þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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¨
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Maryland
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52-0880974
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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19886 Ashburn Road, Ashburn, Virginia
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20147-2358
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
x
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Page
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Item 1.
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Financial Statements
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3
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4
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5-6
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7
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8-23
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Item 2.
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24-33
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Item 3.
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33
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Item 4.
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33
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PART II - OTHER INFORMATION
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Item 1.
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33
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Item 1A.
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33
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Item 2.
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34
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Item 3.
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34
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Item 4.
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34
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Item 5.
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35
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Item 6.
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36
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37
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Item 1.
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Financial Statements
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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|||||||||||||||
2012
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2011
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2012
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2011
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Revenue
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Services
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$ | 47,401 | $ | 28,647 | $ | 142,097 | $ | 94,004 | ||||||||
Products
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19,515 | 24,335 | 35,586 | 48,100 | ||||||||||||
66,916 | 52,982 | 177,683 | 142,104 | |||||||||||||
Costs and expenses
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||||||||||||||||
Cost of sales - Services
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36,368 | 23,379 | 106,548 | 70,324 | ||||||||||||
Cost of sales - Products
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15,645 | 17,906 | 27,575 | 36,863 | ||||||||||||
52,013 | 41,285 | 134,123 | 107,187 | |||||||||||||
Selling, general and administrative expenses
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11,132 | 9,035 | 28,465 | 24,840 | ||||||||||||
Operating income
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3,771 | 2,662 | 15,095 | 10,077 | ||||||||||||
Other income (expense)
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||||||||||||||||
Other income
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236 | 40 | 493 | 320 | ||||||||||||
Interest expense
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(1,603 | ) | (1,655 | ) | (5,083 | ) | (4,575 | ) | ||||||||
Income before income taxes
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2,404 | 1,047 | 10,505 | 5,822 | ||||||||||||
Income tax (provision) benefit (Note 8)
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(1,136 | ) | 137 | (4,587 | ) | (2,170 | ) | |||||||||
Net income
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1,268 | 1,184 | 5,918 | 3,652 | ||||||||||||
Less: Net income attributable to non-controlling interest (Note 2)
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(725 | ) | (1,100 | ) | (1,599 | ) | (1,672 | ) | ||||||||
Net income attributable to Telos Corporation
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$ | 543 | $ | 84 | $ | 4,319 | $ | 1,980 |
Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2012
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2011
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2012
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2011
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Net income
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$ | 1,268 | $ | 1,184 | $ | 5,918 | $ | 3,652 | ||||||||
Other comprehensive income (loss):
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||||||||||||||||
Foreign currency translation adjustments
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---- | 10 | (21 | ) | (30 | ) | ||||||||||
Other comprehensive income (loss)
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---- | 10 | (21 | ) | (30 | ) | ||||||||||
Comprehensive income
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$ | 1,268 | $ | 1,194 | $ | 5,897 | $ | 3,622 |
September 30,
2012
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December 31,
2011
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ASSETS
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Current assets (Note 6)
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Cash and cash equivalents
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$ | 208 | $ | 220 | ||||
Accounts receivable, net of reserve of $331 and $375, respectively
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38,474 | 36,946 | ||||||
Inventories, net of obsolescence reserve of $358 and $315, respectively
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9,493 | 14,711 | ||||||
Deferred income taxes
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423 | 423 | ||||||
Deferred program expenses
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3,740 | 2,636 | ||||||
Other current assets
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2,174 | 2,942 | ||||||
Total current assets (Note 6)
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54,512 | 57,878 | ||||||
Property and equipment, net of accumulated depreciation of $22,633 and $20,994, respectively
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3,985 | 4,847 | ||||||
Deferred income taxes, long-term
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1,617 | 1,617 | ||||||
Goodwill
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14,916 | 15,058 | ||||||
Other intangible assets
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8,464 | 10,157 | ||||||
Other assets
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315 | 280 | ||||||
Total assets (Note 6)
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$ | 83,809 | $ | 89,837 |
September 30,
2012
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December 31,
2011
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LIABILITIES, REDEEMABLE PREFERRED STOCK, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ DEFICIT
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Current liabilities
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Accounts payable and other accrued payables (Note 6)
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$ | 28,465 | $ | 21,947 | ||||
Accrued compensation and benefits
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8,470 | 8,091 | ||||||
Deferred revenue
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3,931 | 4,387 | ||||||
Senior credit facility – short-term (Note 6)
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375 | 375 | ||||||
Notes payable – short-term (Note 6)
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---- | 3,478 | ||||||
Capital lease obligations – short-term
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1,154 | 1,033 | ||||||
Other current liabilities
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2,398 | 3,396 | ||||||
Total current liabilities
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44,793 | 42,707 | ||||||
Senior revolving credit facility (Note 6)
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6,532 | 17,501 | ||||||
Notes payable (Note 6)
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12,547 | 12,056 | ||||||
Capital lease obligations
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4,067 | 4,948 | ||||||
Senior redeemable preferred stock (Note 7)
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3,973 | 8,227 | ||||||
Public preferred stock (Note 7)
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111,496 | 108,628 | ||||||
Other liabilities
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107 | 124 | ||||||
Total liabilities
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183,515 | 194,191 | ||||||
Commitments and contingencies (Note 9)
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---- | ---- | ||||||
Stockholders’ deficit
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Telos stockholders’ deficit
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Common stock
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78 | 78 | ||||||
Additional paid-in capital
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103 | 103 | ||||||
Accumulated other comprehensive income
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14 | 35 | ||||||
Accumulated deficit
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(100,632 | ) | (104,951 | ) | ||||
Total Telos stockholders’ deficit
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(100,437 | ) | (104,735 | ) | ||||
Non-controlling interest in subsidiary (Note 2)
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731 | 381 | ||||||
Total stockholders’ deficit
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(99,706 | ) | (104,354 | ) | ||||
Total liabilities, redeemable preferred stock, non-controlling interest and stockholders’ deficit
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$ | 83,809 | $ | 89,837 |
Nine Months Ended September 30,
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2012
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2011
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Operating activities:
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Net income
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$ | 5,918 | $ | 3,652 | ||||
Adjustments to reconcile net income to cash provided by operating activities:
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Gain on redemption of senior preferred stock
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(444 | ) | (230 | ) | ||||
Dividends of preferred stock as interest expense
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3,058 | 3,125 | ||||||
Accretion of note payable
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655 | 163 | ||||||
Depreciation and amortization
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2,871 | 1,731 | ||||||
Amortization of debt issuance costs
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54 | 54 | ||||||
Deferred income tax benefit
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--- | (159 | ) | |||||
Other noncash items
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32 | 58 | ||||||
Changes in other operating assets and liabilities
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7,228 | 2,683 | ||||||
Cash provided by operating activities
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19,372 | 11,077 | ||||||
Investing activities:
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Acquisition of ITL
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---- | (8,000 | ) | |||||
Purchases of property and equipment
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(316 | ) | (532 | ) | ||||
Cash used in investing activities
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(316 | ) | (8,532 | ) | ||||
Financing activities:
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Proceeds from senior credit facility
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181,289 | 187,915 | ||||||
Repayments of senior credit facility
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(191,976 | ) | (187,121 | ) | ||||
Decrease in book overdrafts
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1,410 | 2,134 | ||||||
Repayments of term loan
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(282 | ) | (281 | ) | ||||
Repayments of note payable
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(3,500 | ) | (1,383 | ) | ||||
Payments under capital lease obligations
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(760 | ) | (672 | ) | ||||
Redemption of senior preferred stock
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(4,000 | ) | (2,070 | ) | ||||
Distributions to Telos ID Class B membership unit
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non-controlling interest
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(1,249 | ) | (1,021 | ) | ||||
Cash used in financing activities
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(19,068 | ) | (2,499 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents
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---- | ---- | ||||||
(Decrease) increase in cash and cash equivalents
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(12 | ) | 46 | |||||
Cash and cash equivalents at beginning of period
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220 | 116 | ||||||
Cash and cash equivalents at end of period
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$ | 208 | $ | 162 | ||||
Supplemental disclosures of cash flow information:
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Cash paid during the period for:
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Interest
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$ | 1,381 | $ | 1,280 | ||||
Income taxes
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$ | 4,995 | $ | 3,882 | ||||
Noncash:
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Interest on redeemable preferred stock
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$ | 3,058 | $ | 3,125 | ||||
Acquisition financed through issuance of notes payable
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$ | ---- | $ | 18,673 |
Note 1.
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General and Basis of Presentation
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Cost
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Accumulated
Amortization
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Other intangible asset
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$ | 11,286 | $ | 2,822 | ||||
$ | 11,286 | $ | 2,822 |
September 30,
2012
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December 31,
2011
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Cumulative foreign currency translation loss
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$ | (39 | ) | $ | (18 | ) | ||
Cumulative actuarial gain on pension liability adjustment
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53 | 53 | ||||||
Accumulated other comprehensive income
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$ | 14 | $ | 35 |
Note 2.
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Sale of Assets
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2012
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2011
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2012
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2011
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Non-controlling interest, beginning of period
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$ | 683 | $ | 410 | $ | 381 | $ | 454 | ||||||||
Net income
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725 | 1,100 | 1,599 | 1,672 | ||||||||||||
Distributions
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(677 | ) | (405 | ) | (1,249 | ) | (1,021 | ) | ||||||||
Non-controlling interest, end of period
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$ | 731 | $ | 1,105 | $ | 731 | $ | 1,105 |
Note 3.
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Acquisition of IT Logistics, Inc.
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Inventories, net
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$ | 221 | ||
Property and equipment, net
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108 | |||
Goodwill
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14,916 | |||
Other intangible asset
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11,286 | |||
Total purchase price allocation
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$ | 26,531 |
Note 4.
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Investment in Enterworks
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Note 5.
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Fair Value Measurements
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Note 6.
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Current Liabilities and Debt Obligations
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2012
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2013
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2014
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Total
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Short-term:
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Term loan
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$ | 375 | $ | ---- | $ | ---- | $ | 375 | 1 | |||||||
Long-term:
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Term loan
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$ | ---- | $ | 375 | $ | 5,906 | $ | 6,281 | 1 | |||||||
Revolving credit
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---- | --- | 251 | 251 | 2 | |||||||||||
Subtotal
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$ | ---- | $ | 375 | $ | 6,157 | $ | 6,532 | ||||||||
Total
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$ | 375 | $ | 375 | $ | 6,157 | $ | 6,907 |
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1
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The principal will be repaid in quarterly installments of $93,750, with a final installment of the unpaid principal amount payable on May 17, 2014.
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2
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Balance due represents balance as of September 30, 2012, with fluctuating balances based on working capital requirements of the Company.
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Note 7.
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Redeemable Preferred Stock
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Note 8.
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Income Taxes
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Note 9.
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Commitments and Contingencies
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Note 10.
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Related Party Transactions
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·
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Cyber Operations and Defense (formerly Secure Networks and Information Assurance) – Secure wired and wireless network solutions for Department of Defense (“DoD”) and other federal agencies. We provide an extensive range of wired and wireless voice, data, and video secure network solutions and mobile application development to support defense and civilian missions. In July 2011, we acquired all of the assets of IT Logistics, Inc. (“ITL”) and incorporated such assets into our Secure Networks business solutions. Software products and consulting services automate, streamline, and enforce IT security and risk management processes enterprise-wide. We offer information assurance consulting services and Xacta brand GRC (governance, risk, and compliance) solutions to protect and defend IT systems, ensuring their availability, integrity, authentication, and confidentiality.
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·
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Secure Communications (formerly Secure Messaging) – The next-generation messaging solution supporting warfighters throughout the world. Telos Secure Information eXchange (T-6) and the AMHS platform offer secure, automated, Web-based capabilities for distributing and managing enterprise messages formatted for the Defense Messaging System as well as collaborating in real-time through video, text, whiteboarding, and document sharing.
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·
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Identity Management – End-to-end logical and physical security from the gate to the network. Our identity management solutions provide control of physical access to bases, offices, workstations, and other facilities, as well as control of logical access to databases, host systems, and other IT resources.
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(unaudited)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2012
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2011
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2012
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2011
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Revenue
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100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales
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77.7 | 77.9 | 75.5 | 75.4 | ||||||||||||
Selling, general, and administrative expenses
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16.6 | 17.1 | 16.0 | 17.5 | ||||||||||||
Operating income
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5.7 | 5.0 | 8.5 | 7.1 | ||||||||||||
Other income
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0.3 | 0.1 | 0.3 | 0.2 | ||||||||||||
Interest expense
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(2.4 | ) | (3.1 | ) | (2.9 | ) | (3.2 | ) | ||||||||
Income before income taxes
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3.6 | 2.0 | 5.9 | 4.1 | ||||||||||||
Income tax (provision) benefit
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(1.7 | ) | 0.3 | (2.6 | ) | (1.5 | ) | |||||||||
Net income
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1.9 | 2.3 | 3.3 | 2.6 | ||||||||||||
Less: Net income attributable to non-controlling interest
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(1.1 | ) | (2.1 | ) | (0.9 | ) | (1.2 | ) | ||||||||
Net income attributable to Telos Corporation
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0.8 | % | 0.2 | % | 2.4 | % | 1.4 | % |
Item 4.
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Item 1.
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Item 1A.
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Item 3.
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Item 4.
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Item 5.
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·
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in the case of Mr. Wood, (1) the amount of monthly salary that Mr. Wood was being paid as of the date of his termination of employment times 24 months, plus (2) two times the annual average of the bonuses earned or to be earned for the current year (i.e., the year in which the change of control occurs) and the two prior years;
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·
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in the case of Mr. Williams 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;
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·
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in the case of Mr. Malloy and certain other executive officers of the Company, including Mr. Emmett Wood, the brother of the Company's CEO John Wood, 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.
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Item 6.
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*
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filed herewith
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**
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in accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed”
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Date: November 14, 2012
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TELOS CORPORATION
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/s/ John B. Wood
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John B. Wood
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Chief Executive Officer (Principal Executive Officer) |
/s/ Michele Nakazawa
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Michele Nakazawa
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Chief Financial Officer (Principal Financial and Accounting Officer) |
(a)
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Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive as its President and Chief Executive Officer during the Agreement Term (as defined below).
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(b)
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During the Agreement Term, the Executive shall devote full time (paid time off and other authorized leave excepted) and best efforts, energies and talents to serving the Company as an employee.
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(c)
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The Executive agrees to perform his duties faithfully, efficiently and with integrity subject to the direction of the Company. The Executive will have such authority, power, responsibilities and duties as are inherent in such position and necessary to carry out such responsibilities and the duties required hereunder, as well as any additional duties and authority granted to him by the Company’s Board of Directors (the “Board of Directors”).
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(d)
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Notwithstanding the foregoing, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including activities involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other profit or not-for-profit organizations, and similar activities, to the extent that such other activities do not, in the sole discretion of the Company, inhibit or prohibit the performance of the Executive’s duties under this Agreement or conflict in any material way with the Company’s business.
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(e)
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The Executive shall not be required to perform services under this Agreement during any period in which determined as Disabled (as defined below).
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(f)
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The “Agreement Term” shall be the period beginning on January 1, 2012 for a one year period, and thereafter shall automatically renew for consecutive one year periods unless terminated in accordance with the provisions hereof.
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(a)
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Base Salary
. The Executive shall receive an annual base salary of Six Hundred Thousand Dollars ($600,000.00), effective as of April 1, 2012 (the “Salary”), plus any salary increases authorized during the Agreement Term, if any, payable in accordance with the Company’s payroll cycle.
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(b)
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Bonus
. The Executive shall have the opportunity to participate in a bonus plan for which he is eligible under the terms and conditions as defined by the Company. Any bonus for the Executive shall be subject to the then-existing requirements of the Company governing internal recommendation and approval of such bonus. Any such bonus payment shall be paid to the Executive per the bonus plan.
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(c)
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Stock Options and Restricted Stock Grants
. The Executive shall be eligible for additional stock options and restricted stock grants under any of the Company’s stock option and restricted stock plans in an amount recommended by the Management Development and Compensation Committee and approved by the Board of Directors. Such options and/or grants shall be subject to the terms and conditions of the applicable standard stock option and restricted stock plans and agreements adopted by the Company.
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(d)
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Expense Reimbursement
. While the Agreement is in effect, the Company will reimburse the Executive for all reasonable and necessary business expenses incurred by the Executive in connection with the performance of his duties for the Company. Such reimbursement is subject to the submission to the Company by the Executive of appropriate documentation and/or vouchers, and will be made in accordance with the customary business procedures of the Company for expense reimbursement, as may from time to time be established.
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(e)
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Paid Time Off
. While the Agreement is in effect, in each fiscal year of the Company, the Executive shall be eligible to accrue paid time off, subject to the terms of the current benefits policy.
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(f)
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Other Benefits
. The Executive shall be eligible to participate in any and all plans maintained by the Company to provide benefits for its salaried senior executives, including, without limitation, any pension, profit sharing or other retirement plan, any life, accident, disability, medical, hospital or similar group insurance program and any other benefit plan, subject to the normal terms and conditions of such plans.
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(b)
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Disability
. If the Executive becomes Disabled, the Company may terminate Executive’s employment. For purposes of this Agreement, the Executive shall be deemed to be “Disabled” if (i) eligible for disability benefits under the Company’s long-term disability plan, or (ii) has a physical or mental disability which renders Executive incapable, after reasonable accommodation, of performing substantially all of Executive’s duties hereunder for a period of 180 days (which need not be consecutive) in any 12-month period. In the event of a dispute as to whether the Executive is Disabled, the Company may, at its expense, refer Executive to a licensed practicing physician of the Company’s choice and the Executive agrees to submit to such tests and examination as such physician shall deem customary and appropriate.
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(c)
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Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time for Cause by written notice to the Executive detailing the basis for the Cause termination. For purposes of this Agreement, “Cause” means (i) gross negligence or willful and continued failure by the Executive to substantially perform his duties as an employee of the Company (other than any such failure resulting from incapacity due to physical or mental illness); (ii) Executive’s dishonesty, fraudulent misrepresentation, willful misconduct, malfeasance, violation of fiduciary duty relating to the business of the Company; or (iii) conviction of a felony.
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(d)
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Without Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time without Cause by written notice to the Executive.
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(e)
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Termination by Executive
. The Executive may terminate his employment hereunder at any time for any reason by giving the Company prior written notice not less than thirty (30) days prior to such termination.
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(f)
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Termination upon a Change in Control
. The Executive’s employment hereunder shall terminate automatically and such termination shall be considered to be without Cause (as defined above) upon the occurrence of a Change in Control (as defined below).
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(g)
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Mutual Agreement
. This Agreement may be terminated at any time by mutual written agreement of the parties.
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(h)
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Date of Termination
. “Date of Termination” means the last day that the Executive is employed by the Company under the terms of this Agreement or, in the event of a Change in Control, the date of the Change in Control, provided that Executive’s employment is terminated in accordance with one of the foregoing provisions in this paragraph 3.
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(a)
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If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment for Cause in accordance with paragraph 3(c) above, or if the Executive terminates his employment in accordance with paragraph 3(e) above, the Company shall pay to the Executive:
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(i)
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A lump-sum payment equivalent to the remaining unpaid portion of the Executive’s Salary for the period ending on the Date of Termination.
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(ii)
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A lump-sum payment for all accrued and unused Paid Time Off.
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(iii)
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Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such payments and benefits are earned and vested as of the Date of Termination, or are required by law to be offered for periods following the Date of Termination. In addition, any bonus which has been earned by Executive and approved by the appropriate corporate authorities but which remains unpaid as of the date of Date of Termination shall be paid to Executive at such time and in such manner as if Executive had continued to be employed by the Company.
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(b)
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If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment without Cause in accordance with paragraph 3(d) above, by mutual agreement in accordance with paragraph 3 (g) above, or due to Disability in accordance with paragraph 3(b) above, the Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to monthly payments over a 24-month period of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination. Such payments will commence as of the month following the date that the Executive incurs a separation from service, as such term is defined in the context of Section 409A of the Code (as defined below). Such payments will continue over the 24-month period in accordance with the Company’s normal payroll cycle. In the event that the Executive dies prior to the completion of the 24-month payment cycle, any amounts remaining unpaid as of the date of Executive’s death will be paid to Executive’s estate in lump sum.
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(c)
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If, prior to the occurrence of a Change in Control, the Executive’s employment is terminated due to death, the Executive’s estate shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive’s estate shall be entitled to a lump-sum payment of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination times 24 months.
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(d)
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Upon termination of the Executive’s employment as a result of a Change in Control in accordance with paragraph 3(f), Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to a lump-sum payment of an amount equal to the following: (1) the amount of monthly salary which the Executive was being paid as of the Date of Termination 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 in Control occurs) and the two prior years. For the current year, the bonus amount shall equal the amount earned or scheduled to be earned as if the bonus targets set in the bonus plan have been met. Such payments in lump sum shall be made contemporaneously with the consummation of the transaction or the election of directors that constitutes the Change in Control. “Change in Control” means an occasion upon which (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), 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, acquires (either directly and/or through becoming the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act)), directly or indirectly, securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities (or has acquired securities 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 Company securities by such person); or (ii) during any period of twelve (12) 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 (iii) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) 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. Each Change in Control event described in this paragraph is intended to constitute a change in ownership or effective control of the Company or in the ownership of a substantial portion of the Company’s assets within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (“Code”), and the IRS guidance issued thereunder and this Agreement shall be interpreted accordingly. Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to any payments under paragraphs 4(a), 4(b), or 4(c) upon Termination if the Executive receives the payments under this paragraph 4(d) upon a Change in Control.
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(e)
|
In the event that the Executive’s employment is terminated for any reason discussed in paragraphs 4(b), 4(c) or 4(d), in addition to the amounts payable under paragraphs 4(b), 4(c) or 4(d) as applicable, the Executive or the Executive’s estate shall be entitled to the following:
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(i)
|
Immediate vesting of the unvested portion of any outstanding stock option and any outstanding share of restricted stock, notwithstanding any contrary terms in any stock option or restricted stock agreement applicable to Executive.
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(ii)
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Cash payments equal to twenty-four (24) months of premium payments for medical and dental coverage. The amount of the monthly payments shall be equal to the amount of the “applicable premium” as determined pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (without regard to whether or not the Executive elects COBRA continuation coverage) based on the Executive’s choices under the Company’s plan as of the Date of Termination and further based upon the current premiums as of the Date of Termination, less the amount that the Executive was contributing for coverage. The Company benefits package in which the Executive participated will cease as of the Date of Termination.
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(iii)
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Cash payments equal to 24 months of benefit premiums based upon the premium rate at the Date of Termination under the terms of the Company’s Group Life Policy issued by CIGNA which allows the option to convert to an individual policy for basic life and accidental death and dismemberment (AD&D) coverage. However, the cash payments shall be no more than the amount of the premiums that the Company was paying as if the Executive was still employed. This paragraph shall not apply if the Executive’s employment is terminated per section 4(c).
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(iv)
|
Company will continue to pay the premiums to continue the Executive Life Policy in which the Executive is the holder of the policy, for 24 months after the Date of Termination. The annual premium payment shall be imputed to the Executive as income. This shall not apply if the Executive’s employment is terminated per section 4(c).
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(v)
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Cash payments equal to the employer matching contribution, as if the Executive was still a plan participant that would otherwise have been contributed on Executive's behalf to the Code Section 401(k) program maintained by the Company with respect to the 24-month period commencing on the Date of Termination under the following assumptions:
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(a)
|
Executive would have made a voluntary salary reduction contribution to the Code Section 401(k) program with respect to the 24-month period based upon the salary reduction election in effect on behalf of the Executive as of the Date of Termination.
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(b)
|
No additional "constructive matching" payments will be made under this provision with respect to a calendar year once the combination of the actual matching contributions made on behalf of Executive to the Code Section 401(k) program for such calendar year plus the "constructive matching" payments made to Executive pursuant to this provision for such calendar equal the maximum amount of matching contributions that could have been allocated to Executive's account under the terms of the Code Section 401(k) program with respect to such calendar year.
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(c)
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Except as otherwise contemplated by paragraph 4(e)(vi) below, the "constructive matching" payments will be made at such times as the Company remits the actual matching contributions to the Code Section 401(k) program.
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(vi)
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If the Executive’s employment is terminated per paragraph 4(b), all payments under paragraph this 4(e) shall be made on a periodic basis on the same schedule as such benefits otherwise would have been payable as if the Executive was still employed at the Company. If the Executive’s employment is terminated per paragraph 4(c) or paragraph 4(d), all payments under this paragraph 4(e) shall be paid in a lump-sum payment at the same time the lump sum payment is paid in accordance with paragraph 4(c) or paragraph 4(d). Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to receive the payments contemplated by this paragraph 4(e) upon the termination of the Executive’s employment with the Company if the Executive receives the payments under this paragraph 4(e) upon the termination of the Executive’s employment as a result of a Change in Control.
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(vii)
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If the Executive was receiving other benefits as of the Date of Termination that are not listed above, and to the extent such payments or benefits are earned and vested or are required by law to be offered to the Executive for the 24-month period following the Date of Termination, then the cash equivalent or arrangements for continuing coverage will be determined at that time. However, the cash payments shall be no more than the amount that the Company was paying as if the Executive was still employed.
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(viii)
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If any of the benefits listed above are no longer available to the Executive as of the Date of Termination, then there will be no such payments made to continue the benefits after the Date of Termination or its cash equivalent.
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(f)
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The undertakings of the Company in connection with paragraphs 4(b), 4(c), 4(d),and 4(e), above, are contingent upon Executive’s or his estate’s compliance with Sections 5, 6, 7 and 8 following termination or a Change in Control.
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(g)
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To the extent required by Section 409A of the Code, if the Executive separates from service with the Company for any reason other than death and the Executive constitutes a “specified employee” as defined in Section 409A(2)(B)(i) of the Code at the time of separation from service, then payment to the Executive of any amounts pursuant to Section 4(b) or 4(d) and payment of any cash amounts pursuant to Section 4(e) shall not be paid or commence until a date that is six months following the date of the Executive’s separation from service with the Company. Upon the date which is six months following the date of Executive’s separation from service, all previously accrued monthly amounts shall be payable in a lump-sum and future amounts will continue to be paid pursuant to the remaining term of the 24-month payment cycle. The above-referenced six month delay in payment shall only apply to the extent required by Section 409A of the Code, such that such delay shall not apply to payments made in connection with an involuntary termination of employment provided such payments fall within the dollar threshold described in Treas. Reg. § 1.409A-1(b)(9)(iii).
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(h)
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The Executive understands and agrees that he is obligated to pay all local, state and federal taxes that are or may be owed from the payments specified in this paragraph 4, and, as applicable, the payments will be subject to appropriate tax withholding by the Company.
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(a)
|
The Executive recognizes that the Company incurs significant expense in training employees to provide services in accordance with the Company’s Business and that the Company will disclose Confidential Information to each such employee. The Executive promises that, during the Agreement Term and for a period of 24 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly hire, directly or indirectly, any person then employed by the Company, or knowingly solicit, directly or indirectly, such a person either to terminate or diminish employment with the Company, or to work for any other person or entity, whether or not a competitor, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
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(b)
|
The Executive also acknowledges that the Company incurs significant expense in developing business partners, licensees, customers and clients. The Executive promises that, during the Agreement Term and for a period of 24 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly directly or indirectly, solicit any customer, business partner, licensee or client of the Company to terminate or diminish its business relationship with the Company or to purchase any product or service that is or may be used as a substitute for any product or service of the Company, and the Executive shall not knowingly approach any such customer, supplier, lessor or lessee for such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
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(c)
|
Notwithstanding anything to the contrary set forth in this Agreement, the provisions of this paragraph 7 shall survive the termination of the Executive’s employment hereunder and the termination of this Agreement.
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To the Company
:
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To the Executive
:
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Telos Corporation
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John B. Wood
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19886 Ashburn Road
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Ashburn, VA 20147
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Attn.: Legal Department
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EXECUTIVE
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TELOS CORPORATION
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||
/s/ John B. Wood
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/s/ William Dvoranchik
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||
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||
John B. Wood
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William Dvoranchik
|
||
President, Chief Executive Officer
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Director
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(a)
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Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive as its Executive Vice President and Chief Operating Officer during the Agreement Term (as defined below).
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(b)
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During the Agreement Term, the Executive shall devote full time (paid time off and other authorized leave excepted) and best efforts, energies and talents to serving the Company as an employee.
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(c)
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The Executive agrees to perform his duties faithfully, efficiently and with integrity subject to the direction of the Company. The Executive will have such authority, power, responsibilities and duties as are inherent in such position and necessary to carry out such responsibilities and the duties required hereunder, as well as any additional duties and authority granted to him by the Company’s Chief Executive Officer.
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(d)
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Notwithstanding the foregoing, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including activities involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other profit or not-for-profit organizations, and similar activities, to the extent that such other activities do not, in the sole discretion of the Company, inhibit or prohibit the performance of the Executive’s duties under this Agreement or conflict in any material way with the Company’s business.
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(e)
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The Executive shall not be required to perform services under this Agreement during any period in which determined as Disabled (as defined below).
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(f)
|
The “Agreement Term” shall be the period beginning on January 1, 2012 for a one year period, and thereafter shall automatically renew for consecutive one year periods unless terminated in accordance with the provisions hereof.
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(a)
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Base Salary
. The Executive shall receive an annual base salary of Three Hundred and Eighty-Five Thousand Dollars ($385,000.00), effective as of April 1, 2012 (the “Salary”), plus any salary increases authorized during the Agreement Term, if any, payable in accordance with the Company’s payroll cycle.
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(b)
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Bonus
. The Executive shall have the opportunity to participate in a bonus plan for which he is eligible under the terms and conditions as defined by the Company. Any bonus for the Executive shall be subject to the then-existing requirements of the Company governing internal recommendation and approval of such bonus. Any such bonus payment shall be paid to the Executive per the bonus plan.
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(c)
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Stock Options and Restricted Stock Grants
. The Executive shall be eligible for additional stock options and restricted stock grants under any of the Company’s stock option and restricted stock plans in an amount recommended by the Management Development and Compensation Committee and approved by the Board of Directors. Such options and/or grants shall be subject to the terms and conditions of the applicable standard stock option and restricted stock plans and agreements adopted by the Company.
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(d)
|
Expense Reimbursement
. While the Agreement is in effect, the Company will reimburse the Executive for all reasonable and necessary business expenses incurred by the Executive in connection with the performance of his duties for the Company. Such reimbursement is subject to the submission to the Company by the Executive of appropriate documentation and/or vouchers, and will be made in accordance with the customary business procedures of the Company for expense reimbursement, as may from time to time be established.
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(e)
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Paid Time Off
. While the Agreement is in effect, in each fiscal year of the Company, the Executive shall be eligible to accrue paid time off, subject to the terms of the current benefits policy.
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(f)
|
Other Benefits
. The Executive shall be eligible to participate in any and all plans maintained by the Company to provide benefits for its salaried senior executives, including, without limitation, any pension, profit sharing or other retirement plan, any life, accident, disability, medical, hospital or similar group insurance program and any other benefit plan, subject to the normal terms and conditions of such plans.
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(b)
|
Disability
. If the Executive becomes Disabled, the Company may terminate Executive’s employment. For purposes of this Agreement, the Executive shall be deemed to be “Disabled” if (i) eligible for disability benefits under the Company’s long-term disability plan, or (ii) has a physical or mental disability which renders Executive incapable, after reasonable accommodation, of performing substantially all of Executive’s duties hereunder for a period of 180 days (which need not be consecutive) in any 12-month period. In the event of a dispute as to whether the Executive is Disabled, the Company may, at its expense, refer Executive to a licensed practicing physician of the Company’s choice and the Executive agrees to submit to such tests and examination as such physician shall deem customary and appropriate.
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(c)
|
Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time for Cause by written notice to the Executive detailing the basis for the Cause termination. For purposes of this Agreement, “Cause” means (i) gross negligence or willful and continued failure by the Executive to substantially perform his duties as an employee of the Company (other than any such failure resulting from incapacity due to physical or mental illness); (ii) Executive’s dishonesty, fraudulent misrepresentation, willful misconduct, malfeasance, violation of fiduciary duty relating to the business of the Company; or (iii) conviction of a felony.
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(d)
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Without Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time without Cause by written notice to the Executive.
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(e)
|
Termination by Executive
. The Executive may terminate his employment hereunder at any time for any reason by giving the Company prior written notice not less than thirty (30) days prior to such termination.
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(f)
|
Termination upon a Change in Control
. The Executive’s employment hereunder shall terminate automatically, and such termination shall be considered to be without Cause (as defined above), upon the occurrence of a Change in Control (as defined below).
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(g)
|
Mutual Agreement
. This Agreement may be terminated at any time by mutual written agreement of the parties.
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(h)
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Date of Termination
. “Date of Termination” means the last day that the Executive is employed by the Company under the terms of this Agreement or, in the event of a Change in Control, the date of the Change in Control, provided that Executive’s employment is terminated in accordance with one of the foregoing provisions in this paragraph 3.
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(a)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment for Cause in accordance with paragraph 3(c) above, or if the Executive terminates his employment in accordance with paragraph 3(e) above, the Company shall pay to the Executive:
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|
(i)
|
A lump-sum payment equivalent to the remaining unpaid portion of the Executive’s Salary for the period ending on the Date of Termination.
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(ii)
|
A lump-sum payment for all accrued and unused Paid Time Off.
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(iii)
|
Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such payments and benefits are earned and vested as of the Date of Termination, or are required by law to be offered for periods following the Date of Termination. In addition, any bonus which has been earned by Executive and approved by the appropriate corporate authorities but which remains unpaid as of the Date of Termination shall be paid to Executive at such time and in such manner as if Executive had continued to be employed by the Company.
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(b)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment without Cause in accordance with paragraph 3(d) above, by mutual agreement in accordance with paragraph 3 (g) above, or due to Disability in accordance with paragraph 3(b) above, Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to monthly payments over a 18-month period of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination. Such payments will commence as of the month following the date that the Executive incurs a separation from service, as such term is defined in the context of Section 409A of the Code (as defined below). Such payments will continue over the 18-month period in accordance with the Company’s normal payroll cycle. In the event that the Executive dies prior to the completion of the 18-month payment cycle, any amounts remaining unpaid as of the date of Executive’s death will be paid to Executive’s estate in lump sum.
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(c)
|
If, prior to the occurrence of a Change in Control, the Executive’s employment is terminated due to death, the Executive’s estate shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive’s estate shall be entitled to a lump-sum payment of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination times 18 months.
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(d)
|
Upon termination of the Executive’s employment as a result of a Change in Control in accordance with paragraph 3(f), Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to a lump-sum payment of an amount equal to the following: (1) the amount of monthly salary which the Executive was being paid as of the Date of Termination 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 (i.e. the year in which the Change in Control occurs) and the two prior years. For the current year, the bonus amount shall equal the amount earned or scheduled to be earned as if the bonus targets set in the bonus plan have been met. Such payments in lump sum shall be made contemporaneously with the consummation of the transaction or the election of directors that constitutes the Change in Control. “Change in Control” means an occasion upon which (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), 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, acquires (either directly and/or through becoming the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act)), directly or indirectly, securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities (or has acquired securities 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 Company securities by such person); or (ii) during any period of twelve (12) 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 (iii) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) 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. Each Change in Control event described in this paragraph is intended to constitute a change in ownership or effective control of the Company or in the ownership of a substantial portion of the Company’s assets within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (“Code”), and the IRS guidance issued thereunder and this Agreement shall be interpreted accordingly. Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to any payments under paragraphs 4(a), 4(b), or 4(c) upon Termination if the Executive receives the payments under this paragraph 4(d) upon a Change in Control.
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(e)
|
In the event that the Executive’s employment is terminated for any reason discussed in paragraphs 4(b), 4(c) or 4(d), in addition to the amounts payable under paragraphs 4(b), 4(c) or 4(d) as applicable, the Executive or the Executive’s estate shall be entitled to the following:
|
|
(i)
|
Immediate vesting of the unvested portion of any outstanding stock option and any outstanding share of restricted stock, notwithstanding any contrary terms in any stock option or restricted stock agreement applicable to Executive.
|
|
(ii)
|
Cash payment equal to 18 months of premium payments for medical and dental coverage. The amount of the monthly payments shall be equal to the amount of the “applicable premium” as determined pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (without regard to whether or not the Executive elects COBRA continuation coverage) based on the Executive’s choices under the Company’s plan as of the Date of Termination and further based upon the current premiums as of the Date of Termination, less the amount that the Executive was contributing for coverage. The Company benefits package in which the Executive participated will cease as of the Date of Termination.
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|
(iii)
|
Cash payment equal to 18 months of benefit premiums based upon the premium rate at the Date of Termination under the terms of the Company’s Group Life Policy issued by CIGNA which allows the option to convert to an individual policy for basic life and accidental death and dismemberment (AD&D) coverage. However, the cash payments shall be no more than the amount of the premiums that the Company was paying as if the Executive was still employed. This paragraph shall not apply if the Executive’s employment is terminated per section 4(c).
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|
(iv)
|
Company will continue to pay the premiums to continue the Executive Life Policy in which the Executive is the holder of the policy, for 18 months after the Date of Termination. The annual premium payment shall be imputed to the Executive as income. This shall not apply if the Executive’s employment is terminated per section 4(c).
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(v)
|
Cash payment equal to the employer matching contribution, as if the Executive was still a plan participant that would otherwise have been contributed on Executive's behalf to the Code Section 401(k) program maintained by the Company with respect to the 18-month period commencing on the Date of Termination under the following assumptions:
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|
(a)
|
Executive would have made a voluntary salary reduction contribution to the Code Section 401(k) program with respect to the 18-month period based upon the salary reduction election in effect on behalf of the Executive as of the Date of Termination.
|
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(b)
|
No additional "constructive matching" payments will be made under this provision with respect to a calendar year once the combination of the actual matching contributions made on behalf of Executive to the Code Section 401(k) program for such calendar year plus the "constructive matching" payments made to Executive pursuant to this provision for such calendar equal the maximum amount of matching contributions that could have been allocated to Executive's account under the terms of the Code Section 401(k) program with respect to such calendar year.
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(c)
|
Except as otherwise contemplated by paragraph 4(e)(vi) below, the "constructive matching" payments will be made at such times as the Company remits the actual matching contributions to the Code Section 401(k) program.
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(vi)
|
If the Executive’s employment is terminated per paragraph 4(b), all payments under paragraph this 4(e) shall be made on a periodic basis on the same schedule as such benefits otherwise would have been payable as if the Executive was still employed at the Company. If the Executive’s employment is terminated per paragraph 4(c) or paragraph 4(d), all payments under this paragraph 4(e) shall be paid in a lump-sum payment at the same time the lump sum payment is paid in accordance with paragraph 4(c) or paragraph 4(d). Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to receive the payments contemplated by this paragraph 4(e) upon the termination of the Executive’s employment with the Company if the Executive receives the payments under this paragraph 4(e) upon the termination of the Executive’s employment as a result of a Change in Control.
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(vii)
|
If the Executive was receiving other benefits as of the Date of Termination that are not listed above, and to the extent such payments or benefits are earned and vested or are required by law to be offered to the Executive for the 18-month period following the Date of Termination, then the cash equivalent or arrangements for continuing coverage will be determined at that time. However, the cash payments shall be no more than the amount that the Company was paying as if the Executive was still employed.
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(viii)
|
If any of the benefits listed above are no longer available to the Executive as of the Date of Termination, then there will be no such payments made to continue the benefits after the Date of Termination or its cash equivalent.
|
(f)
|
The undertakings of the Company in connection with paragraphs 4(b), 4(c), 4(d) and 4(e), above, are contingent upon Executive’s or his estate’s compliance with Sections 5, 6, 7 and 8 following termination or a Change in Control.
|
(g)
|
To the extent required by Section 409A of the Code, if the Executive separates from service with the Company for any reason other than death and the Executive constitutes a “specified employee” as defined in Section 409A(2)(B)(i) of the Code at the time of separation from service, then payment to the Executive of any amounts pursuant to Section 4(b) or 4(d) and payment of any cash amounts pursuant to Section 4(e) shall not be paid or commence until a date that is six months following the date of the Executive’s separation from service with the Company. Upon the date which is six months following the date of Executive’s separation from service, all previously accrued monthly amounts shall be payable in a lump-sum and future amounts will continue to be paid pursuant to the remaining term of the 18-month payment cycle. The above-referenced six month delay in payment shall only apply to the extent required by Section 409A of the Code, such that such delay shall not apply to payments made in connection with an involuntary termination of employment provided such payments fall within the dollar threshold described in Treas. Reg. § 1.409A-1(b)(9)(iii).
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(h)
|
The Executive understands and agrees that he is obligated to pay all local, state and federal taxes that are or may be owed from the payments specified in this paragraph 4, and, as applicable, the payments will be subject to appropriate tax withholding by the Company.
|
(a)
|
The Executive recognizes that the Company incurs significant expense in training employees to provide services in accordance with the Company’s Business and that the Company will disclose Confidential Information to each such employee. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly hire, directly or indirectly, any person then employed by the Company, or knowingly solicit, directly or indirectly, such a person either to terminate or diminish employment with the Company, or to work for any other person or entity, whether or not a competitor, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(b)
|
The Executive also acknowledges that the Company incurs significant expense in developing business partners, licensees, customers and clients. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly directly or indirectly, solicit any customer, business partner, licensee or client of the Company to terminate or diminish its business relationship with the Company or to purchase any product or service that is or may be used as a substitute for any product or service of the Company, and the Executive shall not knowingly approach any such customer, supplier, lessor or lessee for such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(c)
|
Notwithstanding anything to the contrary set forth in this Agreement, the provisions of this paragraph 7 shall survive the termination of the Executive’s employment hereunder and the termination of this Agreement.
|
To the Company
:
|
To the Executive
|
Telos Corporation
|
Edward L. Williams
|
19886 Ashburn Road
|
|
Ashburn, VA 20147
|
|
Attn.:
Legal Department
|
EXECUTIVE
|
TELOS CORPORATION
|
||
/s/ Edward L. Williams
|
/s/ John B. Wood
|
||
|
|
||
Edward L. Williams
|
John B. Wood
|
||
EVP, Chief Operating Officer | President, Chief Executive Officer |
(a)
|
Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive as its Executive Vice President and Chief Financial Officer during the Agreement Term (as defined below).
|
(b)
|
During the Agreement Term, the Executive shall devote full time (paid time off and other authorized leave excepted) and best efforts, energies and talents to serving the Company as an employee.
|
(c)
|
The Executive agrees to perform her duties faithfully, efficiently and with integrity subject to the direction of the Company. The Executive will have such authority, power, responsibilities and duties as are inherent in such position and necessary to carry out such responsibilities and the duties required hereunder, as well as any additional duties and authority granted to her by the Company’s Chief Executive Officer.
|
(d)
|
Notwithstanding the foregoing, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including activities involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other profit or not-for-profit organizations, and similar activities, to the extent that such other activities do not, in the sole discretion of the Company, inhibit or prohibit the performance of the Executive’s duties under this Agreement or conflict in any material way with the Company’s business.
|
(e)
|
The Executive shall not be required to perform services under this Agreement during any period in which determined as Disabled (as defined below).
|
(f)
|
The “Agreement Term” shall be the period beginning on January 1, 2012 for a one year period, and thereafter shall automatically renew for consecutive one year periods unless terminated in accordance with the provisions hereof.
|
(a)
|
Base Salary
. The Executive shall receive an annual base salary of Three Hundred and Fifty Thousand Dollars ($350,000.00), effective as of April 1, 2012 (the “Salary”), plus any salary increases authorized during the Agreement Term, if any, payable in accordance with the Company’s payroll cycle.
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(b)
|
Bonus
. The Executive shall have the opportunity to participate in a bonus plan for which she is eligible under the terms and conditions as defined by the Company. Any bonus for the Executive shall be subject to the then-existing requirements of the Company governing internal recommendation and approval of such bonus. Any such bonus payment shall be paid to the Executive per the bonus plan.
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(c)
|
Stock Options and Restricted Stock Grants
. The Executive shall be eligible for additional stock options and restricted stock grants under any of the Company’s stock option and restricted stock plans in an amount recommended by the Management Development and Compensation Committee and approved by the Board of Directors. Such options and/or grants shall be subject to the terms and conditions of the applicable standard stock option and restricted stock plans and agreements adopted by the Company.
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(d)
|
Expense Reimbursement
. While the Agreement is in effect, the Company will reimburse the Executive for all reasonable and necessary business expenses incurred by the Executive in connection with the performance of his duties for the Company. Such reimbursement is subject to the submission to the Company by the Executive of appropriate documentation and/or vouchers, and will be made in accordance with the customary business procedures of the Company for expense reimbursement, as may from time to time be established.
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(e)
|
Paid Time Off
. While the Agreement is in effect, in each fiscal year of the Company, the Executive shall be eligible to accrue paid time off, subject to the terms of the current benefits policy.
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(f)
|
Other Benefits
. The Executive shall be eligible to participate in any and all plans maintained by the Company to provide benefits for its salaried senior executives, including, without limitation, any pension, profit sharing or other retirement plan, any life, accident, disability, medical, hospital or similar group insurance program and any other benefit plan, subject to the normal terms and conditions of such plans.
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(b)
|
Disability
. If the Executive becomes Disabled, the Company may terminate Executive’s employment. For purposes of this Agreement, the Executive shall be deemed to be “Disabled” if (i) eligible for disability benefits under the Company’s long-term disability plan, or (ii) has a physical or mental disability which renders Executive incapable, after reasonable accommodation, of performing substantially all of Executive’s duties hereunder for a period of 180 days (which need not be consecutive) in any 12-month period. In the event of a dispute as to whether the Executive is Disabled, the Company may, at its expense, refer Executive to a licensed practicing physician of the Company’s choice and the Executive agrees to submit to such tests and examination as such physician shall deem customary and appropriate.
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(c)
|
Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time for Cause by written notice to the Executive detailing the basis for the Cause termination. For purposes of this Agreement, “Cause” means (i) gross negligence or willful and continued failure by the Executive to substantially perform her duties as an employee of the Company (other than any such failure resulting from incapacity due to physical or mental illness); (ii) Executive’s dishonesty, fraudulent misrepresentation, willful misconduct, malfeasance, violation of fiduciary duty relating to the business of the Company; or (iii) conviction of a felony.
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(d)
|
Without Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time without Cause by written notice to the Executive.
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(e)
|
Termination by Executive
. The Executive may terminate her employment hereunder at any time for any reason by giving the Company prior written notice not less than thirty (30) days prior to such termination.
|
(f)
|
Termination upon a Change in Control
. The Executive’s employment hereunder shall terminate automatically, and such termination shall be considered to be without Cause (as defined above), upon the occurrence of a Change in Control (as defined below).
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(g)
|
Mutual Agreement
. This Agreement may be terminated at any time by mutual written agreement of the parties.
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(h)
|
Date of Termination
. “Date of Termination” means the last day that the Executive is employed by the Company under the terms of this Agreement or, in the event of a Change in Control, the date of the Change in Control, provided that Executive’s employment is terminated in accordance with one of the foregoing provisions in this paragraph 3.
|
(a)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment for Cause in accordance with paragraph 3(c) above, or if the Executive terminates her employment in accordance with paragraph 3(e) above, the Company shall pay to the Executive:
|
|
(i)
|
A lump-sum payment equivalent to the remaining unpaid portion of the Executive’s Salary for the period ending on the Date of Termination.
|
|
(ii)
|
A lump-sum payment for all accrued and unused Paid Time Off.
|
|
(iii)
|
Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such payments and benefits are earned and vested as of the Date of Termination, or are required by law to be offered for periods following the Date of Termination. In addition, any bonus which has been earned by Executive and approved by the appropriate corporate authorities but which remains unpaid as of the Date of Termination shall be paid to Executive at such time and in such manner as if Executive had continued to be employed by the Company.
|
(b)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment without Cause in accordance with paragraph 3(d) above, by mutual agreement in accordance with paragraph 3 (g) above, or due to Disability in accordance with paragraph 3(b) above, the Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to monthly payments over a 18-month period of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination. Such payments will commence as of the month following the date that the Executive incurs a separation from service, as such term is defined in the context of Section 409A of the Code (as defined below). Such payments will continue over the 18-month period in accordance with the Company’s normal payroll cycle. In the event that the Executive dies prior to the completion of the 18-month payment cycle, any amounts remaining unpaid as of the date of Executive’s death will be paid to Executive’s estate in lump sum.
|
(c)
|
If, prior to the occurrence of a Change in Control, the Executive’s employment is terminated due to death, the Executive’s estate shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive’s estate shall be entitled to a lump-sum payment of an amount equal the amount of monthly salary which the Executive was being paid as of the Date of Termination times 18 months.
|
(d)
|
Upon termination of the Executive’s employment as a result of a Change in Control in accordance with paragraph 3(f), Executive shall be entitle to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to a lump-sum payment of an amount equal to the following: (1) the amount of monthly salary which the Executive was being paid as of the Date of Termination 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 (i.e. the year in which the Change in Control occurs) and the two prior years. For the current year, the bonus amount shall equal the amount earned or scheduled to be earned as if the bonus targets set in the bonus plan have been met. Such payments in lump sum shall be made contemporaneously with the consummation of the transaction or the election of directors that constitutes the Change in Control. “Change in Control” means an occasion upon which (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), 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, acquires (either directly and/or through becoming the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act)), directly or indirectly, securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities (or has acquired securities 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 Company securities by such person); or (ii) during any period of twelve (12) 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 (iii) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) 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. Each Change in Control event described in this paragraph is intended to constitute a change in ownership or effective control of the Company or in the ownership of a substantial portion of the Company’s assets within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (“Code”), and the IRS guidance issued thereunder and this Agreement shall be interpreted accordingly. Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to any payments under paragraphs 4(a), 4(b), or 4(c) upon Termination if the Executive receives the payments under this paragraph 4(d) upon a Change in Control.
|
(e)
|
In the event that the Executive’s employment is terminated for any reason discussed in paragraphs 4(b), 4(c) or 4(d), in addition to the amounts payable under paragraphs 4(b), 4(c) or 4(d) as applicable, the Executive or the Executive’s estate shall be entitled to the following:
|
|
(i)
|
Immediate vesting of the unvested portion of any outstanding stock option and any outstanding share of restricted stock, notwithstanding any contrary terms in any stock option or restricted stock agreement applicable to Executive.
|
|
(ii)
|
Cash payments equal to 18 months of premium payments for medical and dental coverage. The amount of the monthly payments shall be equal to the amount of the “applicable premium” as determined pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (without regard to whether or not the Executive elects COBRA continuation coverage) based on the Executive’s choices under the Company’s plan as of the Date of Termination and further based upon the current premiums as of the Date of Termination, less the amount that the Executive was contributing for coverage. The Company benefits package in which the Executive participated will cease as of the Date of Termination.
|
|
(iii)
|
Cash payments equal to 18 months of benefit premiums based upon the premium rate at the Date of Termination under the terms of the Company’s Group Life Policy issued by CIGNA which allows the option to convert to an individual policy for basic life and accidental death and dismemberment (AD&D) coverage. However, the cash payments shall be no more than the amount of the premiums that the Company was paying as if the Executive was still employed. This paragraph shall not apply if the Executive’s employment is terminated per section 4(c).
|
|
(iv)
|
Company will continue to pay the premiums to continue the Executive Life Policy in which the Executive is the holder of the policy, for 18 months after the Date of Termination. The annual premium payment shall be imputed to the Executive as income. This shall not apply if the Executive’s employment is terminated per section 4(c).
|
|
(v)
|
Cash payments equal to the employer matching contribution, as if the Executive was still a plan participant that would otherwise have been contributed on Executive's behalf to the Code Section 401(k) program maintained by the Company with respect to the 18-month period commencing on the Date of Termination under the following assumptions:
|
|
(a)
|
Executive would have made a voluntary salary reduction contribution to the Code Section 401(k) program with respect to the 18-month period based upon the salary reduction election in effect on behalf of the Executive as of the Date of Termination.
|
|
(b)
|
No additional "constructive matching" payments will be made under this provision with respect to a calendar year once the combination of the actual matching contributions made on behalf of Executive to the Code Section 401(k) program for such calendar year plus the "constructive matching" payments made to Executive pursuant to this provision for such calendar equal the maximum amount of matching contributions that could have been allocated to Executive's account under the terms of the Code Section 401(k) program with respect to such calendar year.
|
|
(c)
|
Except as otherwise contemplated by paragraph 4(e)(vi) below, the "constructive matching" payments will be made at such times as the Company remits the actual matching contributions to the Code Section 401(k) program.
|
|
(vi)
|
If the Executive’s employment is terminated per paragraph 4(b), all payments under paragraph this 4(e) shall be made on a periodic basis on the same schedule as such benefits otherwise would have been payable as if the Executive was still employed at the Company. If the Executive’s employment is terminated per paragraph 4(c) or paragraph 4(d), all payments under this paragraph 4(e) shall be paid in a lump-sum payment at the same time the lump sum payment is paid in accordance with paragraph 4(c) or paragraph 4(d). Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to receive the payments contemplated by this paragraph 4(e) upon the termination of the Executive’s employment with the Company if the Executive receives the payments under this paragraph 4(e) upon the termination of the Executive’s employment as a result of a Change in Control.
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|
(vii)
|
If the Executive was receiving other benefits as of the Date of Termination that are not listed above, and to the extent such payments or benefits are earned and vested or are required by law to be offered to the Executive for the 18-month period following the Date of Termination, then the cash equivalent or arrangements for continuing coverage will be determined at that time. However, the cash payments shall be no more than the amount that the Company was paying as if the Executive was still employed.
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|
(viii)
|
If any of the benefits listed above are no longer available to the Executive as of the Date of Termination, then there will be no such payments made to continue the benefits after the Date of Termination or its cash equivalent.
|
(f)
|
The undertakings of the Company in connection with paragraphs 4(b), 4(c), 4(d) and 4(e), above, are contingent upon Executive’s or his estate’s compliance with Sections 5, 6, 7 and 8 following termination or a Change in Control.
|
(g)
|
To the extent required by Section 409A of the Code, if the Executive separates from service with the Company for any reason other than death and the Executive constitutes a “specified employee” as defined in Section 409A(2)(B)(i) of the Code at the time of separation from service, then payment to the Executive of any amounts pursuant to Section 4(b) or 4(d) and payment of any cash amounts pursuant to Section 4(e) shall not be paid or commence until a date that is six months following the date of the Executive’s separation from service with the Company. Upon the date which is six months following the date of Executive’s separation from service, all previously accrued monthly amounts shall be payable in a lump-sum and future amounts will continue to be paid pursuant to the remaining term of the 18-month payment cycle. The above-referenced six month delay in payment shall only apply to the extent required by Section 409A of the Code, such that such delay shall not apply to payments made in connection with an involuntary termination of employment provided such payments fall within the dollar threshold described in Treas. Reg. § 1.409A-1(b)(9)(iii).
|
(h)
|
The Executive understands and agrees that she is obligated to pay all local, state and federal taxes that are or may be owed from the payments specified in this paragraph 4, and, as applicable, the payments will be subject to appropriate tax withholding by the Company.
|
(a)
|
The Executive recognizes that the Company incurs significant expense in training employees to provide services in accordance with the Company’s Business and that the Company will disclose Confidential Information to each such employee. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly hire, directly or indirectly, any person then employed by the Company, or knowingly solicit, directly or indirectly, such a person either to terminate or diminish employment with the Company, or to work for any other person or entity, whether or not a competitor, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(b)
|
The Executive also acknowledges that the Company incurs significant expense in developing business partners, licensees, customers and clients. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly directly or indirectly, solicit any customer, business partner, licensee or client of the Company to terminate or diminish its business relationship with the Company or to purchase any product or service that is or may be used as a substitute for any product or service of the Company, and the Executive shall not knowingly approach any such customer, supplier, lessor or lessee for such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(c)
|
Notwithstanding anything to the contrary set forth in this Agreement, the provisions of this paragraph 7 shall survive the termination of the Executive’s employment hereunder and the termination of this Agreement.
|
To the Company
:
|
To the Executive
:
|
Telos Corporation
|
Michele Nakazawa
|
19886 Ashburn Road
|
|
Ashburn, VA 20147
|
|
Attn.: Legal Department
|
EXECUTIVE
|
TELOS CORPORATION
|
||
/s/ Michele Nakazawa
|
/s/ John B. Wood
|
||
|
|
||
Michele Nakazawa
|
John B. Wood
|
||
EVP, Chief Financial Officer
|
President, Chief Executive Officer
|
(a)
|
Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive as its Senior Vice President & General Manager, Secure Network Solutions during the Agreement Term (as defined below).
|
(b)
|
During the Agreement Term, the Executive shall devote full time (paid time off and other authorized leave excepted) and best efforts, energies and talents to serving the Company as an employee.
|
(c)
|
The Executive agrees to perform his duties faithfully, efficiently and with integrity subject to the direction of the Company. The Executive will have such authority, power, responsibilities and duties as are inherent in such position and necessary to carry out such responsibilities and the duties required hereunder, as well as any additional duties and authority granted to him by his designated supervisor.
|
(d)
|
Notwithstanding the foregoing, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including activities involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other profit or not-for-profit organizations, and similar activities, to the extent that such other activities do not, in the sole discretion of the Company, inhibit or prohibit the performance of the Executive’s duties under this Agreement or conflict in any material way with the Company’s business.
|
(e)
|
The Executive shall not be required to perform services under this Agreement during any period in which determined as Disabled (as defined below).
|
(f)
|
The “Agreement Term” shall be the period beginning on January 1, 2012 for a one year period, and thereafter shall automatically renew for consecutive one year periods unless terminated in accordance with the provisions hereof.
|
(a)
|
Base Salary
. The Executive shall receive an annual base salary of Three Hundred and Fifteen Thousand Dollars ($315,000.00) (the “Salary”), plus any salary increases authorized during the Agreement Term, if any, payable in accordance with the Company’s payroll cycle.
|
(b)
|
Bonus
. The Executive shall have the opportunity to participate in a bonus plan for which he is eligible under the terms and conditions as defined by the Company. Any bonus for the Executive shall be subject to the then-existing requirements of the Company governing internal recommendation and approval of such bonus. Any such bonus payment shall be paid to the Executive per the bonus plan.
|
(c)
|
Stock Options and Restricted Stock Grants
. The Executive shall be eligible for additional stock options and restricted stock grants under any of the Company’s stock option and restricted stock plans in an amount recommended by the Chief Executive Officer and approved by the Board of Directors. Such options and/or grants shall be subject to the terms and conditions of the applicable standard stock option and restricted stock plans and agreements adopted by the Company.
|
(d)
|
Expense Reimbursement
. While the Agreement is in effect, the Company will reimburse the Executive for all reasonable and necessary business expenses incurred by the Executive in connection with the performance of his duties for the Company. Such reimbursement is subject to the submission to the Company by the Executive of appropriate documentation and/or vouchers, and will be made in accordance with the customary business procedures of the Company for expense reimbursement, as may from time to time be established.
|
(e)
|
Paid Time Off
. While the Agreement is in effect, in each fiscal year of the Company, the Executive shall be eligible to accrue paid time off, subject to the terms of the current benefits policy.
|
(f)
|
Other Benefits
. The Executive shall be eligible to participate in any and all plans maintained by the Company to provide benefits for its salaried senior executives, including, without limitation, any pension, profit sharing or other retirement plan, any life, accident, disability, medical, hospital or similar group insurance program and any other benefit plan, subject to the normal terms and conditions of such plans.
|
(b)
|
Disability
. If the Executive becomes Disabled, the Company may terminate Executive’s employment. For purposes of this Agreement, the Executive shall be deemed to be “Disabled” if (i) eligible for disability benefits under the Company’s long-term disability plan, or (ii) has a physical or mental disability which renders Executive incapable, after reasonable accommodation, of performing substantially all of Executive’s duties hereunder for a period of 180 days (which need not be consecutive) in any 12-month period. In the event of a dispute as to whether the Executive is Disabled, the Company may, at its expense, refer Executive to a licensed practicing physician of the Company’s choice and the Executive agrees to submit to such tests and examination as such physician shall deem customary and appropriate.
|
|
(c)
|
Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time for Cause by written notice to the Executive detailing the basis for the Cause termination. For purposes of this Agreement, “Cause” means (i) gross negligence or willful and continued failure by the Executive to substantially perform his duties as an employee of the Company (other than any such failure resulting from incapacity due to physical or mental illness); (ii) Executive’s dishonesty, fraudulent misrepresentation, willful misconduct, malfeasance, violation of fiduciary duty relating to the business of the Company; or (iii) conviction of a felony.
|
(d)
|
Without Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time without Cause by written notice to the Executive.
|
(e)
|
Termination by Executive
. The Executive may terminate his employment hereunder at any time for any reason by giving the Company prior written notice not less than thirty (30) days prior to such termination.
|
(f)
|
Termination upon a Change in Control
. The Executive’s employment hereunder shall terminate automatically, and such termination shall be considered to be without Cause (as defined above), upon the occurrence of a Change in Control (as defined below).
|
(g)
|
Mutual Agreement
. This Agreement may be terminated at any time by mutual written agreement of the parties.
|
(h)
|
Date of Termination
. “Date of Termination” means the last day that the Executive is employed by the Company under the terms of this Agreement or, in the event of a Change in Control, the date of the Change in Control, provided that Executive’s employment is terminated in accordance with one of the foregoing provisions in this paragraph 3.
|
(a)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment for Cause in accordance with paragraph 3(c) above, or if the Executive terminates his employment in accordance with paragraph 3(e) above, the Company shall pay to the Executive:
|
|
(i)
|
A lump-sum payment equivalent to the remaining unpaid portion of the Executive’s Salary for the period ending on the Date of Termination.
|
|
(ii)
|
A lump-sum payment for all accrued and unused Paid Time Off.
|
|
(iii)
|
Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such payments and benefits are earned and vested as of the Date of Termination, or are required by law to be offered for periods following the Date of Termination. In addition, any bonus which has been earned by Executive and approved by the appropriate corporate authorities but which remains unpaid as of the Date of Termination shall be paid to Executive at such time and in such manner as if Executive had continued to be employed by the Company.
|
(b)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment without Cause in accordance with paragraph 3(d) above, by mutual agreement in accordance with paragraph 3 (g) above, or due to Disability in accordance with paragraph 3(b) above, Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to monthly payments over a 18-month period of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination. Such payments will commence as of the month following the date that the Executive incurs a separation from service, as such term is defined in the context of Section 409A of the Code (as defined below). Such payments will continue over the 18-month period in accordance with the Company’s normal payroll cycle. In the event that the Executive dies prior to the completion of the 18-month payment cycle, any amounts remaining unpaid as of the date of Executive’s death will be paid to Executive’s estate in lump sum.
|
(c)
|
If, prior to the occurrence of a Change in Control, the Executive’s employment is terminated due to death, the Executive’s estate shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive’s estate shall be entitled to a lump-sum payment of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination times 18 months.
|
(d)
|
Upon the termination of the Executive’s employment as a result of a Change in Control in accordance with paragraph 3(f), Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to a lump-sum payment of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination times 18 months. Such payment in lump sum shall be made contemporaneously with the consummation of the transaction or the election of directors that constitutes the Change in Control. “Change in Control” means an occasion upon which (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), 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, acquires (either directly and/or through becoming the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act)), directly or indirectly, securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities (or has acquired securities 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 Company securities by such person); or (ii) during any period of twelve (12) 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 (iii) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) 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. Each Change in Control event described in this paragraph is intended to constitute a change in ownership or effective control of the Company or in the ownership of a substantial portion of the Company’s assets within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (“Code”), and the IRS guidance issued thereunder and this Agreement shall be interpreted accordingly. Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to any payments under paragraphs 4(a), 4(b), or 4(c) upon Termination if the Executive receives the payments under this paragraph 4(d) upon a Change in Control.
|
(e)
|
In the event that the Executive’s employment is terminated for any reason discussed in paragraphs 4(b), 4(c) or 4(d), in addition to the amounts payable under paragraphs 4(b), 4(c) or 4(d) as applicable, the Executive or the Executive’s estate shall be entitled to the following:
|
|
(i)
|
Immediate vesting of the unvested portion of any outstanding stock option and any outstanding share of restricted stock, notwithstanding any contrary terms in any stock option or restricted stock agreement applicable to Executive.
|
|
(ii)
|
Cash payment equal to 18 months of premium payments for medical and dental coverage. The amount of the monthly payments shall be equal to the amount of the “applicable premium” as determined pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (without regard to whether or not the Executive elects COBRA continuation coverage) based on the Executive’s choices under the Company’s plan as of the Date of Termination and further based upon the current premiums as of the Date of Termination, less the amount that the Executive was contributing for coverage. The Company benefits package in which the Executive participated will cease as of the Date of Termination.
|
|
(iii)
|
Cash payment equal to 18 months of benefit premiums based upon the premium rate at the Date of Termination under the terms of the Company’s Group Life Policy issued by CIGNA which allows the option to convert to an individual policy for basic life and accidental death and dismemberment (AD&D) coverage. However, the cash payments shall be no more than the amount of the premiums that the Company was paying as if the Executive was still employed. This paragraph shall not apply if the Executive’s employment is terminated per section 4(c).
|
|
(iv)
|
Cash payment equal to the employer matching contribution, as if the Executive was still a plan participant that would otherwise have been contributed on Executive's behalf to the Code Section 401(k) program maintained by the Company with respect to the 18-month period commencing on the Date of Termination under the following assumptions:
|
|
(a)
|
Executive would have made a voluntary salary reduction contribution to the Code Section 401(k) program with respect to the 18-month period based upon the salary reduction election in effect on behalf of the Executive as of the Date of Termination.
|
|
(b)
|
No additional "constructive matching" payments will be made under this provision with respect to a calendar year once the combination of the actual matching contributions made on behalf of Executive to the Code Section 401(k) program for such calendar year plus the "constructive matching" payments made to Executive pursuant to this provision for such calendar equal the maximum amount of matching contributions that could have been allocated to Executive's account under the terms of the Code Section 401(k) program with respect to such calendar year.
|
|
(c)
|
Except as otherwise contemplated by paragraph 4(e)(v) below, the "constructive matching" payments will be made at such times as the Company remits the actual matching contributions to the Code Section 401(k) program.
|
|
(v)
|
If the Executive’s employment is terminated per paragraph 4(b), all payments under paragraph this 4(e) shall be made on a periodic basis on the same schedule as such benefits otherwise would have been payable as if the Executive was still employed at the Company. If the Executive’s employment is terminated per paragraph 4(c) or paragraph 4(d), all payments under this paragraph 4(e) shall be paid in a lump-sum payment at the same time the lump sum payment is paid in accordance with paragraph 4(c) or paragraph 4(d). Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to receive the payments contemplated by this paragraph 4(e) upon the termination of the Executive’s employment with the Company if the Executive receives the payments under this paragraph 4(e) upon the termination of the Executive’s employment as a result of a Change in Control.
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(vi)
|
If the Executive was receiving other benefits as of the Date of Termination that are not listed above, and to the extent such payments or benefits are earned and vested or are required by law to be offered to the Executive for the 18-month period following the Date of Termination, then the cash equivalent or arrangements for continuing coverage will be determined at that time. However, the cash payments shall be no more than the amount that the Company was paying as if the Executive was still employed.
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(vii)
|
If any of the benefits listed above are no longer available to the Executive as of the Date of Termination, then there will be no such payments made to continue the benefits after the Date of Termination or its cash equivalent.
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(f)
|
The undertakings of the Company in connection with paragraphs 4(b), 4(c), 4(d) and 4(e), above, are contingent upon Executive’s or his estate’s compliance with Sections 5, 6, 7 and 8 following termination or a Change in Control.
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(g)
|
To the extent required by Section 409A of the Code, if the Executive separates from service with the Company for any reason other than death and the Executive constitutes a “specified employee” as defined in Section 409A(2)(B)(i) of the Code at the time of separation from service, then payment to the Executive of any amounts pursuant to Section 4(b) or 4(d) and payment of any cash amounts pursuant to Section 4(e) shall not be paid or commence until a date that is six months following the date of the Executive’s separation from service with the Company. Upon the date which is six months following the date of Executive’s separation from service, all previously accrued monthly amounts shall be payable in a lump-sum and future amounts will continue to be paid pursuant to the remaining term of the 18-month payment cycle. The above-referenced six month delay in payment shall only apply to the extent required by Section 409A of the Code, such that such delay shall not apply to payments made in connection with an involuntary termination of employment provided such payments fall within the dollar threshold described in Treas. Reg. § 1.409A-1(b)(9)(iii).
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(h)
|
The Executive understands and agrees that he is obligated to pay all local, state and federal taxes that are or may be owed from the payments specified in this paragraph 4, and, as applicable, the payments will be subject to appropriate tax withholding by the Company.
|
(a)
|
The Executive recognizes that the Company incurs significant expense in training employees to provide services in accordance with the Company’s Business and that the Company will disclose Confidential Information to each such employee. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly hire, directly or indirectly, any person then employed by the Company, or knowingly solicit, directly or indirectly, such a person either to terminate or diminish employment with the Company, or to work for any other person or entity, whether or not a competitor, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(b)
|
The Executive also acknowledges that the Company incurs significant expense in developing business partners, licensees, customers and clients. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly directly or indirectly, solicit any customer, business partner, licensee or client of the Company to terminate or diminish its business relationship with the Company or to purchase any product or service that is or may be used as a substitute for any product or service of the Company, and the Executive shall not knowingly approach any such customer, supplier, lessor or lessee for such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(c)
|
Notwithstanding anything to the contrary set forth in this Agreement, the provisions of this paragraph 7 shall survive the termination of the Executive’s employment hereunder and the termination of this Agreement.
|
To the Company
:
|
To the Executive
:
|
Telos Corporation
|
Brendan M. Malloy
|
19886 Ashburn Road
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|
Ashburn, VA 20147
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|
Attn.: Legal Department
|
EXECUTIVE
|
TELOS CORPORATION
|
||
/s/ Brendan M. Malloy
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/s/ John B. Wood
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||
|
|
||
Brendan M. Malloy
|
John B. Wood
|
||
SVP, Cyber Operations and Defense
|
President, Chief Executive Officer
|
(a)
|
Subject to the terms of this Agreement, the Company hereby agrees to employ the Executive as its
[TITLE]
during the Agreement Term (as defined below).
|
(b)
|
During the Agreement Term, the Executive shall devote full time (paid time off and other authorized leave excepted) and best efforts, energies and talents to serving the Company as an employee.
|
(c)
|
The Executive agrees to perform his duties faithfully, efficiently and with integrity subject to the direction of the Company. The Executive will have such authority, power, responsibilities and duties as are inherent in such position and necessary to carry out such responsibilities and the duties required hereunder, as well as any additional duties and authority granted to him by the his designated supervisor.
|
(d)
|
Notwithstanding the foregoing, during the Agreement Term, the Executive may devote reasonable time to activities other than those required under this Agreement, including activities involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other profit or not-for-profit organizations, and similar activities, to the extent that such other activities do not, in the sole discretion of the Company, inhibit or prohibit the performance of the Executive’s duties under this Agreement or conflict in any material way with the Company’s business.
|
(e)
|
The Executive shall not be required to perform services under this Agreement during any period in which determined as Disabled (as defined below).
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(f)
|
The “Agreement Term” shall be the period beginning on January 1, 2012 for a one year period, and thereafter shall automatically renew for consecutive one year periods unless terminated in accordance with the provisions hereof.
|
(a)
|
Base Salary
. The Executive shall receive an annual base salary of
[SALARY]
(the “Salary”), plus any salary increases authorized during the Agreement Term, if any, payable in accordance with the Company’s payroll cycle.
|
(b)
|
Bonus
. The Executive shall have the opportunity to participate in a bonus plan for which he is eligible under the terms and conditions as defined by the Company. Any bonus for the Executive shall be subject to the then-existing requirements of the Company governing internal recommendation and approval of such bonus. Any such bonus payment shall be paid to the Executive per the bonus plan.
|
(c)
|
Stock Options and Restricted Stock Grants
. The Executive shall be eligible for additional stock options and restricted stock grants under any of the Company’s stock option and restricted stock plans in an amount recommended by the Chief Executive Officer and approved by the Board of Directors. Such options and/or grants shall be subject to the terms and conditions of the applicable standard stock option and restricted stock plans and agreements adopted by the Company.
|
(d)
|
Expense Reimbursement
. While the Agreement is in effect, the Company will reimburse the Executive for all reasonable and necessary business expenses incurred by the Executive in connection with the performance of his duties for the Company. Such reimbursement is subject to the submission to the Company by the Executive of appropriate documentation and/or vouchers, and will be made in accordance with the customary business procedures of the Company for expense reimbursement, as may from time to time be established.
|
(e)
|
Paid Time Off
. While the Agreement is in effect, in each fiscal year of the Company, the Executive shall be eligible to accrue paid time off, subject to the terms of the current benefits policy.
|
(f)
|
Other Benefits
. The Executive shall be eligible to participate in any and all plans maintained by the Company to provide benefits for its salaried senior executives, including, without limitation, any pension, profit sharing or other retirement plan, any life, accident, disability, medical, hospital or similar group insurance program and any other benefit plan, subject to the normal terms and conditions of such plans.
|
(b)
|
Disability
. If the Executive becomes Disabled, the Company may terminate Executive’s employment. For purposes of this Agreement, the Executive shall be deemed to be “Disabled” if (i) eligible for disability benefits under the Company’s long-term disability plan, or (ii) has a physical or mental disability which renders Executive incapable, after reasonable accommodation, of performing substantially all of Executive’s duties hereunder for a period of 180 days (which need not be consecutive) in any 12-month period. In the event of a dispute as to whether the Executive is Disabled, the Company may, at its expense, refer Executive to a licensed practicing physician of the Company’s choice and the Executive agrees to submit to such tests and examination as such physician shall deem customary and appropriate.
|
|
(c)
|
Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time for Cause by written notice to the Executive detailing the basis for the Cause termination. For purposes of this Agreement, “Cause” means (i) gross negligence or willful and continued failure by the Executive to substantially perform his duties as an employee of the Company (other than any such failure resulting from incapacity due to physical or mental illness); (ii) Executive’s dishonesty, fraudulent misrepresentation, willful misconduct, malfeasance, violation of fiduciary duty relating to the business of the Company; or (iii) conviction of a felony.
|
(d)
|
Without Cause
. The Company may terminate the Executive’s employment hereunder immediately and at any time without Cause by written notice to the Executive.
|
(e)
|
Termination by Executive
. The Executive may terminate his employment hereunder at any time for any reason by giving the Company prior written notice not less than thirty (30) days prior to such termination.
|
(f)
|
Termination upon a Change in Control
. The Executive’s employment hereunder shall terminate automatically, and such termination shall be considered to be without Cause (as defined above), upon the occurrence of a Change in Control (as defined below).
|
(g)
|
Mutual Agreement
. This Agreement may be terminated at any time by mutual written agreement of the parties.
|
(h)
|
Date of Termination
. “Date of Termination” means the last day that the Executive is employed by the Company under the terms of this Agreement or, in the event of a Change in Control, the date of the Change in Control, provided that Executive’s employment is terminated in accordance with one of the foregoing provisions in this paragraph 3.
|
(a)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment for Cause in accordance with paragraph 3(c) above, or if the Executive terminates his employment in accordance with paragraph 3(e) above, the Company shall pay to the Executive:
|
|
(i)
|
A lump-sum payment equivalent to the remaining unpaid portion of the Executive’s Salary for the period ending on the Date of Termination.
|
|
(ii)
|
A lump-sum payment for all accrued and unused Paid Time Off.
|
|
(iii)
|
Any other payments or benefits to be provided to the Executive by the Company pursuant to any employee benefit plans or arrangements adopted by the Company, to the extent such payments and benefits are earned and vested as of the Date of Termination, or are required by law to be offered for periods following the Date of Termination. In addition, any bonus which has been earned by Executive and approved by the appropriate corporate authorities but which remains unpaid as of the Date of Termination shall be paid to Executive at such time and in such manner as if Executive had continued to be employed by the Company.
|
(b)
|
If, prior to the occurrence of a Change in Control, the Company terminates the Executive’s employment without Cause in accordance with paragraph 3(d) above, by mutual agreement in accordance with paragraph 3 (g) above, or due to Disability in accordance with paragraph 3(b) above, Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to monthly payments over a 18-month period of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination. Such payments will commence as of the month following the date that the Executive incurs a separation from service, as such term is defined in the context of Section 409A of the Code (as defined below). Such payments will continue over the 18-month period in accordance with the Company’s normal payroll cycle. In the event that the Executive dies prior to the completion of the 18-month payment cycle, any amounts remaining unpaid as of the date of Executive’s death will be paid to Executive’s estate in lump sum.
|
(c)
|
If, prior to the occurrence of a Change in Control, the Executive’s employment is terminated due to death, the Executive’s estate shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive’s estate shall be entitled to a lump-sum payment of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination times 18 months.
|
(d)
|
Upon the termination of the Executive’s employment as a result of a Change in Control in accordance with paragraph 3(f), Executive shall be entitled to the amounts payable under paragraph 4(a), and in addition, the Executive shall be entitled to a lump-sum payment of an amount equal to the amount of monthly salary which the Executive was being paid as of the Date of Termination times 18 months. Such payment in lump sum shall be made contemporaneously with the consummation of the transaction or the election of directors that constitutes the Change in Control. “Change in Control” means an occasion upon which (i) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)), 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, acquires (either directly and/or through becoming the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act)), directly or indirectly, securities of the Company representing 50% or more of the combined voting power of the Company’s then outstanding securities (or has acquired securities 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 Company securities by such person); or (ii) during any period of twelve (12) 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 (iii) any one person, or more than one person acting as a group (as defined in Treasury Regulation Section 1.409A-3(i)(5)(v)(B)) 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. Each Change in Control event described in this paragraph is intended to constitute a change in ownership or effective control of the Company or in the ownership of a substantial portion of the Company’s assets within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (“Code”), and the IRS guidance issued thereunder and this Agreement shall be interpreted accordingly. Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to any payments under paragraphs 4(a), 4(b), or 4(c) upon Termination if the Executive receives the payments under this paragraph 4(d) upon a Change in Control.
|
(e)
|
In the event that the Executive’s employment is terminated for any reason discussed in paragraphs 4(b), 4(c) or 4(d), in addition to the amounts payable under paragraphs 4(b), 4(c) or 4(d) as applicable, the Executive or the Executive’s estate shall be entitled to the following:
|
|
(i)
|
Immediate vesting of the unvested portion of any outstanding stock option and any outstanding share of restricted stock, notwithstanding any contrary terms in any stock option or restricted stock agreement applicable to Executive.
|
|
(ii)
|
Cash payment equal to 18 months of premium payments for medical and dental coverage. The amount of the monthly payments shall be equal to the amount of the “applicable premium” as determined pursuant to the terms of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (without regard to whether or not the Executive elects COBRA continuation coverage) based on the Executive’s choices under the Company’s plan as of the Date of Termination and further based upon the current premiums as of the Date of Termination, less the amount that the Executive was contributing for coverage. The Company benefits package in which the Executive participated will cease as of the Date of Termination.
|
|
(iii)
|
Cash payment equal to 18 months of benefit premiums based upon the premium rate at the Date of Termination under the terms of the Company’s Group Life Policy issued by CIGNA which allows the option to convert to an individual policy for basic life and accidental death and dismemberment (AD&D) coverage. However, the cash payments shall be no more than the amount of the premiums that the Company was paying as if the Executive was still employed. This paragraph shall not apply if the Executive’s employment is terminated per section 4(c).
|
|
(iv)
|
Cash payment equal to the employer matching contribution, as if the Executive was still a plan participant that would otherwise have been contributed on Executive's behalf to the Code Section 401(k) program maintained by the Company with respect to the 18-month period commencing on the Date of Termination under the following assumptions:
|
|
(a)
|
Executive would have made a voluntary salary reduction contribution to the Code Section 401(k) program with respect to the 18-month period based upon the salary reduction election in effect on behalf of the Executive as of the Date of Termination.
|
|
(b)
|
No additional "constructive matching" payments will be made under this provision with respect to a calendar year once the combination of the actual matching contributions made on behalf of Executive to the Code Section 401(k) program for such calendar year plus the "constructive matching" payments made to Executive pursuant to this provision for such calendar equal the maximum amount of matching contributions that could have been allocated to Executive's account under the terms of the Code Section 401(k) program with respect to such calendar year.
|
|
(c)
|
Except as otherwise contemplated by paragraph 4(e)(v) below, the "constructive matching" payments will be made at such times as the Company remits the actual matching contributions to the Code Section 401(k) program.
|
|
(v)
|
If the Executive’s employment is terminated per paragraph 4(b), all payments under paragraph this 4(e) shall be made on a periodic basis on the same schedule as such benefits otherwise would have been payable as if the Executive was still employed at the Company. If the Executive’s employment is terminated per paragraph 4(c) or paragraph 4(d), all payments under this paragraph 4(e) shall be paid in a lump-sum payment at the same time the lump sum payment is paid in accordance with paragraph 4(c) or paragraph 4(d). Notwithstanding anything to the contrary set forth in this Agreement, the Executive shall not be entitled to receive the payments contemplated by this paragraph 4(e) upon the termination of the Executive’s employment with the Company if the Executive receives the payments under this paragraph 4(e) upon the termination of the Executive’s employment as a result of a Change in Control.
|
|
(vi)
|
If the Executive was receiving other benefits as of the Date of Termination that are not listed above, and to the extent such payments or benefits are earned and vested or are required by law to be offered to the Executive for the 18-month period following the Date of Termination, then the cash equivalent or arrangements for continuing coverage will be determined at that time. However, the cash payments shall be no more than the amount that the Company was paying as if the Executive was still employed.
|
|
(vii)
|
If any of the benefits listed above are no longer available to the Executive as of the Date of Termination, then there will be no such payments made to continue the benefits after the Date of Termination or its cash equivalent.
|
(f)
|
The undertakings of the Company in connection with paragraphs 4(b), 4(c), 4(d) and 4(e), above, are contingent upon Executive’s or his estate’s compliance with Sections 5, 6, 7 and 8 following termination or a Change in Control.
|
(g)
|
To the extent required by Section 409A of the Code, if the Executive separates from service with the Company for any reason other than death and the Executive constitutes a “specified employee” as defined in Section 409A(2)(B)(i) of the Code at the time of separation from service, then payment to the Executive of any amounts pursuant to Section 4(b) or 4(d) and payment of any cash amounts pursuant to Section 4(e) shall not commence until a date that is six months following the date of the Executive’s separation from service with the Company. Upon the date which is six months following the date of Executive’s separation from service, all previously accrued monthly amounts shall be payable in a lump-sum and future amounts will continue to be paid pursuant to the remaining term of the 18-month payment cycle. The above-referenced six month delay in payment shall only apply to the extent required by Section 409A of the Code, such that such delay shall not apply to payments made in connection with an involuntary termination of employment provided such payments fall within the dollar threshold described in Treas. Reg. § 1.409A-1(b)(9)(iii).
|
(h)
|
The Executive understands and agrees that he is obligated to pay all local, state and federal taxes that are or may be owed from the payments specified in this paragraph 4, and, as applicable, the payments will be subject to appropriate tax withholding by the Company.
|
(a)
|
The Executive recognizes that the Company incurs significant expense in training employees to provide services in accordance with the Company’s Business and that the Company will disclose Confidential Information to each such employee. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly hire, directly or indirectly, any person then employed by the Company, or knowingly solicit, directly or indirectly, such a person either to terminate or diminish employment with the Company, or to work for any other person or entity, whether or not a competitor, and the Executive shall not approach any such employee for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(b)
|
The Executive also acknowledges that the Company incurs significant expense in developing business partners, licensees, customers and clients. The Executive promises that, during the Agreement Term and for a period of 18 months subsequent to the Date of Termination, the Executive will not, without the prior written consent of the Company, knowingly directly or indirectly, solicit any customer, business partner, licensee or client of the Company to terminate or diminish its business relationship with the Company or to purchase any product or service that is or may be used as a substitute for any product or service of the Company, and the Executive shall not knowingly approach any such customer, supplier, lessor or lessee for such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.
|
(c)
|
Notwithstanding anything to the contrary set forth in this Agreement, the provisions of this paragraph 7 shall survive the termination of the Executive’s employment hereunder and the termination of this Agreement.
|
To the Company
:
|
To the Executive
:
|
Telos Corporation
|
|
19886 Ashburn Road
|
|
Ashburn, VA 20147
|
|
Attn.: Legal Department
|
EXECUTIVE
|
TELOS CORPORATION
|
||
|
|
||
[NAME]
|
John B. Wood
|
||
[TITLE]
|
President, Chief Executive Officer
|
Date: November 14, 2012
|
|
/s/ John B. Wood
|
|
John B. Wood | |
Chief Executive Officer (Principal Executivie Officer) |
Date: November 14, 2012
|
|
/s/ Michele Nakazawa
|
|
Michele Nakazawa
|
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
Date: November 14, 2012
|
|
/s/ John B. Wood
|
|
John B. Wood
|
|
Chief Executive Officer (Principal Executive Officer)
|
Date: November 14, 2012
|
|
/s/ Michele Nakazawa
|
|
Michele Nakazawa
|
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|