Form DEFC14A - KROSS PETER T - TKOI
Filed: May 19, 2016
FULL PROXY AT WWW.SEC.GOV
TELKONET, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 27, 2016
PROXY STATEMENT OF
PETER T. KROSS
IN OPPOSITION TO
THE BOARD OF DIRECTORS OF TELKONET, INC.
WHY YOU WERE SENT THIS PROXY STATEMENT
Peter T. Kross is seeking your support to elect Messrs. Peter T. Kross, Leland D. Blatt and Arthur E. Byrnes to the board of directors of Telkonet, Inc. (“ Telkonet ” or the “ Company ”), in opposition to the candidates nominated by the incumbent board of directors of Telkonet. This proxy statement and form of proxy are first being mailed to stockholders on or about May 19, 2016. Mr. Kross, Mr. Blatt and Mr. Byrnes are participants in this solicitation. The terms “we”, “us” and “our” refer to the participants.
THE PROBLEM AND THE SOLUTION
We are seeking your support to replace a majority of the Telkonet board. The board has presided over the Company’s poor financial results and stock performance. Since inception through December 31, 2015, the Company has incurred cumulative losses of $122,095,121 and has never generated enough funds through operations to grow its business.
While the Company has been unable to generate enough funds to grow its business, the members of the board have continued to be well compensated, earning $48,000 per year, plus expenses. On the other hand, stockholders have suffered through significant stock declines since the Company’s inception, and stagnant low stock prices for at least the past five years.
We believe the Company’s sustained poor financial results put Telkonet at a critical juncture in its history. Stockholder value continues to erode or be transferred to the board in the form of board fees. We believe that the financial results of Telkonet support our view that the Telkonet board is failing stockholders.
We also believe that the backgrounds and experiences of our nominees will allow them to be a resource to the Company in addressing the risks that the Company faces: (1) the industry within which the Company operates is intensely competitive and rapidly evolving; (2) the Company depends on a small team of senior management and may have difficulty attracting and retaining additional personnel; (3) the Company’s inability to obtain capital, use internally generated cash or debt, or use shares of common stock to finance their operations or future acquisitions could impair the growth and expansion of the Company’s business; (4) the Company’s management and operational systems might be inadequate to handle potential growth; and (5) the Company may not be able to obtain payment and performance bonds, which could have a material adverse effect on the Company’s business.
As an outsider and stockholder, our nominees cannot make detailed and specific plans about where to lead Telkonet until they are directors with full access to the information necessary to make informed decisions. When elected, we will lead a very thorough and complete and intense review of the Company. Our nominees will strive to reverse the Company’s poor financial performance by being well informed, independent, and decisive, with a strong focus on stockholder value, and they will open-mindedly considered all available options to maximize stockholder value, including a sale of the Company.
OUR ALIGNED INTERESTS
We can deliver with certainty on a pledge that our interest in the Company will be the same as most public stockholders because--like the vast majority of public stockholders—we have put our own capital at risk by buying the Company's stock in the open market. Indeed, all of our nominees have put significant capital at risk, unlike the outside board members who hold in the aggregate fewer shares than any one of our individual nominees for director holds on his own:
Name of Nominee Class Amount
Peter T. Kross Common 4,467,880*
Leland D. Blatt Common 500,000
Arthur E. Byrnes Common 698,000
_______
* Mr. Kross holds 10,000 shares of record, and is the direct beneficial owner of an additional 2,710,327 shares. In addition, he may be deemed to be the beneficial owner of an additional 1,231,211 shares due to voting and investment power that he has over shares held by or on behalf of certain family members. As an investment adviser, Mr. Kross directs client accounts as to which he has discretionary voting and dispositive authority with regard to 516,342 Shares.
No hedging or other transaction or series of transactions has been entered into by or on behalf of any of the nominees, nor has any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, any nominee with respect to any share of stock of the Company. None of the nominees has pledged any shares as security.
The current outside board members hold in the aggregate fewer shares than any one of our individual nominees for director holds on his own, as show in the table below. The valuation date used for valuing the shares is April 18, 2016, which is the record date.
Board Member Class Amount Value
Tim S. Ledwick Common 171,887 $32,659
Kellogg S. Warner Common 63,098 $11,989
Jeffrey P. Andrews Common None $0
If elected to the board, the nominees intend to recommend that board fees be paid in shares of common stock to better align the directors’ goals with those of shareholders. This should also help the Company conserve cash for operations.
YOUR VOTE HAS THE POWER TO CHANGE THE BOARD
Notwithstanding our perspective on Telkonet, it has been our experience that shares of good businesses suffer when leadership is misguided or self-serving, or both. With such leadership, a company’s stock price often times stays at the same price or declines, as the Telkonet stock has done. As one study indicated, a board can positively impact a company’s financial performance by participating with management in formulating corporate strategy in the interest of stockholders, developing appropriate incentives for management and other employees to harness their interests to achieve the agreed upon strategic plan, and judging the performance of management against the strategic plan.
So, what is an investor to do when a board is entrenched and no longer focused on generating stockholder value? Normally, the answer can be disappointing because it can be very difficult for stockholders to change management even if performance is very poor, and voting for an alternative slate of directors often isn’t even an option. This year, however, you have the power to effect change at Telkonet. We have offered you a choice--an alternative slate of director nominees.
Please take advantage of this opportunity to make a change. VOTE TO CHANGE TELKONET FOR THE BETTER. VOTE FOR OUR DIRECTOR NOMINEES.
ACCOUNTABILITY
The current leadership has had time to manage toward a better future for Telkonet. Yet, the Company continues to incur significant losses, and the board members continue to collect their board fees. It is time to hold the board accountable and elect our nominees.
MEETING DETAILS AND PROXY MATERIALS
We are soliciting proxies to be used at the 2016 Annual Meeting of stockholders of Telkonet, including any adjournments or postponements thereof and any meeting which may be called in lieu thereof (the “ Annual Meeting ”). The Annual Meeting will be held at 1:00 p.m., local time, at the offices of Telkonet, Inc., 20800 Swenson Dr., Suite 175, Waukesha, WI 53186 on June 27, 2016. At the Annual Meeting, the stockholders of Telkonet are being asked to consider and vote upon (1) the election of five directors to the board to serve until the 2017 annual meeting of stockholders, (2) the ratification of the appointment of BDO USA, LLP, as Telkonet’s independent registered public accounting firm for the fiscal year ending December 31, 2016, (3) the approval by an advisory vote of the compensation of the Company’s named executive officers, (4) the approval of an amendment to the Company’s Amended and Restated Articles of Incorporation to effect, at the discretion of the Company’s board of directors, a reverse stock split of the common stock, par value $0.001 per share, at any time prior to next year’s annual meeting of stockholders by a ratio of not less than 1-for-10 and not more than 1-for-50, with the specific ratio, timing and terms to be determined by the board and (5) any other matters that may properly come before the Annual Meeting or any adjournments or postponements thereof.
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on June 27, 2016 . This proxy statement and the accompanying form of WHITE proxy card are available at www.dfking.com/tkoi.
IT IS IMPORTANT THAT YOU RETURN YOUR PROXY PROMPTLY. IF YOU ARE A RECORD HOLDER, PLEASE SIGN AND DATE YOUR WHITE PROXY CARD PROMPTLY AND RETURN IT IN THE ENCLOSED ENVELOPE TO AVOID UNNECESSARY EXPENSE AND DELAY. NO POSTAGE IS NECESSARY. IF YOUR SHARES ARE HELD IN “STREET NAME” BY A BROKER, NOMINEE, FIDUCIARY OR OTHER CUSTODIAN, PLEASE CONTACT THE PERSON RESPONSIBLE FOR YOUR ACCOUNT AND INSTRUCT THEM TO VOTE THE WHITE PROXY CARD ON YOUR BEHALF (YOUR BROKER, NOMINEE, FIDUCIARY OR OTHER CUSTODIAN MAY PERMIT YOU TO VOTE VIA THE INTERNET OR BY TELEPHONE).
Please contact D.F. King & Co., Inc., our proxy solicitors, at the following address, telephone number or website, if you have any questions or require any assistance:
D.F. KING & CO., INC.
48 Wall Street
New York, NY 10005
Toll Free: 1-800-859-8509
www.dfking.com/tkoi
