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. TheIn 2016, the Compensation Committee is comprisedconsisted of directors Borland, DvoranchikHarris, and Marino (chairman), and Harris.. On March 29, 2016, Mr. Marino became the chairman of the Compensation Committee. The Compensation Committee met fivethree times during the year 2014.2016. The Board of Directors has adopted a Compensation Committee charter, which is available on the Company's website at www.telos.comwww.telos.com..
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 consistedconsists of directors Borland (chairman), Mahan, Marino, Tuttle, and Wood in 2014.Wood. In 2014,2016, the Nominating Committee did not meet in person and acted once by unanimous written consent without a meeting. The Board of Directors has adopted a Nominating Committee charter which is available on the Company's website at www.telos.com.
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)hth) 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.
1211
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.
Mr. Emmett Wood, the brother of our Chairman and CEO, has been an employee of the Company since 1996. The Compensation Committee approved a $25,000 base salary increase for Mr. Wood, effective October 1, 2014. This change was based on an evaluation1996 and currently holds the position of performance and the relative compensation levels of the executive team.Executive Vice President, Marketing & Strategy. The amounts paid to Mr. Emmett Wood as compensation for 2016, 2015, and 2014, 2013,were $559,882, $305,346, and 2012, were $449,471, $344,335, and $391,196,$445,550, respectively. The Company and Mr. Emmett 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.2013. 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 20.19. 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, 2014.2016.
On March 31, 2015, the Company entered into Subordinated Loan Agreements and Subordinated Promissory Notes ("Notes") with affiliates of Mr. John R. C. Porter (referred to collectively as "Porter""Mr. Porter"). Mr. Porter and Toxford Corporation, of which Mr. Porter is the sole shareholder, own 39.3% of our Class A Common Stock. Under the terms of the Notes, Mr. Porter loaned the Company $5,000,000, with the first tranche of $2,500,000 lent on or about March 31, and the second $2,500,000 to be received no later than May 15, 2015. Telos also entered into a Subordination and Intercreditor Agreement with Mr. Porter and Wells Fargo Capital Finance, LLC ("Wells Fargo"), in which the Notes are fully subordinated to the Wells Fargoour senior credit facility and payments under the Notes are permitted only if certain conditions specified by Wells Fargo are met.lender at that time. According to the terms of the Notes, the outstanding principal sum would bear interest at the fixed rate of twelve percent (12%) per annum which would be payable in arrears in cash on the 20th day of each May, August, November and February, with the first interest payment date on August 20, 2015. The Notes do not call for amortization payments and are unsecured. The unpaid principal, together with interest, is due and payable in full on July 1, 2017. The Notes, in whole or in part, may be repaid at any time without premium or penalty.
In May 2013, The outstanding principal sum under the Notes, as of December 31, 2016, was $2,500,000, and the Company formally engaged Avison Young, a full-service commercial real estate company, to assistaccrued approximately $529,000 of interest on the Company with its various options related to its current facility in Ashburn, Virginia. Mr. Kevin Malloy is a PrincipalPorter Notes as of Avison Young and is the main relationship partner for the Company. Mr. Malloy is the brother of Mr. Brendan Malloy, an 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. Avison Young received a commission in the approximate amount of $568,000 in 2013 in connection with our entry into the revised lease of our headquarters. In 2014, Avison Young was paid a brokers commission of $535,440 upon the completion of the transaction related to the purchase of our headquarters pursuant to the option to purchase contained in the lease.December 31, 2016.
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 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"). A second holder of the Company's Public Preferred Stock, Wynnefield Small Cap Value, L.P. ("Wynnefield"), 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.stock and Senior Redeemable Preferred 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 allegedly 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 Circuit Court dismissed all derivative claims based upon the recommendation of the Special Litigation Committee on January 7, 2008.
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 of Maryland 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 Circuit 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 CompanyDefendants 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 CompanyDefendants filed itstheir Reply on January 23, 2014. A hearing on the Motion to Dismiss was held on April 24, 2014 following whichin the Circuit Court received additional briefing from the parties.Court. No decision has been rendered on the Company's motionMotion to dismissDismiss or otherwise dispose of the derivative claims, and the matter remains pending.
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. Mr. Porter ultimately filed a motion to dismiss the claim against him on May 13, 2014, raising multiple grounds. No decision has been rendered on Mr. Porter's motion to dismiss, and the matter remains pending.
As of December 31, 2014,2016, Costa Brava and Wynnefield each ownsown 12.7% and 17.3%, respectively, of the outstanding Public Preferred Stock.
No material developments occurred in this litigation in 2016.
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 Partnership III L.P. ("Costa Brava") and Class D Directors of the Company ("Class D Directors"), have been involved in litigation against the Company in the Circuit Court for theBaltimore City, of Baltimore, Maryland (the "Court""Circuit 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. The Class D Directors did not seek damages in connection with their books and records claims.
By way of preliminary injunctions entered on August 28, 2007 and September 24, 2007, the Circuit 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 designateddesignate certain documents as "confidential" or "highly confidential" and to withhold certain documents from the Class D Directors based upon the attorney 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.
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 Circuit 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/A10-K for the preceding year. This preliminary injunction expired by its own terms and an appeal from that orderedorder 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 Circuit 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 Circuit Court denied Plaintiffs' motion for reconsideration of the same.
Trial on both the Class D Directors' books and records claims and the Company's counterclaims for damages related to the auditor interference 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 matterthese matters is still pending.pending and no material developments occurred in this litigation in 2016.
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.relief, although the Company notes that Class D Directors did not seek damages as a part of their books and records claim. 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.
Other Litigation
In addition, the Company is a party to litigation arising in the ordinary course of business. In the opinion of management, while the results of such litigation cannot be predicted with any reasonable degree of certainty, the final outcome of such known matters will not, based upon all available information, have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
1514
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, 2014,2016, 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/A.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. 161301 (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/A10-K for the fiscal year ended December 31, 20142016 for filing with the Securities and Exchange Commission.
Bernard C. Bailey, Chairman |
William M. Dvoranchik |
Charles S. Mahan, Jr. |
Robert J. Marino |
Compensation of Executive Officers and Directors
Compensation Discussion and Analysis
Compensation Philosophy and Objectives
The Management Development and Compensation Committee ("Compensation Committee"), which is responsible for the execution and adherence to our compensation philosophy, implemented a new compensation programphilosophy in 2014.2014 that generally remained in effect during 2016. This compensation program is designed to support the achievement of our business and financial goals.
The primary objectives of the compensation program are:
· | To attract and retain highly talented and results-oriented key employees; |
· | To secure the future performance of services of those employees; |
· | To encourage key employees to put forth maximum efforts for both the short-term and long-term success of the Company; |
· | To drive achievement of the Company's long-term growth and profitability objectives; |
· | To reward performance; and |
· | To achieve increased stockholder value. |
The individual components of the compensation program (base salary, incentive cash compensation, equity incentive compensation, and perquisites) are designed to meet these objectives and together are intended to be competitive in the marketplace. 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 second advisory vote on executive compensation, commonly referred to as "say on pay," at our 2014 Annual Meeting of Stockholders. The holders of our Common Stock approved the "say on pay" resolution presented at the 2014 Annual Meeting of Stockholders with 74.3% of the votes cast to approve the compensation of our named executive officers as disclosed in our proxy statement relating to that annual meeting. The next advisory vote on executive compensation will take place at the 2017Annual Meeting.
At the 2011 Annual Meeting of Stockholders, the holders of Common Stock selected three years as the frequency of the say-on-pay vote. The next vote to determine the frequency of the 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 the incentive compensation program, the compensation program calls for Mr. Wood proposedto propose to the Compensation Committee the compensation for Messrs. Edward Williams, Jefferson Wright, Brendan Malloy and Ms. Nakazawa in 2014. The2016. Then the Compensation Committee reviewedwill review these recommendations and, following discussions with Mr. Wood, determineddetermine the appropriate compensation for those executives. In addition, the compensation plan calls for Mr. Wood determinedto determine the compensation of the other senior officers consistent with the philosophy and objectives described above.
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 2014,2016, there were no changes in the base salary of the named executive officers.
1716
Incentive Cash Compensation
On March 27, 2014, the Compensation Committee approved and ratified 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 2016 awards under the Plan provided eligible participants the opportunity to earn an incentive award based upon the Company achieving a defined amount of enterprise target EBITDA for the year and achievement of subjective management business objectives established by 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 "MBO Bonus") and an incentive award based upon achievement of our three-year strategic growth plan (the "Strategic Growth Bonus"). The Plan consists of elements for both short-term and long-term goals, as well as short-term and long-term incentives. AlthoughThe 2016 awards required that the Company achieve an enterprise target EBITDA is still used to measureperformance goal before the Company'spayment of any incentive compensation under the MBO Bonus Plan. If the Company achieves the enterprise target EBITDA performance it will no longer begoal for 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 byapplicable year, the Compensation Committee retains the discretion to decrease, but not to increase, the amount of any MBO Bonus even if the enterprise target EBITDA performance goal was not exceeded based on an annual basis (the "MBO Bonus"), an incentive award based upon achievementevaluation of our three-year strategic growth plan (the "Strategic Growth Bonus"),subjective management business objectives. Under the Plan, 60% would be payable in lump sum in early 2017. The remaining 40% would be payable in equal installments (without interest) on the last day of each of the eight calendar quarters of 2017 and 2018 unless the employment of such named executive officer is terminated for any reason (other than death or both an MBO Bonus and a Strategic Growth Bonus.disability) prior to the next scheduled quarterly payment date. The Plan is administered by the Compensation Committee, and determinations by the Compensation Committee are final, conclusive and binding on all parties.
Under Any sums payable under the Plan a target MBO Bonus amount was established in early 2014 by the Compensation Committee for each eligible participant. The participant's entitlement to payment of the target amount is based upon achievement of the management business objectives based on our strategic growth plan and individual management business objectives established by the Compensation Committee for each participant for the 2014 performance period. A participant was entitled to a payment equal to 60% of the target amount payable on a quarterly basis during the performance period based upon an assessment by the Compensation Committee of the participant's progress toward achieving the performance goals for that performance period. The remaining 40% of the participant's MBO Bonus target amount attributableare subject to the quarter, as determined byCompany having sufficient cash and liquidity to pay the Compensation Committee, is deferred and will be 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 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. Upon the termination of a participant's employment by reason of death or disability, any unpaid MBO Bonus attributable to the quarter in which the termination of employment occurred will be forfeited (unless the Compensation Committee determines otherwise), and any unpaid deferred payments will be immediately paid to the participant or his or her designated beneficiary, if applicable, in a single-sum cash payment. In the case of a change in control of the Company, all performance periods will be deemed to have ended as of the end of the most recent quarterly accounting period prior to the date of the change in control, all performance goals necessary to earn the maximum bonus for each performance period will be deemed to have been achieved, and the full maximum bonus will be paid (including any unpaid deferred payments) to a participant of his designated beneficiary, if applicable, in a single-sum payment on the date of the change in control.bonuses.
For 2014,2016, the Compensation Committee established aan aggregate total bonus pool of $7 million for both the
MBO Bonus and a pre-existing bonus plan for other employees who are not participants in the Plan. This amount is approximately the same as the budgeted bonus pool of 2013. The MBO Bonus budgeted amount was approximatelyof $4 million.million for 2016 did not change from 2015. The $3 million bonus pool, payable quarterly, awards division business line management and general and administrative senior managers and their respective employees based on achievement of quarterly targets. During 2014, all five named executive officers received an MBO Bonus award under the Plan. The 20142016 annual bonus targets for Messrs. John Wood, Williams, Wright, Malloy and Ms. Nakazawa were: $1,100,000, $550,000, $425,000, $330,000, and $425,000.$425,000, respectively. In setting these targets, the Compensation Committee took into account each officer's role and contribution to the Company's performance, internal equity, the amounts of the annual bonuses paid to the officer in prior years, and, in the case of officers other than Mr. John Wood, the recommendations of Mr. John Wood.
The Compensation Committee established an annual enterprise EBITDA target of $5 million for the MBO Bonus awards for the 2016 performance period. For purposes of the MBO Bonus awards, the Compensation Committee defined annual enterprise EBITDA as net loss before income taxes, interest expense, depreciation and amortization, and net income attributable to non-controlling interests as reflected in the audited financial statements of the Company included in the 2016 Form 10-K. The Compensation Committee believes enterprise EBITDA provides a meaningful understanding of the Company's core operating performance and is a highly valued measurement of performance widely used by financial professionals.
The subjective performance goals established under the Plan for the MBO Bonus for the 20142016 performance period are directly related to the objectives contained in our 20142016 budget and our long-term strategic plan. The performance goals based on the strategic plan vary according to business unit, business circumstances, and business function. Although certain executive officers have primary responsibility over the achievement of specific performance goals, the evaluation of each executive officer by the Compensation Committee partially takes into account the overall achievement of all of the performance goals. Mr. Wood also takes part in the evaluation of the performance of all the officers, other than himself. The Compensation Committee believes this approach aligns the interests of the executive officers and emphasizes teamwork, which is consistent with the Company's core values. Examples of specific performance goals based on the strategic plan include, but are not limited to, the following:
· | Establish a formal process for gathering ideas and spurring innovation throughout the company. |
· | Expand portfolio of categorized intellectual property. |
· | Ensure that the product management function throughout Telos is continually creating/updating market and competitive analysis. |
· | Attainment of certain business development goals. |
· | Create plan to support 160 new jobs in Ashburn facility over next three years. |
· | Establish and manage process and resource for uncovering new technology opportunities. |
· | Update and maintain an employee skills database. |
· | Implement plan for building revitalization. |
· | Enhance internal communications. |
· | Review and enhance recruiting and hiring process. |
· | Ensure that risk management is institutionalized in all Telos policies, practices, and processes |
The 2014 performance goals also included achieving an annual EBITDA target of $5.0 million, an annual gross margin target of $45.0 million, and an annual gross margin percentage target of 20% for all of the participants. Scorecards are used to assess the level of achievements. The assessment and scoring, as to whether the goals were in alignment and in furtherance with our strategic plan, were done on a quarterly basis by the Chairman of the Strategy Committee of the Board of Directors, which reported the results of the scoring to the Compensation Committee. The Compensation did not place any particular weight on one or more, or a specific category of, performance goals. The Compensation Committee has the discretion to adjust upward or downward the performance goals or the measure or measures of performance in such manner as it deems appropriate to reflect unusual, extraordinary or nonrecurring events, or other facts as the Compensation Committee may determine.
The Compensation Committee determined that the named executive officersCompany achieved the performance goals for each of their respective MBO Bonus awards for the first three quarters of 2014 but not for the fourth quarter, primarily because the Company failed to achieve the annualenterprise EBITDA target.target in 2016. As a result, eachMessrs. Wood, Williams, Wright, Malloy and Ms. Nakazawa were awarded an MBO Bonus the 2016 performance period in the following amounts, respectively: $1,100,000, $550,000, $425,000, $330,000, and $425,000, payable in installments as described above in accordance with the Plan. Each of the named executive officers were paid 60% of the quarterly payments during the first three quarters of 2014.MBO Bonus for 2016. The remaining 40% of those amounts will be paid will be paidthe MBO Bonus is payable to each of the named executive officers in equal installments (without interest) on the last day of each of the eight calendar quarters immediately following 20142016 unless the employment of such named executive officer is terminated for any reason (other than death or disability) prior to the next scheduled quarterly payment date. TheAs a result, Messrs. John Wood, Williams, Wright, and Malloy and Ms. Nakazawa were paid the following table showsamounts, respectively, of their 2016 MBO Bonus for the bonus amounts earned2016 performance period: $660,000, $330,000, $255,000, $198,000, and paid to each of the named executive officers during 2014: $255,000.
Executive Officer | | Bonus Awarded | | | Bonus Paid in 2014 | | | Bonus Subject to Continued Employment | |
| | | | | | | | | |
John B. Wood | | $ | 825,000 | | | $ | 495,000 | | | $ | 330,000 | |
Michele Nakazawa | | | 318,750 | | | | 191,250 | | | | 127,500 | |
Edward L. Williams | | | 412,500 | | | | 247,500 | | | | 165,000 | |
Jefferson V. Wright | | | 318,750 | | | | 191,250 | | | | 127,500 | |
Brendan Malloy | | | 247,500 | | | | 148,500 | | | | 99,000 | |
The Plan also includes a target Strategic Growth Bonus component for participants. During 2014,2016, each of the named executive officers receivedwere granted the opportunity to receive a Strategic Growth Bonus award for the performance period beginning January 1, 2014,2016, and ending December 31, 2016.2018, which replaced the opportunity to receive a Strategic Growth Bonus granted in 2015 for the performance period beginning January 1, 2015 through December 31, 2017. The target amount of each award, if earned, is two and one-half times the amount of each participant's 20142016 MBO Bonus target amount, and the participant's entitlement to payment of the target amount will be based upon successful achievement by the Company of a three-year aggregate enterprise EBITDA goal of $56.5$60 million during the performance period before taking into account the payment of the Strategic Growth Bonuses. All Strategic Growth Bonuses will be paidare payable within two and one-half months following the end of the three-year performance period. If a participant's employment with the Company 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. Upon the termination of a participant's employment by reason of death or disability, the participant will forfeit as of the termination of employment a portion of the Strategic Growth Bonus equal to the amount of the Strategic Growth Bonus initially granted to the participant for that performance period multiplied by a fraction, (i) the numerator of which will be the number of full calendar months from the date of the participant's cessation of employment to the end of the performance period, and (ii) the denominator of which will be the number of months representing the entire performance period (provided that the Compensation Committee is authorized to declare that a lesser percentage of the Strategic Growth Bonus will be forfeited). With respect to the portion of the Strategic Growth Bonus that is not so forfeited, the performance period will continue and the remaining percentage of the Strategic Growth Bonus that is earned or forfeited will be determined based upon the extent to which the applicable performance goals for such performance period have been achieved or exceeded. In the case of a change in control of the Company, all performance periods will be deemed to have ended as of the end of the most recent quarterly accounting period prior to the date of the change in control, all performance goals necessary to earn the maximum bonus for each performance period will be deemed to have been achieved, and the full maximum bonus will be paid to a participant of his designated beneficiary, if applicable, in a single-sum payment on the date of the change in control.
As disclosed in the Company's proxy statement for the 2015 Annual Meeting of Stockholders, each of the named executive officers achieved the performance goals for each of their respective MBO Bonus awards for the first three quarters of 2014. As a result, each of the named executive officers were paid 60% of the quarterly payments during the first three quarters of 2014. The remaining 40% of those amounts is payable to each of the named executive officers in equal installments (without interest) on the last day of each of the eight calendar quarters immediately following 2014 unless the employment of such named executive officer is terminated for any reason (other than death or disability) prior to the next scheduled quarterly payment date. The employment of none of the named executed officers was terminated during 2015 or 2016. As a result, Messrs. Wood, Williams, Wright, and Malloy and Ms. Nakazawa earned the following amounts, respectively, of their 2014 MBO Bonus award in 2016: $165,000, $82,500, $63,750, $49,500, and $63,750. The Company paid these amounts, and the portion of these MBO Bonus awards earned in 2015, in 2016.
19
Equity 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. No grants were made in 2016 under the 2013 Plan.
The Board adopted the Telos Corporation 2016 Omnibus Long-Term Incentive Plan ("2016 Plan") on August 12, 2016. It was not approved by the holders of our Class A and Class B Common Stock. The purpose of the 20132016 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,To date, no grants have been made under 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.2016 Plan.
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.18
No grants were made in 2014 under the 2013 Plan.
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 reimbursement for 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. John Wood, and 18 months then in effect for Messrs. Williams, Malloy and Wright and Ms. Nakazawa, |
· | 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. John 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. John 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. John 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. John 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. John 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. John 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.
Other Employment Benefits.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,In previous years, we matchmatched 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. In 2015, the Company did not provide any matching to the employee contributions, and the Company match was reinstated in 2016.
Telos ID Sale Bonus Plan
On November 10, 2016, the Board approved the Telos ID Sale Bonus Plan ("Telos ID Plan"). The purpose of the Telos ID Plan is to provide a long-term incentive program to motivate key executives of Telos ID to participate in the value creation of Telos ID and enjoy the benefits of participation in future increases in the value of Telos ID and its underlying assets. Participation in the Telos ID Plan is limited to the President of Telos ID and such other eligible executives of Telos ID selected to participate by the President. Mr. Mark Griffin is the only executive officer of the Company who participates in the Telos ID Plan.
The Company has a 50% ownership interest in Telos ID. Participants in the Telos ID Plan are entitled to a payment upon the transfer for value of all the Company's ownership interest in Telos ID or upon the occurrence of a "Sale" (as defined in the Telos ID Plan) of Telos ID if the value of Telos ID at the time of such transaction is at least $50 million. The aggregate amount of the bonuses payable under the Telos ID Plan will equal 2.5% of the amount received by the Company upon the sale of either its ownership interest in Telos ID or the Sale of Telos ID up to $85 million plus 4% of such amount in excess of $85 million.
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. DvoranchikRobert J. Marino, Chairman
David Borland
Bruce R. Harris
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation earned for the years ended December 31, 2014, 20132016, 2015 and 20122014 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 (2) | | | All Other Compensation (3) | | | Total | |
| | | | | | | | | | | | | | | | |
John B. Wood | 2014 | | $ | 600,000 | | | $ | 495,000 | | | | ---- | | | $ | 41,410 | | | $ | 1,136,410 | |
Chairman, President and CEO | 2013 | | | 600,000 | | | | 400,000 | | | | 12,000 | | | | 37,654 | | | | 1,049,654 | |
| 2012 | | | 588,333 | | | | 1,052,000 | | | | ---- | | | | 29,653 | | | | 1,669,986 | |
| | | | | | | | | | | | | | | | | | | | | |
Michele Nakazawa | 2014 | | $ | 375,000 | | | $ | 191,250 | | | | ---- | | | $ | 14,493 | | | $ | 580,743 | |
Executive V.P. and CFO | 2013 | | | 373,958 | | | | 175,000 | | | | 4,000 | | | | 12,021 | | | | 564,979 | |
| 2012 | | | 342,708 | | | | 425,000 | | | | ---- | | | | 11,967 | | | | 779,675 | |
| | | | | | | | | | | | | | | | | | | | | |
Edward L. Williams | 2014 | | $ | 385,000 | | | $ | 247,500 | | | | ---- | | | $ | 34,281 | | | $ | 666,781 | |
Executive V.P. and COO | 2013 | | | 385,000 | | | | 210,000 | | | | 4,000 | | | | 34,416 | | | | 633,416 | |
| 2012 | | | 377,708 | | | | 527,000 | | | | ---- | | | | 30,483 | | | | 935,191 | |
| | | | | | | | | | | | | | | | | | | | | |
Jefferson V. Wright | 2014 | | $ | 350,000 | | | $ | 191,250 | | | | ---- | | | $ | 43,394 | | | $ | 584,644 | |
Executive V.P., General Counsel | 2013 | | | 336,742 | | | | 165,000 | | | | 10,000 | | | | 41,363 | | | | 553,105 | |
| 2012 | | | ---- | | | | ---- | | | | ---- | | | | ---- | | | | ---- | |
| | | | | | | | | | | | | | | | | | | | | |
Brendan D. Malloy | 2014 | | $ | 315,000 | | | $ | 148,500 | | | | ---- | | | $ | 5,869 | | | $ | 469,369 | |
Senior V.P. – Cyber Ops & Defense | 2013 | | | 315,000 | | | | 135,000 | | | | 2,480 | | | | 4,281 | | | | 456,761 | |
| 2012 | | | 299,375 | | | | 108,500 | | | | ---- | | | | 5,284 | | | | 413,159 | |
(1) | As disclosed in the Compensation Discussion & Analysis on page 17, these amounts represent 60% of the amounts awarded under the Telos Corporation Senior Officer Incentive Program in 2014. The remaining 40% of those amounts will be paid to each of the named executive officers in equal installments (without interest) on the last day of each of the eight calendar quarters immediately following 2014 unless the employment of such named executive officer is terminated for any reason (other than death or disability) prior to the next scheduled quarterly payment date. Upon the termination of a participant's employment by reason of death or disability, any unpaid MBO Bonus attributable to the quarter in which the termination of employment occurred will be forfeited (unless the Compensation Committee determines otherwise), and any unpaid deferred payments will be immediately paid to the participant or his or her designated beneficiary, if applicable, in a single-sum cash payment. In the case of a change in control of the Company, all performance periods will be deemed to have ended as of the end of the most recent quarterly accounting period prior to the date of the change in control, all performance goals necessary to earn the maximum bonus for each performance period will be deemed to have been achieved, and the full maximum bonus will be paid (including any unpaid deferred payments) to a participant of his designated beneficiary, if applicable, in a single-sum payment on the date of the change in control.
|
(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, "Stock Compensation" in Note 1 – Summary of Significant Accounting Policies to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 2014, starting on page 35. |
(3) | Amounts presented consist of the following in 2014: |
Name | | Life Insurance and Long-Term Disability Premiums | | | Savings Plan Company Match | | | Perquisites (1) | | | Total All Other Compensation | | |
Name and Principal Position | | Year | Salary | Bonus1 | Non-Equity Incentive Plan Compensation2 | All Other Compensation3 | Total |
| | | | | | |
John B. Wood | | $ | 11,026 | | | $ | 5,200 | | | $ | 25,184 | | | $ | 41,410 | | 2016 | $ 600,000 | $ 165,000 | $ 660,000 | $ 50,486 | $ 1,475,486 |
Chairman, President and CEO | | 2015 | 600,000 | 165,000 | ---- | 47,534 | 812,534 |
| | 2014 | 600,000 | 495,000 | ---- | 41,410 | 1,136,410 |
| | | | | | | | | | | | | | | | | | | | | |
Michele Nakazawa | | | 7,264 | | | | 5,200 | | | | 2,029 | | | | 14,493 | | 2016 | 375,000 | 63,750 | 255,000 | 12,564 | 706,314 |
Executive V.P. and CFO | | 2015 | 375,000 | 163,750 | ---- | 7,264 | 546,014 |
| | 2014 | 375,000 | 191,250 | ---- | 14,493 | 580,743 |
| | | | | | | | | | | | | | | | | | | | | |
Edward L. Williams | | | 11,884 | | | | 5,200 | | | | 17,197 | | | | 34,281 | | 2016 | 385,000 | 82,500 | 330,000 | 33,666 | 831,166 |
Executive V.P. and COO | | 2015 | 385,000 | 82,500 | ---- | 23,259 | 490,759 |
| | 2014 | 385,000 | 247,500 | ---- | 34,281 | 666,781 |
| | | | | | | | | | | | | | | | | | | | | |
Jefferson V. Wright | | | 19,356 | | | | 5,200 | | | | 18,838 | | | | 43,394 | | 2016 | 350,000 | 63,750 | 255,000 | 56,531 | 725,281 |
Executive V.P., General Counsel | | 2015 | 350,000 | 63,750 | ---- | 52,484 | 466,234 |
| | 2014 | 350,000 | 191,250 | ---- | 43,394 | 584,644 |
| | | | | | | | | | | | | | | | | | | | | |
Brendan D. Malloy | | | 686 | | | | 4,328 | | | | 855 | | | | 5,869 | | 2016 | 315,000 | 51,500 | 198,000 | 4,715 | 569,215 |
Senior V.P. – Cyber Ops & Defense | | 2015 | 315,000 | 49,500 | ---- | 686 | 365,186 |
| | 2014 | 315,000 | 148,500 | ---- | 5,869 | 469,369 |
| | | | | | |
1As disclosed in the Compensation Discussion & Analysis on page 16, the amounts listed for 2014 represent 60% of the MBO Bonus amounts awarded under the Telos Corporation Senior Officer Incentive Program (the "Plan") for the 2014 performance period. The remaining 40% of those amounts is payable to each of the named executive officers in equal installments (without interest) on the last day of each of the eight calendar quarters immediately following 2014 unless the employment of such named executive officer is terminated for any reason (other than death or disability) prior to the next scheduled quarterly payment date. The amounts listed for 2015 and 2016 represent the payments of those amounts paid in 2015 and 2016 respectively. The amount listed in 2015 for Ms. Nakazawa also includes a $100,000 bonus awarded outside of the Plan in recognition of Ms. Nakazawa's exceptional performance in 2015. The amount listed in 2016 for Mr. Malloy also includes a $2,000 anniversary bonus. No bonuses were awarded under the Plan for the 2015 performance period.
2As disclosed in the Compensation Discussion & Analysis on page 16, the amounts represent 60% of the MBO Bonus amounts awarded under the Plan based on the Company's achievement of the annual enterprise EBITDA target established by the Compensation Committee for the 2016 performance period. The remaining 40% of those amounts is payable to each of the named executive officers in equal installments (without interest) on the last day of each of the eight calendar quarters immediately following 2016 unless the employment of such named executive officer is terminated for any reason (other than death or disability) prior to the next scheduled quarterly payment date.
3Amounts presented consist of the following in 2016:
Name | Life Insurance and Long-Term Disability Premiums | Savings Plan Company Match | Perquisites1 | Total All Other Compensation |
John B. Wood | $ 21,505 | $ 5,300 | $ 23,681 | $ 50,486 |
| | | | |
Michele Nakazawa | 7,264 | 5,300 | ---- | 15,564 |
| | | | |
Edward L. Williams | 11,884 | 3,804 | 17,978 | 33,666 |
| | | | |
Jefferson V. Wright | 19,730 | 5,300 | 31,501 | 56,531 |
| | | | |
Brendan D. Malloy | 687 | 4,028 | ---- | 4,715 |
1Includes reimbursement for golf club membership, home office expenses, and commuting costs.
(1) | Includes reimbursement for golf club membership, home office expenses, and certain costs for personal travel and commuting costs. |
22
23
GRANTS OF PLAN-BASED AWARDS
Name | Grant Date | Estimated Future Payouts under Non-Equity Incentive Plan Awards |
John B. Wood | 8/11/2016 | $ 1,100,0001 |
| 8/11/2016 | 2,750,0002 |
| | |
Michele Nakazawa | 8/11/2016 | 425,0001 |
| 8/11/2016 | 1,062,5002 |
| | |
Edward L. Williams | 8/11/2016 | 550,0001 |
| 8/11/2016 | 1,375,0002 |
| | |
Jefferson V. Wright | 8/11/2016 | 425,0001 |
| 8/11/2016 | 1,062,5002 |
| | |
Brendan D. Malloy | 8/11/2016 | 330,0001 |
| 8/11/2016 | 825,0002 |
Name | Grant Date | | Estimated Future Payouts under Non-Equity Incentive Plan Awards ($) (1) | |
| | | | |
John B. Wood | 4/10/2014 | | $ | 2,750,000 | |
| | | | | |
Michele Nakazawa | 4/10/2014 | | | 1,062,500 | |
| | | | | |
Edward L. Williams | 4/10/2014 | | | 1,375,000 | |
| | | | | |
Jefferson V. Wright | 4/10/2014 | | | 1,062,500 | |
| | | | | |
Brendan D. Malloy | 4/10/2014 | | | 825,000 | |
| | | | | |
(1) 1Represents the amount of the MBO Bonus awards granted to the named executive officers under the Plan for the 2016 performance period as more fully described in the Compensation Discussion & Analysis starting on page 16. The Company achieved the enterprise EBITDA target in 2016. Each of the named executive officers were paid 60% of the amount of their respective MBO Bonus, which is reflected in the "Non-Equity Incentive Compensation Plan" column of the Summary Compensation Table. The remaining 40% of the MBO Bonus is payable to each of the named executive officers in equal installments (without interest) on the last day of each of the eight calendar quarters immediately following 2016 unless the employment of such named executive officer is terminated for any reason (other than death or disability) prior to the next scheduled quarterly payment date.
2Represents the amount of the Strategic Growth Bonus awards granted to the named executive officers under the Telos Corporation Senior Officer Incentive ProgramPlan for the performance period beginning January 1, 2014,2016, and ending December 31, 20162018 as more fully described in the Compensation Discussion & Analysis starting on page 19.16. The amount of each award, if earned, is two and one-half times the amount of each participant's 20142016 MBO Bonus target amount, and the participant's entitlement to payment of the target amount will be based upon successful achievement by the Company of a three-year aggregate enterprise EBITDA goal of $56.5$60 million during the performance period before taking into account the payment of the Strategic Growth Bonuses. All Strategic Growth Bonuses will be paid within two and one-half months following the end of the three-year performance period. All bonus payments are subject to the Company having sufficient cash and liquidity. If a participant's employment with the Company 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. Upon the termination of a participant's employment by reason of death or disability, the participant will forfeit as of the termination of employment a portion of the Strategic Growth Bonus equal to the amount of the Strategic Growth Bonus initially granted to the participant for that performance period multiplied by a fraction, (i) the numerator of which will be the number of full calendar months from the date of the participant's cessation of employment to the end of the performance period, and the denominator of which will be the number of months representing the entire performance period (provided that the Compensation Committee is authorized to declare that a lesser percentage of the Strategic Growth Bonus will be forfeited). With respect to the portion of the Strategic Growth Bonus that is not so forfeited, the performance period will continue and the remaining percentage of the Strategic Growth Bonus that is earned or forfeited will be determined based upon the extent to which the applicable performance goals for such performance period have been achieved or exceeded. In the case of a change in control of the Company, all performance periods will be deemed to have ended as of the end of the most recent quarterly accounting period prior to the date of the change in control, all performance goals necessary to earn the maximum bonus for each performance period will be deemed to have been achieved, and the full maximum bonus will be paid to a participant of his designated beneficiary, if applicable, in a single-sum payment on the date of the change in control.
The following table sets forth certain information regarding outstanding equity awards as of December 31, 2014 for the Company's named executive officers:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END23
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 | | | 600,000 | | | $ | 6,000 | |
| | | | | | | | |
Michele Nakazawa | | | 200,000 | | | | 2,000 | |
| | | | | | | | |
Edward L. Williams | | | 200,000 | | | | 2,000 | |
| | | | | | | | |
Jefferson V. Wright | | | 500,000 | | | | 5,000 | |
| | | | | | | | |
Brendan D. Malloy | | | 124,000 | | | | 1,240 | |
| | | | | | | | |
(1) Represents shares of 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.
The following table sets forth certain information regarding the vesting of shares of restricted stock held by named executive officers during fiscal year 2014:2016:
STOCK VESTED
Name | | Number of Shares Acquired on Vesting (#) | | | Value Realized on Vesting ($)(1) | | | Number of Shares Acquired on Vesting | | | Value Realized on Vesting1 | |
| | | | | | | | | | | | |
John B. Wood | | | 483,564 | | | $ | 4,836 | | | | 300,000 | | | | $ 3,000 | |
| | | | | | | | | | | | | | | | |
Michele Nakazawa | | | 153,688 | | | | 1,537 | | | | 100,000 | | | | 1,000 | |
| | | | | | | | | | | | | | | | |
Edward L. Williams | | | 163,506 | | | | 1,635 | | | | 100,000 | | | | 1,000 | |
| | | | | | | | | | | | | | | | |
Jefferson V. Wright | | | 250,000 | | | | 2,500 | | | | 250,000 | | | | 2,500 | |
| | | | | | | | | | | | | | | | |
Brendan D. Malloy | | | 118,250 | | | | 1,183 | | | | 62,000 | | | | 620 | |
(1) 1No 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.
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, 2014,2016, the last business day of the Company's last completed fiscal year.
25
John B. Wood | | Salary Continuation for 24 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2014 | | | 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 | | $ | 1,200,000 | | | $ | ---- | | | $ | 69,231 | | | $ | 57,431 | | | $ | 10,400 | | | $ | 1,337,062 | | | | 600,000 | |
Termination upon death or disability | | | 1,200,000 | | | | 330,000 | (3) | | | 69,231 | | | | 57,431 | | | | 10,400 | | | | 1,667,062 | | | | 600,000 | |
Termination upon change in control | | | 1,200,000 | | | | 4,653,000 | | | | 69,231 | | | | 57,431 | | | | 10,400 | | | | 5,990,062 | | | | 600,000 | |
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, 2014 | | | 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 | | $ | 562,500 | | | $ | ---- | | | $ | 36,058 | | | $ | 30,040 | | | $ | 7,800 | | | $ | 636,398 | | | | 200,000 | |
Termination upon death or disability | | | 562,500 | | | | 127,500 | (3) | | | 36,058 | | | | 30,040 | | | | 7,800 | | | | 763,898 | | | | 200,000 | |
Termination upon change in control | | | 562,500 | | | | 1,691,875 | | | | 36,058 | | | | 30,040 | | | | 7,800 | | | | 2,328,273 | | | | 200,000 | |
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, 2014 | | | 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 | | |
John B. Wood | | | Salary Continuation for 24 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2016 | | | Benefits for 24 Months1 | | | Cash Equivalent of Company Match to 401(k) for 24 Months | | | Total | |
Termination without cause | | $ | 577,500 | | | $ | ---- | | | $ | 37,019 | | | $ | 44,361 | | | $ | 7,800 | | | $ | 666,680 | | | | 200,000 | | | $ | 1,200,000 | | | $ | ---- | | | $ | 69,231 | | | $ | 78,189 | | | $ | 10,600 | | | $ | 1,358,020 | |
Termination upon death or disability | | | 577,500 | | | | 165,000 | (3) | | | 37,019 | | | | 44,361 | | | | 7,800 | | | | 831,680 | | | | 200,000 | | | | 1,200,000 | | | | 825,000 | 3 | | | 69,231 | | | | 78,189 | | | | 10,600 | | | | 2,183,020 | |
Termination upon change in control | | | 577,500 | | | | 2,169,750 | | | | 37,019 | | | | 44,361 | | | | 7,800 | | | | 2,836,430 | | | | 200,000 | | | | 1,200,000 | | | | 3,740,000 | | | | 69,231 | | | | 78,189 | | | | 10,600 | | | | 5,098,020 | |
Termination for cause | | | ---- | | | | ---- | | | | 37,019 | | | | ----- | | | | ---- | | | | 37,019 | | | | ---- | | | | ---- | | | | ---- | | | | 69,231 | | | | ----- | | | | ---- | | | | 69,231 | |
Voluntary termination | | | ---- | | | | ---- | | | | 37,019 | | | | ----- | | | | ---- | | | | 37,019 | | | | ---- | | | | ---- | | | | ---- | | | | 69,231 | | | | ----- | | | | ---- | | | | 69,231 | |
2624
Jefferson V. Wright | | Salary Continuation for 18 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2014 | | | 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 | | $ | 525,000 | | | $ | ---- | | | $ | 33,654 | | | $ | 55,201 | | | $ | 7,800 | | | $ | 621,655 | | | | 500,000 | |
Termination upon death or disability | | | 525,000 | | | | 127,500 | (3) | | | 33,654 | | | | 55,201 | | | | 7,800 | | | | 749,155 | | | | 500,000 | |
Termination upon change in control | | | 525,000 | | | | 1,563,438 | | | | 33,654 | | | | 55,201 | | | | 7,800 | | | | 2,185,092 | | | | 500,000 | |
Termination for cause | | | ---- | | | | ---- | | | | 33,654 | | | | ----- | | | | ---- | | | | 33,654 | | | | ---- | |
Voluntary termination | | | ---- | | | | ---- | | | | 33,654 | | | | ----- | | | | ---- | | | | 33,654 | | | | ---- | |
Brendan D. Malloy | | Salary Continuation for 18 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2014 | | | 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 | | |
Michele Nakazawa | | | Salary Continuation for 18 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2016 | | | Benefits for 18 Months1 | | | Cash Equivalent of Company Match to 401(k) for 18 Months | | | Total | |
Termination without cause | | $ | 472,500 | | | $ | ---- | | | $ | 24,231 | | | $ | 26,788 | | | $ | 7,800 | | | $ | 531,319 | | | | 500,000 | | | $ | 562,500 | | | $ | ---- | | | $ | 36,058 | | | $ | 26,941 | | | $ | 7,950 | | | $ | 633,449 | |
Termination upon death or disability | | | 472,500 | | | | 99,000 | (3) | | | 24,231 | | | | 26,788 | | | | 7,800 | | | | 630,319 | | | | 500,000 | | | | 562,500 | | | | 318,750 | 3 | | | 36,058 | | | | 26,941 | | | | 7,950 | | | | 952,199 | |
Termination upon change in control | | | 472,500 | | | | 1,006,500 | | | | 24,231 | | | | 26,788 | | | | 7,800 | | | | 1,537,819 | | | | 500,000 | | | | 562,500 | | | | 1,399,375 | | | | 36,058 | | | | 26,941 | | | | 7,950 | | | | 2,032,824 | |
Termination for cause | | | ---- | | | | ---- | | | | 24,231 | | | | ----- | | | | ---- | | | | 24,231 | | | | ---- | | | | ---- | | | | ---- | | | | 36,058 | | | | ----- | | | | ---- | | | | 36,058 | |
Voluntary termination | | | ---- | | | | ---- | | | | 24,231 | | | | ----- | | | | ---- | | | | 24,231 | | | | ---- | | | | ---- | | | | ---- | | | | 36,058 | | | | ----- | | | | ---- | | | | 36,058 | |
Edward L. Williams | | Salary Continuation for 18 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2016 | | | Benefits for 18 Months1 | | | Cash Equivalent of Company Match to 401(k) for 18 Months | | | Total | |
Termination without cause | | $ | 577,500 | | | $ | ---- | | | $ | 37,019 | | | $ | 42,346 | | | $ | 7,950 | | | $ | 664,815 | |
Termination upon death or disability | | | 577,500 | | | | 412,500 | 3 | | | 37,019 | | | | 42,346 | | | | 7,950 | | | | 1,077,315 | |
Termination upon change in control | | | 577,500 | | | | 1,746,250 | | | | 37,019 | | | | 42,346 | | | | 7,950 | | | | 2,411,065 | |
Termination for cause | | | ---- | | | | ---- | | | | 37,019 | | | | ----- | | | | ---- | | | | 37,019 | |
Voluntary termination | | | ---- | | | | ---- | | | | 37,019 | | | | ----- | | | | ---- | | | | 37,019 | |
Jefferson V. Wright | | Salary Continuation for 18 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2016 | | | Benefits for 18 Months1 | | | Cash Equivalent of Company Match to 401(k) for 18 Months | | | Total | |
Termination without cause | | $ | 525,000 | | | $ | ---- | | | $ | 33,654 | | | $ | 54,114 | | | $ | 7,950 | | | $ | 620,718 | |
Termination upon death or disability | | | 525,000 | | | | 318,750 | 3 | | | 33,654 | | | | 54,114 | | | | 7,950 | | | | 939,468 | |
Termination upon change in control | | | 525,000 | | | | 1,349,375 | | | | 33,654 | | | | 54,114 | | | | 7,950 | | | | 1,970,093 | |
Termination for cause | | | ---- | | | | ---- | | | | 33,654 | | | | ----- | | | | ---- | | | | 33,654 | |
Voluntary termination | | | ---- | | | | ---- | | | | 33,654 | | | | ----- | | | | ---- | | | | 33,654 | |
(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 plans25. |
(3) |
Brendan D. Malloy | | �� Salary Continuation for 18 Months | | | Bonuses to be Earned | | | Accrued and Unused Vacation as of December 31, 2016 | | | Benefits for 18 Months2 | | | Cash Equivalent of Company Match to 401(k) for 18 Months | | | Total | | Termination without cause | | $ | 472,500 | | | $ | ---- | | | $ | 24,231 | | | $ | 27,306 | | | $ | 7,950 | | | $ | 531,987 | | Termination upon death or disability | | | 472,500 | | | | 247,500 | 3 | | | 24,231 | | | | 27,306 | | | | 7,950 | | | | 779,487 | | Termination upon change in control | | | 472,500 | | | | 825,000 | | | | 24,231 | | | | 27,306 | | | | 7,950 | | | | 1,356,987 | | Termination for cause | | | ---- | | | | ---- | | | | 24,231 | | | | ----- | | | | ---- | | | | 24,231 | | Voluntary termination | | | ---- | | | | ---- | | | | 24,231 | | | | ----- | | | | ---- | | | | 24,231 | |
1Cash 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. 2Cash equivalent of premium payments for continued coverage under the medical, dental, short and long-term disability, and life insurance and other similar plans. 3Represents unpaid deferred payments of the MBO Bonus under the Telos Corporation Senior Officer Incentive Program. Upon the termination of a participant's employment by reason of death or disability, the participant will forfeit as of the termination of employment a portion of the Strategic Growth Bonus equal to the amount of the Strategic Growth Bonus initially granted to the participant for that performance period multiplied by a fraction, (i) the numerator of which will be the number of full calendar months from the date of the participant's cessation of employment to the end of the performance period, and the denominator of which will be the number of months representing the entire performance period (provided that the Compensation Committee is authorized to declare that a lesser percentage of the Strategic Growth Bonus will be forfeited). With respect to the portion of the Strategic Growth Bonus that is not so forfeited, the performance period will continue and the remaining percentage of the Strategic Growth Bonus that is earned or forfeited will be determined based upon the extent to which the applicable performance goals for such performance period have been achieved or exceeded. That amount is not reflected in the table above. |
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 JanuaryJuly 1, 2010,2016, the Board of Directors adopted a structure for the annual compensation of the Board members which provides for the following annual compensation: $20,000$30,000 basic annual retainer plus the following annual fees for committee chairmenchairpersons 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
Audit Committee: | Chairperson: $20,000 | Member: $10,000 |
Compensation Committee: | Chairperson: $15,000 | Member: $ 7,500 |
Government Security Committee: | Chairperson: $ 8,000 | Member: $ 4,000 |
Proxy Board: | Chairperson: $ 3,000 | Member: $ 1,500 |
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, atStrategy Committee generally meet on an as-needed basis rather than on a regular interval. Therefore, the recommendationcompensation of those committee members will be determined on a per meeting basis. For the Compensation Committee,committees, the Company made a one-time grant of 20,000 shares of restricted stock to each ofchairman will receive $2,500 per meeting and 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.committee members will receive $1,250 per meeting.
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, 2014,2016, other than Mr. John Wood whose compensation is described in this document:
DIRECTOR COMPENSATION FOR 20142016
Name | | Fees Paid | | | All Other Compensation | | | Total | | | Fees Earned or Paid in Cash | | | All Other Compensation | | | Total | |
Bernard Bailey | | $ | 75,000 | | | $ | 5,000 | 1 | | $ | 80,000 | | |
Bernard C. Bailey | | | $ | 62,500 | | | $ | 5,000 | 1 | | $ | 67,500 | |
David Borland | | | 60,000 | | | | ---- | | | | 60,000 | | | | 51,500 | | | | ---- | | | | 51,500 | |
William Dvoranchik | | | 80,000 | | | | 5,000 | 1 | | | 85,000 | | |
Seth W. Hamot | | | ---- | | | | ---- | | | | ---- | | | | ---- | | | | ---- | | | | ---- | |
Bruce Harris | | | 55,000 | | | | ---- | | | | 55,000 | | |
Charles Mahan | | | 75,000 | | | | ---- | | | | 75,000 | | |
Bruce R. Harris | | | | 51,750 | | | | ---- | | | | 51,750 | |
Charles S. Mahan, Jr. | | | | 60,250 | | | | ---- | | | | 60,250 | |
John W. Maluda | | | 35,000 | | | | 204,000 | 2 | | | 239,000 | | | | 32,500 | | | | 204,000 | 2 | | | 236,500 | |
Robert J. Marino | | | 45,000 | | | | ---- | | | | 45,000 | | | | 52,000 | | | | 5,000 | 1 | | | 57,000 | |
Andrew R. Siegel | | | ---- | | | | ---- | | | | ---- | | | | ---- | | | | ---- | | | | ---- | |
Jerry Tuttle | | | 60,000 | | | | ---- | | | | 60,000 | | |
| | $ | 485,000 | | | $ | 214,000 | | | $ | 699,000 | | | $ | 310,500 | | | $ | 214,000 | | | $ | 524,500 | |
1 Amount paid for representation on the board of Telos ID,. paid in 2016.
2 Amount paid pursuant to a consulting agreement with the Company for 2014.2016.
Security Ownership of Certain Beneficial Owners and Management
| Title of Class | | Name and Address of Beneficial Owner | | Amount and Nature ofBeneficial Beneficial Ownership as ofMarch 31, 2017
April 6, 2015
| | Percent of Class |
Class A Common Stock
| |
| Class A Common Stock | Toxford Corporation Place de Saint Gervais 1 1211 Geneva, Switzerland | | 15,801,802 shares (A) | 39.3% | | 39.3%
|
| Class A Common Stock | Telos Corporation Shared Savings Plan 19886 Ashburn Road Ashburn, VA 20147 | | 3,658,536 shares | 9.1% | 9.1% |
| Class A Common Stock | John B. Wood | | 5,897,3515,929,643 shares (B) | 14.7% | 14.7% |
| Class A Common Stock | Edward L. Williams | | 1,873,005 shares (B) | 4.7% | 4.7% |
| Class A Common Stock | Michele Nakazawa | | 1,447,1741,473,901 shares (B) | 3.7% | 3.6% |
| Class A Common Stock | Brendan D. Malloy | | 982,432 shares (B) | 2.4% | 2.4% |
| Class A Common Stock | Jefferson V. Wright | | 1,005,2831,010,294 shares (B) | 2.5% | 2.5% |
| Class A Common Stock | Robert J. Marino | | 591,400 shares (B) | 1.5% | 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% | | 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% | 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 (19(17 persons) | 14,646,477 shares (C) | 37.7% | | 15,264,298 shares (D) |
| 37.9% |
Class B Common Stock | GraphiteICG Enterprise Trust PLC
Berkley SquareJuxon House, 4th Floor100 St. Paul's Churchyard
London W1J 6BQEC4M 8BU England | | 1,681,960 shares (D) | 41.7% | | 41.7% |
| Class B Common Stock | GraphiteICG Enterprise Trust LP
Berkley SquareJuxon House, 4th Floor100 St. Paul's Churchyard
London W1J 6BQEC4M 8BU England | | 420,490 shares (D) | 10.4% | | 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% |
Title of Class
| | Name and Address of
Beneficial Owner
|
| Amount and Nature of
Beneficial Ownership as of
April 6, 2015
| | Percent of
Class
|
Class B Common Stock | John B. Wood | | 197,888194,888 shares | 4.8% | 4.8% |
| Class B Common Stock | Michele Nakazawa | | 125,000 shares | 3.1% | 3.1% |
| Class B Common Stock | Brendan D. Malloy | | 100,000 shares | 2.5% | 2.5% |
| Class B Common Stock | Edward L. Williams | | 100,000 shares | 2.5% | 2.5% |
| Class B Common Stock | All officers and directors as a group (5 persons) | | 569,888 shares | 14.1% | 14.1% |
| Series A-1 Redeemable Preferred Stock | North Atlantic Smaller Companies Investment Trust PLC c/o North Atlantic ValueHarwood Capital LLP Ground Floor, Ryder Court 14 Ryder6 Stratton Street, Mayfair
London SW1Y 6QBW1J 8LD, England | | 11 shares | 5.8% | 5.8% |
| Series A-1 Redeemable Preferred Stock | GraphiteICG Enterprise Trust PLC
Berkley SquareJuxon House, 4th Floor100 St. Paul's Churchyard
London W1J 6BQEC4M 8BU England | | 18 shares | 9.2% | 9.2% |
| Series A-1 Redeemable Preferred Stock | Toxford Corporation Place de Saint Gervais 1 1211 Geneva, Switzerland | | 163 shares (E) | 82.7% | 82.7%
|
| Series A-2 Redeemable Preferred Stock | North Atlantic Smaller Companies Investment Trust PLC c/o North Atlantic ValueHarwood Capital LLP Ground Floor, Ryder Court
14 Ryder6 Stratton Street, Mayfair
London SW1Y 6QBW1J 8LD, England | | 16 shares | 5.8% | 5.8% |
| Series A-2 Redeemable Preferred Stock | GraphiteICG Enterprise Trust PLC
Berkley SquareJuxon House, 4th Floor100 St. Paul's Churchyard
London W1J 6BQEC4M 8BU England | | 25 shares | 9.2% | 9.2%
|
| Series A-2 Redeemable Preferred Stock | Toxford Corporation Place de Saint Gervais 1 1211 Geneva, Switzerland | | 228 shares (F) | 82.7% | 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
| | 240,398 shares (G) | | 7.5%
|
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 Capital, Inc. Profit Sharing Plan
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 | 552,465 shares (G) | 17.3% | | 405,672 shares (H) |
| 12.7%
|
Title of Class
| | Name and Address of
Beneficial Owner
| | Amount and Nature of
Beneficial Ownership as of
April 6, 2015
| | Percent of
Class
|
12% Cumulative Exchangeable Redeemable Preferred Stock | Minerva Advisors, LLC David P. Cohen 50 Monument Road, Suite 201 Bala Cynwyd, PA 19004 | 308,922 shares (H) | 9.7% | | 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)(I) | | 5.7% | |
| 12% Cumulative Exchangeable Redeemable Preferred Stock | Costa Brava Partnership III, LP Roark, Rearden & Hamot, LLC Seth W. Hamot 222 Berkeley Street, 17th17th Floor Boston, MA 02116 | | 405,172 shares (K)(J) | | 12.7% | |
12% Cumulative Exchangeable Redeemable Preferred Stock | Emancipation Management LLC NSBCircle N Advisors, LLC
200 Westage Center Drive, Suite 228Ms. Charles Frumberg
Fishkill,825 Third Avenue
New York, NY 12524 10022 | | 379,798 shares (L)635,892shares (K) | | 11.9%20.0% | |
| | |
| (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 192,239,224,531, 9,432, 29,348, 73,005, 5,283,10,294, and 132,174158,901 shares of the Class A Common Stock held for the benefit of Messrs. John Wood, Malloy, Marino, Williams, and Wright and Ms. Nakazawa, respectively, by the Telos Corporation Shared Savings Plan. Also includes 300,000, 62,000, 100,000, and 250,000 and 100,000 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 exercised his option to acquire 20,000 shares of the Class A Common Stock on May 16, 2014. |
(D)(C) | Includes 619,634681,813 shares of the Class A Common Stock held for the benefit of the executive officers by the Telos Corporation Shared Savings Plan,Plan. |
| (D) | Formerly Graphite Enterprise Trust PLC and 1,035,000 non-vested, restricted sharesGraphite Enterprise Trust LP; name and address change as of Class A Common Stock issued under the 2013 Omnibus Long-Term Incentive Plan.February 2016. |
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(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.Porter. |
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(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. | Porter. |
(G) | According to the Schedule 13D/A (Amendment No. 15) filed on September 22, 2014, 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)(G) | Wynnefield Partners Small Cap Value, L.P., ("WPSCV"), Wynnefield Partners Small Cap Value L.P. I ("WPSCVI"), Channel Partnership II, L.P.Wynnefield Capital, Inc. Profit Sharing Plan ("CP"WCPSP"), 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. 15)17) on June 4, 2014November 17, 2015 that Messrs. Obus and Landes each have shared voting and dispositive power with respect to 405,672552,465 shares. Messrs. Obus and Landes are the co-managing members of WCM and both are also executive officers of WCI. Each shares with the other the voting and dispositive power with regards to the shares beneficially owned by WCM and WCI. WCM is the general partner of WPSCV and WPSCVI and has the sole power to direct the voting and disposition of the 312,998holds indirect beneficial interest in 425,342 shares which are directly beneficially owned by WPSCV and WPSCVI. WPSCV has the sole power to vote or direct the vote and the sole power to dispose or direct the disposition of 122,054165,035 shares. WPSCVI has the sole voting and dispositive power with respect to 190,944260,307 shares. WCI is the sole investment manager of WSCVOF and has the sole power to direct the voting and disposition of the 92,674112,123 shares which WSCVOF beneficially owns and has the sole voting and dispositive power with respect to those shares. | WCPSP has sole voting and dispositive power of 15,000 shares. |
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(I)(H) | 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 (Amendment No. 2)4) on February 7, 2014,8, 2017, indicating that MA and Mr. Cohen each has shared voting and dispositive power with respect to 127,246149,546 shares; MA, MG, MGP, MI each has the sole voting and dispositive power with respect to 83,043 shares, and151,943 shares; Mr. Cohen has sole voting and dispositive power with respect to 90,476159,376 shares. Mr. Cohen is the beneficial owner of 7,433 shares individually and is also deemed a beneficial owner of 301,489 shares in aggregate beneficially owned by MA. |
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(J)(I) | 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. |
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(K)(J) | 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. |
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(L)(K) | According to the Schedule 13G/A (Amendment No. 4)1) filed on February 13, 2015,10, 2017 by NSBEmancipation Management LLC ("Emancipation Management"), Circle N Advisors, LLC ("Circle N"), and Mr. Charles Frumberg, the filer has solethree filers have shared dispositive power with respect to the 379,798635,892 shares. | Emancipation Management owns Circle N, and Mr. Frumberg is the managing member of Emancipation Management and the Chief Executive Officer of Circle N. The principal business address of Circle N is 200 Westgate Business Center Drive, Fishkill, NY 12524. |
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 20152017 fiscal year. The Company does not expect representatives of BDO is expected to attend the Annual Meeting and as a result, BDO will not havebe given an opportunity to make a statement orand will be available to respond to appropriate questions.
Principal Accountant Fees and Services
Aggregate fees for professional services billed to us by BDO USA, LLP for the years ended December 31, 20142016 and 20132015 are summarized as follows:
| | 2014 | | | 2013 | | | 2016 | | | 2015 | |
BDO USA, LLP: | | | | | | | | | | | | |
Audit fees | | $ | 507,000 | | | $ | 517,000 | | | $ | 508,000 | | | $ | 510,000 | |
Audit-related fees | | | ---- | | | | ---- | | | | ---- | | | | ---- | |
Tax fees (1) | | | 60,000 | | | | 55,000 | | |
Tax fees1 | | | $ | 60,000 | | | $ | 124,000 | |
All other fees | | | ---- | | | | ---- | | | | ---- | | | | ---- | |
Total | | $ | 567,000 | | | $ | 572,000 | | | $ | 568,000 | | | $ | 633,884 | |
(1) 1Represent 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 20152017 fiscal year be ratified by the holders of the Common Stock.
Equity Compensation Plan Information
The following table provides information as of December 31, 2014,2016, with respect to shares of Common Stock that may be issued under certain equity compensation plans.
Plan Category | Number of securities remaining available for future issuance under plans (excluding securities listed in the first column)
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Equity compensation plans approved by security holders: | |
1. 2008 Plan | 264,741 |
2. 2013 Plan | 1,188,000 |
Equity compensation Plans not approved by security holders | None |
1. 2016 Plan | 4,500,000 |
Frequency of theAdvisory Vote on Executive Compensation
AtIn accordance with the Company's annual meeting of stockholders held on November 14, 2011, the frequency of three yearsresults 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 receivedof the highest numberCompany's named executive officers as described. This proposal, commonly known as a say-on-pay proposal, gives the holders of votes cast bythe Common Stock the opportunity to express their views 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 presentapprove, on an advisory basis, the compensation of the named executive officers as disclosed in person or represented by proxy at the annual meeting. In lightcompany's Annual Proxy Statement, pursuant to the compensation disclosure rules of suchthe 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 vote is advisory, and therefore not binding on the Company, decidedthe 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 conductaddress those results.
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.
Frequency of the Vote on Executive Compensation
The Board of Directors is also seeking the preference of the holders of the Common Stock, on an advisory (non-binding) basis, with respect to the frequency of future votes on the compensation of the Company's named executive officers. This advisory "frequency" vote is required at least once every six years beginning with our 2011 Annual Meeting.
This proposal affords the holders of the Common Stock the opportunity to cast an advisory vote on how often the Company should include a say-on-pay vote in its proxy materials for future annual meetings of stockholders (or special meetings of stockholders for which the Company must include executive compensation information in the proxy statement for that meeting). Under this proposal, the holders of the Common Stock may vote to have the say-on-pay vote every year, every two years or every three years.years, or may choose to abstain from voting. The nextholders of the Common Stock are not voting to approve or disapprove the Board's recommendation.
The Board of Directors believes that the say-on-pay vote should be conducted every three years to determineprovide the Compensation Committee the time to respond thoughtfully to the sentiments of the holders of the Common Stock and implement any necessary changes. The Compensation Committee carefully reviews changes to the Company's executive compensation program to maintain the consistency and credibility of the program, which is important in motivating and retaining the highly talented and results-oriented executives who are critical to the Company's long-term success and growth. The Board of Directors believes that a triennial vote is an appropriate frequency to allow the Compensation Committee sufficient time to thoughtfully consider the input of the holders of the Common Stock, implement any appropriate changes to the Company's executive compensation program, and assess the results of these changes.
The option of one year, two years or three years that receives the highest number of votes cast by the holders of the Common Stock will be the frequency for the stockholder advisory vote on the compensation of the Company's named executive officers that will be considered to be preferred by the holders of the Common Stock. However, because this vote is not binding on the Board of Directors, the Board of Directors may decide, either now or in the future, that it is in the best interests of the Company and its stockholders to hold a stockholder advisory vote on the compensation of the Company's named executive officers more or less frequently than the preference indicated by this vote, including, for example, due to changes in executive compensation policies, practices and plans or discussions with stockholders.
The Board of Directors of Telos recommends a vote FOR the option "Every Three Years" for the frequency of thefuture advisory votevotes on executive compensation will be scheduled in 2017.compensation.
Stockholder Proposals for the 20162018 Annual Meeting
Stockholders who wish to have proposals for the Company's 20162018 annual meeting of stockholders included in the proxy materials for such meeting must submit these proposals to the Company on or prior to December 24, 2015.18, 2017. 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.
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