Filed by the Registrant ☒
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Filed by a Party other than the Registrant ☐
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
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TELOS CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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The amendments to the terms of the Exchangeable Preferred Stock reflected in the Proposal and the Amended Charter will reduce both the cash and total consideration paid to our Preferred Holders relative to a redemption of the Exchangeable Preferred Stock and will indirectly benefit the existing holders of common stock by preserving cash in the Company; and
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The issuance of shares of our common stock to Preferred Holders will cause the existing holders of common stock to experience dilution of their interests in the Company.
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competition in our industry and our ability to compete effectively;
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our ability to keep pace with rapid developments and changes in our industry and to provide new products and services;
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liability and reputation damage from unauthorized disclosure, destruction or modification of data or disruption of our services;
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technical, operational and regulatory risks related to our information technology systems and third-party providers’ systems;
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reliance on third parties for significant services;
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our ability to successfully identify potential acquisition targets and to complete and effectively integrate those acquisitions into our services;
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potential degradation of the quality of our products, services and support;
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our ability to retain clients;
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our ability to successfully manage our intellectual property;
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our ability to attract, recruit, retain and develop key personnel and qualified employees;
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risks related to laws, regulations and industry standards;
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our indebtedness and potential increases in our indebtedness;
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operating and financial restrictions imposed by the terms of our indebtedness; and
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the other factors described in “Risk Factors.”
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delaying, deferring or preventing a change in corporate control;
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impeding a merger, consolidation, takeover or other business combination involving us; or
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discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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2018
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High
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Low
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First quarter
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$14.79
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$9.55
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Second quarter
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13.30
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11.00
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Third quarter
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13.30
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11.00
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Fourth quarter
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13.00
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11.31
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2019
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First quarter
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$29.75
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$12.10
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Second quarter
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27.00
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20.25
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Third quarter
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25.00
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20.00
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Fourth quarter
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23.95
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15.50
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2020
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First quarter
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$20.00
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$13.00
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Second quarter
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23.50
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12.00
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Third quarter
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25.00
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14.00
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convert the issued and outstanding shares of Class B Common Stock into Class A Common Stock and redesignate the Class A Common Stock as “common stock” of the Company;
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require that, other than with regard to the Class D directors elected by the Preferred Holders, any vacancy among the directors of the Company be filled by those directors remaining in office;
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eliminate rights of an objecting stockholder following a Qualified IPO of the common stock of the Company;
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other than with regard to the Class D directors elected by the Preferred Holders, require the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors to remove a director;
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permit the board of directors to amend the charter of the Company from time to time to increase or decrease the number of authorized shares of any class or series of stock;
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limit the ability of stockholders to exercise statutory inspection rights if the requesting stockholder has an improper purpose following a Qualified IPO of the common stock of the Company; and
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require that derivative litigation, Internal Corporate Claims (as defined in the MGCL) and other actions asserting a claim against the Company or any director or officer or other employee governed by the internal affairs doctrine be brought in the United States District Court for the District of Maryland, or, if that Court does not have jurisdiction, the Circuit Court for Montgomery County, Maryland.
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Title of Class
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Name and Address of
Beneficial Owner
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Amount and Nature of
Beneficial Ownership (as
of March 27, 2020
except as provided below)
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Percent of Class
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Class A Common Stock
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Toxford Corporation
Place de Saint Gervais 1
1211 Geneva, Switzerland
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15,801,802 shares(A)
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35%
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Class A Common Stock
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Telos Corporation Shared Savings Plan
19886 Ashburn Road
Ashburn, VA 20147
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3,658,536 shares
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8.1%
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Class A Common Stock
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John B. Wood
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6,827,904 shares(B)
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15.1%
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Class A Common Stock
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Edward L. Williams
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2,193,005 shares(B)
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4.9%
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Class A Common Stock
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Michele Nakazawa
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1,723,901 shares(B)
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3.8%
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Class A Common Stock
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Brendan D. Malloy
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1,194,824 shares(B)
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2.6%
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Class A Common Stock
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Jefferson V. Wright
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1,250,294 shares(B)
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2.8%
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Class A Common Stock
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Robert J. Marino
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591,400 shares
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1.3%
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Class A Common Stock
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Bernard C. Bailey
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100,000 shares
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0.2%
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Class A Common Stock
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David Borland
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120,000 shares
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0.3%
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Class A Common Stock
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Bruce R. Harris
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100,000 shares
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0.2%
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Class A Common Stock
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Charles S. Mahan, Jr.
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100,000 shares
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0.2%
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Class A Common Stock
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John W. Maluda
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80,000 shares
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0.2%
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Class A Common Stock
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All officers and directors as a group (17 persons)
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17,212,130 shares(C)
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38.1%
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Class B Common Stock
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ICG Enterprise Trust PLC
Juxon House, 100 St. Paul’s Churchyard
London EC4M 8BU England
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1,681,960 shares(D)
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41.7%
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Class B Common Stock
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ICG Enterprise Trust LP
Juxon House, 100 St. Paul’s Churchyard
London EC4M 8BU England
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420,490 shares(D)
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10.4%
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Class B Common Stock
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North Atlantic Smaller Companies Investment Trust PLC
c/o North Atlantic Value LLP
Ground Floor, Ryder Court, 14 Ryder Street
London SW1Y 6QB England
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1,186,720 shares
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29.4%
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Class B Common Stock
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John B. Wood
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194,888 shares
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4.8%
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Class B Common Stock
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Michele Nakazawa
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125,000 shares
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3.1%
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Class B Common Stock
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Brendan D. Malloy
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100,000 shares
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2.5%
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Class B Common Stock
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Edward L. Williams
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100,000 shares
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2.5%
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Class B Common Stock
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All officers and directors as a group (5 persons)
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569,888 shares
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14.1%
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12% Cumulative
Exchangeable Redeemable
Preferred Stock
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William H. Alderman
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10,000 shares
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0.3%
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12% Cumulative
Exchangeable Redeemable
Preferred Stock
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Andrew R. Siegel
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14,476 shares
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0.5%
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Title of Class
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Name and Address of
Beneficial Owner
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Amount and Nature of
Beneficial Ownership (as
of March 27, 2020
except as provided below)
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Percent of Class
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12% Cumulative
Exchangeable Redeemable
Preferred Stock
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Wynnefield Partners Small Cap Value, L.P.
Wynnefield Partners Small Cap Value, L.P. I
Wynnefield Capital, Inc. Profit Sharing Plan
Wynnefield Small Cap Value Offshore Fund, Ltd.
Wynnefield Capital Management, LLC
Wynnefield Capital, Inc.
Nelson Obus
Joshua Landes
450 Seventh Avenue, Suite 509
New York, NY 10123
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554,765 shares(E)
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17.4%
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12% Cumulative Exchangeable Redeemable Preferred Stock
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Minerva Advisors, LLC
David P. Cohen
50 Monument Road, Suite 201
Bala Cynwyd, PA 19004
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283,384 shares(F)
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8.9%
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12% Cumulative Exchangeable Redeemable Preferred Stock
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Victor Morgenstern
Faye Morgenstern
Judd Morgenstern
Morningstar Trust - Faye Morgenstern Trustee
106 Vine Avenue
Highland Park, IL 60035
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180,100 shares(G)
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5.7%
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12% Cumulative Exchangeable Redeemable Preferred Stock
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Steven Tannenbaum
Greenwood Entities
15 North Pasture Lane
Nantucket, MA 02554
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506,890 shares(H)
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15.9%
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12% Cumulative Exchangeable Redeemable Preferred Stock
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Emancipation Management LLC
Circle N Advisors, LLC
Mr. Charles Frumberg
825 Third Avenue
New York, NY 10022
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778,653 shares(I)
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24.4%
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(A)
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Includes 15,328,480 shares held directly by Toxford Corporation and 473,322 shares held directly by Mr. John R.C. Porter, Chalet Ty Fano, 2 Chemin d’Amon, 1936 Verbier, Switzerland. Mr. Porter is the sole stockholder of Toxford Corporation.
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(B)
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Includes 232,792, 21,823, 73,005, 10,294, and 158,901 shares of the Class A Common Stock held for the benefit of Messrs. John Wood, Malloy, Williams, and Wright and Ms. Nakazawa, respectively, by the Telos Corporation Shared Savings Plan.
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(C)
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Includes 702,466 shares of the Class A Common Stock held for the benefit of the executive officers by the Telos Corporation Shared Savings Plan.
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(D)
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Formerly Graphite Enterprise Trust PLC and Graphite Enterprise Trust LP; name and address change as of February 2016.
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(E)
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Wynnefield Partners Small Cap Value, L.P., (“WPSCV”), Wynnefield Partners Small Cap Value L.P. I (“WPSCVI”), Wynnefield Capital, Inc. Profit Sharing Plan (“WCPSP”), Wynnefield Small Cap Value Offshore Fund, Ltd. (“WSCVOF”), Wynnefield Capital Management, LLC (“WCM”), Wynnefield Capital, Inc. (“WCI”), Mr. Nelson Obus and Mr. Joshua H. Landes filed a joint Schedule 13D/A (Amendment No. 19) on March 28, 2018 that Messrs. Obus and Landes each have shared voting and dispositive power with respect to 554,765 shares. Messrs. Obus and Landes are the co-managing members of WCM and both are also executive officers of WCI. Each shares with the other the voting and dispositive power with regards to the shares beneficially owned by WCM and WCI. WCM is the general partner of WPSCV and WPSCVI and holds indirect beneficial interest in 427,216 shares which are directly beneficially owned by WPSCV and WPSCVI. WPSCV has the sole power to vote or direct the vote and the sole power to dispose or direct the disposition of 165,760 shares. WPSCVI has the sole voting and dispositive power with respect to 261,456 shares. WCI is the sole investment manager of WSCVOF and has the sole power to direct the voting and disposition of the 112,549 shares which WSCVOF beneficially owns and has the sole voting and dispositive power with respect to those shares. WCI, as the sole investment manager of WCPSP, also holds indirect beneficial interest in 15,000 shares which are directly beneficially owned by WCPSP. WCI has the sole power to vote or direct the vote and the sole power to dispose or direct the disposition of 127,549 shares. WPSCV, WPSCVI, WCPSP, WSCVOF, WCM and WCI are parties to that certain Voting and Support Agreement, dated October 6, 2020, and the above referenced share holdings are updated to reflect the information contained in the same.
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Minerva Advisors, LLC (“MA”), Minerva Group, LP (“MG”), Minerva GP, LP (“MGP”), Minerva GP, Inc. (“MI”), and Mr. David Cohen filed a joint Schedule 13G/A (Amendment No. 5) on February 11, 2020, indicating that MA and Mr. Cohen each has shared voting and dispositive power with respect to 126,266 shares; MA, MG, MGP, MI each has the sole voting and dispositive power with respect to 153,343 shares; Mr. Cohen has sole voting and dispositive power with respect to 160,776 shares. Mr. Cohen is the beneficial owner of 7,433 shares individually and is also deemed a beneficial owner of 126,266 shares in aggregate beneficially owned by MA. MA, MG, MGP and MI are parties to that certain Voting and Support Agreement, dated October 6, 2020, and the above referenced share holdings are updated to reflect the information contained in the same.
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(G)
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Victor Morgenstern (“VM”), Faye Morgenstern (“FM”), Judd Morgenstern (“JM”), Jennifer Morgenstern Irrevocable Trust (“Jennifer Trust”), Robyn Morgenstern Irrevocable Trust (“Robyn Trust”), and Judd Morgenstern Irrevocable Trust (“Judd Trust”), filed a joint Schedule 13D/A (Amendment No. 1) on March 10, 2009, indicating that VM has the sole power to vote and dispose of 50,000 shares, and shared power to dispose of 132,000 shares; FM has the sole power to vote 17,000 shares and shared power to dispose 92,000 shares; JM
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(H)
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According to the Schedule 13G filed on July 10, 2018 by Mr. Steven Tannenbaum, Mr. Tannenbaum is deemed the beneficial owner of 506,890 shares of Exchangeable Preferred Stock as of March 22, 2018. Mr. Tannenbaum is the President of Greenwood Investments, Inc. (the “General Partner”), which is the sole general partner of Greenwood Capital Limited Partnership (“Capital”) and Shawkemo Hills LP (“Shawkemo”). Mr. Tannenbaum is the manager and sole member of ST Partners LLC (together with Capital and Shawkemo, the “Greenwood Entities”). Effective upon the death of Mr. Seth W. Hamot, the sole member and manager of Roark, Rearden & Hamot, LLC, which is the general partner of Cost Brava Partnership III L.P. (“Costa Brava”), Mr. Tannenbaum became the liquidator of Costa Brava. The Greenwood Entities are the direct beneficial owners of 101,718 shares and Costa Brava is the direct beneficial owner of 405,172 shares. Each of the Greenwood Entities has the power to vote and dispose of the Exchangeable Preferred Stock directly beneficially owned by such entity. The General Partner, as the sole general partner of Capital and Shawkemo, has the authority to vote and dispose of all of the Exchangeable Preferred Stock owned by such entities. Mr. Tannenbaum, by virtue of his position as president of the General Partner and as manager and sole member of ST Partners, has the authority to vote and dispose of all of the Exchangeable Preferred Stock owned by the Greenwood Entities. Costa Brava has the power to vote and dispose of the Exchangeable Preferred Stock directly beneficially owned by it. Mr. Tannenbaum, by virtue of his position as liquidator of Costa Brava, has the authority to vote and dispose of all of the Exchangeable Preferred Stock owned by Costa Brava.
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(I)
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According to Schedule 13G/A (Amendment No. 4) filed on February 6, 2020 by Emancipation Management LLC (“Emancipation Management”), Circle N Advisors, LLC (“Circle N”), and Mr. Charles Frumberg, the three filers have shared dispositive power with respect to the 778,653 shares. Emancipation Management owns Circle N, and Mr. Frumberg is the managing member of Emancipation Management and the Chief Executive Officer of Circle N.
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“Code” means the Internal Revenue Code of 1986, as amended;
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“Domestic Stockholder” means a Preferred Holder that is a U.S. Person;
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“IRS” means the Internal Revenue Service;
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“Stockholder” means a Preferred Holder;
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“U.S. Person” means (i) a citizen or resident of the United States; (ii) a corporation (or entity treated as a corporation for federal income tax purposes) created or organized in the United States or under the laws of the United States or of any state thereof, including, for this purpose, the District of Columbia; (iii) a partnership (or entity treated as a partnership for tax purposes) organized in the United States or under the laws of the United States or of any state thereof, including, for this purpose, the District of Columbia (unless provided otherwise by future Treasury regulations); (iv) an estate whose income is includible in gross income for federal income tax purposes regardless of its source; or (v) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. Persons have authority to control all substantial decisions of the trust. Notwithstanding the preceding clause, to the extent provided in Treasury regulations, certain trusts that were in existence on August 20, 1996, that were treated as U.S. Persons prior to such date, and that elect to continue to be treated as U.S. Persons, also are U.S. Persons.
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results in a “complete termination” of such holder's equity interest in us; or
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is “not essentially equivalent to a dividend” to such holder.
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Complete Termination Test. Assuming the U.S. Person actually or constructively owns no stock in Telos other than shares of the Exchangeable Preferred Stock, our redemption of the shares of Exchangeable Preferred Stock will result in a “complete termination” of such holder's equity interest in the Company if (1) all the shares that are actually owned by such holder are sold to us and (2) all the shares that are constructively owned by such holder, if any, are sold to us or, with respect to shares owned by certain related individuals, such holder effectively waives, in accordance with Code §302(c), attribution of shares which otherwise would be considered as constructively owned by such holder. U.S. Persons wishing to satisfy the “complete termination” test through waiver of the constructive ownership rules should consult their own tax advisors.
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Not Essentially Equivalent to a Dividend Test. The purchase of a U.S. Person's shares will be treated as “not essentially equivalent to a dividend” if the reduction in such holder's proportionate interest in the Company as a result of the purchase constitutes a “meaningful reduction” given such holder's particular circumstances. Whether the receipt of cash by a U.S. Person who sells shares will be “not essentially equivalent to a dividend” will depend upon such holder's particular facts and circumstances. The factors to be considered in determining whether a reduction in a stockholder's proportionate interest in a corporation results in a “meaningful reduction” relate to the stockholder's right to vote and exercise control, the right to participate in current earnings and accumulated surplus and the right to share in net assets on liquidation. For example, the IRS has ruled that any reduction in a stockholder's proportionate interest is a “meaningful reduction” if the stockholder owns less than 1% of the shares of a corporation and did not have management control over the corporation. U.S. Persons should consult their own tax advisors as to the application of this test in their particular circumstances.
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The amendments to the terms of the Exchangeable Preferred Stock reflected in the Proposal and the Amended Charter will reduce both the cash and total consideration paid to our Preferred Holders relative to a redemption of the Exchangeable Preferred Stock and will indirectly benefit the existing holders of common stock by preserving cash in the Company; and
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The issuance of shares of our common stock to Preferred Holders will cause the existing holders of common stock to experience dilution of their interests in the Company.
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our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (including information specifically incorporated by reference from our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 20, 2020) (SEC File No. 001-08443) filed with the SEC on April 13, 2020;
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our Amendment No. 1 on Form 10-K/A for the fiscal year ended December 31, 2019 (SEC File No. 001-08443) filed with the SEC on May 12, 2020;
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our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020 (SEC File No. 001-08443) filed with the SEC on May 15, 2020;
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our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020 (SEC File No. 001-08443) filed with the SEC on August 13, 2020;
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our definitive proxy statement on Schedule 14A (SEC File No. 001-08443) filed with the SEC on April 20, 2020;
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our Current Reports on Form 8-K dated March 30, 2020, May 13, 2020, August 28, 2020, September 20, 2020 and October 6, 2020 (filed with the SEC on March 30, 2020, May 15, 2020, August 28, 2020, September 24, 2020 and October 6, 2020, respectively).
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☐ CONSENT (“FOR”)
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☐ CONSENT WITHHELD (“AGAINST”)
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☐ ABSTAIN
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Signature [Please sign within the box]
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Date
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Signature [Please sign within the box]
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Date
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ATTEST:
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TELOS CORPORATION
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By: (SEAL)
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Name: Jefferson V. Wright
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Name: John B. Wood
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Title: Asst. Secretary
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Title: President and Chief Executive Officer
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