SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 20)*
TELOS CORPORATION
----------------------------------------------------------------------
(Name of Issuer)
12% Cumulative Exchangeable Redeemable Preferred Stock, $.01 par value
----------------------------------------------------------------------
(Title of Class of Securities)
8796B200
-----------------------------------------------------------------
(CUSIP Number)
Andrew R. Siegel
Costa Brava Partnership III, LP
237 Park Avenue, Suite 900
New York, New York 10017
(212) 692-6395
----------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
September 21, 2007
----------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the Notes)
Page 2 of 14
SCHEDULE 13D
CUSIP NO. 8796B200
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Costa Brava Partnership III, LP
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 506,811
BENEFICIALLY --------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 0
PERSON --------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
506,811
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
506,811
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.9%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
PN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 14
SCHEDULE 13D
CUSIP NO. 8796B200
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Roark, Rearden & Hamot, LLC
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY --------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 506,811
PERSON --------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
0
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
506,811
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
506,811
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.9%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D
Page 4 of 14
CUSIP NO. 8796B200
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Seth W. Hamot
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY --------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 506,811
PERSON --------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
0
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
506,811
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
506,811
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.9%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D
Page 5 of 14
CUSIP NO. 8796B200
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
White Bay Capital Management, LLC
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY --------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 506,811
PERSON --------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
0
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
506,811
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
506,811
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[X]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.9%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! SCHEDULE 13D
Page 6 of 14
CUSIP NO. 8796B200
--------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Andrew R. Siegel
--------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [X]
--------------------------------------------------------------------------------
3 SEC USE ONLY
--------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
--------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E)
[ ]
--------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
--------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
SHARES 14,476
BENEFICIALLY --------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER
EACH
REPORTING 506,811
PERSON --------------------------------------------------------
WITH 9 SOLE DISPOSITIVE POWER
14,476
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
506,811
--------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
521,287
--------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
--------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
16.4%
--------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
--------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 7 of 14
AMENDMENT NO. 20 to SCHEDULE 13D
This amendment ("Amendment No. 20") amends the Schedule 13D previously
filed on March 25, 2005, and amended by Amendment No. 1 filed on May 9, 2005,
and further amended by Amendment No. 2 filed on June 6, 2005, and further
amended by Amendment No. 3 filed on July 13, 2005, and further amended by
Amendment No. 4 filed on September 13, 2005, and further amended by Amendment
No. 5 filed on September 26, 2005, and further amended by Amendment No. 6 filed
on October 18, 2005, and further amended by Amendment No. 7 filed on November
14, 2005, and further amended by Amendment No. 8 filed on December 29, 2005, and
further amended by Amendment No. 9 filed on January 13, 2006, and further
amended by Amendment No. 10 filed on February 9, 2006, and further amended by
Amendment No. 11 filed on June 2, 2006, and further amended by Amendment No. 12
filed on February 8, 2007, and further amended by Amendment No. 13 filed on
February 16, 2007, and further amended by Amendment No. 14 filed on March 7,
2007, and further amended by Amendment No. 15 filed on July 20, 2007, and
further amended by Amendment No. 16 filed on July 26, 2007, and further amended
by Amendment No. 17 filed on August 3, 2007, and further amended by Amendment
No. 18 filed on September 5, 2007, and further amended by Amendment No. 19 filed
on September 13, 2007 (collectively, the "Schedule"), by Costa Brava Partnership
III, LP ("Costa Brava"), Roark, Rearden & Hamot, LLC ("Roark"), Seth W. Hamot
("Mr. Hamot"), White Bay Capital Management, LLC ("White Bay"), and Andrew R.
Siegel ("Mr. Siegel") with the Securities and Exchange Commission with respect
to the 12% Cumulative Exchangeable Redeemable Preferred Stock, $0.01 par value
("Redeemable Preferred Stock") of Telos Corporation, a Maryland corporation (the
"Issuer"). All defined terms refer to terms defined herein or in the Schedule.
This Amendment No. 20 speaks only as of its date. Costa Brava, Roark, Mr. Hamot,
White Bay and Mr. Siegel are collectively referred to herein as the "Costa Brava
Reporting Persons". The Schedule is amended only to the extent set forth below:
ITEM 4 PURPOSE OF TRANSACTION
Item 4. Purpose of Transaction appearing in the Schedule is hereby
amended and supplemented to add the following:
In connection with his service as a Class D Director of the Issuer, Mr.
Siegel sent a letter to Mr. Tom O'Grady, a Partner at the law firm of
McGuireWoods LLP, on September 21, 2007, a copy of which is attached as
Exhibit 99.27 (the "9/21/07 Letter"). In the 9/21/07 Letter, Mr. Siegel
requests a referral of independent securities/corporate counsel to
review the adequacy of disclosure, under U.S. securities laws, in the
Issuer's Form 10-Q for the period ended June 30, 2007, as filed with
the Securities and Exchange Commission.(1) Mr. O'Grady and McGuireWoods
have acted as corporate counsel to the Issuer. In addition,
McGuireWoods is currently acting as counsel of record for the Issuer in
an adverse capacity against Messrs. Hamot and Siegel in litigation
pending in the Circuit Court of Baltimore City.
As of the date of this Amendment No. 20, except as set forth above, and
in the 9/21/07 Letter, and as otherwise set forth in the Schedule, none
of the Costa Brava Reporting Persons has any present plans or
intentions which would result in or relate to any of the transactions
described in subparagraphs (a) through (j) of Item 4 of the
instructions to Schedule 13D.
-------------------------------
(1) Filed without compliance to Rule 10-01(d) of Regulation S-X, since this
10-Q was not reviewed by an independent public accountant as required by
the SEC. This action was done without the approval of the Board of
Directors of the Issuer.
Page 8 of 14
ITEM 7 MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Joint Filing Agreement
Exhibit 99.1 Letter dated May 3, 2005 to the Committee of
Independent Directors of the Board of Directors of the
Issuer*
Exhibit 99.2 Costa Brava Letter dated June 30, 2005*
Exhibit 99.3 Letter dated September 20, 2005 to Mr. Joel Flax,
Partner in Charge, Goodman & Company, LLP*
Exhibit 99.4 Complaint filed in the Circuit Court for Baltimore
City in the State of Maryland on October 17, 2005*
Exhibit 99.5 Goodman Letter dated November 11, 2005*
Exhibit 99.6 Form of Warner Stevens Audit Committee Demand
Letter dated December 27, 2005*
Exhibit 99.7 Form of Warner Stevens Board Demand Letter dated
December 27, 2005*
Exhibit 99.8 Form of Warner Stevens CEO/CFO Demand Letter dated
December 27, 2005*
Exhibit 99.9 Owsley Letter dated December 27, 2005*
Exhibit 99.10 Motion for Judgment filed in the Circuit Court of
the County of Fairfax in the State of Virginia on
December 28, 2005*
Exhibit 99.11 Motion for Preliminary Injunction filed in the
Circuit Court for Baltimore City in the State of
Maryland on May 26, 2006*
Exhibit 99.12 Memorandum of Points and Authorities in Support of
Motion for Preliminary Injunction filed in the Circuit
Court for Baltimore City in the State of Maryland on May
26, 2006 (without the exhibits thereto)*
Exhibit 99.13 Letter dated February 7, 2007 to the Corporate
Secretary of the Issuer*
Exhibit 99.14 Motion for Preliminary Injunction filed in the
Circuit Court for Baltimore City in the State of
Maryland on February 15, 2007*
Exhibit 99.15 Memorandum of Points and Authorities in Support of
Motion for Preliminary Injunction filed in the Circuit
Court for Baltimore City in the State of Maryland on
February 15, 2007 (without the exhibits thereto)*
Exhibit 99.16 Second Amended Complaint filed in the Circuit
Court for Baltimore City in the State of Maryland on
February 27, 2007*
Exhibit 99.17 Nominating Letter dated March 1, 2007*
Exhibit 99.18 Letter dated July 18, 2007 to the Corporate
Secretary of the Issuer*
Exhibit 99.19 Letter dated July 26, 2007 to the Chief Financial
Officer of the Issuer*
Exhibit 99.20 Letter dated July 26, 2007 to the V.P., Corporate
Counsel & Secretary of the Issuer*
Exhibit 99.21 Complaint filed in the Circuit Court for Baltimore
City in the State of Maryland on August 2, 2007 (without
the exhibits thereto)*
Exhibit 99.22 Motion for Temporary Restraining Order filed in
the Circuit Court for Baltimore City in the State of
Maryland on August 2, 2007*
Exhibit 99.23 Memorandum of Points and Authorities in Support of
Motion for Temporary Restraining Order filed in the
Circuit Court for Baltimore City in the State of
Maryland on August 2, 2007*
Exhibit 99.24 Independence Letter dated August 18, 2007 to
Director Bailey of the Issuer*
Exhibit 99.25 Email dated September 5, 2007 from Director Hamot
to certain members of the Board of Directors of the
Issuer*
Exhibit 99.26 Email dated September 7, 2007 from Director Hamot
to Director Harris, copying certain members of the Board
of Directors of the Issuer*
Exhibit 99.27 Letter dated September 21, 2007 to Mr. Tom
O'Grady, a Partner at the law firm of McGuireWoods LLP
* Filed with an earlier version of this Schedule 13D.
Page 9 of 14
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Amendment No. 20 to the Schedule
13D is true, complete and correct.
Dated: September 24, 2007
COSTA BRAVA PARTNERSHIP III, LP
By: Roark, Rearden & Hamot, LLC
Its General Partner
By: /s/ SETH W. HAMOT
-------------------------------------
Name: Seth W. Hamot
Title: Manager
ROARK, REARDEN & HAMOT, LLC
By: /s/ SETH W. HAMOT
-------------------------------------
Name: Seth W. Hamot
Title: Manager
/s/ SETH W. HAMOT
-----------------------------------------
Seth W. Hamot
WHITE BAY CAPITAL MANAGEMENT, LLC
By: /s/ ANDREW R. SIEGEL
-------------------------------------
Name: Andrew R. Siegel
Title: Manager
/s/ ANDREW R. SIEGEL
-----------------------------------------
Andrew R. Siegel
Page 10 of 14
EXHIBIT INDEX
Exhibit 1 Joint Filing Agreement
Exhibit 99.1 Letter dated May 3, 2005 to the Committee of Independent
Directors of the Board of Directors of the Issuer*
Exhibit 99.2 Costa Brava Letter dated June 30, 2005*
Exhibit 99.3 Letter dated September 20, 2005 to Mr. Joel Flax, Partner in
Charge, Goodman & Company, LLP*
Exhibit 99.4 Complaint filed in the Circuit Court for Baltimore City in
the State of Maryland on October 17, 2005*
Exhibit 99.5 Goodman Letter dated November 11, 2005*
Exhibit 99.6 Form of Warner Stevens Audit Committee Demand Letter dated
December 27, 2005*
Exhibit 99.7 Form of Warner Stevens Board Demand Letter dated December
27, 2005*
Exhibit 99.8 Form of Warner Stevens CEO/CFO Demand Letter dated December
27, 2005*
Exhibit 99.9 Owsley Letter dated December 27, 2005*
Exhibit 99.10 Motion for Judgment filed in the Circuit Court of the
County of Fairfax in the State of Virginia on December 28, 2005*
Exhibit 99.11 Motion for Preliminary Injunction filed in the Circuit
Court for Baltimore City in the State of Maryland on May 26,
2006*
Exhibit 99.12 Memorandum of Points and Authorities in Support of Motion
for Preliminary Injunction filed in the Circuit Court for
Baltimore City in the State of Maryland on May 26, 2006 (without
the exhibits thereto)*
Exhibit 99.13 Letter dated February 7, 2007 to the Corporate Secretary of
the Issuer*
Exhibit 99.14 Motion for Preliminary Injunction filed in the Circuit
Court for Baltimore City in the State of Maryland on February 15,
2007*
Exhibit 99.15 Memorandum of Points and Authorities in Support of Motion
for Preliminary Injunction filed in the Circuit Court for
Baltimore City in the State of Maryland on February 15, 2007
(without the exhibits thereto)*
Exhibit 99.16 Second Amended Complaint filed in the Circuit Court for
Baltimore City in the State of Maryland on February 27, 2007*
Exhibit 99.17 Nominating Letter dated March 1, 2007*
Exhibit 99.18 Letter dated July 18, 2007 to the Corporate Secretary of
the Issuer*
Exhibit 99.19 Letter dated July 26, 2007 to the Chief Financial Officer
of the Issuer*
Exhibit 99.20 Letter dated July 26, 2007 to the V.P., Corporate Counsel &
Secretary of the Issuer*
Exhibit 99.21 Complaint filed in the Circuit Court for Baltimore City in
the State of Maryland on August 2, 2007 (without the exhibits
thereto)*
Exhibit 99.22 Motion for Temporary Restraining Order filed in the Circuit
Court for Baltimore City in the State of Maryland on August 2,
2007*
Exhibit 99.23 Memorandum of Points and Authorities in Support of Motion
for Temporary Restraining Order filed in the Circuit Court for
Baltimore City in the State of Maryland on August 2, 2007*
Exhibit 99.24 Independence Letter dated August 18, 2007 to Director
Bailey of the Issuer*
Exhibit 99.25 Email dated September 5, 2007 from Director Hamot to
certain members of the Board of Directors of the Issuer*
Exhibit 99.26 Email dated September 7, 2007 from Director Hamot to
Director Harris, copying certain members of the Board of
Directors of the Issuer*
Exhibit 99.27 Letter dated September 21, 2007 to Mr. Tom O'Grady, a
Partner at the law firm of McGuireWoods LLP
* Filed with an earlier version of this Schedule 13D*
Page 11 of 14
EXHIBIT 1 - JOINT FILING STATEMENT
Pursuant to Rule 13d-1(k)(1), we, the undersigned, hereby express our
agreement that the Amendment No. 20 to Schedule 13D for Telos Corporation is
filed on behalf of each of us. This agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Dated: September 24, 2007
COSTA BRAVA PARTNERSHIP III, LP
By: Roark, Rearden & Hamot, LLC
Its General Partner
By: /s/ SETH W. HAMOT
-------------------------------------
Name: Seth W. Hamot
Title: Manager
ROARK, REARDEN & HAMOT, LLC
By: /s/ SETH W. HAMOT
-------------------------------------
Name: Seth W. Hamot
Title: Manager
/s/ SETH W. HAMOT
-----------------------------------------
Seth W. Hamot
WHITE BAY CAPITAL MANAGEMENT, LLC
By: /s/ ANDREW R. SIEGEL
-------------------------------------
Name: Andrew R. Siegel
Title: Manager
/s/ ANDREW R. SIEGEL
-----------------------------------------
Andrew R. Siegel
Page 12 of 14
Exhibit 99.27
Letter dated September 21, 2007 to Mr. Tom O'Grady, a Partner
at the law firm of McGuireWoods LLP
237 Park Avenue
Suite 900
New York, NY 10017
Mr. Tom O'Grady Partner McGuireWoods LLP
1750 Tysons Boulevard
Suite 1800
McLean, VA 22102-4215
VIA FEDEX
September 21, 2007
Dear Mr. O'Grady:
As you may be aware, I am an independent director on the Board of Telos
Corporation. I understand that you and your firm have acted as corporate counsel
to Telos.
I am writing to you to seek a referral of an independent securities/corporate
counsel to review the adequacy of disclosure, under U.S securities laws, in
Telos' Form 10-Q for the period ended June 30, 2007, filed with the Securities
and Exchange Commission (the "10-Q")(1).
As you may be aware, the 10-Q disclosure concerning Telos' sale of Telos
Identity Management Solutions, LLC ("TIMS LLC") to parties, including the
brother of Telos' CEO John Wood, states:
"On April 11, 2007, Telos Identity Management Solutions, LLC
("TIMS LLC") was formed as a limited liability company under
the Delaware Limited Liability Company Act. The Company
[Telos] contributed substantially all of the assets of its
Identity Management business line and assigned its rights to
perform under its U.S Government contract with the Defense
Manpower Data Center ("DMDC") to TIMS LLC. The net book value
of assets contributed by the Company totaled $17,000. The
Company owned 99.999% of the membership interests of TIMS LLC
and certain private equity investors ("Investors") owned
0.001% of the membership interests of TIMS LLC. On April 20,
2007, the Company sold an additional 39.999% of the
membership interests to the Investors in exchange for $6
million in cash consideration. Legal and investment banking
expenses directly associated with the transaction amounted to
approximately $190,000. As a participant of certain private
-------------------------------
(1) Filed without compliance to Rule 10-01(d) of Regulation S-X, since this
10-Q was not reviewed by an independent public accountant as required by
the SEC. This action was done without the approval of the Board of
Directors.
Page 13 of 14
equity investors, the brother of John B. Wood, the Company's
Chairman and Chief Executive Officer, indirectly holds a 2%
effective ownership interest in TIMS LLC."
Omitted from this 10-Q disclosure is a provision contained in the transaction
document which states:
"Upon the occurrence of any of the following events: (i) the
involuntary termination of John B. Wood as CEO and Chairman
of the Class A Member [Telos]; (ii) the Bankruptcy of the
Class A Member; or (iii) the transfer or issuance of more
than fifty-one percent (51%) of the stock of the Class A
Member to a third party (each of which shall be referred to
as a "Class B Option Event"), then the Class B Member shall
have an option to purchase, and the Class A Member shall be
obligated to sell (unless it elects to purchase the Interest
of the Class B Member under Section 7.03 .C), a portion of
the Class A Member's Percentage Interest representing twenty
percent (20%) of the Percentage Interests in the Company (the
"Option Interest") in accordance with this Section 7.03. The
Class A Member must notify the Class B Member of the
occurrence of a Class B Option Event within five (5) days of
such occurrence (the "Event Notice"). Notwithstanding the
foregoing, the Class B Member's option under this Section
7.03 shall not be exercisable if there is, at the time of the
Class B Option Event, a letter of intent to sell the Company,
a binding contract to sell all of the assets of, or Interests
in, the Company, or a standstill for due diligence with
respect to a sale of the Company. If any of the preceding
circumstances exist, the time for exercising the Class B
Member's option under this Section 7.03 shall toll until such
time as such circumstance no longer exists and such date
shall be considered the date of the Class B Option Event."
(Amended and Restated Operating Agreement of TIMS LLC, Section 7.03)
Clearly, the 10-Q does not identify the TIMS LLC transaction as a related party
transaction (in view of the involvement of Mr. Wood's brother), and the 10-Q
fails to disclose that Telos is obligated to sell to parties, including Mr.
Wood's brother(2), material additional interests in TIMS LLC upon Mr. Wood's
involuntary termination from Telos.
I question whether the omission of the TIMS LLC transaction as a related party
transaction is compounded by the fact that nearly one year prior to this
transaction, in 2006, a majority of Telos' independent directors found that Mr.
Wood should be terminated for cause(3). Clearly, the determination of Telos'
independent directors of Mr. Wood's termination for cause was a condition
precedent to the execution of the TIMS LLC transaction, which transaction
provides for the additional sale of material interests to Mr. Wood's brother
upon such a termination event.
-------------------------------
(2) The TIMS document contains other ambiguous statements regarding the
involvement of other family members of Mr. Wood in this related party
transaction.
(3) Revised Report of the Special Litigation Committee of Telos Corporation,
July 20, 2007.
Page 14 of 14
As an independent director on the Board of Telos Corporation, I have a
responsibility to ensure that Telos complies with U.S. securities laws,
including disclosure of related party transactions. In this instance, I require
independent legal advice in order to fulfill my duties and responsibilities.
As you are aware, McGuireWoods is acting as counsel of record in an adverse
capacity against Director Hamot and I in litigation captioned Hamot and Siegel
v. Telos in the Circuit Court of Baltimore City, Case No. 24-C-07-005603. In
view of McGuireWoods' likely ethical conflict of interest in providing me with
legal advice while simultaneously and concurrently litigating against me, please
provide a recommendation of alternate independent and competent counsel to
provide legal advice to me on the important issues raised in this letter. I
would appreciate a response by September 25, 2007. Thank you.
Sincerely,
/s/ ANDREW R. SIEGEL
Andrew R. Siegel
Director, Telos Corporation
Cc: Members of the Board of Directors, Telos Corporation
Alex Castelli, CPA, The Reznick Group