<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: June 30, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number: 1-8443
TELOS CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-0880974
(State of Incorporation) (I.R.S. Employer Identification No.)
460 Herndon Parkway, Herndon, Virginia 22070-5201
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number,
including area code: (703) 471-6000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO_____
As of August 1, 1995, the registrant had 23,076,753 shares of
Class A Common Stock, no par value, and 4,037,628 shares of Class
B Common Stock, no par value; and 3,595,586 shares of 12%
Cumulative Exchangeable Redeemable Preferred Stock par value $.01
per share, outstanding.
No public market exists for the registrant's Common Stock.
Number of pages in this report (excluding exhibits): 17
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1995 and 1994 3
Condensed Consolidated Balance Sheets as of June 30, 1995
and December 31, 1994 4
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holder 15
Item 6. Exhibits and Reports on Form 8-K 15-16
SIGNATURES 17
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
TELOS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(amounts in thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales
Systems and Services $27,231 $28,612 $58,945 $58,543
Maintenance 8,055 8,565 16,538 17,269
Consulting 6,516 5,900 13,080 11,314
41,802 43,077 88,563 87,126
Costs and expenses
Cost of sales 35,264 34,633 73,154 70,961
Selling, general and
administrative expenses 4,338 6,324 11,112 12,446
Goodwill amortization 795 795 1,589 1,589
Operating income 1,405 1,325 2,708 2,130
Other income (expenses)
Other income (expenses) 4 (14) 9 14
Interest expense (1,382) (891) (2,615) (1,635)
Income before taxes 27 420 102 509
Income tax (provision) 0 (14) 0 (400)
Net income $ 27 $ 406 $ 102 $ 109
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
TELOS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
(amounts in thousands)
<CAPTION>
June 30, 1995 December 31, 1994
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,684 $ 441
Accounts receivable, net 32,854 40,345
Inventories, net 7,402 8,696
Other current assets 4,154 3,918
Total current assets 46,094 53,400
Property and equipment, net of accumulated
depreciation of $17,795 and $16,769,
respectively 2,772 3,483
Goodwill 25,233 26,822
Other assets 3,033 3,167
$77,132 $86,872
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Accounts payable $11,874 $20,302
Other current liabilities 6,567 10,174
Senior subordinated notes ---- 6,414
Accrued compensation and benefits 8,484 10,272
Total current liabilities 26,925 47,162
Senior credit facility 38,314 34,000
Subordinated notes 7,116 ----
Other long-term liabilities 1,906 2,941
Total liabilities 74,261 84,103
Redeemable preferred stocks
Senior redeemable preferred stock 4,326 4,192
Class B redeemable preferred stock 9,832 9,497
Redeemable preferred stock 14,830 14,263
Total preferred stock 28,988 27,952
Stockholders' investment
Common stock 78 78
Capital in excess of par 11,161 12,095
Retained earnings (deficit) (37,356) (37,356)
Total stockholders' investment (26,117) (25,183)
$77,132 $86,872
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
TELOS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
<CAPTION>
Six Months
Ended June 30,
1995 1994
<S> <C> <C>
Operating activities:
Net income $ 102 $ 109
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,602 2,085
Goodwill amortization 1,589 1,589
Other noncash items (313) (550)
Changes in assets and liabilities that
used cash (6,408) (8,507)
Cash (used in) operating activities (3,428) (5,274)
Investing activities:
Proceeds from sales of property and equipment 3 6
Purchase of property and equipment (340) (571)
Cash (used in) investing activities (337) (565)
Financing activities:
Proceeds from borrowings under
senior credit facility 4,314 6,049
Proceeds from issuance of subordinated
bridge notes 6,494 --
Repayment of senior subordinated notes (5,800) --
Cash provided by financing activities 5,008 6,049
Increase in cash and cash equivalents 1,243 210
Cash and cash equivalents at beginning
of period 441 744
Cash and cash equivalents at end of period $1,684 $ 954
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General
The accompanying condensed consolidated financial statements
of Telos Corporation ("Telos") (formerly C3, Inc.) and its wholly
owned subsidiaries, Telos Corporation (California), Telos Field
Engineering Inc., and Telos International (collectively, the
"Company") have been prepared without audit. Certain information
and note disclosures normally included in the financial
statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. The
Company believes the disclosures made are adequate to make the
information presented consistent with past practices. However,
these condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-
K for the fiscal year ended December 31, 1994.
In the opinion of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments and
reclassifications (which include only normal recurring
adjustments) necessary to present fairly the financial position
of the Company as of June 30, 1995 and December 31, 1994, and the
results of its operations and its cash flows for the six months
ended June 30, 1995 and 1994. Interim results are not
necessarily indicative of fiscal year performance because of the
impact of seasonal and short-term variations.
Included in Systems and Services sales for the six months
ended June 30, 1995 are Product sales of $23,563,000.
Certain reclassifications have been made to the prior year's
financial statements to conform to the classifications used in the
current period.
Note 2. Accounts Receivable
The components of accounts receivable are as follows (in
thousands):
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
<C> <C>
<S>
Billed accounts receivable $25,832 $32,483
Unbilled accounts receivable 7,858 9,149
33,690 41,632
Allowance for doubtful accounts (836) (1,287)
$32,854 $40,345
</TABLE>
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3. Debt Obligations
Senior Credit Facility
On April 17, 1995, the Company refinanced its senior credit
facility ("Facility") with its existing lender. The new Facility
remains a $45 million commitment with a maturity date of July 1,
1996. Other terms and conditions of the Facility are similar to
the Company's previous Facility except that certain financial and
non financial covenants have been amended. In 1995, certain of
the Company's shareholders have made deposits with the Company's
bank to provide the Company with increased borrowing capability
under its Facility. Total shareholder deposits with the
Company's bank total $7 million. The Company and its
shareholders have agreed to negotiate appropriate return to the
shareholders for this provision of capital. Such negotiations
are in process. The Company currently anticipates that the form
of such return will be long term instruments substantially
similar to the ones to be issued in exchange for the subordinated
bridge notes. See Senior Subordinated Notes, Series B described
below.
Senior Subordinated Note, Series A
At June 30, 1995, the Company had $675,000 of the senior
subordinated notes, Series A, outstanding with Mr. John R.C.
Porter ("Porter"), the Company's majority common shareholder.
The Company was not in compliance with the financial maintenance
covenants of the senior subordinated notes, Series A as of June
30, 1995. Porter has agreed to waive such non compliance.
Senior Subordinated Notes, Series B
The Company entered into an agreement with Union de Banques
Suisses (Luxembourg) S. A. ("UBS") on June 8, 1995 whereby the
Company paid UBS $5.8 million in outstanding principal, $500,000
of accrued interest and $200,000 of legal and other fees in
satisfaction of the claims of UBS with respect to the Series B-1
and B-2 notes.
The funds to pay UBS were provided by certain of the
Company's common shareholders. The shareholders have been issued
subordinated bridge notes aggregating approximately $6.5 million.
The notes have a maturity date of October 1, 1996 and have
interest rates ranging from 14% to 17 1/2%. Currently, the
Company is negotiating terms for certain long term debt
instruments that will replace the subordinated bridge notes.
While the terms have not been finalized, these debt instruments
are expected to bear similar stated interest and may contain
certain substantial prepayment premiums currently expected to
have a value of approximately 13 1/2% per annum which become due
should specified events happen.
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4. Preferred Stock
Senior Redeemable Preferred Stock
The components of the senior redeemable preferred stock are
Series A-1 and Series A-2 redeemable preferred stock each with
$.01 par value and 1,250 and 1,750 shares authorized, issued and
outstanding, respectively.
The Series A-1 and A-2 each carry a cumulative per annum
dividend rate equal to 9% of their liquidation value of $1,000
per share through June 30, 1995. From July 1, 1995 through June
30, 1997, the dividend rate increases to 11.125% per annum of its
liquidation value, and increases again to 14.125% per annum
thereafter. The liquidation preference of the preferred stock is
the face amount of the Series A-1 and A-2 Stock ($1,000 per
share), plus all accrued and unpaid dividends. The Series A-1
and A-2 Preferred Stock is senior to all other present and future
equity of the Company. The Series A-1 is senior to the Series A-
2. At June 30, 1995 and December 31, 1994 undeclared, unpaid
dividends relating to Series A-1. and A-2 Preferred Stock totaled
$1,326,000 and $1,192,000, respectively.
Class B Redeemable Preferred Stock
The Class B Redeemable Preferred Stock has a $.01 par value,
with 7,500 shares authorized, issued and outstanding. The Class
B Redeemable Preferred Stock has a cumulative dividend calculated
at a rate per annum equal to 9% of its liquidation value of
$1,000 per share through June 30, 1995. From July 1, 1995
through June 30, 1997, the dividend rate increases to 11.125% per
annum of its liquidation value, and increases again to 14.125%
per annum thereafter. The Class B Redeemable Preferred Stock may
be redeemed at its liquidation value together with all accrued
and unpaid dividends at any time at the option of the Company.
The liquidation preference of the preferred stock is the face
amount, $1,000 per share, plus all accrued and unpaid dividends.
The Company is required to redeem all of the outstanding shares
of the stock on December 31, 2001, subject to the legal
availability of funds. At June 30, 1995 and December 31, 1994
undeclared, unpaid dividends relating to the Class B Redeemable
Preferred Stock totaled $2,332,000 and $1,997,000 respectively.
<PAGE>
TELOS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12% Cumulative Exchangeable Redeemable Preferred Stock
A maximum of 6,000,000 shares of 12% Cumulative Exchangeable
Redeemable Preferred Stock, par value $.01 per share, have been
authorized for issuance. The Company initially issued 2,858,723
shares of 12% Cumulative Exchangeable Redeemable Preferred Stock
(the "Preferred Stock"), par value $.01 per share, in connection
with the merger. The Preferred Stock accrues a semi-annual
dividend at the annual rate of 12% ($1.20) per share, based on
the liquidation preference of $10 per share and is fully
cumulative.
Through November 21, 1995, the Company has the option to pay
dividends in additional shares of Preferred Stock in lieu of
cash. Dividends are payable by the Company, provided the Company
has legally available funds under Maryland law, when and if
declared by the Board of Directors, commencing June 1, 1990, and
on each six month anniversary thereof. Dividends in additional
shares of the Preferred Stock are paid at the rate of 0.06 of a
share of the Preferred Stock for each $.60 of such dividends not
paid in cash. No dividends were declared or paid during fiscal
years 1994, 1993 and 1992. Cumulative undeclared dividends as of
December 31, 1994 are equal to $2,871,000. The Company has
accrued these dividends for the periods although the Company is
uncertain when or if these dividends will be declared or paid.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
In the first half of 1995, the Company had comparable
revenues to the first half of 1994, and increased operating
profit as compared to 1994. The higher operating profit results
from declines in selling, general and administrative expenses
which include a reduction in rebid efforts and spending on
product initiatives.
Total backlog from existing contracts was $405 million as of
June 30, 1995, as compared to $328 million at December 31, 1994.
As of June 30, 1995, the funded backlog of the Company totaled
$82 million, a decrease of $11 million from December 31, 1994.
Funded backlog represents aggregate contract revenues remaining
to be earned by the Company at a given time, but only to the
extent, in the case of government contracts, funded by a
procuring government agency and allotted to the contracts.
Results of Operations
The condensed consolidated statements of income include the
results of operations of Telos Corporation and its wholly owned
subsidiaries Telos Corporation (California), Telos Field
Engineering Inc., and Telos International ("the Company"). The
major elements of the Company's operating expenses as a
percentage of sales for the three and six month periods ended
June 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.4 80.4 82.6 81.5
SG&A expenses 10.4 14.7 12.5 14.3
Goodwill amortization 1.9 1.9 1.8 1.8
Operating income 3.3 3.0 3.1 2.4
Other income -- -- -- --
Interest expense (3.3) (2.1) (3.0) (1.9)
Income tax provision -- -- --- (0.4)
Net income --% 0.9% 0.1% 0.1%
</TABLE>
Financial Data by Market Segment
The Company operates in three market segments: systems and
services (the "Systems and Services Group"), which consists of
systems integration and software services; computer hardware
maintenance (the "Field Engineering Group"); and consulting
services (the "Consulting Group").
<PAGE>
Sales, gross profit, and gross margin by market segment for
the periods designated below are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(amounts in thousands)
<S> <C> <C> <C> <C>
Sales:
Systems and Services $27,231 $28,612 $58,945 $58,543
Field Engineering 8,055 8,565 16,538 17,269
Consulting 6,516 5,900 13,080 11,314
Total $41,802 $43,077 $88,563 $87,126
Gross Profit:
Systems and Services $4,831 $ 5,601 $11,078 $11,046
Field Engineering 685 2,025 1,905 3,435
Consulting 1,022 818 2,426 1,684
Total $6,538 $8,444 $15,409 $16,165
Gross Margin:
Systems and Services 17.7% 19.6% 18.8% 18.9%
Field Engineering 8.5% 23.6% 11.5% 19.9%
Consulting 15.7% 13.9% 18.5% 14.9%
Total 15.6% 19.6% 17.4% 18.6%
</TABLE>
For the three month period ended June 30, 1995, sales
declined by $1.3 million, or 3.0%, to $41.8 million from $43.1
million for the comparable 1994 period. The decrease for the
three month period is attributable to the Systems and Services
Group, which reported a decrease in sales of $1.4 million for the
three month period, and to the Field Engineering Group, which
reported a decrease in sales of $500,000 for the three month
period, offset by an increase in Consulting Group sales for the
three month period of $600,000. Within the Systems and Services
Group, certain of the Company's software services groups had
decreased sales of $900,000 in the three month period due to
certain contracts not being renewed during 1995. The decline in
sales within the Field Engineering Group of $500,000 in the three
month period is attributable to reductions in contract activity
for the segment, and in warranty services related to systems
integration customers. The Consulting Group sales increase of
$600,000 for the three month period is attributable to increased
billable hours resulting from obtaining new customers and
expanding service to existing customers.
Sales increased $1.5 million from $87.1 million to $88.6
million for the six months ended June 30, 1995 as compared to the
same 1994 period. The increase for the six month period is
attributable to the Systems and Services Group, which had an
increase of $400,000 for the six month period, and the Consulting
Group, which had a $1.8 million increase for the six month
period, offset by a decline in Field Engineering Group sales of
$700,000 for the six month period.
<PAGE>
For the six month period ended June 30, 1995, the majority
of the increase within the Systems and Services Group is due to
systems integration sales, which increased $3.7 million in the
first six months of 1995 compared to the same period in 1994.
This increase is attributable to order volume under the INS
contract, which was awarded in September 1994, as well as
increased sales in other business lines of the division. The
decrease in sales within the Field Engineering Group for the six
month period of $700,000 is due to the reductions in contract
activity and the performance of warranty services discussed
above. The increase of $1.8 million in sales for the Consulting
Group for the six month period is the result of the increase in
billable hours and expansion of services also discussed above.
Cost of sales increased by $700,000 or 1.8%, to $35.3
million in the three month period ended June 30, 1995, from $34.6
million in the comparable 1994 period. The increase in cost of
sales is primarily due to the Field Engineering Group, with an
increase in cost of sales for the three month period of $800,000.
The increase in cost of sales within this Group, despite its
decrease in sales for the three month period of $500,000, is
attributable to certain increased costs at the division's depots
and overseas locations. For the six months ended June 30, 1995,
cost of sales increased $2.2 million, or 3.1%, to $73.2 million
from $71.0 million for the same period in 1994. The increase is
a result of the increase in sales volume for the six month period.
Gross profit declined $1.9 million in the three month period
to $6.5 million, from $8.4 million in the comparable 1994 period.
For the six month period, gross profit decreased by $700,000 to
$15.4 million from $16.1 million. The decline in both periods is
primarily attributable to the decline in gross profit in the
Field Engineering Group discussed above. Gross margins were
15.6% and 17.4% for the three and six month periods of 1995 as
compared to 19.6% and 18.6% for the comparable periods of 1994.
Selling, general, and administrative expense ("SG&A")
decreased by approximately $2.0 million or 31.4%, to $4.3 million
in the second quarter of 1995 from $6.3 million in the comparable
period of 1994. For the six month period of 1995, SG&A declined
$1.3 million to $11.1 million from $12.4 million in 1994. The
decreases are primarily due to reduced spending by the Company in
certain administrative cost areas and in its bid and proposal and
marketing efforts. The Company has also reduced its spending on
certain of its product initiatives in 1995. Also, the 1994
period included significant costs associated with contract rebid
activities. SG&A as a percentage of sales decreased to 10.4%
for the second quarter of 1995 from 14.7% in the comparable 1994
period. SG&A as a percentage of sales for the six month period
ended June 30, 1995 decreased to 12.5% from 14.3% compared to the
same period in 1994 due to a decrease in SG &A and an increase in
sales.
Goodwill amortization expense was $795,000 and $1.6 million
for each of the three and six month periods, respectively, in
1995 and 1994, as the Company continues to amortize its goodwill
balance which resulted primarily from the acquisition of Telos
Corporation.
<PAGE>
Operating income increased by $100,000 to $1.4 million in
the three month period from $1.3 in the comparable 1994 period
and increased $600,000 to $2.7 million from $2.1 million for the
six month period, as a result of the aforementioned increase in
sales and declines in SG&A.
Other non-operating income was approximately $4,000 in the
three month period of 1995 compared to approximately $14,000 of
other non-operating expense in the comparable 1994 period. For
the 1995 six month period, non-operating income was $9,000 as
compared to income of $14,000 for the comparable 1994 period.
Interest expense increased approximately $500,000 to $1.4
million in the second quarter of 1995 period from $900,000 in the
comparable 1994 period, as a result of the increase in the
outstanding balance of the senior credit facility and related
interest rate. Interest expense for the first six months of 1995
of $2.6 million is an increase of $1.0 million from the
comparable 1994 period interest expense of $1.6 million.
The Company did not have an income tax provision for the
three month and six month periods ended June 30, 1995 as a result
of utilization of net operating loss carryforwards. For the
comparable periods of 1994, the Company had provisions for income
taxes of $14,000 and $400,000, respectively.
Liquidity and Capital Resources
For the six months ended June 30, 1995, the Company used
$3.4 million of cash in operating activities. This was primarily
the result of the Company's effort to reduce its accounts payable
and other liabilities. These uses of cash were funded by the
Company's credit facility, which resulted in an increase in the
credit facility during the first half of 1995. However, the
Company also had significant cash collections of its accounts
receivable during the second quarter, which has reduced the
credit facility balance from March 31, 1995 to June 30, 1995.
Operating cash uses and purchases of property and equipment were
funded from borrowings of $4.3 million from the senior credit
facility.
The Company continues to have constraints on its liquidity
as it funds its revenue growth and its product and bid and
proposal efforts. The Company has an active cash management
program designed to monitor and control significant cash
commitments as well as to ensure sufficient funds for Company
operations and growth.
<PAGE>
At June 30, 1995, the Company had outstanding debt of $45.4
million, consisting of $38.3 million under the secured senior
credit facility and $7.1 million in subordinated debt. The
senior credit facility was refinanced on April 17, 1995 and has a
maturity date of July 1, 1996. Under the terms of the
refinancing, the total commitment under the senior credit
facility remains at $45 million, with terms and conditions
similar to the previous senior credit facility except for
amendments made to certain of the financial and non-financial
covenants. In 1995, certain of the Company's shareholders have
made deposits with the Company's bank to provide the Company with
increased borrowing capability under its Facility. Total
shareholder deposits with the Company's bank total $7 million.
The Company and its shareholders have agreed to negotiate
appropriate return to the shareholders for this provision of
capital. Such negotiations are in process. The Company
currently anticipates that the form of such return will be long
term instruments substantially similar to the ones to be issued
in exchange for the subordinated bridge notes, described below.
At June 30, 1995, the Company had $675,000 of the senior
subordinated notes, Series A, outstanding with Mr. John R.C.
Porter ("Porter"), the Company's majority common shareholder.
The Company was not in compliance with the financial maintenance
covenants of the senior subordinated notes, Series A as of June
30, 1995. Porter has agreed to waive such non compliance.
The Company entered into an agreement with Union de Banques
Suisses (Luxembourg) S. A. ("UBS") on June 8, 1995 whereby the
Company paid UBS $5.8 million in outstanding principal, $500,000
of accrued interest and $200,000 of legal and other fees in
satisfaction of the claims of UBS with respect to the Series B-1
and B-2 notes.
The funds to pay UBS were provided by certain of the
Company's common shareholders. The shareholders have been issued
subordinated bridge notes aggregating approximately $6.5 million.
The notes have a maturity date of October 1, 1996 and have
interest rates ranging from 14% to 17 1/2%. Currently, the
Company is negotiating terms for certain long term debt
instruments that will replace the subordinated bridge notes.
While the terms have not been finalized, these debt instruments
are expected to bear similar stated interest and may contain
certain substantial prepayment premiums currently expected to
have a value of approximately 13 1/2% per annum which become due
should specified events happen.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Cottonwood Holdings, Inc. v. C3, Inc., et al. (94 CIV. 3438)
This case was filed in 1994 in the United States District
Court for the Southern District of New York and disclosed in the
Company's Form 10-K for the year ended December 31, 1994. In
this action, the Plaintiff asserted civil RICO violations,
securities fraud and common law fraud by the Company and other
Defendants arising from the sale of the Company's securities by
Fred Knoll and other entities (including Cottonwood) to John
Porter and other entities. Plaintiff requested $30 million in
treble damages.
On May 9, 1995, the District Court granted, without
prejudice, the Company's motion to dismiss this case based on
lack of jurisdiction. To the Company's knowledge, no new suit
has been filed to date.
Union de Banques Suisses (Luxembourg) S.A. v C3, Inc. (Civil
Action 94-1714-A)
This case was filed in December 1994 in the United States
District Court for the Eastern District of Virginia and disclosed
in the Company's Form 10-K for the year ended December 31, 1994.
The Plaintiff is the holder of promissory notes made by the
Company. The suit claimed default by the Company and sought to
accelerate payment of the notes. The Plaintiff requested damages
of approximately $6.5 million which represents principal, accrued
interest and attorney's fees. The Company resolved this suit by
paying the principal, interest, fees and related expenses on June
8, 1995. Accordingly, this case has been dismissed with
prejudice.
Item 4. Submission of Matters to a Vote of Security Holders
On March 13, 1995, at a special meeting of the common
shareholders a vote was taken on a charter amendment to change
the name of the Company from C3, Inc. to Telos Corporation. The
amendment was approved by unanimous vote of all shareholders
present at the meeting which represented a majority of the
Company's common shares outstanding.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.52 Subordinated Bridge Note/Promissory Note as of
June 8, 1995 between Telos Corporation (Maryland)
and Drayton English and International Investment
Trust
10.53 Subordinated Bridge Note/Promissory Note as of
June 8, 1995 between Telos Corporation (Maryland)
and J.O. Hambro Investment Management, Ltd.
<PAGE>
10.54 Subordinated Bridge Note/Promissory Note as of
June 8, 1995 between Telos Corporation (Maryland)
and North Atlantic Smaller Companies Investment
Trust, PLC
10.55 Subordinated Bridge Note/Promissory Note as of
June 8, 1995 between Telos Corporation (Maryland)
and Mr. John R.C. Porter
10.56 Subordinated Bridge Note/Promissory Note as of
June 8, 1995 between Telos Corporation (Maryland)
and Sir Leslie Porter
10.57 Subordinated Bridge Note/Promissory Note as of
June 8, 1995 between Telos Corporation (Maryland)
and Second Consolidated Trust, PLC
27 Financial Data Schedule
(b) Reports on Form 8-K:
Registrant filed a Current Report on Form 8-K, dated
April 21, 1995, in respect of the amendment to the
Registrant's charter to change the Company's name from
C3, Inc. to Telos Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
DATE: Telos Corporation
August 11, 1995 /s/ Lorenzo Tellez
Lorenzo Tellez
(Principal Financial Officer &
Principal Accounting Officer)
<PAGE>
Telos Corporation
Exhibit Index
Exhibit
Number Exhibit Name Page
10.52 Subordinated Bridge Note/Promissory Note
as of June 8, 1995 between Telos
Corporation (Maryland) and Drayton English
and International Investment Trust 19-21
10.53 Subordinated Bridge Note/Promissory Note
as of June 8, 1995 between Telos
Corporation (Maryland) and J. O. Hambro
Investment Management, Ltd. 22-24
10.54 Subordinated Bridge Note/Promissory Note
as of June 8, 1995 between Telos
Corporation (Maryland) and North
Atlantic Smaller Companies Investment
Trust, PLC 25-27
10.55 Subordinated Bridge Note/Promissory Note
as of June 8, 1995 between Telos
Corpoation (Maryland) and Mr. John R.C.
Porter 28-30
10.56 Subordinated Bridge Note/Promissory Note
as of June 8, 1995 between Telos
Corporation (Maryland) and Sir Leslie
Porter 31-33
10.57 Subordinated Bridge Note/Promissory Note
as of June 8, 1995 between Telos
Corporation (Maryland) and Second
Consolidated Trust, PLC 34-36
27 Financial Data Schedule 37
<PAGE>
$157,068.21 Herndon, Virginia
June 8, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, Telos Corporation, a Maryland
corporation, with offices at 460 Herndon Parkway, Herndon,
Virginia 22070 (hereinafter referred to as "the Borrower" or "the
Company", promises to pay to the order of Drayton English &
International Investment Trust, 11 Devonshire Square, London,
EC2M 4YR, (hereinafter referred to as "Drayton" or "Lender"), at
such offices or at such other place or places as the holder
hereof may from time to time designate in writing, the principal
sum of ONE HUNDRED FIFTY SEVEN THOUSAND SIXTY EIGHT DOLLARS AND
21/00 ($157,068.21) or so much thereof as shall from time to time
have been advanced and be outstanding, together with interest at
the rate hereinafter provided until paid, said principal and
interest being payable as follows:
a. Interest only, at the rate of fourteen percent (14%) per
annum, on so much of the principal as shall have been advanced
and shall from time to time remain unpaid, shall be due and
payable quarterly, until the principal has been paid in full, on
the first day of April, July, October, and January in each year.
The first interest payment shall be due October 1, 1995 and shall
include all interest accrued from the date hereof until the date
of such interest payment.
b. If not sooner paid, the outstanding and unpaid principal
balance shall be paid on or before October 1, 1996.
c. Principal and interest on this note are payable in lawful
money of the United States. The principal and interest on this
Note may be prepaid at any time after ten (10) days written
notice to the Lender, in whole or in part, without premium or
penalty and shall be accompanied by payment in cash of all
accrued and unpaid interest on the amount so prepaid.
d. If any payment of principal or interest on this Note
shall become due on a Saturday, Sunday, or legal holiday under
the laws of the State of Virginia, or any other day on which
banking institutions in the State of Virginia are obligated or
authorized by law or executive order to close, such payment shall
be made on the next succeeding business day in Virginia and any
such extended time of the payment of principal shall not be
included in computing compound interest in connection with such
payment.
e. Upon receipt by the Borrower of evidence reasonably
satisfactory to it of the mutilation, destruction, loss or theft
of this Note, the Borrower will make and deliver to the owner a
new note of like tenor in lieu of this Note so mutilated,
destroyed, lost or stolen.
f. Payments made on account hereof shall be applied first to
accrued and unpaid interest and the remainder shall be credited
to principal.
<PAGE>
I. DEFAULT
1.1 It is expressly agreed by Borrower that the failure to
pay, when due, any amount of principal, or no more than five days
after due date any amount of interest, or in the event the
Borrower files any petition, or any petition is filed against it
and not dismissed within sixty (60) days, under any bankruptcy or
insolvency law or for the appointment of a receiver for
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, shall be deemed
to be Events of Default under this Note.
1.2 If an Event of Default occurs, the lender, at his
option, may accelerate this Note and may by written notice to
Borrower declare the entire unpaid principal amount of this Note
and all interest accrued and unpaid thereon to be immediately due
and payable whereupon the unpaid principal amount and all such
accrued interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any
kind. The failure of the Lender to give such notice shall, in no
event, be deemed a waiver of any of the Lender rights hereunder
as long as the Event of Default continues.
1.3 Upon default in the payment of the principal of this
Note or any other sum payable hereunder when due upon demand, at
maturity or by reason of acceleration of maturity, Borrower
agrees to pay all costs of collection incurred by the holder of
the Note, including reasonable attorneys' fees, whether suit is
brought or not, and all other costs and expenses reasonably
connected with collection of the indebtedness evidenced hereby.
II. SUBORDINATION
This Note is also subject to the following terms and
conditions and provisions with respect to a security interest.
2.1 The Borrower, for itself, its successors and assigns,
covenants and agrees, and the Lender and each holder of this
Note, by his acceptance thereof, likewise covenants and agrees,
that the payment of the principal of and interest on the Note is
hereby expressly subordinated in right of payment to the prior
payment in full of all indebtedness now and hereafter due and
owing to NationsBank, N.A. or to any participant, assignee or
successor under the Revolving and Reducing Senior Facility Credit
Agreement dated as of January 14, 1992, as amended now or
hereafter or under any agreement with respect to the refinancing
of any such indebtedness (collectively, the "Agreement") (all
such indebtedness collectively "Senior Indebtedness").
2.2 In the event of the occurrence of any Event of Default
under the Agreement, all principal and interest due on all Senior
Indebtedness shall first be paid in full before any payment is
made upon the Note, and in any such event any payment or
distribution of any kind or character, whether in cash, property
or securities (other than shares of stock of the Company, as
reorganized and readjusted, or securities of the corporation
provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment in full of all
<PAGE>
Senior Indebtedness which may at the time be outstanding,) which
shall be made upon or in respect of the Note shall be paid over
to the holders of such Senior Indebtedness for application in
payment thereof, unless and until such Senior Indebtedness shall
have been paid and satisfied in full. Without limiting the
foregoing, no payment of principal shall be made upon the Note
without the prior written consent of the holder(s) of a majority
of the Senior Indebtedness outstanding at the time of any such
proposed payment.
2.3 No present or future holder of any Senior Indebtedness
shall be prejudiced in his right to enforce subordination of the
Note by any act or failure to act on the part of the Company.
2.4 The provisions of this Note are solely for the purpose
of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and the holder of the Note on the
other hand, and nothing herein shall impair, as between the
Company and the Noteholder, the obligation of the Company to pay
to the Noteholder the principal, if any, and interest on the Note
in accordance with its terms, nor shall anything herein prevent
the Noteholder, upon default hereunder, provided the Noteholder
shall have first obtained the written approval of the holder(s)
of a majority of the Senior Indebtedness then outstanding, from
exercising all remedies otherwise permitted by applicable law or
hereunder, subject to the rights under this Section II of holders
of Senior Indebtedness to payment of all cash, property or
securities otherwise payable or deliverable to the Noteholders.
2.5 Subject to the payment in full of all Senior
Indebtedness, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments
or distributions of assets of the Company made on the Senior
Indebtedness until the principal of and interest on the Note
shall be paid in full.
This Note shall be construed and enforced in accordance
with, and governed by the laws of the State of Virginia without
giving effect to Conflict of Laws.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President and
General Counsel
<PAGE>
$18,427.79 Herndon, Virginia
June 8,1995
PROMISSORY NOTE
FOR VALUE RECEIVED, Telos Corporation, a Maryland
corporation, with offices at 460 Herndon Parkway, Herndon,
Virginia 22070 (hereinafter referred to as "the Borrower" or "the
Company", promises to pay to the order of J.O. Hambro Investment
Management Ltd., 30 Queen Anne Gate, London SWIH 9AL,
(hereinafter referred to as "J. O. Hambro" or "Lender"), at such
offices or at such other place or places as the holder hereof may
from time to time designate in writing, the principal sum of
EIGHTEEN THOUSAND FOUR HUNDRED TWENTY SEVEN DOLLARS AND 79/00
($18,427.79) or so much thereof as shall from time to time have
been advanced and be outstanding, together with interest at the
rate hereinafter provided until paid, said principal and interest
being payable as follows:
a. Interest only, at the rate of fourteen percent (14%) per
annum, on so much of the principal as shall have been advanced
and shall from time to time remain unpaid, shall be due and
payable quarterly, until the principal has been paid in full, on
the first day of April, July, October, and January in each year.
The first interest payment shall be due October 1, 1995 and shall
include all interest accrued from the date hereof until the date
of such interest payment.
b. If not sooner paid, the outstanding and unpaid principal
balance shall be paid on or before October 1, 1996.
c. Principal and interest on this note are payable in lawful
money of the United States. The principal and interest on this
Note may be prepaid at any time after ten (10) days written
notice to the Lender, in whole or in part, without premium or
penalty and shall be accompanied by payment in cash of all
accrued and unpaid interest on the amount so prepaid.
d. If any payment of principal or interest on this Note
shall become due on a Saturday, Sunday, or legal holiday under
the laws of the State of Virginia, or any other day on which
banking institutions in the State of Virginia are obligated or
authorized by law or executive order to close, such payment shall
be made on the next succeeding business day in Virginia and any
such extended time of the payment of principal shall not be
included in computing compound interest in connection with such
payment.
e. Upon receipt by the Borrower of evidence reasonably
satisfactory to it of the mutilation, destruction, loss or theft
of this Note, the Borrower will make and deliver to the owner a
new note of like tenor in lieu of this Note so mutilated,
destroyed, lost or stolen.
f. Payments made on account hereof shall be applied first to
accrued and unpaid interest and the remainder shall be credited
to principal.
<PAGE>
I. DEFAULT
1.1 It is expressly agreed by Borrower that the failure to
pay, when due, any amount of principal, or no more than five days
after due date any amount of interest, or in the event the
Borrower files any petition, or any petition is filed against it
and not dismissed within sixty (60) days, under any bankruptcy or
insolvency law or for the appointment of a receiver for
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, shall be deemed
to be Events of Default under this Note.
1.2 If an Event of Default occurs, the lender, at his
option, may accelerate this Note and may by written notice to
Borrower declare the entire unpaid principal amount of this Note
and all interest accrued and unpaid thereon to be immediately due
and payable whereupon the unpaid principal amount and all such
accrued interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any
kind. The failure of the Lender to give such notice shall, in no
event, be deemed a waiver of any of the Lender rights hereunder
as long as the Event of Default continues.
1.3 Upon default in the payment of the principal of this
Note or any other sum payable hereunder when due upon demand, at
maturity or by reason of acceleration of maturity, Borrower
agrees to pay all costs of collection incurred by the holder of
the Note, including reasonable attorneys' fees, whether suit is
brought or not, and all other costs and expenses reasonably
connected with collection of the indebtedness evidenced hereby.
II. SUBORDINATION
This Note is also subject to the following terms and
conditions and provisions with respect to a security interest.
2.1 The Borrower, for itself, its successors and assigns,
covenants and agrees, and the Lender and each holder of this
Note, by his acceptance thereof, likewise covenants and agrees,
that the payment of the principal of and interest on the Note is
hereby expressly subordinated in right of payment to the prior
payment in full of all indebtedness now and hereafter due and
owing to NationsBank, N.A. or to any participant, assignee or
successor under the Revolving and Reducing Senior Facility Credit
Agreement dated as of January 14, 1992, as amended now or
hereafter or under any agreement with respect to the refinancing
of any such indebtedness (collectively, the "Agreement") (all
such indebtedness collectively "Senior Indebtedness").
2.2 In the event of the occurrence of any Event of Default
under the Agreement, all principal and interest due on all Senior
Indebtedness shall first be paid in full before any payment is
made upon the Note, and in any such event any payment or
distribution of any kind or character, whether in cash, property
or securities (other than shares of stock of the Company, as
reorganized and readjusted, or securities of the corporation
provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment in full of all
<PAGE>
Senior Indebtedness which may at the time be outstanding,) which
shall be made upon or in respect of the Note shall be paid over
to the holders of such Senior Indebtedness for application in
payment thereof, unless and until such Senior Indebtedness shall
have been paid and satisfied in full. Without limiting the
foregoing, no payment of principal shall be made upon the Note
without the prior written consent of the holder(s) of a majority
of the Senior Indebtedness outstanding at the time of any such
proposed payment.
2.3 No present or future holder of any Senior Indebtedness
shall be prejudiced in his right to enforce subordination of the
Note by any act or failure to act on the part of the Company.
2.4 The provisions of this Note are solely for the purpose
of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and the holder of the Note on the
other hand, and nothing herein shall impair, as between the
Company and the Noteholder, the obligation of the Company to pay
to the Noteholder the principal, if any, and interest on the Note
in accordance with its terms, nor shall anything herein prevent
the Noteholder, upon default hereunder, provided the Noteholder
shall have first obtained the written approval of the holder(s)
of a majority of the Senior Indebtedness then outstanding, from
exercising all remedies otherwise permitted by applicable law or
hereunder, subject to the rights under this Section II of holders
of Senior Indebtedness to payment of all cash, property or
securities otherwise payable or deliverable to the Noteholders.
2.5 Subject to the payment in full of all Senior
Indebtedness, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments
or distributions of assets of the Company made on the Senior
Indebtedness until the principal of and interest on the Note
shall be paid in full.
This Note shall be construed and enforced in accordance
with, and governed by the laws of the State of Virginia without
giving effect to Conflict of Laws.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President and
General Counsel
<PAGE>
$238,145.00 Herndon, Virginia
June 8, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, Telos Corporation, a Maryland
corporation, with offices at 460 Herndon Parkway, Herndon,
Virginia 22070 (hereinafter referred to as "the Borrower" or "the
Company", promises to pay to the order of North Atlantic Smaller
Companies Investment Trust PLC, 30 Queen Anne Gate, London, SWIH
9AL, (hereinafter referred to as "North Atlantic" or "Lender", at
such offices or at such other place or places as the holder
hereof may from time to time designate in writing, the principal
sum of TWO HUNDRED THIRTY EIGHT THOUSAND ONE HUNDRED FORTY FIVE
DOLLARS AND NO/00 ($238,145.00) or so much thereof as shall from
time to time have been advanced and be outstanding, together with
interest at the rate hereinafter provided until paid, said
principal and interest being payable as follows:
a. Interest only, at the rate of fourteen percent (14%) per
annum, on so much of the principal as shall have been advanced
and shall from time to time remain unpaid, shall be due and
payable quarterly, until the principal has been paid in full, on
the first day of April, July, October, and January in each year.
The first interest payment shall be due October 1, 1995 and shall
include all interest accrued from the date hereof until the date
of such interest payment.
b. If not sooner paid, the outstanding and unpaid principal
balance shall be paid on or before October 1, 1996.
c. Principal and interest on this note are payable in lawful
money of the United States. The principal and interest on this
Note may be prepaid at any time after ten (10) days written
notice to the Lender, in whole or in part, without premium or
penalty and shall be accompanied by payment in cash of all
accrued and unpaid interest on the amount so prepaid.
d. If any payment of principal or interest on this Note
shall become due on a Saturday, Sunday, or legal holiday under
the laws of the State of Virginia, or any other day on which
banking institutions in the State of Virginia are obligated or
authorized by law or executive order to close, such payment shall
be made on the next succeeding business day in Virginia and any
such extended time of the payment of principal shall not be
included in computing compound interest in connection with such
payment.
e. Upon receipt by the Borrower of evidence reasonably
satisfactory to it of the mutilation, destruction, loss or theft
of this Note, the Borrower will make and deliver to the owner a
new note of like tenor in lieu of this Note so mutilated,
destroyed, lost or stolen.
f. Payments made on account hereof shall be applied first to
accrued and unpaid interest and the remainder shall be credited
to principal.
<PAGE>
I. DEFAULT
1.1 It is expressly agreed by Borrower that the failure to
pay, when due, any amount of principal, or no more than five days
after due date any amount of interest, or in the event the
Borrower files any petition, or any petition is filed against it
and not dismissed within sixty (60) days, under any bankruptcy or
insolvency law or for the appointment of a receiver for
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, shall be deemed
to be Events of Default under this Note.
1.2 If an Event of Default occurs, the lender, at his
option, may accelerate this Note and may by written notice to
Borrower declare the entire unpaid principal amount of this Note
and all interest accrued and unpaid thereon to be immediately due
and payable whereupon the unpaid principal amount and all such
accrued interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any
kind. The failure of the Lender to give such notice shall, in no
event, be deemed a waiver of any of the Lender rights hereunder
as long as the Event of Default continues.
1.3 Upon default in the payment of the principal of this
Note or any other sum payable hereunder when due upon demand, at
maturity or by reason of acceleration of maturity, Borrower
agrees to pay all costs of collection incurred by the holder of
the Note, including reasonable attorneys' fees, whether suit is
brought or not, and all other costs and expenses reasonably
connected with collection of the indebtedness evidenced hereby.
II. SUBORDINATION
This Note is also subject to the following terms and
conditions and provisions with respect to a security interest.
2.1 The Borrower, for itself, its successors and assigns,
covenants and agrees, and the Lender and each holder of this
Note, by his acceptance thereof, likewise covenants and agrees,
that the payment of the principal of and interest on the Note is
hereby expressly subordinated in right of payment to the prior
payment in full of all indebtedness now and hereafter due and
owing to NationsBank, N.A. or to any participant, assignee or
successor under the Revolving and Reducing Senior Facility Credit
Agreement dated as of January 14, 1992, as amended now or
hereafter or under any agreement with respect to the refinancing
of any such indebtedness (collectively, the "Agreement") (all
such indebtedness collectively "Senior Indebtedness").
2.2 In the event of the occurrence of any Event of Default
under the Agreement, all principal and interest due on all Senior
Indebtedness shall first be paid in full before any payment is
made upon the Note, and in any such event any payment or
distribution of any kind or character, whether in cash, property
or securities (other than shares of stock of the Company, as
reorganized and readjusted, or securities of the corporation
provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment in full of all
<PAGE>
Senior Indebtedness which may at the time be outstanding,) which
shall be made upon or in respect of the Note shall be paid over
to the holders of such Senior Indebtedness for application in
payment thereof, unless and until such Senior Indebtedness shall
have been paid and satisfied in full. Without limiting the
foregoing, no payment of principal shall be made upon the Note
without the prior written consent of the holder(s) of a majority
of the Senior Indebtedness outstanding at the time of any such
proposed payment.
2.3 No present or future holder of any Senior Indebtedness
shall be prejudiced in his right to enforce subordination of the
Note by any act or failure to act on the part of the Company.
2.4 The provisions of this Note are solely for the purpose
of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and the holder of the Note on the
other hand, and nothing herein shall impair, as between the
Company and the Noteholder, the obligation of the Company to pay
to the Noteholder the principal, if any, and interest on the Note
in accordance with its terms, nor shall anything herein prevent
the Noteholder, upon default hereunder, provided the Noteholder
shall have first obtained the written approval of the holder(s)
of a majority of the Senior Indebtedness then outstanding, from
exercising all remedies otherwise permitted by applicable law or
hereunder, subject to the rights under this Section II of holders
of Senior Indebtedness to payment of all cash, property or
securities otherwise payable or deliverable to the Noteholders.
2.5 Subject to the payment in full of all Senior
Indebtedness, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments
or distributions of assets of the Company made on the Senior
Indebtedness until the principal of and interest on the Note
shall be paid in full.
This Note shall be construed and enforced in accordance
with, and governed by the laws of the State of Virginia without
giving effect to Conflict of Laws.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President and
General Counsel
<PAGE>
$3,999,988 Herndon, Virginia
June 8, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, Telos Corporation, a Maryland
corporation, with offices at 460 Herndon Parkway, Herndon,
Virginia 22070 (hereinafter referred to as "the Borrower" or "the
Company", promises to pay to the order of Mr. John R.C. Porter,
Chelverton Properties Limited, 63 Chester Square, London SW1W 9EA
England (hereinafter referred to as "Porter" or "Lender", at
such offices or at such other place or places as the holder
hereof may from time to time designate in writing, the principal
sum of THREE MILLION NINE HUNDRED NINETY NINE THOUSAND NINE
HUNDRED EIGHTY EIGHT DOLLARS AND NO/00 ($3,999,988.00) or so much
thereof as shall from time to time have been advanced and be
outstanding, together with interest at the rate hereinafter
provided until paid, said principal and interest being payable
as follows:
a. Interest only, at the rate of fourteen percent (14%) per
annum, on so much of the principal as shall have been advanced
and shall from time to time remain unpaid, shall be due and
payable quarterly, until the principal has been paid in full, on
the first day of April, July, October, and January in each year.
The first interest payment shall be due October 1, 1995 and shall
include all interest accrued from the date hereof until the date
of such interest payment.
b. If not sooner paid, the outstanding and unpaid principal
balance shall be paid on or before October 1, 1996.
c. Principal and interest on this note are payable in lawful
money of the United States. The principal and interest on this
Note may be prepaid at any time after ten (10) days written
notice to the Lender, in whole or in part, without premium or
penalty and shall be accompanied by payment in cash of all
accrued and unpaid interest on the amount so prepaid.
d. If any payment of principal or interest on this Note
shall become due on a Saturday, Sunday, or legal holiday under
the laws of the State of Virginia, or any other day on which
banking institutions in the State of Virginia are obligated or
authorized by law or executive order to close, such payment shall
be made on the next succeeding business day in Virginia and any
such extended time of the payment of principal shall not be
included in computing compound interest in connection with such
payment.
e. Upon receipt by the Borrower of evidence reasonably
satisfactory to it of the mutilation, destruction, loss or theft
of this Note, the Borrower will make and deliver to the owner a
new note of like tenor in lieu of this Note so mutilated,
destroyed, lost or stolen.
f. Payments made on account hereof shall be applied first to
accrued and unpaid interest and the remainder shall be credited
to principal.
<PAGE>
I. DEFAULT
1.1 It is expressly agreed by Borrower that the failure to
pay, when due, any amount of principal, or no more than five days
after due date any amount of interest, or in the event the
Borrower files any petition, or any petition is filed against it
and not dismissed within sixty (60) days, under any bankruptcy or
insolvency law or for the appointment of a receiver for
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, shall be deemed
to be Events of Default under this Note.
1.2 If an Event of Default occurs, the lender, at his
option, may accelerate this Note and may by written notice to
Borrower declare the entire unpaid principal amount of this Note
and all interest accrued and unpaid thereon to be immediately due
and payable whereupon the unpaid principal amount and all such
accrued interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any
kind. The failure of the Lender to give such notice shall, in no
event, be deemed a waiver of any of the Lender rights hereunder
as long as the Event of Default continues.
1.3 Upon default in the payment of the principal of this
Note or any other sum payable hereunder when due upon demand, at
maturity or by reason of acceleration of maturity, Borrower
agrees to pay all costs of collection incurred by the holder of
the Note, including reasonable attorneys' fees, whether suit is
brought or not, and all other costs and expenses reasonably
connected with collection of the indebtedness evidenced hereby.
II. SUBORDINATION
This Note is also subject to the following terms and
conditions and provisions with respect to a security interest.
2.1 The Borrower, for itself, its successors and assigns,
covenants and agrees, and the Lender and each holder of this
Note, by his acceptance thereof, likewise covenants and agrees,
that the payment of the principal of and interest on the Note is
hereby expressly subordinated in right of payment to the prior
payment in full of all indebtedness now and hereafter due and
owing to NationsBank, N.A. or to any participant, assignee or
successor under the Revolving and Reducing Senior Facility Credit
Agreement dated as of January 14, 1992, as amended now or
hereafter or under any agreement with respect to the refinancing
of any such indebtedness (collectively, the "Agreement") (all
such indebtedness collectively "Senior Indebtedness").
2.2 In the event of the occurrence of any Event of Default
under the Agreement, all principal and interest due on all Senior
Indebtedness shall first be paid in full before any payment is
made upon the Note, and in any such event any payment or
distribution of any kind or character, whether in cash, property
or securities (other than shares of stock of the Company, as
reorganized and readjusted, or securities of the corporation
provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment in full of all
<PAGE>
Senior Indebtedness which may at the time be outstanding,) which
shall be made upon or in respect of the Note shall be paid over
to the holders of such Senior Indebtedness for application in
payment thereof, unless and until such Senior Indebtedness shall
have been paid and satisfied in full. Without limiting the
foregoing, no payment of principal shall be made upon the Note
without the prior written consent of the holder(s) of a majority
of the Senior Indebtedness outstanding at the time of any such
proposed payment.
2.3 No present or future holder of any Senior Indebtedness
shall be prejudiced in his right to enforce subordination of the
Note by any act or failure to act on the part of the Company.
2.4 The provisions of this Note are solely for the purpose
of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and the holder of the Note on the
other hand, and nothing herein shall impair, as between the
Company and the Noteholder, the obligation of the Company to pay
to the Noteholder the principal, if any, and interest on the Note
in accordance with its terms, nor shall anything herein prevent
the Noteholder, upon default hereunder, provided the Noteholder
shall have first obtained the written approval of the holder(s)
of a majority of the Senior Indebtedness then outstanding, from
exercising all remedies otherwise permitted by applicable law or
hereunder, subject to the rights under this Section II of holders
of Senior Indebtedness to payment of all cash, property or
securities otherwise payable or deliverable to the Noteholders.
2.5 Subject to the payment in full of all Senior
Indebtedness, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments
or distributions of assets of the Company made on the Senior
Indebtedness until the principal of and interest on the Note
shall be paid in full.
This Note shall be construed and enforced in accordance
with, and governed by the laws of the State of Virginia without
giving effect to Conflict of Laws.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President and
General Counsel
<PAGE>
$1,500,000.00 Herndon,Virginia
June 8, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, Telos Corporation, a Maryland
corporation, with offices at 460 Herndon Parkway, Herndon,
Virginia 22070 (hereinafter referred to as "the Borrower" or "the
Company", promises to pay to the order of Sir Leslie Porter
(hereinafter referred to as "Lender"), c/o Personal Financial
Management Ltd., 12 Hans Road, London SW3 1RT, England at such
offices or at such other place or places as the holder hereof may
from time to time designate in writing, the principal sum of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS AND NO/100 ($1,500,000.00)
or so much thereof as shall from time to time have been advanced
and be outstanding, together with interest at the rate
hereinafter provided until paid, said principal and interest
being payable as follows:
a. Interest only, at the rate of fourteen percent (14%) per
annum, on so much of the principal as shall have been advanced
and shall from time to time remain unpaid, shall be due and
payable quarterly, until the principal has been paid in full, on
the first day of April, July, October, and January in each year.
Notwithstanding the foregoing, the rate of interest shall be
increased to an amount necessary to result in a payment to the
holder of fourteen percent (14%) per annum net of withholding for
United States Federal Income Taxes, it being contemplated that
Borrower shall receive substantiation for Federal Income Tax
purposes of circumstances supporting withholding at a rate no
greater than seventeen and one-half percent (17 1/2%) of interest
hereunder. The first interest payment shall be due October 1,
1995 and shall include all interest accrued from the date hereof
until the date of such interest payment.
b. If not sooner paid, the outstanding and unpaid principal
balance shall be paid on or before October 1, 1996.
c. Principal and interest on this note are payable in lawful
money of the United States. The principal and interest on this
Note may be prepaid at any time after ten (10) days written
notice to the Lender, in whole or in part, without premium or
penalty and shall be accompanied by payment in cash of all
accrued and unpaid interest on the amount so prepaid.
d. If any payment of principal or interest on this Note
shall become due on a Saturday, Sunday, or legal holiday under
the laws of the State of Virginia, or any other day on which
banking institutions in the State of Virginia are obligated or
authorized by law or executive order to close, such payment shall
be made on the next succeeding business day in Virginia and any
such extended time of the payment of principal shall not be
included in computing compound interest in connection with such
payment.
e. Upon receipt by the Borrower of evidence reasonably
satisfactory to it of the mutilation, destruction, loss or theft
<PAGE>
of this Note, the Borrower will make and deliver to the owner a
new note of like tenor in lieu of this Note so mutilated,
destroyed, lost or stolen.
f. Payments made on account hereof shall be applied first to
accrued and unpaid interest and the remainder shall be credited
to principal.
I. DEFAULT
1.1 It is expressly agreed by Borrower that the failure to
pay, when due, any amount of principal, or no more than five days
after due date any amount of interest, or in the event the
Borrower files any petition, or any petition is filed against it
and not dismissed within sixty (60) days, under any bankruptcy or
insolvency law or for the appointment of a receiver for
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, shall be deemed
to be Events of Default under this Note.
1.2 If an Event of Default occurs, the lender, at his
option, may accelerate this Note and may by written notice to
Borrower declare the entire unpaid principal amount of this Note
and all interest accrued and unpaid thereon to be immediately due
and payable whereupon the unpaid principal amount and all such
accrued interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any
kind. The failure of the Lender to give such notice shall, in no
event, be deemed a waiver of any of the Lender rights hereunder
as long as the Event of Default continues.
1.3 Upon default in the payment of the principal of this
Note or any other sum payable hereunder when due upon demand, at
maturity or by reason of acceleration of maturity, Borrower
agrees to pay all costs of collection incurred by the holder of
the Note, including reasonable attorneys' fees, whether suit is
brought or not, and all other costs and expenses reasonably
connected with collection of the indebtedness evidenced hereby.
II. SUBORDINATION
This Note is also subject to the following terms and
conditions and provisions with respect to a security interest.
2.1 The Borrower, for itself, its successors and assigns,
covenants and agrees, and the Lender and each holder of this
Note, by his acceptance thereof, likewise covenants and agrees,
that the payment of the principal of and interest on the Note is
hereby expressly subordinated in right of payment to the prior
payment in full of all indebtedness now and hereafter due and
owing to NationsBank, N.A. or to any participant, assignee or
successor under the Revolving and Reducing Senior Facility Credit
Agreement dated as of January 14, 1992, as amended now or
hereafter or under any agreement with respect to the refinancing
of any such indebtedness (collectively, the "Agreement") (all
such indebtedness collectively "Senior Indebtedness").
<PAGE>
2.2 In the event of the occurrence of any Event of Default
under the Agreement, all principal and interest due on all Senior
Indebtedness shall first be paid in full before any payment is
made upon the Note, and in any such event any payment or
distribution of any kind or character, whether in cash, property
or securities (other than shares of stock of the Company, as
reorganized and readjusted, or securities of the corporation
provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment in full of all
Senior Indebtedness which may at the time be outstanding,) which
shall be made upon or in respect of the Note shall be paid over
to the holders of such Senior Indebtedness for application in
payment thereof, unless and until such Senior Indebtedness shall
have been paid and satisfied in full. Without limiting the
foregoing, no payment of principal shall be made upon the Note
without the prior written consent of the holder(s) of a majority
of the Senior Indebtedness outstanding at the time of any such
proposed payment.
2.3 No present or future holder of any Senior Indebtedness
shall be prejudiced in his right to enforce subordination of the
Note by any act or failure to act on the part of the Company.
2.4 The provisions of this Note are solely for the purpose
of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and the holder of the Note on the
other hand, and nothing herein shall impair, as between the
Company and the Noteholder, the obligation of the Company to pay
to the Noteholder the principal, if any, and interest on the Note
in accordance with its terms, nor shall anything herein prevent
the Noteholder, upon default hereunder, provided the Noteholder
shall have first obtained the written approval of the holder(s)
of a majority of the Senior Indebtedness then outstanding, from
exercising all remedies otherwise permitted by applicable law or
hereunder, subject to the rights under this Section II of holders
of Senior Indebtedness to payment of all cash, property or
securities otherwise payable or deliverable to the Noteholders.
2.5 Subject to the payment in full of all Senior
Indebtedness, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments
or distributions of assets of the Company made on the Senior
Indebtedness until the principal of and interest on the Note
shall be paid in full.
This Note shall be construed and enforced in accordance
with, and governed by the laws of the State of Virginia without
giving effect to Conflict of Laws.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President and
General Counsel
<PAGE>
$579,952.93 Herndon, Virginia
June 8, 1995
PROMISSORY NOTE
FOR VALUE RECEIVED, Telos Corporation, a Maryland
corporation, with offices at 460 Herndon Parkway, Herndon,
Virginia 22070 (hereinafter referred to as "the Borrower" or "the
Company", promises to pay to the order of Second Consolidated
Trust PLC, Exchange House, Primrose Street, London, EC2A 2NY,
(hereinafter referred to as "Second Consolidated" or "Lender"),
at such offices or at such other place or places as the holder
hereof may from time to time designate in writing, the principal
sum of FIVE HUNDRED SEVENTY NINE THOUSAND NINE HUNDRED FIFTY TWO
DOLLARS AND 93/00 ($579,952.93) or so much thereof as shall from
time to time have been advanced and be outstanding, together with
interest at the rate hereinafter provided until paid, said
principal and interest being payable as follows:
a. Interest only, at the rate of fourteen percent (14%) per
annum, on so much of the principal as shall have been advanced
and shall from time to time remain unpaid, shall be due and
payable quarterly, until the principal has been paid in full, on
the first day of April, July, October, and January in each year.
The first interest payment shall be due October 1, 1995 and shall
include all interest accrued from the date hereof until the date
of such interest payment.
b. If not sooner paid, the outstanding and unpaid principal
balance shall be paid on or before October 1, 1996.
c. Principal and interest on this note are payable in lawful
money of the United States. The principal and interest on this
Note may be prepaid at any time after ten (10) days written
notice to the Lender, in whole or in part, without premium or
penalty and shall be accompanied by payment in cash of all
accrued and unpaid interest on the amount so prepaid.
d. If any payment of principal or interest on this Note
shall become due on a Saturday, Sunday, or legal holiday under
the laws of the State of Virginia, or any other day on which
banking institutions in the State of Virginia are obligated or
authorized by law or executive order to close, such payment shall
be made on the next succeeding business day in Virginia and any
such extended time of the payment of principal shall not be
included in computing compound interest in connection with such
payment.
e. Upon receipt by the Borrower of evidence reasonably
satisfactory to it of the mutilation, destruction, loss or theft
of this Note, the Borrower will make and deliver to the owner a
new note of like tenor in lieu of this Note so mutilated,
destroyed, lost or stolen.
f. Payments made on account hereof shall be applied first to
accrued and unpaid interest and the remainder shall be credited
to principal.
<PAGE>
I. DEFAULT
1.1 It is expressly agreed by Borrower that the failure to
pay, when due, any amount of principal, or no more than five days
after due date any amount of interest, or in the event the
Borrower files any petition, or any petition is filed against it
and not dismissed within sixty (60) days, under any bankruptcy or
insolvency law or for the appointment of a receiver for
substantially all its assets or in the event the Borrower makes a
general assignment for the benefit of creditors, shall be deemed
to be Events of Default under this Note.
1.2 If an Event of Default occurs, the lender, at his
option, may accelerate this Note and may by written notice to
Borrower declare the entire unpaid principal amount of this Note
and all interest accrued and unpaid thereon to be immediately due
and payable whereupon the unpaid principal amount and all such
accrued interest shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any
kind. The failure of the Lender to give such notice shall, in no
event, be deemed a waiver of any of the Lender rights hereunder
as long as the Event of Default continues.
1.3 Upon default in the payment of the principal of this
Note or any other sum payable hereunder when due upon demand, at
maturity or by reason of acceleration of maturity, Borrower
agrees to pay all costs of collection incurred by the holder of
the Note, including reasonable attorneys' fees, whether suit is
brought or not, and all other costs and expenses reasonably
connected with collection of the indebtedness evidenced hereby.
II. SUBORDINATION
This Note is also subject to the following terms and
conditions and provisions with respect to a security interest.
2.1 The Borrower, for itself, its successors and assigns,
covenants and agrees, and the Lender and each holder of this
Note, by his acceptance thereof, likewise covenants and agrees,
that the payment of the principal of and interest on the Note is
hereby expressly subordinated in right of payment to the prior
payment in full of all indebtedness now and hereafter due and
owing to NationsBank, N.A. or to any participant, assignee or
successor under the Revolving and Reducing Senior Facility Credit
Agreement dated as of January 14, 1992, as amended now or
hereafter or under any agreement with respect to the refinancing
of any such indebtedness (collectively, the "Agreement") (all
such indebtedness collectively "Senior Indebtedness").
2.2 In the event of the occurrence of any Event of Default
under the Agreement, all principal and interest due on all Senior
Indebtedness shall first be paid in full before any payment is
made upon the Note, and in any such event any payment or
distribution of any kind or character, whether in cash, property
or securities (other than shares of stock of the Company, as
reorganized and readjusted, or securities of the corporation
provided for by a plan of reorganization or readjustment, the
payment of which is subordinated to the payment in full of all
<PAGE>
Senior Indebtedness which may at the time be outstanding,) which
shall be made upon or in respect of the Note shall be paid over
to the holders of such Senior Indebtedness for application in
payment thereof, unless and until such Senior Indebtedness shall
have been paid and satisfied in full. Without limiting the
foregoing, no payment of principal shall be made upon the Note
without the prior written consent of the holder(s) of a majority
of the Senior Indebtedness outstanding at the time of any such
proposed payment.
2.3 No present or future holder of any Senior Indebtedness
shall be prejudiced in his right to enforce subordination of the
Note by any act or failure to act on the part of the Company.
2.4 The provisions of this Note are solely for the purpose
of defining the relative rights of the holders of Senior
Indebtedness on the one hand, and the holder of the Note on the
other hand, and nothing herein shall impair, as between the
Company and the Noteholder, the obligation of the Company to pay
to the Noteholder the principal, if any, and interest on the Note
in accordance with its terms, nor shall anything herein prevent
the Noteholder, upon default hereunder, provided the Noteholder
shall have first obtained the written approval of the holder(s)
of a majority of the Senior Indebtedness then outstanding, from
exercising all remedies otherwise permitted by applicable law or
hereunder, subject to the rights under this Section II of holders
of Senior Indebtedness to payment of all cash, property or
securities otherwise payable or deliverable to the Noteholders.
2.5 Subject to the payment in full of all Senior
Indebtedness, the holder of the Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments
or distributions of assets of the Company made on the Senior
Indebtedness until the principal of and interest on the Note
shall be paid in full.
This Note shall be construed and enforced in accordance
with, and governed by the laws of the State of Virginia without
giving effect to Conflict of Laws.
Telos Corporation
By: /s/ William L.P. Brownley
Title: Vice President and
General Counsel
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the consolidated balance sheets and
statements of income for Telos Corporation and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1684000
<SECURITIES> 0
<RECEIVABLES> 33690000
<ALLOWANCES> 836000
<INVENTORY> 7402000
<CURRENT-ASSETS> 46094000
<PP&E> 20567000
<DEPRECIATION> 17795000
<TOTAL-ASSETS> 77132000
<CURRENT-LIABILITIES> 26925000
<BONDS> 45430000
<COMMON> 78000
28988000
0
<OTHER-SE> (26195000)
<TOTAL-LIABILITY-AND-EQUITY> 77132000
<SALES> 23563000
<TOTAL-REVENUES> 88563000
<CGS> 18630000
<TOTAL-COSTS> 73154000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 40000
<INTEREST-EXPENSE> 2615000
<INCOME-PRETAX> 102000
<INCOME-TAX> 0
<INCOME-CONTINUING> 102000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
