable enterprise risk management technologies that have become industry-leading solutions within the federal government and the financial services verticals. He is the principal inventor listed on four patents for the Xacta software.  Mr. Tracy assumed the role of Chief Security Officer for Telos and Xacta in 2004 and Chief Technology Officer in 2005.  He was President of the Company’s subsidiary, Teloworks, Inc., from 2008 to 2010.
 
Alvin F. Whitehead
65
Senior Vice President, General Manager, Secure Communications, since 2008. Mr. Whitehead joined the Company in 1999 as Vice President of New Business Opportunities, focusing on emerging business areas including Information Security, Secure Messaging and Data Integration.  In 2000, he became Vice President, Program Management. Prior to Telos, Mr. Whitehead spent 28 years in the U.S. Army, retiring as Chief of Staff of the Defense Information Systems Agency (“DISA”).  During his four years as Chief of Staff, he was responsible for coordinating the Agency’s 8,000-person staff and its $4.0 billion budget.  He was instrumental in establishing the DoD’s Computer Emergency Response Team and integrating it into the Global Network Operations Center.  Mr. Whitehead has a Bachelor of Arts from Virginia Polytechnic Institute and State University, and a Master of Public Administration from George Washington University.
 
David S. Easley
43
Vice President, Finance and Controller. Mr. Easley joined the Company in April 2005 as Director of Finance & Accounting.  In October 2005, Mr. Easley was promoted to Controller.  Prior to joining the Company, Mr. Easley held various positions, including Controller, for Applied Predictive Technologies, Inc., a software and consulting company, and Senior Accountant with Beers & Cutler PLLC (now part of Baker Tilly Virchow Krause LLP) in Washington, D.C. Mr. Easley is a Certified Public Accountant and holds a Bachelor of Science in Accounting from the University of Kentucky.
 
Mark Griffin
54
President, General Manager, Telos Identity Management Solutions, LLC (“Telos ID”). Mr. Griffin joined the Company in 1984 as program manager. He was promoted to Vice President for the Company’s Traditional Business Division in January 2004 and to Vice President, Identity Management, effective January 2007. In April 2007, he was appointed to head the newly formed Telos ID. Mr. Griffin has almost 30 years experience in government IT contracting, materials management and systems integration projects in the electronics and communications fields. He has been involved in day-to-day operations of and has had overall management responsibility for many of Telos’ most critical programs for the Army, Navy, Federal Aviation Administration, DMDC, General Services Administration and Immigration and Naturalization Services.  Mr. Griffin holds a Bachelor of Science in Engineering from Virginia Polytechnic Institute and State University.
 

Each of our directors and executive officers is a United States citizen.

9

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1933 requires officers, directors and beneficial owners of more than 10% of any class of our equity securities to file reports, including reports of changes in ownership of the Company’s registered equity securities, with the Securities and Exchange Commission and to furnish us with copies of all Section 16(a) reports so filed.  Based on a review of the copies of reports received and written representations from our reporting persons, we have determined that no Section 16(a) reports were filed late.

Corporate Governance

John B. Wood is both the Chairman of the Board of Directors and the Chief Executive Officer of the Company.  The Company’s policy as to whether the roles of the Chairman and the Chief Executive Officer should be separate is to adopt the practice that best serves the Company’s needs at any particular time.  The Board of Directors believes that combining the Chairman and Chief Executive Officer positions is currently the most effective leadership structure and is in the best interests of the Company’s stockholders because of Mr. Wood’s long tenure with the Company, including as the Chief Executive Officer, and his broad knowledge and experience with the Company’s stockholders, partners, and vendors.  The Board of Directors may decide to separate or combine the roles of Chairman and Chief Executive Officer, if appropriate, at any time in the future.  The Company has no lead independent director.

The Company operates under a Proxy Agreement, which governs the relationship between the Company and the foreign stockholders that, directly and indirectly hold approximately 36% of the outstanding shares of Common Stock. Pursuant to such Proxy Agreement, a Proxy Board has been established, which consists of independent Board members Harris, Mahan, and Tuttle. Under the Proxy Agreement, the Proxy Board has the authority to vote 15,801,802 shares of Class A Common Stock at the Annual Meeting.

The Board of Directors has adopted a Code of Ethics and Business Conduct applicable to our Chief Executive Officer, Chief Financial Officer, and Controller.  The Code of Ethics and Business Conduct is available on our website at www.telos.com.  In the event that the Board of Directors amends our Code of Ethics and Business Conduct or grants a waiver from the Code of Ethics and Business Conduct, the Company will provide timely notice of such amendment or waiver on its website.

Independence of Directors

The Company has adopted the director independence standards that are summarized below.  The Company’s director independence standards are based upon NASDAQ Listing Rule 5605. Pursuant to NASDAQ Listing Rule 5605(b)(1), a majority of directors of the Board will be independent.  Pursuant to NASDAQ Listing Rule 5605(a)(2), a director will not be independent if,

(A) At any time during the past three years he was employed by the Company;

(B) He accepted, or has a family member who accepted, any compensation from the Company in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence other than the following: (i) compensation for board or board committee service; (ii) compensation paid to a family member who is an employee (other than an executive officer) of the Company; or (iii) benefits under a tax-qualified retirement plan, or non-discretionary compensation;

(C) He is a family member of an individual who is, or at any time during the past three years was, employed by the Company as an executive officer;

(D) He is, or has a family member who is, a partner in, or a controlling shareholder or executive officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than the following: (i) payments arising solely from investments in the Company’s securities; or (ii) payments under non-discretionary charitable contribution matching programs;
10

(E) He is, or has a family member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the Company served on the compensation committee of such other entity; or

(F) He is, or has a family member who is, a current partner of the Company’s outside auditor, or was a partner or employee of the Company’s outside auditor who worked on the Company’s audit at any time during any of the past three years.

Pursuant to the independence standards set forth above, the Board has determined that the following directors and nominees meet the Company’s independence standards and therefore are independent: Bernard C. Bailey, David Borland, William M. Dvoranchik, Bruce R. Harris, Charles S. Mahan, and Jerry O. Tuttle. Based on these standards, the Board determined that the following directors are not independent: Robert J. Marino, John W. Maluda and John B. Wood.  Additionally, due to conflicts of interest, both Seth W. Hamot and Andrew R. Siegel were determined not to be independent.

Role in Risk Oversight

As part of its general responsibility to manage the Company’s business, the Board of Directors has oversight responsibility with respect to risk management.  The Board of Directors has delegated primary responsibility for risk oversight and the monitoring of the Company’s significant areas of risk to the Audit Committee.  In accordance with its charter, the Audit Committee discusses with management the Company’s major policies with respect to risk assessment and risk management.  The Audit Committee regularly reports the results of these discussions to the Board of Directors.

Meetings of the Board of Directors and Committees of the Board of Directors

During the fiscal year ended December 31, 2013, the Board of Directors held six meetings.  Each director attended all of meetings of the Board, in person or by phone, except one director missed one meeting.  All of the directors attended all of the respective committee meetings of the Board on which they served.

The Company encourages all directors to attend annual meetings of stockholders.  Ten directors, namely Messrs. Bailey, Borland, Dvoranchik, Hamot, Harris, Mahan, Maluda, Marino, Tuttle, and Wood, attended the Company’s annual meeting of stockholders in 2013.

The Company has standing Audit, Management Development and Compensation, and Nominating and Corporate Governance Committees.

Audit Committee

The Audit Committee was established to assist the Board of Directors in fulfilling its oversight responsibilities for (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent registered public accounting firm’s qualifications and independence, and (4) the performance of the Company’s internal audit function and independent registered public accounting firm. The Audit Committee consists of directors Bailey (chairman), Dvoranchik, and Mahan. In 2013, the Audit Committee met five times. The Board of Directors has adopted an Audit Committee charter, which was revised on March 27, 2014, and is available on the Company’s website at www.telos.com.  The Board has determined that Mr. Bailey is an “audit committee financial expert” as defined by rules adopted by the SEC and is independent.

Management Development and Compensation Committee

The Management Development and Compensation Committee (the “Compensation Committee”) was established for the purpose of reviewing, determining and approving all forms of compensation to be provided to the Company’s executive officers and directors, and any stock compensation to be provided to all employees. The Compensation Committee is comprised of directors Borland, Dvoranchik (chairman), and Harris. The Compensation Committee met five times during the year 2013.  The Board of Directors has adopted a Compensation Committee charter, which was revised on March 27, 2014, and is available on the Company’s website at www.telos.com.

Neither the Compensation Committee nor management engaged a compensation consultant in 2013 to provide advice or recommendations on the amount or form of executive or director compensation.
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Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee (the “Nominating Committee”) was established to make recommendations regarding Board nominations and to monitor the implementation of corporate governance rules and regulations. The Nominating Committee consisted of directors Borland (chairman), Mahan, Marino, Tuttle, and Wood in 2013.  In 2013, the Nominating Committee did not meet in person and acted once by unanimous written consent without a meeting.  On March 27, 2014, the Board of Directors has adopted a revised Nominating Committee charter which is available on the Company’s website at www.telos.com.

Board of Directors Nomination Process

The Nominating Committee identifies potential candidates for first-time nomination as a director by using a variety of sources such as recommendations from the Company’s management, current Board members, stockholders, and contacts in organizations served by the Company. Stockholders may nominate potential candidates by following the procedure set forth in the Company’s Bylaws. This process provides that, in order for nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must deliver written notice to the Company’s secretary at the Company’s principal executive offices not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth (90t)h day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. The Nominating Committee will consider any director nominees submitted by stockholders in accordance with these procedures.

The Nominating Committee then conducts an initial review of the potential candidate’s background, including whether he/she meets the minimum qualifications for Board members; whether the individual would be considered independent under the standards adopted by the Company and SEC rules; and whether the individual would meet any additional requirements imposed by law or regulation on members of the Audit and/or Compensation Committees of the Board. Among the requirements potential candidates should meet are the following: U.S. citizenship; eligibility for security clearance at a top secret level; ten (10) years of corporate or related business experience, preferably having served on the board of directors of a corporation; and familiarity with government contracts, the defense industry, and information technology and security. The evaluation process of a potential candidate’s background will not be treated differently whether or not he/she was nominated by a stockholder, except for nominations received from holders of Public Preferred Stock, which are not subject to the Company’s nomination process.

If the initial candidate review is satisfactory, the Nominating Committee will arrange an introductory meeting with the candidate and the committee’s chairman, the Company’s CEO, or other directors to determine the potential candidate’s interest in serving on the Board. If the candidate is interested in serving on the Board and the Nominating Committee recommends further consideration, a comprehensive interview conducted by the Nominating Committee, the CEO, other members of the Board, and in some cases, key Company executives, follows. Upon successful conclusion of the review process, the Nominating Committee will present the candidate’s name to the Board of Directors for nomination as a director and inclusion in the Company’s Proxy Statement.

Stockholder Communications with Board of Directors

Stockholders wishing to communicate with the Board of Directors should send the communication by mail to the office of the Corporate Secretary (19886 Ashburn Road, Ashburn, VA 20147) who will forward such communication to the appropriate committee of the Board of Directors or to the individual director.  There have been no changes in the procedures by which stockholders may recommend nominees to the Company’s board of directors.

Certain Relationships and Related Transactions

Our policies and practices with respect to related person transactions were adopted on October 25, 2007, and are available on our website at www.telos.com.  Generally, any transaction between Telos and a related party in which the aggregate amount exceeds $120,000 is reviewed by the Audit Committee and subject to the ratification and approval of the Board of Directors.  For purposes of this policy, a related person is any director or executive officer of Telos, any nominee for director, any holder of 5% or more of the Company’s voting securities, any immediate family members of the foregoing persons, and any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has 10% or greater beneficial ownership interest.

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Emmett Wood, the brother of our Chairman and CEO, has been an employee of the Company since 1996. The amounts paid to this individual as compensation for 2013, 2012, and 2011, were $344,335, $391,196, and $324,442, respectively.  On September 28, 2012, the Company and Mr. Wood entered into an employment agreement, which is substantially similar to the employment agreements between the Company and Mr. Malloy described under the caption “Executive Officer Employment Agreements” in the Compensation Discussion & Analysis beginning on page 16.  The Company and Mr. Wood entered into an Amended Employment Agreement on May 13, 2013 after Mr. Wood was promoted to the position of Executive Vice President, Marketing & Strategy.  This agreement is substantially similar to the employment agreements between the Company and Mr. Williams, Mr. Wright and Ms. Nakazawa, also described under the caption “Executive Officer Employment Agreements” beginning on page 18.  Mr. Emmett Wood owned 650,000 shares and 50,000 shares of the Company’s Class A Common Stock and Class B Common Stock, respectively, as of December 31, 2013.

On June 14, 2013, the Company redeemed a total of 567 shares of Senior Redeemable Preferred Stock, including 195 shares and 274 shares of Series A-1 and Series A-2 Redeemable Preferred Stock, respectively, held by Mr. Porter and Toxford, the beneficial owners of 39.3% of our Class A Common Stock.  Mr. Porter and Toxford received a total of $1,654,371 in this redemption.  Mr. Porter is the sole stockholder of Toxford.  Subsequent to such redemption, Mr. Porter and Toxford held 163 shares and 228 shares of Series A-1 and Series A-2, respectively, or 82.7% of the Senior Redeemable Preferred Stock.

In May 2013, the Company formally engaged Avison Young, a full-service commercial real estate company, to assist the Company with its various options related to its current facility in Ashburn, Virginia.  Mr. Kevin Malloy is a Principal of Avison Young and is the main relationship partner for the Company.  Mr. Malloy is the brother of Mr. Brendan Malloy, a named executive officer of the Company.  The engagement of Avison Young was subject to our policy with respect to related person transactions, and that engagement was approved by the Board of Directors consistent with that policy. Consistent with standard practice in the industry, Avison Young’s compensation consisted entirely of a commission payable solely by the landlord to the extent a transaction with the landlord is consummated.  In 2013, Avison Young received a commission in the approximate amount of $568,000 in connection with our entry into the revised lease of our headquarters.  Additionally, Avison Young will also be entitled to a commission upon the completion of the transaction related to the purchase of our headquarters pursuant to the option to purchase contained in the lease.

Legal Proceedings With 10% Beneficial Owner of the Company’s Stock and With Directors

Costa Brava Partnership III, L.P.

As previously reported, on October 17, 2005, Costa Brava Partnership III, L.P. (“Costa Brava”), a holder of 12.7% of the outstanding shares of the Public Preferred Stock, instituted litigation against the Company and certain past and present directors and officers in the Circuit Court for Baltimore City, Maryland (the “Circuit Court”).  Messrs. Seth W. Hamot and Andrew R. Siegel, who are Class D Directors, are principals of Costa Brava.  Wynnefield Small Cap Value, L.P. (“Wynnefield”), which owns 12.6% of the outstanding shares of Public Preferred Stock, subsequently intervened as a co-Plaintiff (Costa Brava and Wynnefield are hereinafter referred to as “Plaintiffs”). On February 27, 2007, Plaintiffs added, as an additional defendant, Mr. John R. C. Porter, a holder of the Company’s common stock.

In the litigation, Plaintiffs allege, among other things, that the Company and its officers and directors engaged in tactics to avoid paying dividends on the Public Preferred Stock, that the Company made improper bonus payments or awards to officers and directors, that certain former and present officers and directors breached legal duties or the standard of care that they owed the Company, that the Company improperly paid consulting fees to and engaged in loan transactions with Mr. Porter, that the Company failed to improve on the Company’s purported insolvency, that the Company failed to redeem the Public Preferred Stock as required by the Company’s charter, and shareholder oppression against Mr. Porter.

On December 22, 2005, the Company’s Board of Directors established a special litigation committee (“Special Litigation Committee”), composed of certain independent directors, to review and evaluate the matters raised in the litigation. On July 20, 2007, the Special Litigation Committee, in its final report, concluded that the available evidence did not support Plaintiffs’ derivative claims and that it was not in the best interests of the Company to pursue such claims in the litigation. On August 24, 2007, the Company moved to dismiss Plaintiffs’ derivative claims based upon the report and to dismiss all remaining claims for failure to state a claim. Following an evidentiary hearing, the Court dismissed all derivative claims based upon the recommendation of the Special Litigation Committee on January 7, 2008.

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On February 12, 2008, the Plaintiffs filed a Third Amended Complaint that included both new counts and previously dismissed counts. The Company moved to dismiss or strike the Third Amended Complaint and, on April 15, 2008, the Circuit Court issued an order dismissing with prejudice all counts in the Third Amended Complaint that were not previously disposed of by motion or stipulation. On December 2, 2008, the Company filed a motion for voluntary dismissal of its counterclaim against Plaintiffs (for their interference with the Company’s relationship with Wells Fargo) without prejudice. The Circuit Court granted that motion, over Plaintiffs’ opposition, on January 23, 2009.

Following Plaintiffs’ appeal of the dismissal of their derivative claims and shareholder oppression claim, on September 7, 2012, the Court of Special Appeals ruled that the Circuit Court applied an incorrect standard of review to evaluate the conclusions of the Special Litigation Committee. The Court of Special Appeals held that the Circuit Court’s dismissal of a shareholder oppression claim (asserted against Mr. Porter) raised an issue of first impression under Maryland law and required further briefing in the Circuit Court. The Court of Special Appeals vacated the decision of the Circuit Court that had been appealed and remanded the case for further consideration and proceedings.

On October 24, 2012, the Company filed a petition for writ of certiorari in the Court of Appeals of Maryland, which was denied on January 22, 2013.

On remand, the Circuit Court held a status and scheduling conference on July 26, 2013, as a result of which the Court issued a memorandum to counsel setting a briefing schedule to address the motion filed by the Company and other defendants to dismiss or otherwise dispose of the derivative claims as a result of the findings of the Special Litigation Committee in its final report of July 20, 2007.  On November 1, 2013, the Defendants filed a Motion to Dismiss the derivative claims under the standard of review dictated by the opinion of the Court of Special Appeals.  Plaintiffs filed their Opposition to the Motion on December 23, 2013, and Defendants filed their Reply on January 23, 2014.  A hearing on the Motion to Dismiss is scheduled for April 24, 2014.

On September 17, 2013, the Plaintiffs filed a request for an entry of an order for default as to Mr. Porter, which was denied by the Circuit Court on November 8, 2013.

At this stage of the litigation, it is impossible to reasonably determine the degree of probability related to Plaintiffs’ success in relation to any of their assertions in the litigation. Although there can be no assurance as to the ultimate outcome of the case, the Company and its present and former officers and directors strenuously deny Plaintiffs’ allegations and continue to vigorously defend the matter and oppose all relief sought by Plaintiffs.

Hamot et al. v. Telos Corporation
 
As previously reported, since August 2, 2007, Messrs. Seth W. Hamot and Andrew R. Siegel, principals of Costa Brava and Class D Directors have been involved in litigation against the Company in the Circuit Court for the City of Baltimore, Maryland (the “Court”). The Class D Directors initially alleged that certain documents and records had not been promptly provided to them and were necessary to fulfill their duties as directors of the Company. Subsequently, the Class D Directors further alleged that the Company had failed to follow certain provisions concerning the noticing of Board committee meetings and the recording of Board meeting minutes and, additionally, that Mr. Wood’s service as both CEO and Chairman of the Board was improper and impermissible under the Company’s Bylaws.
 
By way of preliminary injunctions entered on August 28, 2007 and September 24, 2007, the Court ordered that the Class D Directors are entitled to documents in response to reasonable requests for information pertinent and necessary to perform their duties as members of the Board but, in light of the Costa Brava shareholder litigation, the Company is entitled to designated certain documents as “confidential” or “highly confidential” and to withhold certain documents from the Class D Directors based upon the work product doctrine or attorney-client privilege. Pursuant to the preliminary injunctions, the Class D Directors are also entitled to receive written responses to requests for Board of Directors or Board committee minutes within seven days of any such requests and copies of such minutes within fifteen days of any such requests, as well as written responses to all other requests for information and/or documents related to their duties as directors within seven days of such requests, and all Board of Directors appropriate information and/or documents within thirty days of any such requests.
14

On April 23, 2008, the Company filed a counterclaim against the Class D Directors for money damages and preliminary and injunctive relief based upon the Class D Directors’ interference with, and improper influence of, the Company’s independent auditors regarding, among other things, a specific accounting treatment. On June 27, 2008, the Court granted the Company’s motion for preliminary injunction and enjoined the Class D Directors from contacting the Company’s auditors until the completion of the Company’s Form 10-K for the preceding year. This preliminary injunction expired by its own terms and an appeal from that ordered was held to be moot by the Court of Special Appeals of Maryland.

On April 12, 2010, the Class D Directors filed a motion for the advancement of legal fees and expenses incurred in defense of the Company’s counterclaim. On November 3, 2011, the Court denied the Plaintiffs’ motion, as well as the Plaintiffs’ motion for partial summary judgment and request for attorneys’ fees. On May 21, 2012, the Court denied Plaintiffs’ motion for reconsideration of the same.

Trial on both the Class D Directors’ claims and the Company’s counterclaims commenced on July 5, 2013, and continued on several days in July 2013.  The evidentiary portion of the trial concluded on August 1, 2013, and post-trial briefing concluded on September 16, 2013.  The court decision on this matter is still pending.

At this stage of the litigation it is impossible to reasonably determine the degree of probability related to the Class D Directors’ success in any of their assertions and claims, or whether such success would entitle them to monetary relief. Although there can be no assurance as to the ultimate outcome of these proceedings, the Company and its officers and directors strenuously deny the Class D Directors’ claims, and will vigorously defend the matter, and continue to oppose the relief sought.

Report of the Audit Committee

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements for the fiscal year ended December 31, 2013, including the quality and acceptability of accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements included in the Company’s Annual Report on Form 10-K.

The Audit Committee discussed with the independent registered public accounting firm, who is responsible for expressing an opinion on conformity of those audited financial statements with U.S. generally accepted accounting principles, the firm’s judgment as to the quality and acceptability of the Company’s accounting principles and such other matters as are required to be discussed with the independent registered public accounting firm under the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standards No. 16 (Communications with Audit Committees).  In addition, the Audit Committee discussed with the independent registered public accounting firm the firm’s independence from management and the Company and received the written disclosures and the letter from the independent accountant required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence.  The Audit Committee also considered whether the provision of non-audit related services by the independent registered public accounting firm was compatible with maintaining the firm’s independence and found it to be acceptable.

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for filing with the Securities and Exchange Commission.

 
Bernard C. Bailey, Chairman
 
William M. Dvoranchik
 
Charles S. Mahan, Jr.

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Compensation of Executive Officers and Directors

Compensation Discussion and Analysis

Compensation Philosophy and Objectives

Our compensation program is designed to support the achievement of our business and financial goals.  The program is periodically reviewed by the Management Development and Compensation Committee (“Compensation Committee”), which is responsible for implementing and monitoring adherence to our compensation philosophy.

The primary objectives of the compensation program are:

· To attract and retain highly talented and results-oriented executives who are critical to our long-term success and growth;
· To align the goals of our key employees, including our named executive officers, with the best interests of the Company;
· To reward performance; and
· To achieve stockholder value.

The individual components of the compensation program (annual salary; short-term incentive compensation; long-term incentive compensation; and perquisites) are designed to meet these objectives and together are intended to be competitive in the marketplace.  The Compensation Committee has not established fixed goals concerning the percentage composition of each element of compensation.  The overall compensation package is, however, based on the following considerations:

· Compensation should consist of fixed and at-risk compensation, with the at-risk compensation encouraging improved annual and long-term performance.
· Compensation should be a mix of annual and long-term compensation, with the long-term compensation encouraging retention and attainment of long-term performance goals.
· Compensation should be a mix of cash and equity, with cash rewarding achievement of goals and equity encouraging retention and long-term performance.  Additionally, the Compensation Committee continues to believe in equity ownership by the management team to align the interests of management with our long-term corporate performance.

We held our first advisory vote on executive compensation, commonly referred to as “say on pay,” at our 2011 Annual Meeting of Stockholders.  The holders of our Common Stock overwhelmingly approved the “say on pay” resolution presented at the 2011 Annual Meeting of Stockholders, with more than 99.6% of the votes cast voting to approve the compensation of our named executive officers as disclosed in our proxy statement relating to that annual meeting.  The Compensation Committee reviewed the voting results and, given the strong level of support, did not make any changes during 2012 or 2013 to our executive compensation program or our compensation philosophy and objectives in response to the vote.  The next advisory vote on executive compensation will take place at the Annual Meeting.

Mr. John Wood has no role in the establishment of his individual compensation. Except as set forth below in the description of short-term incentive compensation, Mr. Wood proposed to the Compensation Committee the compensation for Messrs. Edward Williams, Jefferson Wright, Emmett Wood and Ms. Nakazawa in 2013.  The Compensation Committee reviewed these recommendations and, following discussions with Mr. Wood, determined the appropriate compensation for those executives.  With regard to Mr. Malloy who reports directly to Mr. Williams, Mr. Williams proposed to Mr. Wood the initial recommendation for compensation for Mr. Malloy, and Mr. Wood made the final determination of such compensation.  In addition, Mr. Wood determined the compensation of the other executive officers consistent with the philosophy and objectives described above.

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Base Salary

We provide our executive officers and employees with a base salary to compensate them for services rendered during the fiscal year.  The relative levels of base salary for executive officers are designed to reflect each executive officer’s professional expertise and scope of responsibility and accountability within the Company, the Company’s financial performance and the named executive officer’s individual performance.  Base salaries are generally established at levels sufficient to attract and retain an effective management team when considered in connection with the performance-based components of our overall compensation program.  In 2013, there were no changes in the base salary of the named executive officers.

Short-Term Incentive Compensation

Regarding the short-term incentive compensation, senior managers, including the named executive officers and key employees, participate in incentive bonus plans based on the performance of the Company.  The incentive bonus plans are structured to encourage and reward the Company’s year-over-year growth on an annual basis.

For 2013, the Compensation Committee established two bonus pools.  First, a bonus pool of $4.325 million, payable quarterly, awards division business line management and general and administrative senior managers and their respective employees based on achievement of quarterly targets.  During 2013, Mr. Malloy participated in the quarterly bonus pool and received, in the aggregate, $135,000 in bonuses.  Second, the management incentive plan pool of $2.625 million, payable annually, awards executive management based on the achievement of a calculated earnings before interest, taxes, depreciation and amortization (“EBITDA”) target.  In 2013, Messrs. Wood, Williams, and Wright and Ms. Nakazawa participated in the management incentive plan.

The Compensation Committee determined that EBITDA should be the financial indicator of the Company’s performance and would be the performance metric for the 2013 management incentive bonus plan pool.  EBITDA is used as an indicator of operational cash flow after eliminating items of expense such as interest, taxes, depreciation, and amortization.  The Compensation Committee believes that the EBITDA metric is one of the most widely used and valued measurements of performance used by financial professionals in the marketplace today.  The Compensation Committee approved a 2013 EBITDA target of $27 million, which represented a slight decrease from the 2012 target of $28 million.

 For purposes of the management incentive plan, the Company achieved $10.2 million of EBITDA in 2013, which was approximately 38% of the target.  Although the Company did not achieve the requisite 60% of EBITDA to trigger a proportional payout, the Compensation Committee determined it was appropriate to exercise its discretion to fund the bonus pool at 38% of the target amount due to the efforts of the executive management team during a difficult business climate resulting from the effects of numerous congressional budget battles and sequestration.  The Compensation Committee awarded Mr. Wood a bonus of $400,000, which equals approximately 38% of the amount that Mr. Wood received in 2012, and delegated to Mr. Wood the discretion to distribute the remaining amount of the bonus pool to the other participants of the management incentive plan after taking into account the amounts of prior bonuses paid to those officers, a subjective evaluation of such officer’s individual performance in 2013, and the relative contribution of each of the executive officer to the Company’s performance in 2013.  Neither the Compensation Committee nor Mr. Wood relied on individual performance metrics when determining the amounts of these bonuses.  The Company paid the bonus amounts to each of the named executive officers as set forth in the following table under the management incentive plan:
 
Executive Officer
 
Bonus Paid
 
 
 
 
John B. Wood
 
$
400,000
 
Michele Nakazawa
   
175,000
 
Edward L. Williams
   
210,000
 
Jefferson V. Wright
   
140,000
 
 
Long-Term Incentive Compensation

The Board adopted the Telos Corporation 2013 Omnibus Long-Term Incentive Plan (“2013 Plan”) on March 28, 2013, and it was subsequently approved by the holders of our Class A and Class B Common Stock at the Annual Meeting on May 13, 2013.  The purpose of the 2013 Plan is to enhance the Company’s ability to attract, motivate and retain highly qualified employees and to improve the business results and earnings of the Company by providing such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company.  On March 28, 2013, the Compensation Committee approved grants of restricted stock to key performers in acknowledgement of their contribution to the Company’s growth and long-term performance, including to the Company’s named executive officers, as follows:  Mr. Wood: 1,200,000 shares; Mr. Wright: 1,000,000 shares; Ms. Nakazawa: 400,000 shares; Mr. Williams: 400,000 shares; and Mr. Malloy: 248,000 shares.  After deliberation by the Compensation Committee, the number of restricted shares issued to each recipient (other than Mr. Wright) was based on several criteria, including the annual base salary of each recipient, the number of restricted shares previously granted to and presently held by the recipients, a subjective evaluation of the past and continuing contributions of the recipients to the Company, and the anticipated importance of the recipient to a successful implementation of the strategies of the Company.  The grant amount to Mr. Wright aligns his long-term incentive compensation with the other named executive officers.  Also, the Compensation Committee determined that the amount was appropriate to attract someone of Mr. Wright’s caliber in terms of his professional, legal and management experience as well as his potential contribution to the future success of the of the Company, individually as well as a member of the senior management team.

17

Except with respect to certain events described below, the shares of restricted stock granted in March 2013 vest in four equal installments.  The first installment vests as of the grant date, with each subsequent installment vesting on the first, second, and third anniversaries of the grant date.

Perquisites

We provide certain perquisites to our executive officers in order to allow the executives to work more efficiently and to help us remain competitive by retaining talented and dedicated executives.  These perquisites are limited to a reimbursement for a golf club membership, home office expenses, certain costs for personal travel, and, in certain circumstances, commuting costs.  The Compensation Committee believes that the perquisites are consistent with our overall compensation program.  See “All Other Compensation” of the Summary Compensation Table below for the amounts of the perquisites provided to the named executive officers.

Executive Officer Employment Agreements

We are a party to employment agreements with the following named executive officers: Mr. John B. Wood, President, CEO, Chairman and Director; Mr. Edward J. Williams, Executive Vice President and COO; Ms. Michele Nakazawa, Executive Vice President and CFO; Mr. Jefferson V. Wright, Executive Vice President and General Counsel; and Mr. Brendan D. Malloy, Senior Vice President, General Manager, Cyber Operations & Defense.  On November 12, 2012, we entered into revised employment agreements, effective November 13, 2012, with Messrs. Wood, Williams, and Malloy and Ms. Nakazawa.  We entered into an employment agreement with Mr. Wright on January 1, 2013.  For all the agreements except for Mr. Wright’s agreement, the term ends on December 31, 2012 and thereafter automatically renews for consecutive one-year periods, beginning on January 1, 2013, unless terminated in accordance with the provisions thereof.  The term for Mr. Wright’s agreement ends on December 31, 2013 and thereafter automatically renews for consecutive one-year periods, beginning on January 1, 2014.  All of the agreements provide for payment of a base salary, bonus, eligibility for stock option and restricted stock grants under our stock option and restricted stock plans, and vacation days.  Each of the agreements also provides for eligibility to participate in all plans that we maintain for our salaried senior executives, including, without limitation, pension, profit-sharing or other retirement plans, life, accident, disability, medical, hospital or similar group insurance programs and any other benefit plan, subject to the normal terms and conditions of such plans.

According to the employment agreements, in the case of termination of the employment agreement for cause, or if the executive terminates the agreement for any reason (after providing 30 days prior written notice to us of such termination), such executive would only be entitled to receive the following:

· a lump-sum payment equivalent to the remaining unpaid portion of the executive’s salary for the period ending on the date of termination,
· lump-sum payment for all accrued and unused paid time off,
· any bonus which has been earned by the respective executive, but which remains unpaid as of the date of the executive’s termination of employment, at such time and in such manner as if the executive had continued to be employed by us, and
· any other payments or benefits to be provided by us to the executive pursuant to any employee benefit plans or arrangements adopted by the Company (to the extent such benefits are earned and vested or are required by law to be offered) through the date of termination.

In the case of termination of the respective executive’s employment without cause, or due to disability or death, the employment agreements provide for, in addition to the amounts payable under the preceding paragraph:

· a monthly payment equivalent to base salary then in effect over a period of 24 months in the case of Mr. Wood, and 18 months then in effect for Messrs. Williams, Malloy and Wright and Ms. Nakazawa,
18

· immediate vesting of the unvested portion of any outstanding stock options and any outstanding shares of restricted stock,
· the cash equivalent of premium payments for continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans equal to 24 months in the case of Mr. Wood, and 18 months in the case of Messrs. Williams, Malloy and Wright and Ms. Nakazawa,
· the cash equivalent of the employer matching contribution as if the executive was still a plan participant under the Company’s 401(k) plan that would otherwise have been contributed on the executive’s behalf, based on certain assumptions, for a period of 24 months in the case of Mr. Wood, and 18 months in the case of Messrs. Williams, Malloy and Wright and Ms. Nakazawa, and
· payment of premiums to continue the Executive Life Policy, in which the executive is the holder of the policy, for 24 months from the date of termination for Mr. Wood, and 18 months in the case of Messrs. Williams and Wright, and Ms. Nakazawa.

Under the agreements, termination by the Company “without cause” means involuntary termination at our discretion which is not based on cause, death, or disability. “Cause” is defined as gross negligence or willful and continued failure by the executive to substantially perform his duties as an employee of ours (other than any such failure resulting from incapacity due to physical or mental illness) or the executive’s dishonesty, fraudulent misrepresentation, willful misconduct, malfeasance, violation of fiduciary duty relating to our business, or conviction of a felony. The executive is deemed “disabled” if he or she is eligible for disability benefits under our long-term disability plan, or has a physical or mental disability which renders the executive incapable, after reasonable accommodation, of performing substantially all of executive’s duties under the agreement for a period of 180 consecutive or non-consecutive days in any 12-month period.

Upon a “change in control” (as defined in the employment agreements) of the Company, each of the executives would be entitled to a lump-sum payment in the following amounts in addition to the amounts payable to the executive if the Company terminates the agreement for cause or the executive terminates the agreement for any reason:

· in the case of Mr. Wood, (1) the amount of monthly salary that Mr. Wood was being paid as of the date of his termination of employment times 24 months, plus (2) two times the annual average of the bonuses earned or to be earned for the current year (i.e., the year in which the change of control occurs) and the two prior years;
· in the case of Mr. Williams, Mr. Wright and Ms. Nakazawa, (1)  the amount of monthly salary that such executive was being paid as of the date of his or her termination of employment times 18 months, plus (2) one and one-half (1.5) times the annual average of the bonuses earned or to be earned for the current year and the two prior years; and
· in the case of Mr. Malloy, the amount of monthly salary that such executive was being paid as of the date of his termination of employment times 18 months.

For purposes of calculating the amounts payable to Mr. Wood, Mr. Williams, Mr. Wright, and Ms. Nakazawa, the bonus amount for the current year is equal to the amount earned or scheduled to be earned as if the bonus targets set in the bonus plan have been met.  In addition to these payments, the executives would also be entitled to a lump sum payment equal to (1) the cash equivalent of 24 months, in the case of Mr. Wood, or 18 months, in the case of Messrs. Williams, Wright, and Malloy and Ms. Nakazawa, of continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans, (2) the cash equivalent of the employer matching contribution as if the executive was still a plan participant under the Company’s 401(k) plan that would otherwise have been contributed on the executive’s behalf, based on certain assumptions, for a period of 24 months, in the case of Mr. Wood, or 18 months, in the case of Messrs. Williams, Malloy and Wright and Ms. Nakazawa, and (3) payment of premiums to continue the Executive Life Policy, in which the executive is the holder of the policy, for 24 months from the date of termination for Mr. Wood, and 18 months in the case of Messrs Williams, Wright and Ms. Nakazawa.

For purposes of the employment agreements, a “change in control” means an occasion upon which (1) any one person, or more than one person acting as a group, (other than a member of the Board of Directors or fiduciary holding securities under an employee benefit plan of the Company or a corporation controlled by the Company) directly or indirectly acquires securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities during the 12-month period ending on the date of the most recent acquisition of the Company’s securities by such person or persons, or (2) during any period of twelve consecutive months, a majority of the members of the Board of Directors is replaced by directors whose appointment or election is not endorsed by a majority of the members of the Board of Directors before the date of the appointment or election, or (3) any one person or more than one person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) all, or substantially all, of the Company’s assets.  The foregoing lump-sum payments will be made contemporaneously with the consummation of the transaction or the election of directors that constitutes the change in control.

19

Other Employment Benefits.

We maintain employee benefit and perquisite programs for our executive officers and other employees.  We have no current plans to provide any other additional benefits for our executive officers. We believe that the benefits provided are competitive and consistent with industry practice.

Welfare Benefits. We have broad-based health, dental, vision, life and disability benefit programs that are available to all employees on an equal basis.

401(k) Savings Plan (“Telos Shared Savings Plan”). We sponsor a defined contribution employee savings plan which enables employees to contribute a certain percentage of their base salary to their savings plan accounts on a pre-tax basis, subject to federal tax limitations under the Internal Revenue Code. Presently, we match one half of employee contributions to the Telos Shared Savings Plan up to a maximum of 2% of such employee’s eligible yearly base salary. Participant contributions vest immediately, and Company contributions vest at the rate of 20% for each year, with full vesting occurring after completion of five years of service.

Senior Officer Incentive Program

On March 27, 2014, the Compensation Committee approved the Telos Corporation Senior Officer Incentive Program (the “Plan”).  The purpose of the Plan is to grant cash bonus awards to certain of our key senior officers, which includes our named executive officers, in order to provide eligible officers with an incentive to put forth maximum efforts for both the short-term and long-term success of the Company and to drive achievement of our long-term growth and profitability objectives.  The Compensation Committee determined that using EBITDA as the sole performance metric lead the Company to focus only on the short-term annual goals rather than long-term growth.  The Plan consists of elements for both short-term and long-term goals, as well as short-term and long-term incentives.  Although EBITDA will still be used to measure the Company’s performance, it will no longer be the sole factor in determining incentive compensation.  The Plan provides eligible participants the opportunity to earn an incentive award based upon achievement of management business objectives established by the Compensation Committee on an annual basis (the “MBO Bonus”), an incentive award based upon achievement of our three-year strategic growth plan (the “Strategic Growth Bonus”), or both an MBO Bonus and a Strategic Growth Bonus.  The Plan will be administered by the Compensation Committee, and determinations by the Compensation Committee are final, conclusive and binding on all parties.

A target MBO Bonus amount will be established each year by the Compensation Committee for each eligible participant, and the participant’s entitlement to payment of the target amount will be based upon achievement of the management business objectives established by the Compensation Committee based on our strategic growth plan as well as achievement of written individual management business objectives established by the Compensation Committee for each participant for each annual performance period. The first MBO Bonus performance period under the Plan will be the calendar year beginning January 1, 2014 and ending December 31, 2014.  A portion equal to 60% of the target amount will be paid to a participant on a quarterly basis during each annual performance period based upon an assessment by the Compensation Committee of the participant’s progress toward achieving the performance goals for that year.  The remaining 40% of each participant’s MBO Bonus target amount attributable to the quarter, as determined by the Compensation Committee, will be deferred and paid to the participant in equal installments (without interest) on the last day of each of the eight calendar quarters immediately following the end of the annual performance period.  The participant, however, will forfeit any unpaid deferred payments if the participant’s employment with us is terminated for any reason (other than death or disability) prior to the next scheduled quarterly payment date.

A target Strategic Growth Bonus amount will be established for each eligible participant at the beginning of each three-year performance period, and the participant’s entitlement to payment of the target amount will be based upon successful achievement of three-year strategic growth objectives, as determined by the Compensation Committee.  The first Strategic Bonus performance period under the Plan will be the period beginning January 1, 2014 and ending December 31, 2016.  If a participant’s employment with us terminates for any reason (other than death or disability) prior to the last day of the three-year performance period, the participant’s right to payment of a Strategic Growth Bonus for the performance period will be forfeited in its entirety.  All Strategic Growth Bonuses will be paid within two and one-half months following the end of the three-year performance period.

20

The Plan is in place of the annual management incentive bonus pool and the quarterly bonus pool for those senior officers designated to participate in the Plan, including the named executive officers.  The other bonus pools will continue to be in force for the other participants who are not eligible to participate in the Plan.

Management Development and Compensation Committee Report

The Management Development and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Submitted by the Management Development and Compensation Committee of the Board,

 
William M. Dvoranchik
 
David Borland
 
Bruce R. Harris

21

SUMMARY COMPENSATION TABLE

The following table summarizes the compensation earned for the years ended December 31, 2013, 2012 and 2011 by the chief executive officer, chief financial officer, and the three other most highly-compensated executive officers.

 
 
Name and Principal Position
Year
 
Salary
   
Bonus (1)
   
Restricted
Stock
Awards
   
All Other
Compensation
   
Total
 
 
 
 
 
   
   
(2)
   
(3)
   
 
 
John B. Wood
2013
 
$
600,000
   
$
400,000
   
$
12,000
   
$
37,654
   
$
1,049,654
 
Chairman, President and CEO
2012
   
588,333
     
1,052,000
     
----
     
29,653
     
1,669,986
 
 
2011
   
560,000
     
700,000
     
7,343
     
29,503
     
1,296,846
 
 
 
 
                                       
Michele Nakazawa
2013
   
373,958
     
175,000
     
4,000
     
12,021
     
564,979
 
Executive V.P. and CFO
2012
   
342,708
     
425,000
     
----
     
11,967
     
779,675
 
 
2011
   
325,000
     
275,000
     
2,148
     
11,867
     
614,014
 
 
 
                                       
Edward L. Williams
2013
   
385,000
     
210,000
     
4,000
     
34,416
     
633,416
 
Executive V.P. and COO
2012
   
377,708
     
527,000
     
----
     
30,483
     
935,191
 
 
2011
   
360,000
     
300,000
     
2,540
     
29,987
     
692,527
 
 
 
 
                                       
Jefferson V. Wright
2013
   
336,742
     
165,000
     
10,000
     
41,363
     
553,105
 
Executive V.P. and General Counsel
 
                                       
 
 
 
                                       
Brendan D. Malloy
2013
   
315,000
     
135,000
     
2,480
     
4,281
     
456,761
 
Senior V.P. – Cyber Ops & Defense
2012
   
299,375
     
108,500
     
----
     
5,284
     
413,159
 
 
2011
   
225,100
     
175,500
     
2,250
     
8,223
     
411,073
 

(1) Amounts reported in this category relate to payments pursuant to the short-term incentive compensation plan described on page 17 of the Proxy Statement.  Amount for Mr. Wright includes a signing bonus in the amount of $25,000 paid to Mr. Wright in January 2013.
(2) Represents the grant date fair value of the shares issued under the 2013 Plan in March 2013.  See assumptions made in the valuation of these awards for financial statement reporting purposes in accordance with ASC 718 in Note 1 – Summary of Significant Accounting Policies to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, starting on page 33.
(3) Amounts presented consist of the following in 2013:

Name
 
Life Insurance and Long-Term Disability Premiums
   
Savings Plan Company Match
   
Perquisites
(1)
   
Total All
Other Compensation
 
John B. Wood
 
$
10,683
   
$
5,100
   
$
21,871
   
$
37,654
 
 
                               
Michele Nakazawa
   
6,921
     
5,100
     
----
     
12,021
 
 
                               
Edward L. Williams
   
11,541
     
5,100
     
17,775
     
34,416
 
 
                               
Jefferson V. Wright
   
19,013
     
5,100
     
17,250
     
41,363
 
 
                               
Brendan D. Malloy
   
343
     
3,938
     
----
     
4,281
 

(1) Includes reimbursement for golf club membership, home office expenses, and certain costs for personal travel and commuting costs.
22

The following table shows information about the awards of restricted stock grants to our named executive officers under the 2013 Plan in March 2013.

GRANTS OF PLAN-BASED AWARDS

Name
 
All Other Stock Awards; Number of Shares of Stock or Units
   
Grant Date Fair Value of Stock Awards
 
 
 
   
 
John B. Wood
   
1,200,000
   
$
12,000
 
 
               
Michele Nakazawa
   
400,000
     
4,000
 
 
               
Edward L. Williams
   
400,000
     
4,000
 
 
               
Jefferson V. Wright
   
1,000,000
     
10,000
 
 
               
Brendan D. Malloy
   
248,000
     
2,480
 

These shares of restricted stock vest in four equal annual installments.  The first installment vested on the grant date, March 28, 2013, with each subsequent installment vesting on the first, second and third anniversaries of the grant date.

The following table sets forth certain information regarding outstanding equity awards as of December 31, 2013 for the Company’s named executive officers:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

STOCK AWARDS

Name
 
Number of Shares or Units of Stock That Have Not Vested
(#) (1)
   
Market Value of Shares or Units of Stock That Have Not Vested
($)(1)
 
 
 
   
 
John B. Wood
   
1,083,564
   
$
10,836
 
 
               
Michele Nakazawa
   
353,688
     
3,537
 
 
               
Edward L. Williams
   
363,506
     
3,635
 
 
               
Jefferson V. Wright
   
750,000
     
7,500
 
 
               
Brendan D. Malloy
   
242,250
     
2,423
 

(1)  Represents shares of restricted stock granted on February 11, 2011 under the 2008 Plan and the restricted stock granted on March 28, 2013 under the 2013 Plan. The shares vest in four equal installments. The first installment vested on the grant date, with each subsequent installment vesting on the first, second, and third anniversaries of the grant date. No public market exists for our Class A Common Stock. The value of our Class A Common Stock presented in the table was determined by the Compensation Committee in March 2013 based on available information that is material to the value of our Class A Common Stock, including a third party valuation report, the lack of a public market in our Class A Common Stock, the principal amount of our indebtedness, our obligations to the holders of our preferred stock, our actual and projected financial results, and fluctuations in the market value of comparable publicly traded companies in our industry.

23

The following table sets forth certain information regarding the vesting of shares of restricted stock held by named executive officers during fiscal year 2013:

STOCK VESTED

Name
 
Number of Shares Acquired on Vesting
(#)
   
Value Realized on Vesting
($)(1)
 
 
 
   
 
John B. Wood
   
483,564
   
$
4,836
 
 
               
Michele Nakazawa
   
153,688
     
1,537
 
 
               
Edward L. Williams
   
163,506
     
1,635
 
 
               
Jefferson V. Wright
   
250,000
     
2,500
 
 
               
Brendan D. Malloy
   
118,250
     
1,183
 

(1)  No public market exists for our Class A Common Stock.  The value of our Class A Common Stock presented in the table was determined by the Compensation Committee in March 2013 based on available information that is material to the value of our Class A Common Stock, including a third party valuation report, the lack of a public market in our Class A Common Stock, the principal amount of our indebtedness, our obligations to the holders of our preferred stock, our actual and projected financial results, and fluctuations in the market value of comparable publicly traded companies in our industry.
24

Potential Payments Upon Termination

As disclosed above, the Company has entered into employment agreements with certain executive officers which provide for potential payments upon termination. The table below summarizes the potential payouts to Messrs. Wood, Williams, Wright, Malloy and Ms. Nakazawa, for the termination events described above assuming such termination occurred on December 31, 2013, the last business day of the Company’s last completed fiscal year.

John B. Wood
 
Salary Continuation for 24 Months
   
Bonuses to be Earned
   
Accrued and Unused Vacation as of December 31, 2013
   
Benefits for 24 Months (1)
   
Cash Equivalent of Company Match to 401(k) for 24 Months
   
Total
   
Number of Shares of Restricted Stock
That Would Vest
 
Termination without cause/disability/death
 
$
1,200,000
   
$
----
   
$
69,231
   
$
60,101
   
$
10,200
   
$
1,339,532
     
1,083,564
 
Termination upon change in control
   
1,200,000
     
1,434,667
     
69,231
     
60,101
     
10,200
     
2,774,209
     
1,083,564
 
Termination for cause
   
----
     
----
     
69,231
     
-----
     
----
     
69,231
     
----
 
Voluntary termination
   
----
     
----
     
69,231
     
-----
     
----
     
69,231
     
----
 


Michele Nakazawa
 
Salary Continuation for 18 Months
   
Bonuses to be Earned
   
Accrued and Unused Vacation as of December 31, 2013
   
Benefits for 18 Months (1)
   
Cash Equivalent of
Company Match to 401(k) for 18 Months
   
Total
   
Number of Shares of Restricted Stock
That Would Vest
 
Termination without cause/disability/death
 
$
562,500
   
$
----
   
$
36,058
   
$
33,565
   
$
7,650
   
$
639,773
     
353,688
 
Termination upon change in control
   
562,500
     
437,500
     
36,058
     
33,565
     
7,650
     
1,077,273
     
353,688
 
Termination for cause
   
----
     
----
     
36,058
     
-----
     
----
     
36,058
     
----
 
Voluntary termination
   
----
     
----
     
36,058
     
-----
     
----
     
36,058
     
----
 


Edward L. Williams
 
Salary Continuation for 18 Months
   
Bonuses to be Earned
   
Accrued and Unused Vacation as of December 31, 2013
   
Benefits for 18 Months (1)
   
Cash Equivalent of Company Match to 401(k) for 18 Months
   
Total
   
Number of Shares of Restricted Stock
That Would Vest
 
Termination without cause/disability/death
 
$
577,500
   
$
----
   
$
37,019
   
$
44,740
   
$
7,650
   
$
666,909
     
363,506
 
Termination upon change in control
   
577,500
     
518,500
     
37,019
     
44,740
     
7,650
     
1,185,409
     
363,506
 
Termination for cause
   
----
     
----
     
37,019
     
-----
     
----
     
37,019
     
----
 
Voluntary termination
   
----
     
----
     
37,019
     
-----
     
----
     
37,019
     
----
 

25

Jefferson V. Wright
 
Salary Continuation for 18 Months
   
Bonuses to be Earned
   
Accrued and Unused Vacation as of December 31, 2013
   
Benefits for 18 Months (1)
   
Cash Equivalent of Company Match to 401(k) for 18 Months
   
Total
   
Number of Shares of Restricted Stock
That Would Vest
 
Termination without cause/disability/death
 
$
525,000
   
$
----
   
$
27,849
   
$
58,132
   
$
7,650
   
$
618,631
     
750,000
 
Termination upon change in control
   
525,000
     
247,500
     
27,849
     
58,132
     
7,650
     
866,131
     
750,000
 
Termination for cause
   
----
     
----
     
27,849
     
-----
     
----
     
27,849
     
----
 
Voluntary termination
   
----
     
----
     
27,849
     
-----
     
----
     
27,849
     
----
 

Brendan D. Malloy
 
Salary Continuation for 18 Months
   
Accrued and Unused Vacation as of December 31, 2013
   
Benefits for 18 Months (2)
   
Cash Equivalent of Company Match to 401(k) for 18 Months
   
Total
   
Number of Shares of Restricted Stock
That would Vest
 
Termination without cause/disability/death
 
$
472,500
   
$
24,231
   
$
27,819
   
$
7,500
   
$
532,050
     
242,250
 
Termination for cause
   
----
     
24,231
     
----
     
----
     
24,231
     
----
 
Voluntary termination
   
----
     
24,231
     
----
     
----
     
24,231
     
----
 

(1) Cash equivalent of premium payments for continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans; payment of premiums for continuation of Executive Life Policy, in which the executive is the holder of the policy.
(2) Cash equivalent of premium payments for continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans.

Non-Competition, Confidentiality, and Non-Solicitation Provisions

Pursuant to their respective employment agreements, Mr. Williams, Ms. Nakazawa, Mr. Malloy and Mr. Wright are subject to non-competition, confidentiality, and non-solicitation provisions which are applicable to each executive during their respective employment terms and for a period of 18 months subsequent to the date of any termination.  Similarly, Mr. Wood is subject to non-competition, confidentiality, and non-solicitation provisions during his employment term and for a period of 24 months subsequent to the date of any termination.

Compensation of Directors

Effective January 1, 2010, the Board of Directors adopted a structure for the annual compensation of the Board members which provides for the following annual compensation: $20,000 basic annual retainer plus the following annual fees for committee chairmen and members: $35,000 for the Audit Committee chairman; $25,000 for the Management Development and Compensation Committee chairman; $20,000 for the respective chairman of the Strategy Committee  and the Government Security Committee; $15,000 for the Nominating and Corporate Governance Committee chairman; $20,000 for the members of the Audit Committee; $15,000 for the respective members of the Strategy Committee and the Government Security Committee; and $10,000 for the respective members of the Management Development and Compensation Committee, the Nominating and Corporate Governance Committee, and the Proxy Board.  In February 2011, at the recommendation of the Compensation Committee, the Company made a one-time grant of 20,000 shares of restricted stock to each of the following directors: Messrs. Bailey, Borland, Dvoranchik, Harris, Mahan, and Tuttle.  The shares of restricted stock granted in February 2011 vest in four equal installments. The first installment vested on February 11, 2011, the grant date; the subsequent installments vest on the first, second and third anniversary date of the grant.

26

General Maluda, through his entity, JK Maluda LLC, and the Company entered into a consulting agreement under which General Maluda provides certain consulting services to the Company.  Under the agreement, General Maluda received $10,000 per month in compensation, for a total of $120,000 per year through December 31, 2012. As of January 1, 2013, the compensation under the agreement was increased to $17,000 per month, for a total of $204,000 per year.  The agreement, as originally structured, contemplated that General Maluda would be used on a part-time basis to travel and facilitate meetings for the Company.  However, the Company has come to rely on General Maluda more extensively than expected and therefore was utilizing his services on a full-time basis.  His extensive business relationships were deemed to be valuable to the continued growth and success of the Company.  Therefore, his compensation was increased in recognition of his continuing valued services.

The following table summarizes the director compensation paid during the year ended December 31, 2013, other than Mr. John Wood whose compensation is described in this document:
 
DIRECTOR COMPENSATION FOR 2013

Name
 
Fees Paid
   
All Other Compensation
   
Total
 
Bernard Bailey
 
$
75,000
   
$
5,000
1 
 
$
80,000
 
David Borland
   
60,000
     
----
     
60,000
 
William Dvoranchik
   
80,000
     
5,000
1 
   
85,000
 
Seth W. Hamot
   
----
     
----
     
----
 
Bruce Harris
   
55,000
     
----
     
55,000
 
Charles Mahan
   
72,500
     
----
     
72,500
 
John W. Maluda
   
37,500
     
204,000
2 
   
241,500
 
Robert J. Marino
   
33,750
     
38,919
3 
   
72,669
 
Andrew R. Siegel
   
----
     
----
     
----
 
Jerry Tuttle
   
60,000
     
----
     
60,000
 
 
 
$
473,750
   
$
252,919
   
$
726,669
 

1 Amount paid for representation on the board of Telos ID.
2 Amount paid pursuant to a consulting agreement with the Company for 2013.
3Amount represents salary paid to Mr. Marino, former Executive Vice President, Special Projects, whose employment terminated on February 28, 2013; Telos Shared Savings Plan Company match: $725, and long-term disability premiums: $36.
27

Security Ownership of Certain Beneficial Owners and Management

 
 
Title of Class
 
Name and Address of
Beneficial Owner
 
Amount and Nature of
Beneficial Ownership as of April 7, 2014
 
 
Percent of
Class
Class A Common Stock
 
Toxford Corporation
Place de Saint Gervais 1
1211 Geneva
Switzerland
 
15,801,802 shares (A)
 
 
 
 
39.3%
Class A Common Stock
Telos Corporation Shared
Savings Plan
19886 Ashburn Road
Ashburn, VA  20147
 
3,658,536 shares
 
9.1%
Class A Common Stock
John B. Wood
 
5,746,093 shares (B)
 
14.3%
Class A Common Stock
Edward L. Williams
 
1,836,233 shares (B)
 
4.6%
Class A Common Stock
Michele Nakazawa
 
1,321,944 shares (B)
 
3.3%
Class A Common Stock
Brendan D. Malloy
 
982,432 shares (B)
 
2.4%
Class A Common Stock
Jefferson V. Wright
 
1,004,035 shares (B)
 
2.5%
Class A Common Stock
Robert J. Marino
 
591,400 shares (B)
 
1.5%
Class A Common Stock
Bernard C. Bailey
 
100,000 shares
 
0.2%
Class A Common Stock
David Borland
 
  120,000 shares (C)
 
0.3%
Class A Common Stock
William M. Dvoranchik
 
100,000 shares
 
0.2%
Class A Common Stock
Seth W. Hamot
 
----
 
----
Class A Common Stock
Bruce R. Harris
 
100,000 shares
 
0.2%
Class A Common Stock
Charles S. Mahan, Jr.
 
100,000 shares
 
0.2%
Class A Common Stock
John W. Maluda
 
80,000 shares
 
0.2%
Class A Common Stock
Andrew R. Siegel
 
----
 
----
Class A Common Stock
Jerry O. Tuttle
 
100,000 shares
 
0.2%
Class A Common Stock
All officers and directors
as a group (20 persons)
 
14,857,214 shares (D)
 
36.9%
Class B Common Stock
Graphite Enterprise Trust PLC
Berkley Square House, 4th Floor
London W1J 6BQ England
 
1,681,960 shares
 
41.7%
Class B Common Stock
Graphite Enterprise Trust LP
Berkley Square House, 4th Floor
London W1J 6BQ England
 
   420,490 shares
 
10.4%
Class B Common Stock
North Atlantic Smaller Companies Investment Trust PLC
c/o North Atlantic Value LLP
Ground Floor, Ryder Court
14 Ryder Street
London SW1Y 6QB England
 
1,186,720 shares
 
29.4%
28

Title of Class
Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Ownership as of April 7, 2014
 
Percent of
Class
Class B Common Stock
John B. Wood
 
194,888 shares
 
4.8%
Class B Common Stock
Michele Nakazawa
 
125,000 shares
 
3.1%
Class B Common Stock
Brendan D. Malloy
 
100,000 shares
 
2.5%
Class B Common Stock
Edward L. Williams
 
100,000 shares
 
2.5%
Class B Common Stock
All officers and directors
as a group (19 persons)
 
569,888 shares
 
14.1%
Series A-1 Redeemable Preferred Stock
North Atlantic Smaller Companies Investment Trust PLC
c/o North Atlantic Value LLP, Ground Floor, Ryder Court
14 Ryder Street
London SW1Y 6QB England
 
11 shares
 
5.8%
Series A-1 Redeemable Preferred Stock
Graphite Enterprise Trust PLC
Berkley Square House, 4th Floor
London W1J 6BQ England
 
18 shares
 
9.2%
Series A-1 Redeemable Preferred Stock
Toxford Corporation
Place de Saint Gervais 1
1211 Geneva
Switzerland
 
163 shares (E)
 
82.7%
Series A-2 Redeemable Preferred Stock
North Atlantic Smaller Companies Investment Trust PLC
c/o North Atlantic Value LLP
Ground Floor, Ryder Court
14 Ryder Street
London SW1Y 6QB England
 
16 shares
 
5.8%
Series A-2 Redeemable Preferred Stock
Graphite Enterprise Trust PLC
Berkley Square House, 4th Floor
London W1J 6BQ England
 
25 shares
 
9.2%
Series A-2 Redeemable Preferred Stock
Toxford Corporation
Place de Saint Gervais 1
1211 Geneva, Switzerland
 
228 shares (F)
 
82.7%
12% Cumulative
Exchangeable Redeemable
Preferred Stock
Value Partners, Ltd.
Ewing & Partners
Ewing Asset Management, LLC
Timothy G. Ewing
4514 Cole Avenue, Suite 740
Dallas, TX  75205
 
   281,798 shares (G)
 
8.8%
12% Cumulative
Exchangeable Redeemable
Preferred Stock
Wynnefield Partners Small Cap Value, L.P.
Wynnefield Partners Small Cap Value, L.P. I
Channel Partnership II, L.P.
Wynnefield Small Cap Value Offshore Fund, Ltd.
Wynnefield Capital Management, LLC
Wynnefield Capital, Inc.
Nelson Obus
Joshua Landes
450 Seventh Avenue, Suite 509
New York, NY  10123
 
400,272 shares (H)
 
12.6%
29

Title of Class
Name and Address of
Beneficial Owner
Amount and Nature of
Beneficial Ownership as of April 7, 2014
Percent of
Class
12% Cumulative
Exchangeable Redeemable
Preferred Stock
Minerva Advisors, LLC
David P. Cohen
50 Monument Road, Suite 201
Bala Cynwyd, PA 19004
 
217,722 shares (I)
 
6.8%
12% Cumulative
Exchangeable Redeemable
Preferred Stock
Victor Morgenstern
Faye Morgenstern
Judd Morgenstern
Morningstar Trust  - Faye Morgenstern Trustee
106 Vine Avenue
Highland Park, IL  60035
 
182,000 shares (J)
 
5.7%
12% Cumulative
Exchangeable Redeemable
Preferred Stock
Costa Brava Partnership III, LP
Roark, Rearden & Hamot, LLC
Seth W. Hamot
222 Berkeley Street, 17th Floor
Boston, MA  02116
 
405,172 shares (K)
 
12.7%
12% Cumulative
Exchangeable Redeemable
Preferred Stock
NSB Advisors LLC
200 Westage Center Drive, Suite 228
Fishkill, NY 12524
 
366,974 shares (L)
 
11.5%
 
(A) Includes 15,328,480 shares held directly by Toxford Corporation and 473,322 shares held directly by Mr. John R.C. Porter, Chalet Ty Fano, 2 Chemin d’Amon, 1936 Verbier, Switzerland. Mr. Porter is the sole stockholder of Toxford Corporation.
(B) Includes 40,981, 9,432, 29,348, 36,233, 4,035, and 6,944 shares of the Class A Common Stock held for the benefit of Messrs. Wood, Malloy, Marino, Williams, and Wright and Ms. Nakazawa, respectively, by the Telos Corporation Shared Savings Plan. Also includes 600,000, 124,000, 200,000, and 500,000 and 200,000 non-vested, restricted shares of the Class A Common Stock held by Messrs. Wood, Malloy, Williams, and Wright and Ms. Nakazawa, respectively, under the 2013 Omnibus Long-Term Incentive Plan.
(C) Mr. Borland holds options to acquire 20,000 shares of the Class A Common Stock.
(D) Includes 212,550 shares of the Class A Common Stock held for the benefit of the executive officers by the Telos Corporation Shared Savings Plan, and 2,070,000 non-vested, restricted shares of Class A Common Stock issued under the 2013 Omnibus Long-Term Incentive Plan.
(E) Includes 151 shares held directly by Toxford Corporation and 12 shares held directly by Mr. John R.C. Porter, Chalet Ty Fano, 2 Chemin d’Amon, 1936 Verbier, Switzerland.
(F) Includes 211 shares held directly by Toxford Corporation and 17 shares held directly by Mr. John R.C. Porter, Chalet Ty Fano, 2 Chemin d’Amon, 1936 Verbier, Switzerland.
(G) According to the Schedule 13D/A (Amendment No. 14) filed on February 24, 2012, by Value Partners Ltd. (“VP”), Ewing & Partners (“E&P”), Ewing Asset Management LLC (“EAM”), and Timothy G. Ewing. E&P, as the general partner of VP, may direct the vote and disposition of the shares of Public Preferred Stock held by VP. Mr. Ewing and EAM, as the partners of E&P, may be deemed to have the power to direct the vote and disposition of the shares of Public Preferred Stock held by VP.
(H) Wynnefield Partners Small Cap Value, L.P., (“WPSCV”), Wynnefield Partners Small Cap Value L.P. I (“WPSCVI”), Channel Partnership II, L.P. (“CP”), Wynnefield Small Cap Value Offshore Fund, Ltd. (“WSCVOF”), Wynnefield Capital Management, LLC (“WCM”), Wynnefield Capital, Inc. (“WCI”), Mr. Nelson Obus and Mr. Joshua H. Landes filed a joint Schedule 13D/A (Amendment No. 13) on November 27, 2013 indicating that WCM is the general partner of WPSCV and WPSCVI and has the sole power to direct the voting and disposition of the shares beneficially owned by WPSCV and WPSCVI. Messrs. Obus and Landes are the co-managing members of WCM, and each shares with the other the power to direct the voting and disposition of the shares that WCM may be deemed to beneficially own. WCI is the sole investment manager of WSCVOF and has the sole power to direct the voting and disposition of the shares that WSCVOF beneficially owns. Messrs. Obus and Landes are executive officers of WCI and each shares with the other the power to direct the voting and disposition of the shares that WCI may be deemed to beneficially own. WPSCV has the sole power to vote or direct the vote and the sole power to dispose or direct the disposition of 120,450 shares. WSCVOF has the sole voting and dispositive power with respect to 91,566 shares. WPSCVI has the sole voting and dispositive power with respect to 188,256 shares. Messrs. Obus and Landes each has shared voting and dispositive power with respect to 400,272 shares. WCM has the sole voting and dispositive power with respect to 308,706 shares. WCI has the sole voting and dispositive power with respect to 91,566 shares.
30

(I) Minerva Advisors, LLC (“MA”), Minerva Group, LP (“MG”), Minerva GP, LP (“MGP”), Minerva GP, Inc. (“MI”), and Mr. David Cohen filed a joint Schedule 13G/A on February 7, 2014, indicating that MA and Mr. Cohen each has shared voting and dispositive power with respect to 127,246 shares; MA, MG, MGP, MI each has the sole voting and dispositive power with respect to 83,043 shares, and Mr. Cohen has sole voting and dispositive power with respect to 90,476 shares.
(J) Victor Morgenstern (“VM”), Faye Morgenstern (“FM”), Judd Morgenstern (“JM”), Jennifer Morgenstern Irrevocable Trust (“Jennifer Trust”), Robyn Morgenstern Irrevocable Trust (“Robyn Trust”), and Judd Morgenstern Irrevocable Trust (“Judd Trust”), filed a joint Schedule 13D/A (Amendment No. 1) on March 10, 2009, indicating that VM has the sole power to vote and dispose of 50,000 shares, and shared power to dispose of 132,000 shares; FM has the sole power to vote 17,000 shares and shared power to dispose 92,000 shares; JM has the sole power to vote 40,000 shares and shared power to dispose 115,000 shares; Jennifer Trust has the sole voting and dispositive power with respect to 25,000 shares; Robyn Trust has the sole voting and dispositive power with respect to 25,000 shares; and Judd Trust has the sole voting and dispositive power with respect to 25,000 shares.
(K) According to the Schedule 13D/A (Amendment No. 28) filed on September 19, 2012, by Costa Brava Partnership III L.P. (“Costa Brava”), Roark, Rearden & Hamot, LLC (“Roark”), and Seth W. Hamot, the three filers have sole voting and dispositive power with respect to the 405,172 shares.  Mr. Hamot is the President of Roark, which is the general partner of Costa Brava.
(L) According to the Schedule 13G/A filed on February 13, 2013, by NSB Advisors LLC, the filer has sole dispositive power with respect to the 366,974 shares.

31

Ratification of Independent Registered Public Accounting Firm

The Audit Committee selected BDO USA, LLP (“BDO”) to serve as the Company’s independent registered public accounting firm for the 2014 fiscal year.  The Company does not expect representatives of BDO to attend the Annual Meeting and, as a result, BDO will not have an opportunity to make a statement or respond to questions.

Principal Accountant Fees and Services

Aggregate fees for professional services billed to us by BDO USA, LLP for the years ended December 31, 2013 and 2012 are summarized as follows:

 
 
2013
   
2012
 
BDO USA, LLP:
 
   
 
Audit fees
 
$
517,000
   
$
515,000
 
Audit-related fees
   
----
     
----
 
Tax fees (1)
 
55,000
   
71,000
 
All other fees
   
----
     
----
 
Total
 
$
572,000
   
$
586,000
 

(1)  Represent fees related to the review of federal and state income tax returns and other tax-related services

Pre-Approval Policies and Procedures

The Audit Committee pre-approves all services, including audit and non-audit services, provided by the Company’s independent registered public accounting firm.  These services may include audit services, audit-related services, tax services and other services. The independent registered public accounting firm typically provides an engagement letter to the Audit Committee outlining the scope of the services and related fees. Approval by the Audit Committee may be made at its regularly scheduled meetings or otherwise, including by telephonic or other electronic communications.

The Board of Directors of Telos recommends that the selection of BDO USA, LLP as the Company’s independent registered public accounting firm for the 2014 fiscal year be ratified by the holders of the Common Stock.

Advisory Vote on Executive Compensation

In accordance with the results of the vote from the 2011 Annual Meeting of Stockholders, the Company is providing the holders of the Common Stock a vote to approve, on an advisory (non-binding) basis, the compensation of the Company’s named executive officers as disclosed in the Compensation Discussion and Analysis, the Compensation Table, and related narrative disclosure, beginning on page 16 as required under the rules and regulations of the SEC.

The Board of Directors is asking the holders of the Company’s Common Stock to indicate their support for the compensation of the Company’s named executive officers as described.  This proposal, commonly known as say-on-pay proposal, gives the holders of the Common Stock the opportunity to express their reviews on the compensation of the Company’s named executive officers.  This vote is not intended to address any specific term of compensation but rather the overall compensation of the Company’s named executive officers and the related philosophy, policies and practices as described.  Accordingly, the Board of Directors is asking the holders of the Common Stock to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the holders of the Company’s Class A and Class B Common Stock approve, on an advisory basis, the compensation of the named executive officers as disclosed in the company’s Annual Proxy Statement, pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Summary Compensation Table, and the other related tables and disclosures.”

The say-on-pay is advisory, and therefore not binding on the Company, the Board of Directors, or the Compensation Committee.  Our Board of Directors and our Compensation Committee value the opinions of the Company’s stockholders, will consider the results of the vote on this advisory resolution, and will evaluate whether any actions are warranted to address those results.

32

The Board of Directors of Telos recommends the approval of the resolution set forth above approving the compensation of the Company’s named executive officers.

Equity Compensation Plan Information

The following table provides information as of December 31, 2013, with respect to shares of Common Stock that may be issued under certain equity compensation plans.

 
 
 
Plan Category
 
Number of securities to be issued upon exercise of outstanding option, warrants and rights
   
Weighted-average exercise price of outstanding options, warrants and rights
   
Number of securities remaining available for future issuance under plans (excluding securities listed in the first column)
 
Equity compensation plans approved by security holders:
 
   
   
 
1, 1996 Stock Option Plan
   
20,000
   
$
0.62
   
None
 
2. 2008 Plan
 
None
     
N/A
   
264,741
 
3. 2013 Plan
   
N/A
   
N/A
   
1,188,000
 
Equity compensation Plans not approved by security holders
 
None
     
N/A
 
None
 
 
Frequency of the Vote on Executive Compensation

At the Company’s annual meeting of stockholders held on November 14, 2011, the frequency of three years of the vote on executive compensation received the highest number of votes cast by the holders of the Company’s Class A and Class B Common Stock present in person or represented by proxy at the annual meeting. In light of such vote, the Company decided to conduct a say-on-pay vote in its proxy materials for future annual meetings every three years. The next vote to determine the frequency of the advisory vote on executive compensation will be scheduled in 2017.

Stockholder Proposals for the 2015 Annual Meeting

Stockholders who wish to have proposals for the Company’s 2015 annual meeting of stockholders included in the proxy materials for such meeting must submit these proposals to the Company on or prior to December 23, 2014.  All other proposals must be submitted in accordance with the process set forth in the Company’s Bylaws, which provide that, in order for business to be properly brought before an annual meeting by a stockholder, the stockholder must deliver written notice to the Company’s secretary at the Company’s principal executive offices not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made.

Other Matters

Neither the Board of Directors nor management intends to bring any matter for action at the Annual Meeting other than those matters described above.  If any other matter or any proposal should be presented and should properly come before the meeting for action, the persons named in the accompanying proxy will vote upon such matter and upon such proposal in accordance with their best judgment.
 
 
33